AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1996
REGISTRATION NO. 333-06195
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
AMERICAN RESIDENTIAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1711
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION CLASSIFICATION CODE NUMBER)
OR ORGANIZATION)
76-0484996
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
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. [ ]
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.
================================================================================
<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 JULY 24, 1996
PROSPECTUS
4,200,000 Shares
[ARS LOGO]
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.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "ARS," subject to official notice of issuance.
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.
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
================================================================================
(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
, 1996 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
Smith Barney Inc. Montgomery Securities
, 1996
[graphics -- gatefold, showing service vehicles, facilities and personnel of the
Founding Companies]
ARS Was Founded To Create The Leading National Provider
Of Residential Services Consisting Primarily Of
Maintenance, Repair And Replacement Of Heating,
Air Conditioning, Plumbing And Electrical Systems
In Existing Homes And Installation Of These Systems In New Homes.
------------------------
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 the 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, 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 $41 billion, of which
maintenance, repair and replacement services account for in excess of $25
billion. It believes this market is served by over 50,000 companies, consisting
predominantly of small, owner-operated businesses operating in single local
geographic areas and providing a limited range of services. It also 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 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
4
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 administrative
functions in tuck-in acquisitions 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 (as a percentage
of revenues) 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; employee benefits; and
insurance and bonding.
THIS OFFERING
Common Stock offered by the
Company.............................. 4,200,000
Common Stock to be outstanding after
this Offering(1)................... 8,989,418
Use of Proceeds...................... To pay the cash portion of the purchase
price for the Founding Companies and to
repay indebtedness and redeem preferred
stock of the Founding Companies and
indebtedness of ARS. See "Use of
Proceeds."
NYSE symbol.......................... ARS
- ------------
(1) The number of shares estimated to be outstanding on completion of this
Offering consists of (i) 449,471 shares issued to the founders of ARS, (ii)
898,942 shares to be issued on conversion in part of an ARS convertible note
issued in the organizational financing of ARS, (iii) 3,236,613 shares to be
issued as consideration in the Acquisitions, (iv) 158,238 shares to be
issued in exchange for $2.1 million of preferred stock of the parent of two
Founding Companies (Enterprises Holding Company ("EHC")), (v) 46,154 shares
to be awarded to certain employees and consultants of the Company under the
Company's 1996 Incentive Plan on the closing of the EHC acquisition and (vi)
the 4,200,000 shares being offered hereby. Such share number does not
include (i) an aggregate of 1,430,000 shares subject to options granted
under the Company's 1996 Incentive Plan, (ii) a warrant to purchase up to
100,000 shares of Common Stock, at a purchase price equal to the initial
public offering price per share, issued by the Company to Equus II
Incorporated ("Equus II") in connection with the Company's start-up funding
and (iii) a warrant to purchase shares of Common Stock having a value of
$125,000 on the closing date of this Offering, at a purchase price equal to
$.01 per share, to be issued to NationsBank of Texas, N.A. ("NationsBank")
in connection with the EHC acquisition. 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
(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 do not purport to present the combined
Founding Companies in accordance with generally accepted accounting principles,
but represent merely a summation of the revenues, gross profit and selling,
general and administrative expenses of the Individual Founding Companies as set
forth in the Summary Individual Founding Company Financial Data 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........................ $ 94,184 $ 105,610 $ 114,636 $ 23,727 $ 26,076
Gross profit.................... 24,973 25,860 29,416 5,573 6,670
Selling, general and
administrative expenses(1).... 20,300 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)................. 8,989 8,989 8,989
============ ========= =========
(FOOTNOTES ON FOLLOWING PAGE)
6
MARCH 31, 1996
---------------------------
PRO
FORMA(2) AS ADJUSTED(5)
-------- --------------
ARS BALANCE SHEET DATA (UNAUDITED):
Working capital................. $(33,873) $ 4,132
Total assets.................... 94,784 94,826
Total debt, including current
portion........................ 23,546 11,435
Stockholders' equity............ 20,176 67,629
- ------------
(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
prospectively, 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 and the use of borrowings to repay indebtedness of
the Founding Companies and ARS and redeem certain EHC preferred stock. See
"Use of Proceeds."
7
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary data for each of the Founding
Companies (see "The Company" for the complete names of each) 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:
Revenues........................ $ 10,900 $ 8,676 $ 8,707 $ 1,704 $ 2,022
Gross profit.................... 3,978 3,101 2,998 512 786
Selling, general and
administrative expenses(1).... 2,830 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 and Meridian
& Hoosier for fiscal 1993; and Climatic for 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 this Offering and 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. 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 has
obtained a commitment from a financial institution to underwrite a new $55
million bank credit facility to be used for acquisitions, working capital and
other corporate purposes. In addition, the Company plans to use a portion of
this facility (currently 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 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 $20.4
million to pay or refinance debt of or relating to the Founding Companies,
including approximately $14.0 million of debt of Enterprises Holding Company
("EHC"), an affiliate of ARS and the owner of two of the Founding Companies. The
Company will also pay $0.5 million to Equus II in connection with the redemption
of certain EHC preferred stock. 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 services is
generally higher in the second and third quarters. Accordingly, the Company
expects its revenues and
11
operating 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) 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, 8,989,418 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 1,539,615 shares of Common Stock, of
which only warrants to purchase 109,615 shares will be 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.
The Company intends to register 5,000,000 additional shares of Common Stock
under the Securities Act during the fourth quarter of 1996 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. The Common Stock has been approved for listing on
the New York Stock Exchange, subject to official notice of issuance, 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 the 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 all the indebtedness and preferred
stock redemption obligations of the Founding Companies and EHC (approximately
$24.0 million as of March 31, 1996, of which $2.1 million represented EHC
preferred stock obligations that will be converted into 158,238 shares of Common
Stock) and then repay substantially all such 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 March 31, 1996, the net amount of these distributions would have been
approximately $0.6 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. The Company valued EHC on a
basis consistent with the other Acquisitions, using the same multiple of cash
flow, as adjusted for owners' compensation and other non-recurring items. In
addition, the purchase price for each Acquisition was increased by the fair
market value of real estate to be acquired in the Acquistion, if any, and
working capital (defined in the agreements relating to the Acquisitions
generally as current assets less all liabilities ("Working Capital")). 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.
15
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.
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.
16
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 and EHC (some of which has
been guaranteed by stockholders of the Founding Companies and EHC) and ARS and
to redeem the preferred stock of EHC. See "Certain Transactions -- Organization
of the Company."
Promptly following the closing of this Offering, the Company intends to
repay or refinance an aggregate of approximately $22.5 million of indebtedness
of the Founding Companies, EHC and ARS, and to redeem, for $0.5 million, the
preferred stock of EHC not exchanged for shares of Common Stock. 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 expects to enter
into effective concurrently with the closing of this Offering. NationsBank,
which provided EHC with financing to acquire Crown and A-ABC, has underwritten
the New Credit Facility subject to the terms and conditions of a commitment
letter dated July 17, 1996. According to these terms, the New Credit Facility
provides for up to $55 million of unsecured revolving credit that may be used
for general corporate purposes, including the refinancing of Founding Company
indebtedness, post-Offering acquisitions and working capital. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Founding Companies -- Liquidity and Capital
Resources -- Combined."
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.
17
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, the
restrictions imposed by the New Credit Facility 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 and the use of borrowings under the New Credit Facility to
pay existing indebtedness. 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 $ --
========= ============
Long-term obligations, less
current maturities:
ARS and Founding Companies...... 20,341 1,000
New Credit Facility............. -- 10,435
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;
4,789,418 shares issued and
outstanding, pro forma; and
8,989,418 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 $ 79,064
========= ============
- ------------
(1) Excludes (i) an aggregate of 1,430,000 shares of Common Stock subject to
options granted pursuant to the Company's 1996 Incentive Plan, (ii) a
warrant to purchase up to 100,000 shares of Common Stock, at a purchase
price equal to the initial public offering price per share, issued by the
Company to Equus II in connection with the Company's start-up funding and
(iii) a warrant to purchase shares of Common Stock having a value of
$125,000 on the closing date of this Offering, at a purchase price equal to
$.01 per share, to be issued to NationsBank in connection with the EHC
Acquisition. See "Management -- 1996 Incentive Plan," "Certain
Transactions -- Organization of the Company" and "-- EHC."
18
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 $(8.73) 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 an assumed initial public offering price of $13.00 per
share. This represents an immediate increase in pro forma net tangible book
value of approximately $9.36 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:
Assumed initial public offering price per share......... $ 13.00
Pro forma deficit in net tangible book value per
share before this Offering............................ $ (8.73)
Increase in pro forma net tangible value per share
attributable to new investors......................... 9.36
---------
Pro forma net tangible book value per share after
this Offering......................................... .63
---------
Dilution per share to new investors..................... $ 12.37
=========
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................ 4,789,418 53.3% $ (41,793,000) (326.3)% $ (8.73)
New investors........................ 4,200,000 46.7 54,600,000 426.3 13.00
----------- ------- --------------- -------
Total...................... 8,989,418 100.0% $ 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 $34.8 million 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 $0.6 million in connection with the Acquisitions. See "Use
of Proceeds" and "Capitalization."
19
SELECTED FINANCIAL DATA
(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 do not purport to present the combined
Founding Companies in accordance with generally accepted accounting principles,
but represent merely a summation of the revenues, gross profit and selling,
general and administrative expenses of the Individual Founding Companies as set
forth in the Summary Individual Founding Company Financial Data 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........................ $ 94,184 $ 105,610 $ 114,636 $ 23,727 $ 26,076
Gross profit.................... 24,973 25,860 29,416 5,573 6,670
Selling, general and
administrative expenses(1).... 20,300 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)................. 8,989 8,989 8,989
============ ========= =========
MARCH 31, 1996
---------------------------
PRO
FORMA(2) AS ADJUSTED(5)
-------- --------------
ARS BALANCE SHEET DATA (UNAUDITED):
Working capital................. $(33,873) $ 4,132
Total assets.................... 94,784 94,826
Total debt, including current
portion........................ 23,546 11,435
Stockholders' equity............ 20,176 67,629
(FOOTNOTES ON FOLLOWING PAGE)
20
- ------------
(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
prospectively, 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 and the borrowings under the New Credit Facility to
repay Founding Company and ARS indebtedness and redeem certain EHC preferred
stock. See "Use of Proceeds."
21
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."
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 $0.6 million decrease at General Heating reflecting
reduced new
22
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 $0.5 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.
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 decrease in apartment complex installations.
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
the decrease in apartment complex installations 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.
23
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.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES. Revenues increased $11.4 million, or 12.1%, from $94.2 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 $2.2 million, or 20.2%, at A-ABC
resulting from a $0.7 million decrease in HVAC installations and a $0.4 million
decrease in plumbing services, respectively.
COST OF SERVICES. Cost of services increased $10.6 million, or 15.3%, from
$69.2 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 73.5% 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) increased turnover and underutilized assets at Atlas; and (ii) 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 $1.8 million, or 8.9%, from $20.3 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 $1.0
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 $1.8 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 $3.1 million from
$7.9 million at December 31, 1995 to $4.8 million at March 31, 1996, although
one of the Founding Companies, A-ABC, had a working capital deficit at March 31,
1996.
24
On the closing of this Offering, the Company intends to repay or refinance
an aggregate of approximately $22.5 million of indebtedness of the Founding
Companies, ARS and EHC and to redeem $0.5 million of preferred stock of EHC. Of
this $23.0 million aggregate amount, approximately $10.4 million is expected to
be funded through borrowings under the New Credit Facility and $12.6 million is
expected to be funded through a portion of the proceeds of this Offering.
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 of
approximately $3.5 million.
The Company expects to enter into its New Credit Facility effective
concurrently with the closing of this Offering. NationsBank has underwritten the
New Credit Facility subject to the terms and conditions of a commitment letter
dated July 17, 1996. According to these terms, the Company will have an
unsecured revolving line of credit of up to $55 million, which may be used for
general corporate purposes, including the refinancing of Founding Company
indebtedness, post-Offering acquisitions, capital expenditures and working
capital. Loans under the New Credit Facility will bear interest at a designated
base rate plus margins ranging from 0 to 25 basis points depending on the ratio
of the Company's interest-bearing debt to its trailing earnings before interest,
taxes, depreciation and amortization. At the Company's option, the loans may
bear interest based on a designated London interbank offering rate plus a margin
ranging from 75 to 175 basis points depending on the same ratio. Commitment fees
equal to from 25 to 50 basis points per annum will be payable on the unused
portion of the line of credit. The New Credit Facility will contain a sublimit
for standby letters of credit of up to $5 million. The New Credit Facility will
terminate and all amounts outstanding, if any, thereunder will be due and
payable in August 1999. The Company's subsidiaries will guarantee the repayment
of all amounts due under the New Credit Facility.
The New Credit Facility will restrict the payment of dividends by the
Company, will not permit the Company to incur or assume other indebtedness in
excess of $2.5 million and will require the Company to comply with certain
financial covenants.
The commitment of the bank to provide the New Credit Agreement is subject
to the satisfaction of certain conditions, including the execution of
appropriate loan documentation. There can be no assurance that the terms of the
New Credit Agreement, if implemented, will not vary from the terms described
above. In the event the New Credit Agreement is not available after this
Offering, the Company believes that sufficient alternative sources of financing
should be available on reasonable terms 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 services is generally
higher in the second and third quarters.
25
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.
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
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <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%
Cost of services..................... 27,393 79.1 29,928 82.4 28,866 82.1 6,401 83.7
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 7,249 20.9 6,406 17.6 6,293 17.9 1,250 16.3
Selling, general and administrative
expenses........................... 5,011 14.5 5,245 14.4 5,280 15.0 1,351 17.7
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ $ 2,238 6.4 $ 1,161 3.2 $ 1,013 2.9 $ (101) (1.4)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1996
--------------------
Revenues............................. $ 7,033 100.0%
Cost of services..................... 5,871 83.5
--------- ---------
Gross profit......................... 1,162 16.5
Selling, general and administrative
expenses........................... 1,186 16.9
--------- ---------
Income (loss) from operations........ $ (24) (0.4)
========= =========
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.
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.
26
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were unchanged at $5.3 million for 1994 and 1995.
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 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 millions):
<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 $6.9 million in cash from operating activities and used $1.2 million
of this cash to fund increases in working capital, resulting in a net cash
generation of $5.7 million.
Cash used in investment activities was primarily attributable to the
purchase and replacement of trucks in 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.
27
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.
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
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <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%
Cost of services..................... 8,183 80.1 12,677 81.1 17,811 80.8 3,993 80.8
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,027 19.9 2,948 18.9 4,237 19.2 945 19.2
Selling, general and administrative
expenses........................... 1,761 17.2 2,421 15.5 3,022 13.7 688 13.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 266 2.7 $ 527 3.4 $ 1,215 5.5 $ 257 5.3
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1996
--------------------
Revenues............................. $ 6,573 100.0%
Cost of services..................... 5,215 79.3
--------- ---------
Gross profit......................... 1,358 20.7
Selling, general and administrative
expenses........................... 874 13.3
--------- ---------
Income from operations............... $ 484 7.4
========= =========
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.
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.
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
28
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.
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 millions):
<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 million 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
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <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%
Cost of services..................... 10,332 63.5 10,314 61.2 11,333 59.3 2,155 60.6
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 5,936 36.5 6,530 38.8 7,791 40.7 1,400 39.4
Selling, general and administrative
expenses........................... 5,698 35.0 5,837 34.7 6,165 32.2 1,348 37.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ $ 238 1.5 $ 693 4.1 $ 1,626 8.5 $ 52 1.5
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1996
--------------------
Revenues............................. $ 4,152 100.0%
Cost of services..................... 2,643 63.7
--------- ---------
Gross profit......................... 1,509 36.3
Selling, general and administrative
expenses........................... 1,519 36.5
--------- ---------
Income (loss) from operations........ $ (10) (0.2)
========= =========
29
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.
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.
The increase in cost of services was primarily attributable to a $0.2 million
increase in subcontractor expenses.
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.
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.
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 millions):
<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 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)
========= ========= ========= ========= =========
</TABLE>
30
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.
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.
FLORIDA HAC
Founded in 1970, Florida HAC 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.
RESULTS OF OPERATIONS -- FLORIDA HAC
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............................. $ 15,845 100.0% $ 14,510 100.0% $ 3,919 100.0% $ 3,658 100.0%
Cost of services..................... 12,079 76.2 10,541 72.6 2,990 76.3 2,674 73.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 3,766 23.8 3,969 27.4 929 23.7 984 26.9
Selling, general and administrative
expenses........................... 3,321 21.0 3,738 25.8 894 22.8 837 22.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 445 2.8 $ 231 1.6 $ 35 0.9 $ 147 4.0
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues decreased $0.2 million, or 5.1%, from $3.9 million for
the three months ended March 31, 1995, to $3.7 million for the three months
ended March 31, 1996. The decrease in revenue was attributable to a decrease in
apartment complex installations.
COST OF SERVICES -- Cost of services decreased $0.3 million, or 10.0%, from
$3.0 million for the three months ended March 31, 1995 to $2.7 million for the
three months ended March 31, 1996 and declined 3.2% as a percentage of revenues
from 76.3% for the three months ended March 31, 1995 to 73.1% for the three
months ended March 31, 1996. The decrease in cost of services was primarily
attributable to a decrease in apartment complex installations and improvements
in vendor pricing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.1 million, or 11.1%, from $0.9 million for
the three months ended March 31, 1995 to $0.8 million for the three months ended
March 31, 1996. 1995 COMPARED TO 1994
REVENUES -- Revenues decreased $1.3 million, or 8.2%, from $15.8 million in
1994 to $14.5 million in 1995. The decrease in revenues was primarily
attributable to a decrease in apartment complex installations.
31
COST OF SERVICES -- Cost of services decreased $1.6 million, or 13.2%, from
$12.1 million in 1994 to $10.5 million in 1995 but declined 3.6% as a percentage
of revenues from 76.2% for 1994 to 72.6% for 1995 primarily because of a
decrease in apartment complex installations (which generally have higher costs
and lower margins than residential installations). The decrease in cost of
services was primarily attributable to a change of services from lower margin
apartment complexes to higher margin residential homes and improvements in
vendor pricing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 12.1%, from $3.3 million in
1994 to $3.7 million in 1995. The increase in selling, general and
administrative expenses resulted primarily from increases in compensation paid
to shareholders.
LIQUIDITY AND CAPITAL RESOURCES -- FLORIDA HAC
The following table sets forth selected information from Florida HAC's
statements of cash flows (dollars in millions):
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
Net cash provided by operating
activities........................ $ 0.6 $ 0.5 $ 0.0 $ 0.0
Net cash used in investing
activities.......................... (0.2) (0.2) (0.2) (0.2)
Net cash provided by (used in)
financing activities................ (0.1) 0.0 (0.1) (0.4)
--------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents.................. $ 0.3 $ 0.3 $ (0.3) $ (0.6)
========= ========= ========= =========
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. Net cash provided
by (used in) financing activities resulted from borrowing and repayments of
long-term obligations and capital lease obligations and advances to/from the
shareholders of the Company.
Florida HAC had a working capital surplus of $0.2 as of March 31, 1996.
Florida HAC has historically funded its operations with cash flows from
operations and borrowings from lenders and its stockholders. While there can be
no assurance, management of Florida HAC 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>
32
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.
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.
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 millions):
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 million 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.
33
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
---------------------------------------------------------------- --------------------
1993 1994 1995 1995
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 10,900 100.0% $ 8,676 100.0% $ 8,707 100.0% $ 1,704 100.0%
Cost of services..................... 6,921 63.5 5,574 64.2 5,709 65.6 1,192 70.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 3,979 36.5 3,102 35.8 2,998 34.4 512 30.0
Selling, general and administrative
expenses........................... 2,830 26.0 2,444 28.2 2,348 27.0 508 29.8
--------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing operations.... $ 1,149 10.5 $ 658 7.6 $ 650 7.4 $ 4 0.2
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1996
--------------------
Revenues............................. $ 2,022 100.0%
Cost of services..................... 1,236 61.1
--------- ---------
Gross profit......................... 786 38.9
Selling, general and administrative
expenses........................... 583 28.8
--------- ---------
Income from continuing operations.... $ 203 10.1
========= =========
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. The increase in revenue was attributable to a $0.2
increase in HVAC installations and a $0.1 million increase in appliance service.
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.
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.
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.
1994 COMPARED TO 1993
REVENUES -- Revenues decreased $2.2 million, or 20.2%, from $10.9 million
for 1993 to $8.7 million for 1994. The decrease in revenue was primarily
attributable to a $0.9 million decrease in appliance service, a $0.7 million
decrease in HVAC installations and a $0.4 million decrease in plumbing service,
respectively.
COST OF SERVICES -- Cost of services decreased $1.3 million, or 18.8%, from
$6.9 million to $5.6 million in 1994 and was consistent as a percentage of
revenue with the reduction in revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.4 million, or 14.3%, from $2.8 million in
1993 to $2.4 million in 1994. The decrease in selling, general and
administrative expenses resulted from a $0.4 million reduction in advertising
expense.
34
LIQUIDITY AND CAPITAL RESOURCES -- A-ABC
The following table sets forth selected information from A-ABC's statements
of cash flows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) by
operating activities............... $ 0.8 $ 0.3 $ 0.6 $ (0.2) $ 0.6
Net cash provided by (used in)
investing activities............... (1.2) 0.2 (0.4) 0.1 (0.5)
Net cash used in financing
activities......................... 0.4 (0.4) (0.1) 0.0 (0.3)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................... $ 0.0 $ 0.1 $ 0.1 $ (0.1) $ (0.2)
========= ========= ========= ========= =========
</TABLE>
From 1993 through the three months ended March 31, 1996, A-ABC generated
$2.3 million in net cash from operating activities. During this period, $1.6
million was generated from income plus non-cash charges, partially offset by
$0.7 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. While there can be no assurance,
management of A-ABC believes it has adequate cash flows and financing
alternatives to fund its operations through the second quarter of 1997.
35
BUSINESS
GENERAL
ARS was founded in October 1995 to create the 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 $41 billion, of which
maintenance, repair and replacement services account for in excess of $25
billion. It also believes this market is served by over 50,000 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.
36
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 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.
The Company's ARS Energy Services Company subsidiary has been
organized for the purpose of formulating and implementing strategic
alliances with major national and regional participants that may be
able to integrate the Company's residential services with their own
products or services. These participants may include utilities,
equipment manufacturers, home remodeling companies, home supply
distributors, restaurant chains and other multi-location retailers and
financial institutions.
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 administrative
functions in tuck-in acquisitions 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 (as a percentage
of revenues) 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; employee benefits; and
insurance and bonding.
37
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 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.
38
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. The Company intends to register 5,000,000 additional
shares of Common Stock under the Securities Act during the fourth quarter of
1996 for its 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 of other residential systems, including home
appliances and fireplaces. In connection with its repair and replacement
services, the Company sells on a retail basis a wide range of HVAC, plumbing,
electrical and other equipment, including complete heating and air conditioning
systems and a variety of HVAC, plumbing and electrical parts and system
components. 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, particularly the maintenance, repair and
replacement services it provides, in each of its regions through acquisitions
and internally generated growth. Accordingly, the percentages in the foregoing
table are expected to change over time as the Company implements its growth
strategy. 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."
39
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 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 any
40
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.
Except for the air ducts fabricated by the Company for use in its
installation services operations, substantially all the equipment and component
parts the Company sells or installs are purchased from manufacturers and other
outside suppliers. The Company is not materially dependent on any of these
outside sources. See " -- Sources of Supply."
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 uniform 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. The Company believes this practice can be uniformly implemented at
each of its service locations without material cost to the Company.
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 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
41
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 $1.6 million. The Company currently plans to consolidate a small
number of its leased facilities in the Houston and southeast Florida markets.
The Company does not expect to incur any material costs in connection with these
consolidations.
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.
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 does not anticipate any significant reductions
in staff as a result of consolidation of the operations of the
42
Founding Companies. Rather, as it implements its internal growth and acquisition
strategies, the Company expects that the number of employees will increase. 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 services is generally higher in the second
and third quarters. Accordingly, 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.
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
43
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 chlorofluorocarbons and certain other
refrigerants ("CFCs"). Clean Air Act regulations require the certification of
service technicians involved in the service or repair of systems, equipment and
appliances containing these refrigerants and also regulate the containment and
recycling of these refrigerants. These requirements have increased the Company's
training expenses and expenditures for containment and recycling equipment. The
Clean Air Act is intended to ultimately eliminate the use of CFCs in the United
States and require alternative refrigerants to be used in replacement HVAC
systems. The implementation of the Clean Air Act restrictions has also increased
the cost of CFCs in recent years and is expected to continue to increase such
costs in the future. As a result, the number of conversions of existing HVAC
systems which use CFCs to systems using alternative refrigerants is expected to
increase.
44
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, and the Company is not
otherwise aware of any actual or potential environmental liabilities of the
Founding Companies that would be material to the Company. 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.
45
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
Howard S. Hoover, Jr................. 57 Director, Chairman of the Board
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 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.
46
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 Equus II, which will terminate pursuant to its
terms upon completion of this Offering. See "Certain
Transactions -- Organization of the Company."
47
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,
48
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.
49
OPTION GRANTS
Pursuant to the Company's 1996 Stock Option Plan (the "Option Plan") and
the Incentive Plan, the Company has granted to its directors, officers and
certain employees (including officers of the Founding Companies) 10-year options
to purchase 1,430,000 shares of Common Stock. The Incentive Plan amended and
restated the Option Plan and all options granted under the Option Plan will be
governed by the Incentive Plan. The following table sets forth certain
information concerning the options granted under the Option Plan and the
Incentive Plan:
<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 14.0% $8.00
Howard S. Hoover, Jr................. January 31, 1996 150,000 10.5% $8.00
William P. McCaughey................. January 31, 1996 120,000 8.4% $8.00
A. Jefferson Walker III.............. January 31, 1996 25,000 1.7% $8.00
Certain other officers and
employees.......................... March-April 1996 150,000 10.5% $9.60-$10.80
All other employees, outside
directors and officers of Founding
Companies, as a group*............. June-July 1996 785,000 54.9% Initial public offering
price per share
</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 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 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
50
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 1,550,000 shares of Common Stock for use in
connection with the Plan (which includes 1,430,000 shares subject to options
previously granted and 46,154 shares to be awarded to certain employees of the
Company on the closing of the EHC Acquisition). 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 1,550,000 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.
51
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 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,
52
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 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
53
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 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.
54
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.
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
449,471 shares. Since early 1996, Equus II has advanced funds to ARS pursuant to
a $2.6 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 for $1.6 million and
an ARS note for $1.0 million. As of July 23, 1996, $1.95 million was outstanding
under such notes. Depending on the amount of further ARS advances, the entire
$2.6 million may 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
898,942 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 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 from the date of a specified recent balance sheet for such Founding
Company through the closing of the Acquisitions. The Company will also assume
all the indebtedness of the Founding Companies and EHC (approximately $21.4
million as of March 31, 1996) and then repay substantially all such
indebtedness. A portion of the foregoing
55
indebtedness has been guaranteed by the following stockholders of the Founding
Companies and EHC: Equus II (EHC), Gorden Timmons (Atlas), Elliot Sokolow and
Robert Rogoff (Florida HAC), Gary Daymon (Meridian & Hoosier) and Howard and
Patricia Hauser (Climatic). The Company has agreed to have such guarantees
released within 60 days after the closing of the Offering. 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 closing of the Acquisitions, certain
Founding Companies will make distributions to their stockholders of certain
assets and related liabilities. As of March 31, 1996, the aggregate amount of
these distributions would have been approximately $0.6 million.
The following table sets forth for each Founding Company the consideration
to be paid the holders of its common stock (and, in the case of EHC, the holder
of its preferred stock) (i) in cash and (ii) in shares of Common Stock.
COMMON STOCK
-----------------------
VALUE OF
CASH(1) SHARES SHARES
------- --------- --------
(DOLLARS IN THOUSANDS)
General Heating(2)................... $15,000 769,230 $ 10,000
Atlas(3)............................. 5,000 1,230,769 16,000
EHC (including Crown and A-ABC)(4)... -- 436,615 5,676
Florida HAC(5)....................... 11,000 384,615 5,000
Meridian & Hoosier(6)................ 3,250 288,461 3,750
Climatic(7).......................... 550 126,923 1,650
------- --------- --------
Total........................... $34,800 3,236,613 $ 42,076
======= ========= ========
- ------------
(1) Excluding possible increases or decreases for changes in Working Capital.
(2) Bruce L. Menditch, Frank N. Menditch and Howard C. Menditch, the sole
stockholders of General Heating, each will receive 33 1/3% of the cash and
Common Stock being paid for General Heating.
(3) Gorden H. Timmons and a trust established for the benefit of his family,
respectively, will receive 80% and 19.6% of the cash and 39.8% and 37.1% of
the Common Stock being paid for Atlas. Nineteen other Atlas stockholders
will receive in the aggregate 0.4% and 23.1%, respectively, of the cash and
Common Stock being paid for Atlas.
(4) Howard S. Hoover, Jr., two trusts established for the benefit of Mr.
Hoover's family members, William P. McCaughey and C. Clifford Wright, Jr.
are the owners of EHC's common stock and will receive, respectively, 28,966,
11,265, 60,346 and 60,346 of the shares of Common Stock being paid for EHC,
representing 160,923 of the shares shown above in the table. The remaining
275,692 shares shown above in the table are being paid as partial
consideration for the outstanding EHC preferred stock, all of which is owned
by Equus II. The Company's additional payments for the EHC preferred stock
will consist of 158,238 shares of Common Stock, $0.5 million in cash and
cash in an amount equal to cash dividends accrued on the preferred stock
since April 1, 1996 at the rate of $50,000 per calendar quarter.
(5) Florida HAC consists of four separate companies, two of which are wholly
owned by Elliot Sokolow and two of which are owned 50% by Mr. Sokolow and
50% by Robert Rogoff. Messrs. Sokolow and Rogoff, respectively, will receive
59.1% and 40.9% of the cash and 80% and 20% of the Common Stock being paid
for Florida HAC.
(6) Gary Daymon is the sole stockholder of and will receive the entire
consideration being paid for Meridian & Hoosier.
(7) Howard Hauser and his wife, Patricia Hauser, each owns 50% of the
outstanding stock of and will receive 50% of the consideration being paid
for Climatic.
56
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.
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(1).................. 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 433,930 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 to acquire, for a total purchase price
of $17.5 million, all the capital stock of Crown and certain real estate used in
its business. The purchase price was funded by a loan from 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
8% preferred stock. In May 1996, EHC acquired all 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
57
Equus II, and the assumption of certain liabilities. See "The Company." EHC is
being acquired by the Company for a total consideration of $23.5 million,
consisting of 436,615 shares of Common Stock and the assumption and/or repayment
of approximately $17.8 million of indebtedness and other obligations (including
$2.6 million of EHC preferred stock being converted into 158,238 shares of
Common Stock and $0.5 million in cash), 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. In addition, the Company will issue to NationsBank a
warrant to purchase shares of Common Stock having a value of $125,000 on the
closing of this Offering at a purchase price equal to $.01 per share in exchange
for the warrant previously issued by EHC to NationsBank. The Company valued EHC
on a basis consistent with the other Acquisitions, using the same multiple of
cash flow, as adjusted for owners' compensation and other non-recurring items.
In addition, the purchase price for each Acquisition was increased by the fair
market value of real estate to be acquired in the Acquisition, if any, and
Working Capital. 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
46,154 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 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 $224,856 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
58
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.
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.
59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table shows, as of June 30, 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............... 168,552 37.5%
Howard S. Hoover, Jr................. 112,367 25.0%
William P. McCaughey................. 168,552 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)............. 1,432,872 15.8%
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............... 228,898 2.5%
William P. McCaughey................. 228,898 2.5%
Howard S. Hoover, Jr.(4)............. 151,333 1.7%
Howard W. Hauser.................... 126,923 1.4%
All executive officers and
directors as a group(3) (14
persons)........................... 2,132,107 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) Includes shares held by the Gorden H. Timmons Retained Annuity Trust, of
which Mr. Timmons is the trustee. Mr. Timmons may be deemed the beneficial
owner of the shares held by that trust.
(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.
60
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, 8,989,418 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., 89,894
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 SEC 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 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
61
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 separate 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.
The Company intends to register 5,000,000 shares of Common Stock under the
Securities Act during the fourth quarter of 1996 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 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,
449,471 shares of Common Stock were issued and outstanding. On closing of the
Acquisitions and this Offering, the Company will have outstanding 8,989,418
shares of Common Stock (9,619,418 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.
62
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
"Fractional Share") 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 Fractional Share, 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, with certain exceptions, 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 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 acquisitions will not result in a person's becoming an
Acquiring Person if the person promptly divests itself
63
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 June 30, 2006, 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. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares of
Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon conversion of certain securities will be issued
with Rights. Except as otherwise determined by the Board of Directors, no other
shares of Common Stock issued after the Distribution Date will be issued with
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 a majority of the independent members
of 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 Triggering
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 from and after the
time an Acquiring Person becomes such, (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 Fractional Shares 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 shares of Series A Preferred Stock that are not integral
multiples of a Fractional Share are required to 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.
64
At any time until 10 days following the first date of public announcement
of the occurrence of a Flip-In Event, 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. 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 the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors as long as the Rights are
redeemable. Thereafter, the provisions of the Rights Agreement other than the
redemption price 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
are being issued 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
65
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.
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
66
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 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.
67
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.
68
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.
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. The statements made in
this Prospectus concerning documents filed as exhibits to the Registration
Statement accurately describe the material provisions of such documents and are
qualified in their entirety by reference to such exhibits for complete
statements of their 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.
69
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-12
Balance Sheets............. F-13
Statements of Operations... F-14
Statements of Shareholders'
Deficit.................... F-15
Statements of Cash Flows... F-16
Notes to Financial
Statements................. F-17
General Heating Engineering
Company, Inc.
Report of Independent
Public Accountants......... F-21
Balance Sheets............. F-22
Statements of Operations... F-23
Statements of Shareholders'
Equity..................... F-24
Statements of Cash Flows... F-25
Notes to Financial
Statements................. F-26
Atlas Services, Inc., and
Subsidary
Report of Independent
Public Accountants......... F-31
Consolidated Balance
Sheets..................... F-32
Consolidated Statements of
Operations................. F-33
Consolidated Statements of
Shareholders' Equity....... F-34
Consolidated Statements of
Cash Flows................. F-35
Notes to Consolidated
Financial Statements....... F-36
Service Enterprises, Inc., and
Subsidiaries
Report of Independent
Public Accountants......... F-43
Consolidated Balance
Sheets..................... F-44
Consolidated Statements of
Operations................. F-45
Consolidated Statements of
Shareholder's Equity....... F-46
Consolidated Statements of
Cash Flows................. F-47
Notes to Consolidated
Financial Statements....... F-48
F-1
PAGE
----
Florida Heating and Air
Conditioning, Inc. and Related
Companies
Report of Independent
Public Accountants......... F-54
Combined Balance Sheets.... F-55
Combined Statements of
Operations................. F-56
Combined Statements of
Shareholders' Equity....... F-57
Combined Statements of Cash
Flows...................... F-58
Notes to Combined Financial
Statements................. F-59
DIAL ONE Meridian and Hoosier, Inc.
Report of Independent
Public Accountants......... F-65
Balance Sheets............. F-66
Statements of Operations... F-67
Statements of Shareholder's
Equity..................... F-68
Statements of Cash Flows... F-69
Notes to Financial
Statements................. F-70
ADCOT, Inc.
Report of Independent
Public Accountants......... F-77
Balance Sheets............. F-78
Statements of Operations... F-79
Statements of Shareholder's
Deficit.................... F-80
Statements of Cash Flows... F-81
Notes to Financial
Statements................. F-82
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
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 10 7 10 4
Additional paid-in capital......... 1 667 105 1,086 4 35 -- 46
Retained earnings (deficit)........ (526) 10,420 1,664 3,149 781 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>
<CAPTION>
POST
PRO FORMA MERGER AS
ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ (374) $ 4,633 $ -- $ 4,633
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........... (7,576) 18,822 -- 18,822
----------- --------- ----------- --------
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................... $57,280 $94,784 $ 42 $94,826
=========== ========= =========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT):
Current maturities of long-term
debt............................. $-- $ 805 $ (805) $ --
Short-term debt.................... 1,600 2,400 (2,400) --
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...... 36,400 52,695 (38,005) 14,690
----------- --------- ----------- --------
LONG-TERM DEBT, net of current
maturities......................... 16,967 20,341 (8,906) 11,435
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....................... (246) 5 4 9
Additional paid-in capital......... 21,591 23,535 47,749 71,284
Retained earnings (deficit)........ (19,525) (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).................... $57,280 $94,784 $ 42 $94,826
=========== ========= =========== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
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
========= ======= ======= ======= ======= ========= ====== ========
PRO FORMA NET INCOME PER SHARE FROM
CONTINUING OPERATIONS..............
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE FROM
CONTINUING OPERATIONS..............
</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)(p) (865 )
Other............................ -- 151
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 215 5,521
PROVISION FOR INCOME TAXES........... 1,249(q) 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.............. 8,989 (r)
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-5
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 $--
========= ======= ====== ====== ======= ========= ====== ========
PRO FORMA NET INCOME PER SHARE FROM
CONTINUING OPERATIONS..............
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER
SHARE FROM CONTINUING OPERATIONS...
</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... 8,989(r)
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-6
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 $--
========= ======= ========= ====== ======= ========== ====== ========
PRO FORMA NET INCOME PER SHARE FROM
CONTINUING OPERATIONS..............
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE FROM
CONTINUING OPERATIONS..............
</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.............. 8,989 (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 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.
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------
VALUE OF FAIR VALUE OF
CASH SHARES SHARES(1) SHARES(2)
--------- ------------ --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
General Heating...................... $ 15,000 769,230 $ 10,000 $ 5,000
Atlas................................ 5,000 1,230,769 16,000 8,000
EHC (including Crown and A-ABC)...... -- 436,615 5,676 2,838
Florida HAC.......................... 11,000 384,615 5,000 2,500
Meridian & Hoosier................... 3,250 288,461 3,750 1,875
Climatic............................. 550 126,923 1,650 825
--------- ------------ --------- --------------
Total........................... $ 34,800 3,236,613 $ 42,076 $ 21,038
========= ============ ========= ==============
</TABLE>
- ------------
(1) Based on the estimated initial public offering price.
(2) Based on the estimated fair market value.
The estimated purchase price for the Acquisitions is subject to certain
purchase price adjustments at and following 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.
F-8
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(b) Records distribution of a Founding Company's S Corporation
Accumulated Adjustment Accounts.
(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 an assumed initial
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.
F-9
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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............ $ 4,122 $ (4,496) $ $ $ $ $ (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...................... (2,100) 500 (1,600)
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 98 (2) 246
Additional paid-in capital........... 9,825 600 1,086 (27,766) (5,336) (21,591)
Retained earnings (deficit).......... 2,213 14,474 2,838 19,525
Treasury stock....................... (1,593) (1,593)
--------- --------- --------- --------- --------- --------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= ========= ========= ========= ========= ========= ===========
</TABLE>
<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
Current maturities of long-term
debt............................... 805 805
Short-term debt...................... 2,400 2,400
Pro forma cash consideration due to
Founding Companies................. 34,800 34,800
Long-term debt, net of current
maturities......................... 8,906 8,906
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.
F-10
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(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 includes the following, but excludes warrants to purchase
109,615 shares immediately after the Offering and an aggregate 1,430,000
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.
Outstanding........................ 449,471
Issued in Initial Public
Offering.......................... 4,200,000
Issued to acquired Founding
Companies......................... 3,236,613
Conversion of a portion of the
Equus Note Payable................ 898,942
Conversion of a portion of the EHC
Preferred Stock................... 158,238
Shares awarded under Company's 1996
Incentive Plan.................... 46,154
-----------
Shares estimated to be
outstanding....................... 8,989,418
===========
F-11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Residential Services, Inc.:
We have audited the accompanying balance sheets of American Residential
Services, Inc. (a Delaware corporation), as of December 31, 1995 and May 31,
1996, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Residential
Services, Inc. as of December 31, 1995 and May 31, 1996 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-12
AMERICAN RESIDENTIAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MAY 31,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 9,784 $102,541 $ 150,240
Prepaid expenses and other
current assets................ 3,327 60,210 50,963
------------ ------------ ------------
Total current assets....... 13,111 162,751 201,203
PROPERTY AND EQUIPMENT, net.......... -- 12,327 31,576
OTHER NONCURRENT ASSETS.............. 19,325 121,517 2,002,045
------------ ------------ ------------
Total assets............... $ 32,436 $296,595 $ 2,234,824
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term debt................. $ 50,000 $500,000 $ 925,000
Accounts payable and accrued
expenses...................... 141,077 320,760 2,153,760
------------ ------------ ------------
Total current
liabilities............. 191,077 820,760 3,078,760
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, 449,471 shares
issued and outstanding........ 449 449 449
Additional paid-in capital...... 551 551 551
Deficit......................... (159,641) (525,165) (844,936)
------------ ------------ ------------
Total shareholders'
deficit................. (158,641) (524,165) (843,936)
------------ ------------ ------------
Total liabilities and
shareholders' deficit... $ 32,436 $296,595 $ 2,234,824
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
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-14
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.................. 449,471 449 551 -- 1,000
Net loss........................ -- -- -- (159,641) (159,641)
------- ------ ---------- --------- --------------
BALANCE, December 31, 1995........... 449,471 449 551 (159,641) (158,641)
Net loss (unaudited)............ -- -- -- (365,524) (365,524)
------- ------ ---------- --------- --------------
BALANCE, March 31, 1996
(unaudited)........................ 449,471 $ 449 $ 551 $(525,165) $ (524,165)
======= ====== ========== ========= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
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-16
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, and May 31, 1996 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
aunderlying 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-17
AMERICAN RESIDENTIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
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, 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.
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will be effective for the Company. SFAS No. 123 permits, but
does not require, a fair value-based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. As permitted by SFAS No. 123, the Company will provide pro
forma disclosure of net income and earnings per share, as applicable, in the
notes to future consolidated financial statements.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Prepaid expenses and other current assets consists of the following:
DECEMBER 31, MAY 31,
1995 1996
------------ ------------
Prepaid insurance.................... $ -- $ 44,547
Other................................ 3,327 6,416
------------ ------------
$ 3,327 $ 50,963
============ ============
Other noncurrent assets consists of the following:
DECEMBER 31, MAY 31,
1995 1996
------------ ------------
Deferred offering costs.............. $ 19,325 $ 1,939,384
Other................................ -- 62,661
------------ ------------
$ 19,325 $ 2,002,045
============ ============
F-18
AMERICAN RESIDENTIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Accounts payable and accrued expenses consist of the following:
DECEMBER 31, MAY 31,
1995 1996
------------ ------------
Accrued accounting and legal
expense............................ $ -- $ 1,774,995
Accrued compensation and benefits.... 79,167 217,640
Other accrued expenses............... 61,910 161,125
------------ ------------
$141,077 $ 2,153,760
============ ============
Short-term debt:
The Company had borrowings from Equus II under a $1.6 million credit
facility totaling $50,000 and $925,000 at December 31, 1995 and May 31, 1996,
respectively. The borrowings are unsecured, bear interest at prime (8.25 percent
at December 31, 1995 and May 31, 1996) 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 (Total Stockholder Return),
among Total Stockholder Returns of all the stocks in the S&P 500, as provided in
the agreement.
6. RELATED PARTY TRANSACTION:
The Company has signed a definitive agreement to acquire Enterprise Holding
Company (EHC), a related company through common ownership, to be effective with
the Offering. EHC will be acquired for a total consideration of $23.5 million,
consisting of 436,615 shares of Common Stock and the assumption and/or repayment
of approximately $17.8 million of indebtedness and other obligations (including
$2.6 million of EHC preferred stock being converted into 158,238 shares of
Common Stock and $0.5 million cash), approximately $14.5 million of which will
be repaid either out of a portion of the net proceeds of the Offering or through
bank borrowings.
7. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS:
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.
The Company has approved the 1996 Incentive Plan (the Plan) which amends
and restates the 1996 Stock Option Plan and provides for the granting or
awarding of stock options and stock appreciation rights to officers and other
key employees (including officers of the Founding Companies, nonemployee
directors and independent contractors). The number of shares authorized and
reserved for issuance under the Plan is
F-19
AMERICAN RESIDENTIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
limited to the greater of 1,550,000 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.
As of June 14, 1996, the Company has granted 10 year options which vest 20% per
year over five years, covering an aggregate of 1,345,000 shares of common stock
as follows:.
SHARES OPTION
DATE OF GRANT GRANTED PRICE
- ------------------------------------- --------- ------
January 31, 1996..................... 495,000 $ 8.00
March 6, 1996........................ 75,000 9.60
March 29, 1996....................... 25,000 10.20
April 30, 1996....................... 50,000 10.80
Offering
June 12, 1996........................ 700,000 Price
---------
1,345,000
=========
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; EHC; 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 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 898,942 shares of ARS Common Stock in connection with the
Offering.
8. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In June 1996, ARS filed a registration statement on Form S-1 for the sale
of its common stock.
F-20
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-21
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-22
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-23
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, December 31, 1992........... 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-24
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-25
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-26
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
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-27
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-28
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
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-29
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
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-30
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-31
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-32
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.
F-33
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-34
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
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
F-35
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-36
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-37
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
JUNE 30
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
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
============ ============ ============
Installation contracts in progress are as follows:
JUNE 30
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
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)
============ ============ ============
F-38
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-39
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Rental income received for the years ended June 30, 1993, 1994
and 1995, and December 31, 1995, was approximately $148,000, $135,000, $105,000
and $86,000, respectively. The following represents future minimum rental income
under noncancelable leases:
F-40
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ending December 31 --
1996............................ $ 167,250
1997............................ 148,500
1998............................ 83,875
1999............................ 42,000
2000............................ 38,500
-------------
$ 480,125
=============
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-41
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-42
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-43
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-44
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-45
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-46
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-47
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-48
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:
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------------
IN YEARS 1994 1995
------------- ------------ ------------
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
============ ============
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-49
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-50
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-51
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-52
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-53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Florida Heating and Air Conditioning, Inc.:
We have audited the accompanying combined balance sheets of Florida Heating
and Air Conditioning, Inc. (a Florida corporation), and related companies as of
December 31, 1994 and 1995, and the related combined statements of operations,
shareholders' equity and cash flows for the years 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 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 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 audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Florida
Heating and Air Conditioning, Inc., and related companies as of December 31,
1994 and 1995, and the combined results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 24, 1996
F-54
FLORIDA HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31
-------------------------- MARCH 31,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 735,749 $ 1,022,154 $ 421,590
Accounts receivable --
Trade, net of allowance of
$41,305, $41,305 and
$41,305................. 1,418,022 1,394,895 1,426,487
Other receivables.......... 376,211 444,680 324,257
Inventories..................... 269,295 306,523 346,608
Prepaid expenses and other
current assets................ 61,056 52,992 112,086
------------ ------------ -----------
Total current
assets............. 2,860,333 3,221,244 2,631,028
PROPERTY AND EQUIPMENT, net.......... 458,964 495,110 626,144
OTHER NONCURRENT ASSETS.............. 27,896 38,509 38,421
------------ ------------ -----------
Total assets.......... $ 3,347,193 $ 3,754,863 $ 3,295,593
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.......................... $ 52,477 $ 100,166 $ 232,366
Accounts payable and accrued
expenses...................... 1,296,472 1,626,569 1,511,732
Payable to shareholder.......... 640,447 641,804 80,804
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 508,209 367,519 345,673
Deferred income taxes........... 256,022 287,454 287,454
------------ ------------ -----------
Total current
liabilities........ 2,753,627 3,023,512 2,458,029
LONG-TERM DEBT, net of current
maturities......................... 45,689 18,017 --
DEFERRED INCOME TAXES................ 68,015 42,339 42,339
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock.................... 9,800 9,800 9,800
Additional paid-in capital...... 4,000 4,000 4,000
Retained earnings............... 466,062 657,195 781,425
------------ ------------ -----------
Total shareholders'
equity............. 479,862 670,995 795,225
------------ ------------ -----------
Total liabilities and
shareholders'
equity............. $ 3,347,193 $ 3,754,863 $ 3,295,593
============ ============ ===========
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 OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
----------------------------- --------------------------
1994 1995 1995 1996
------------ -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 15,845,183 $ 14,510,455 $ 3,919,169 $ 3,658,439
COST OF SERVICES..................... 12,079,290 10,541,122 2,990,025 2,674,081
------------ -------------- ------------ ------------
Gross profit.................... 3,765,893 3,969,333 929,144 984,358
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 3,321,394 3,738,253 894,415 837,485
------------ -------------- ------------ ------------
Income from operations.......... 444,499 231,080 34,729 146,873
OTHER INCOME (EXPENSE):
Interest expense................ (23,338) (11,743) (1,275) (7,534)
Other........................... 12,833 (8,238) 258 94
------------ -------------- ------------ ------------
INCOME BEFORE INCOME TAXES........... 433,994 211,099 33,712 139,433
PROVISION FOR INCOME TAXES........... 3,832 13,966 2,225 9,203
------------ -------------- ------------ ------------
NET INCOME........................... $ 430,162 $ 197,133 $ 31,487 $ 130,230
============ ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-56
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, 1993........... 2,600 $9,800 $4,000 $ 90,960 $104,760
Dividend........................ -- -- -- (55,060) (55,060)
Net income...................... -- -- -- 430,162 430,162
------ ------ ---------- --------- --------------
BALANCE, December 31, 1994........... 2,600 9,800 4,000 466,062 479,862
Dividend........................ -- -- -- (6,000) (6,000)
Net income...................... -- -- -- 197,133 197,133
------ ------ ---------- --------- --------------
BALANCE, December 31, 1995........... 2,600 9,800 4,000 657,195 670,995
Dividend (unaudited)............ -- -- -- (6,000) (6,000)
Net income (unaudited).......... -- -- -- 130,230 130,230
------ ------ ---------- --------- --------------
BALANCE, March 31, 1996
(unaudited)........................ 2,600 $9,800 $4,000 $ 781,425 $795,225
====== ====== ========== ========= ==============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-57
FLORIDA HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANIES
COMBINED 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......................... $ 430,162 $ 197,133 $ 31,487 $ 130,230
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 183,860 195,662 45,393 45,804
Deferred income taxes........... 1,274 5,756 -- --
Gain on sale of property and
equipment..................... 25,241 (12,303) (4,819) (4,117)
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable........... (331,298) (45,342) 60,456 88,831
Inventories................... (33,374) (37,228) (32,636) (40,085)
Prepaid expenses and other
current assets............. 112,642 8,064 (5,168) (59,094)
Other noncurrent assets....... (4,915) (10,613) (51,906) 88
Increase (decrease) in --
Accounts payable and accrued
expenses................... (15,654) 330,097 105,815 (114,837)
Billings in excess of costs
and estimated earnings on
uncompleted contracts...... 269,917 (140,690) (195,999) (21,846)
------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... 637,855 490,536 (47,377) 24,974
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment....................... 38,190 16,704 8,494 7,499
Additions of property and
equipment....................... (199,281) (236,209) (178,901) (180,220)
------------ ------------ ------------ ------------
Net cash used in investing
activities.................... (161,091) (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....... 276,291 185,511 162,080 157,240
Principal payments of long-term
debt............................ (346,573) (165,494) (54,193) (43,057)
Dividends.......................... (55,060) (6,000) -- (6,000)
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... (125,342) 15,374 (140,113) (452,817)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 351,422 286,405 (357,897) (600,564)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 384,327 735,749 735,749 1,022,154
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 735,749 $ 1,022,154 $ 377,852 $ 421,590
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 25,931 $ 11,743 $ 1,275 $ 7,534
Income taxes.................... $ -- $ -- $ -- $ 2,279
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-58
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-59
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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-60
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------------
IN YEARS 1994 1995
------------ ------------ ------------
Transportation equipment............. 5 $ 869,115 $ 1,051,880
Machinery and equipment.............. 7 115,186 115,774
Computer and telephone equipment..... 5 - 7 343,166 354,674
Leasehold improvements............... 7 57,151 57,151
Furniture and fixtures............... 7 39,308 39,308
------------ ------------
1,423,926 1,618,787
Less -- Accumulated depreciation and
amortization....................... 964,962 1,123,677
------------ ------------
Property and
equipment, net..... $ 458,964 $ 495,110
============ ============
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......... $ 41,305 $ 41,305
Additions to costs and expenses...... 53,132 25,038
Deductions for uncollectible
receivables written off............ (53,132) (25,038)
---------- ----------
$ 41,305 $ 41,305
========== ==========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
--------------------------
1994 1995
------------ ------------
Accounts payable, trade.............. $ 1,002,209 $ 1,283,034
Accrued compensation and benefits.... 150,638 198,175
Other accrued expenses............... 143,625 145,360
------------ ------------
$ 1,296,472 $ 1,626,569
============ ============
Installation contracts in progress are as follows:
DECEMBER 31
--------------------------
1994 1995
------------ ------------
Costs incurred on contracts in
progress........................... $ 1,680,864 $ 985,003
Estimated earnings, net of losses.... 575,928 351,711
------------ ------------
2,256,792 1,336,714
Less -- Billings to date............. 2,765,002 1,704,233
------------ ------------
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... $ (508,210) $ (367,519)
============ ============
F-61
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
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. Total amounts paid under this related-party lease were
approximately $198,000 and $198,000 for the years ended December 31, 1994 and
1995, respectively. The Company also leases a facility from a third party, which
expires in 1997. The rent paid under this lease was approximately $15,000 per
year for the year ended December 31, 1994 and 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 were approximately $31,000 and $45,000 for
the years ended December 31, 1994 and 1995, respectively.
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-62
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,
--------------------
1994 1995
--------- ---------
Federal --
Current......................... $ 2,098 $ 6,733
Deferred........................ 1,088 4,915
State --
Current......................... 460 1,477
Deferred........................ 186 841
--------- ---------
$ 3,832 $ 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,
------------------------
1994 1995
------------ ----------
Provision at the statutory rate...... $ 147,558 $ 71,774
Increase (decrease) resulting from --
Income of S Corporation......... (143,878) (59,557)
State income tax, net of benefit
for federal deduction......... 370 1,398
Other........................... (218) 351
------------ ----------
$ 3,832 $ 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
----------------------
1994 1995
---------- ----------
Loss from limited partnership
investment......................... $ 192,585 $ 230,844
Cash to accrual adjustment........... 189,614 136,674
Other................................ (58,162) (37,725)
---------- ----------
Net deferred income tax
liabilities.......................... $ 324,037 $ 329,793
========== ==========
F-63
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Deferred tax assets --
Current......................... $ 16,275 $ 11,972
Long-term....................... 27,975 25,998
---------- ----------
Total...................... 44,250 37,970
Deferred tax liabilities --
Current......................... 272,297 299,426
Long-term....................... 95,990 68,337
---------- ----------
Total...................... 368,287 367,763
---------- ----------
Net deferred income tax
liabilities............. $ 324,037 $ 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 $640,447 and $641,804 at
December 31, 1994 and 1995, respectively. No interest was incurred or paid
during the years ended December 31, 1994 and 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 1994 two customers accounted for approximately 22% of the Company's
sales. 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:
AS OF DECEMBER 31, 1995 AND 1994
------------------------------------
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.... 10,000 600 1.00
Bullseye Air Conditioning, Inc. ..... 600 600 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-64
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-65
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-66
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-67
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-68
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-69
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-70
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-71
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-72
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-73
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-74
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-75
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-76
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 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 ADCOT, 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 (except with respect to
the matter discussed in Note 4, as to
which the date is June 5, 1996)
F-77
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-78
ADCOT, 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............................. $ 10,899,840 $ 8,675,616 $ 8,707,403 $ 1,704,276 $ 2,022,260
COST OF SERVICES..................... 6,921,371 5,574,296 5,709,114 1,191,947 1,236,174
-------------- ------------ ------------ ------------ ------------
Gross profit.................... 3,978,469 3,101,320 2,998,289 512,329 786,086
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,830,130 2,443,678 2,347,954 508,333 582,837
-------------- ------------ ------------ ------------ ------------
Income from operations.......... 1,148,339 657,642 650,335 3,996 203,249
OTHER INCOME (EXPENSE):
Interest expense................ (81,798) (36,224) (83,754) (6,591) (9,207)
Other........................... 3,503 24,430 65,530 15,908 19,241
-------------- ------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE STATE INCOME TAXES.......... 1,070,044 645,848 632,111 13,313 213,283
PROVISION FOR STATE INCOME TAXES..... -- -- 43,165 660 3,558
-------------- ------------ ------------ ------------ ------------
NET INCOME FROM CONTINUING
OPERATIONS......................... 1,070,044 645,848 588,946 12,653 209,725
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, net of applicable state
income taxes....................... (1,452,024) (141,923) (114,900) 3,207 (76,012)
-------------- ------------ ------------ ------------ ------------
NET INCOME (LOSS).................... $ (381,980) $ 503,925 $ 474,046 $ 15,860 $ 133,713
============== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
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, 1992........... 10,000 $10,000 $ (1,355,219) $ (1,345,219)
Net loss........................ -- -- (381,980) (381,980)
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-80
ADCOT, 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).................. $ (381,980) $ 503,925 $ 474,046 $ 15,860 $ 133,713
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization.... 307,552 271,420 261,704 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............ 104,276 (6,318) 1,640 471 (26,870)
Inventories.................... 154,349 225,814 4,440 (212,987) (232,731)
Prepaid expenses and other
current assets.............. (114,200) 127,891 (23,607) (51,407) (26,337)
Other noncurrent assets........ (9,068) 10,369 (999) -- (30,346)
Increase (decrease) in --
Accounts payable and accrued
expenses.................... 691,700 (786,089) (16,012) (7,835) 693,221
Unearned revenue on extended
warranty contracts.......... 3,661 (8,288) (82,461) (20,615) 2
------------ ---------- ---------- ---------- ----------
Net cash provided by (used
in) operating
activities................ 756,290 320,473 625,350 (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........................ (16,478) (49,403) (294,428) (84,798) (105,461)
Cash provided by (used in)
discontinued operations.......... (1,116,116) 188,714 (89,429) 181,904 (386,741)
------------ ---------- ---------- ---------- ----------
Net cash provided by (used
in) investing
activities................ (1,132,594) 158,814 (362,669) 114,731 (492,202)
------------ ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in payable to
shareholder and affiliates....... 580,431 (314,134) (25,289) -- (241,008)
Borrowings of long-term debt....... 63,750 -- 214,553 57,100 98,809
Principal payments of long-term
debt............................. (93,260) (106,035) (56,705) (9,759) (46,422)
Increase (decrease) in other
long-term liabilities............ (173,024) 39,014 (39,014) (27,480) --
Dividends.......................... -- -- (223,088) -- (87,121)
------------ ---------- ---------- ---------- ----------
Net cash provided by (used
in) financing
activities................ 377,897 (381,155) (129,543) 19,861 (275,742)
------------ ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 1,593 98,132 133,138 (98,821) (207,316)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 23,241 24,834 122,966 122,966 256,104
------------ ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 24,834 $ 122,966 $ 256,104 $ 24,145 $ 48,788
============ ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ 109,064 $ 79,658 $ 111,536 $ 8,788 $ 12,413
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
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 1993 or 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-82
ADCOT, INC.
NOTES TO FINANCIAL STATEMENTS
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 1993, 1994 and 1995 exclude amounts associated
with the discontinued division. Revenues from such operations were approximately
$12,185,000, $12,101,000 and $11,915,000 for the years ended December 31, 1993,
1994 and 1995, respectively. Certain
F-83
ADCOT, INC.
NOTES TO FINANCIAL STATEMENTS
expenses have been allocated to 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-84
ADCOT, INC.
NOTES TO FINANCIAL STATEMENTS
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 $316,000, $305,000 and $370,000 in 1993,
1994 and 1995, respectively.
Other nonrelated-party leases for retail facilities expire in 1997. The
rent paid under nonrelated-party leases was approximately $198,000, $183,000 and
$162,000 in 1993, 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-85
[INSIDE BACK COVER OF PROSPECTUS]
[GRAPHICS -- SHOWING EMPLOYEES PERFORMING
SERVICE, DISPATCH AND TRAINING TASKS]
Training Employees And Focusing On Customer Satisfaction
================================================================================
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...................... 17
Dividend Policy...................... 18
Capitalization....................... 18
Dilution............................. 19
Selected Financial Data.............. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 36
Management........................... 46
Certain Transactions................. 55
Security Ownership of Certain
Beneficial Owners and Management... 60
Shares Eligible for Future Sale...... 61
Description of Capital Stock......... 62
Underwriting......................... 68
Legal Matters........................ 69
Experts.............................. 69
Additional Information............... 69
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
[ARS LOGO]
AMERICAN RESIDENTIAL SERVICES, INC.
COMMON STOCK
------------
PROSPECTUS
, 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...................... 100,790
Blue Sky Fees and Expenses........... 15,000
Printing and Engraving Costs......... 150,000
Legal Fees and Expenses.............. 1,090,000
Accounting Fees and Expenses......... 2,500,000
Transfer Agent and Registrar Fees and
Expenses........................... 4,500
Miscellaneous........................ 11,279
------------
Total...................... $ 3,900,000
============
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 court in which
such action or suit was brought shall determine upon application that, despite
the
II-1
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 and directors and certain subsidiary officers. The Indemnification
Agreements generally are to the same effect as the Bylaw provisions described
above.
UNDERWRITING AGREEMENT
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
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:
II-3
On November 8, 1995, the Company issued 375, 375 and 250 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. As a
result of subsequent stock splits on February 2, 1996 (333 for 1) and June 14,
1996 (1.348414 for 1), the 1,000 shares originally issued now total 449,471
shares. These splits were exempt from the registration requirements of the
Securities Act because they 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 ("Equus II")
a convertible note, a portion of which will convert into 899,556 shares of
Common Stock on the closing of the Offering being made by this Registration
Statement (this "Offering") and a warrant to purchase 100,000 shares of Common
Stock at the initial public offering price in this Offering. The issuance of the
note was exempt from the registration requirements of the Securities Act under
Section 4(2) thereof as not involving a public offering and the conversion
thereof will be exempt from those requirements pursuant to Section 3(a)(9)
thereof. The issuance of the warrant was exempt from the registration
requirements of the Securities Act under Section 4(2) thereof as not involving a
public offering.
On July 22, 1996, the Company issued a $1.0 million principal amount
promissory note to Equus II to evidence additional borrowings by the Company
from Equus II of up to that amount prior to the closing of the Offering. The
issuance of the note was exempt from the registration requirements of the
Securities Act under Section 4(2) thereof as not involving a public offering.
In connection with the acquisition of Enterprises Holding Company ("EHC"),
the Company will issue to NationsBank of Texas, N.A. ("NationsBank") a warrant
to purchase shares of Common Stock having a value of $125,000 on the closing
date of this Offering at a purchase price of $.01 per share. This warrant will
be issued in exchange for a warrant issued on March 19, 1996 by EHC, and its
issuance will be exempt from the registration requirements of the Securities Act
under Section 4(2) thereof as not involving a public offering.
Simultaneously with the completion of this Offering, the Company will issue
3,440,391 shares of Common Stock in connection with the acquisition of the
Founding Companies. Such issuances will be exempt from the registration
requirements of the Securities Act by virtue 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.
*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.
II-4
*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.
`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.
II-5
`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.
`10.16 -- Executive Supplemental Disability Plan of American
Residential Services, Inc.
`10.17 -- Executive Supplemental Life Insurance Plan of American
Residential Services, Inc.
`10.18 -- American Residential Services, Inc. Deferred
Compensation Plan.
`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.
- ------------
* Previously filed.
` Filed herewith.
** 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 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.
II-6
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 AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON JULY 24, 1996.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ C. CLIFFORD WRIGHT, JR.
C. CLIFFORD WRIGHT, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE 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 July 24, 1996
C. CLIFFORD WRIGHT, JR. Officer, and Director
(Principal Executive Officer and
Principal Financial Officer)
/s/ HOWARD S. HOOVER, JR. Chairman of the Board July 24, 1996
HOWARD S. HOOVER, JR.
/s/ MICHAEL MAMAUX Controller July 24, 1996
MICHAEL MAMAUX (Principal Accounting Officer)
/s/ WILLIAM P. MCCAUGHEY Executive Vice President July 24, 1996
WILLIAM P. MCCAUGHEY and Director
II-8
EXHIBIT 3.2
BYLAWS
OF
AMERICAN RESIDENTIAL SERVICES, INC.
(As amended through July __, 1996)
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE. The registered office of American Residential Services,
Inc. (the "Corporation") required by the General Corporation Law of the
State of Delaware or any successor statute (the "DGCL"), to be maintained
in the State of Delaware, shall be the registered office named in the
Restated Certificate of Incorporation of the Corporation, as it may be
amended or restated in accordance with the DGCL from time to time (the
"Restated Certificate of Incorporation"), or such other office as may be
designated from time to time by the Board of Directors of the Corporation
(the "Board of Directors" or the "Board") in the manner provided by law.
Should the Corporation maintain a principal office within the State of
Delaware such registered office need not be identical to such principal
office of the Corporation.
1.2 OTHER OFFICES. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors
may determine from time to time or as the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at such place
within or without the State of Delaware as may be designated by the Board
of Directors or the officer calling the meeting.
2.2 ANNUAL MEETING. An annual meeting of the stockholders, for the election of
directors to succeed those whose terms expire or to fill vacancies and for
the transaction of such other business as may properly come before the
meeting, shall be held at such place, within or without the State of
Delaware, on such date, and at such time as the Board of Directors shall
fix and set forth in the notice of the meeting, which date shall be within
thirteen months subsequent to the last annual meeting of stockholders. At
the annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting as
set forth in Section 2.8 hereof. Failure to hold the annual meeting at the
designated time shall not work a dissolution of the Corporation.
-1-
2.3 SPECIAL MEETINGS. Special meetings of the stockholders may be called at
any time by the Chairman of the Board, the President or a majority of the
Board of Directors. Upon written request of any person or persons who have
duly called a special meeting, it shall be the duty of the Secretary of
the Corporation to fix the date of the meeting to be held not less than
ten nor more than 60 days after the receipt of the request and to give due
notice thereof. If the Secretary shall neglect or refuse to fix the date
of the meeting and give notice thereof, the person or persons calling the
meeting may do so. Every special meeting of the stockholders shall be held
at such place within or without the State of Delaware as the Board of
Directors may designate, or, in the absence of such designation, at the
registered office of the Corporation in the State of Delaware.
2.4 NOTICE OF MEETING. Written or printed notice of all meetings stating the
place, day and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, President or Secretary of the Corporation, to each
stockholder entitled to vote at such meeting. If mailed, such notice shall
be deemed to be delivered to a stockholder when deposited in the United
States mail addressed to such stockholder at such stockholder's address as
it appears on the stock transfer records of the Corporation, with postage
thereon prepaid.
2.5 REGISTERED HOLDERS OF SHARES; CLOSING OF SHARE TRANSFER RECORDS; AND
RECORD DATE.
(a) REGISTERED HOLDERS AS OWNERS. Unless otherwise provided under
Delaware law, the Corporation may regard the person in whose name any
shares issued by the Corporation are registered in the stock transfer
records of the Corporation at any particular time (including, without
limitation, as of a record date fixed pursuant to paragraph (b) of
this Section 2.5) as the owner of those shares at that time for
purposes of voting those shares, receiving distributions thereon or
notices in respect thereof, transferring those shares, exercising
rights of dissent with respect to those shares, entering into
agreements with respect to those shares, or giving proxies with
respect to those shares; and neither the Corporation nor any of its
officers, directors, employees or agents shall be liable for
regarding that person as the owner of those shares at that time for
those purposes, regardless of whether that person possesses a
certificate for those shares.
(b) RECORD DATE. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive a distribution by the
Corporation (other than a distribution involving a purchase or
redemption by the Corporation of any of its own shares) or a share
dividend, or in order to make a determination of stockholders for any
other proper purpose, the Board of Directors may fix in advance a
date as the record date for any such determination of stockholders,
such date in any case to be not more than
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60 days and, in the case of a meeting of stockholders, not less than
ten days, prior to the date on which the particular action requiring
such determination of stockholders is to be taken. The Board of
Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on
the day next preceding the day on which notice is given, or, if in
accordance with Section 7.3 of these Bylaws notice is waived, at the close
of business on the day next preceding the day on which the meeting is
held.
2.6 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Unless otherwise provided in the
Restated Certificate of Incorporation, a majority of the outstanding
shares of capital stock of the Corporation entitled to vote, present in
person or represented by proxy, shall constitute a quorum at any meeting
of the stockholders, and the stockholders present at any duly convened
meeting may continue to do business until adjournment notwithstanding any
withdrawal from the meeting of holders of shares counted in determining
the existence of a quorum. Unless otherwise provided in the Restated
Certificate of Incorporation or these Bylaws, any meeting of the
stockholders may be adjourned from time to time by the chairman of the
meeting or the holders of a majority of the issued and outstanding stock,
present in person or represented by proxy, whether or not a quorum is
present, without notice other than by announcement at the meeting at which
such adjournment is taken, and at any such adjourned meeting at which a
quorum shall be present any action may be taken that could have been taken
at the meeting originally called; PROVIDED that if the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned
meeting.
2.7 VOTING BY STOCKHOLDERS.
(a) VOTING ON MATTERS OTHER THAN THE ELECTION OF DIRECTORS. With respect
to any matters as to which no other voting requirement is specified
by the DGCL, the Restated Certificate of Incorporation or these
Bylaws, the affirmative vote required for stockholder action shall be
that of a majority of the shares present in person or represented by
proxy at the meeting (as counted for purposes of determining the
existence of a quorum at the meeting). In the case of a matter
submitted for a vote of the stockholders as to which a stockholder
approval requirement is applicable under the stockholder approval
policy of any stock exchange or quotation system on which the capital
stock of the Corporation is traded or quoted, the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any provision of the Internal Revenue Code, in
each case for which no higher voting requirement is specified by the
DGCL, the Restated Certificate of Incorporation or these Bylaws, the
vote required for approval shall
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be the requisite vote specified in such stockholder approval policy,
Rule 16b-3 or Internal Revenue Code provision, as the case may be (or
the highest such requirement if more than one is applicable). For the
approval of the appointment of independent public accountants (if
submitted for a vote of the stockholders), the vote required for
approval shall be a majority of the votes cast on the matter.
(b) VOTING IN THE ELECTION OF DIRECTORS. Unless otherwise provided in the
Restated Certificate of Incorporation or these Bylaws in accordance
with the DGCL, directors shall be elected by a plurality of the votes
cast by the holders of outstanding shares of capital stock of the
Corporation entitled to vote in the election of directors at a
meeting of stockholders at which a quorum is present.
2.8 BUSINESS TO BE CONDUCTED.
(a) At an annual meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have
been brought before the annual meeting (i) by or at the direction of
the Board of Directors or (ii) by any stockholder of the Corporation
who is a stockholder of record at the time of the giving of such
stockholder's notice provided for in this Section 2.8, who shall be
entitled to vote at such meeting and who complies with the
requirements of this Section 2.8 and as shall otherwise be proper
subjects for stockholder action and shall be properly introduced at
the meeting. For a proposal to be properly brought before an annual
meeting by a stockholder, in addition to any other applicable
requirements, the stockholder must have given timely advance notice
thereof in writing to the Secretary of the Corporation. To be timely,
a stockholder's notice must be delivered to, or mailed and received
at, the principal executive offices of the Corporation not later than
the 90th day prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that with respect to the annual
meeting of stockholders to be held in 1997 or in the event that the
date of the annual meeting is more than 30 days before or more than
60 days after such anniversary date, notice by the stockholder to be
timely must be so delivered not later than the close of business on
the later of the 90th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of
such meeting is first made by the Corporation. Any such stockholder's
notice to the Secretary of the Corporation shall set forth as to each
matter the stockholder proposes to bring before the annual meeting
(i) a description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and
any other stockholders known by such stockholder to be supporting
such proposal, (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder
on the date of such notice, (iv) any financial interest of the
stockholder in such proposal and (v) a representation that the
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stockholder intends to appear in person or by proxy at the meeting to
bring the proposed business before the annual meeting. The presiding
officer of the annual meeting shall determine whether the
requirements of this paragraph (a) have been met with respect to any
stockholder proposal. If the presiding officer determines that a
stockholder proposal was not made in accordance with the terms of
this paragraph (a), he shall so declare at the meeting and any such
proposal shall not be acted upon at the meeting. At a special meeting
of stockholders, only such business shall be acted upon as shall have
been set forth in the notice relating to the meeting required by
Section 2.4 hereof or as shall constitute matters incident to the
conduct of the meeting as the presiding officer of the meeting shall
determine to be appropriate.
(b) Notwithstanding the foregoing provisions of this Section 2.8, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Section 2.8.
2.9 PROXIES. Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him by proxy. Proxies
for use at any meeting of stockholders shall be filed with the Secretary,
or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received
and canvassed by the secretary of the meeting who shall decide all
questions relating to the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been appointed by the chairman of the meeting, in
which event such inspector or inspectors shall decide all such questions.
2.10 APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY STOCKHOLDERS. The Board
of Directors in its discretion may submit any act or contract for approval
or ratification at any annual meeting of the stockholders, or at any
special meeting of the stockholders called for the purpose of considering
any such act or contract, and any act or contract that shall be approved
or be ratified by the vote of the stockholders holding a majority of the
issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum
is present), shall be as valid and as binding upon the Corporation and
upon all the stockholders as if it has been approved or ratified by every
stockholder of the Corporation.
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ARTICLE III
DIRECTORS
3.1 NUMBER, CLASSIFICATION AND TENURE.
(a) The powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall
be managed under the direction of, the Board of Directors. The Board
of Directors shall be divided into three classes as provided in the
Restated Certificate of Incorporation. Each director shall hold
office for the full term for which such director is elected and until
such director's successor shall have been duly elected and qualified
or until his earlier death or resignation or removal in accordance
with the Restated Certificate of Incorporation or these Bylaws.
(b) Within the limits specified in the Restated Certificate of
Incorporation, the number of directors that shall constitute the
whole Board of Directors shall be fixed by, and may be increased or
decreased from time to time by, the affirmative vote of a majority of
the members at any time constituting the Board of Directors. Except
as provided in the Restated Certificate of Incorporation of the
Corporation, newly created directorships resulting from any increase
in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification,
removal or other cause shall be filled by the affirmative vote of a
majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified or until
his earlier death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
3.2 QUALIFICATIONS. Directors need not be residents of the State of Delaware
or stockholders of the Corporation.
3.3 NOMINATION OF DIRECTORS. Subject to such rights of the holders of one or
more outstanding series of Preferred Stock of the Corporation to elect one
or more directors in case of arrearages in the payment of dividends or
other defaults as shall be prescribed in the Restated Certificate of
Incorporation or in the resolutions of the Board of Directors providing
for the establishment of any such series, only persons who are nominated
in accordance with the procedures set forth in this Section 3.3 shall be
eligible for election as, and to serve as, directors. Nominations of
persons for election to the Board of Directors may be made at a meeting of
the stockholders at which Directors are to be
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elected (i) by or at the direction of the Board of Directors or (ii) by
any stockholder of the Corporation who is a stockholder of record at the
time of the giving of such stockholder's notice provided for in this
Section 3.3, who shall be entitled to vote at such meeting in the election
of directors and who complies with the requirements of this Section 3.3.
Such nominations, other than those made by or at the direction of the
Board of Directors, shall be preceded by timely advance notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice
shall be delivered to, or mailed and received at, the principal executive
offices of the Corporation (i) with respect to an election to be held at
the annual meeting of the stockholders of the Corporation, not later than
the close of business on the 90th day prior to the first anniversary of
the preceding year's annual meeting; PROVIDED, HOWEVER, that with respect
to the annual meeting of stockholders to be held in 1997 or in the event
that the date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the stockholder to be
timely must be so delivered not later than the close of business on the
later of the 90th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting
is first made by the Corporation; and (ii) with respect to an election to
be held at a special meeting of stockholders of the Corporation for the
election of directors not later than the close of business on the tenth
day following the day on which notice of the date of the special meeting
was mailed to stockholders of the Corporation as provided in Section 2.4
hereof or public disclosure of the date of the special meeting was made,
whichever first occurs. Any such stockholder's notice to the Secretary of
the Corporation shall set forth (x) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the number of
shares of each class of capital stock of the Corporation beneficially
owned by such person, (iv) the written consent of such person to having
such person's name placed in nomination at the meeting and to serve as a
director if elected and (v) any other information relating to such person
that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, pursuant to Regulation 14A under
the Exchange Act, and (y) as to the stockholder giving the notice, (i) the
name and address, as they appear on the Corporation's books, of such
stockholder and (ii) the number of shares of each class of voting stock of
the Corporation which are then beneficially owned by such stockholder. The
presiding officer of the meeting of stockholders shall determine whether
the requirements of this Section 3.3 have been met with respect to any
nomination or intended nomination. If the presiding officer determines
that any nomination was not made in accordance with the requirements of
this Section 3.3, he shall so declare at the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions
of this Section 3.3, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder
with respect to the matters set forth in this Section 3.3.
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3.4 PLACE OF MEETING; ORDER OF BUSINESS. Except as otherwise provided by law,
meetings of the Board of Directors, regular or special, may be held either
within or without the State of Delaware, at whatever place is specified by
the person or persons calling the meeting. In the absence of specific
designation, the meetings shall be held at the principal office of the
Corporation. At all meetings of the Board of Directors, business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board (if any), or in his absence by the President, or by
resolution of the Board of Directors.
3.5 REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held
at such place or places within or without the State of Delaware, at such
hour and on such day as may be fixed by resolution of the Board of
Directors, without further notice of such meetings. The time or place of
holding regular meetings of the Board of Directors may be changed by the
Chairman of the Board or the President by giving written notice thereof as
provided in Section 3.7 hereof.
3.6 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be
held, whenever called by the Chairman of the Board, the President or by
resolution adopted by the Board of Directors, at such place or places
within or without the State of Delaware as may be stated in the notice of
the meeting.
3.7 ATTENDANCE AT AND NOTICE OF MEETINGS. Written notice of the time and place
of, and general nature of the business to be transacted at, all special
meetings of the Board of Directors, and written notice of any change in
the time or place of holding the regular meetings of the Board of
Directors, shall be given to each director personally or by mail or by
telegraph, telecopier or similar communication at least one day before the
day of the meeting; PROVIDED, HOWEVER, that notice of any meeting need not
be given to any director if waived by him in writing, or if he shall be
present at such meeting. Participation in a meeting of the Board of
Directors shall constitute presence in person at such meeting, except
where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
3.8 QUORUM OF AND ACTION BY DIRECTORS. A majority of the directors in office
shall constitute a quorum of the Board of Directors for the transaction of
business; but a lesser number may adjourn from day to day until a quorum
is present. Except as otherwise provided by law or in these Bylaws, all
questions shall be decided by the vote of a majority of the directors
present.
3.9 BOARD AND COMMITTEE ACTION WITHOUT A MEETING. Unless otherwise restricted
by the Restated Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at a meeting of the Board of Directors
or any committee thereof may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all
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the members of the Board of Directors or such committee, as the case may
be, and shall be filed with the Secretary of the Corporation.
3.10 BOARD AND COMMITTEE TELEPHONE MEETINGS. Subject to the provisions required
or permitted by the DGCL for notice of meetings, unless otherwise
restricted by the Restated Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or members of any committee designated
by the Board of Directors, may participate in and hold a meeting of such
Board of Directors or committee by means of conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 3.10 shall constitute presence in person
at such meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
3.11 COMPENSATION. Directors shall receive such compensation for their services
as shall be determined by the Board of Directors.
3.12 REMOVAL. No director of the Corporation shall be removed from office as a
director by vote or other action of the stockholders or otherwise except
for cause, and then only by the affirmative vote of the holders of at
least a majority of the voting power of all outstanding shares of capital
stock of the Corporation generally entitled to vote in the election of
directors, voting together as a single class. Cause for removal of a
director shall be as provided by law or in the Restated Certificate of
Incorporation. Any proposal by a stockholder to remove a director of the
Corporation, in order to be validly acted upon at any meeting, shall
comply with paragraph (a) of Section 2.8 hereof.
Notwithstanding the first paragraph of this Section 3.12, whenever
holders of outstanding shares of one or more series of Preferred Stock are
entitled to elect members of the Board of Directors pursuant to the
provisions applicable in the case of arrearages in the payment of
dividends or other defaults contained in the resolution or resolutions of
the Board of Directors providing for the establishment of any such series,
any such director of the Corporation so elected may be removed in
accordance with the provision of such resolution or resolutions.
3.13 COMMITTEES OF THE BOARD OF DIRECTORS.
(a) The Board of Directors, by resolution adopted by a majority of the
full Board of Directors, may designate from among its members one or
more committees (in addition to those listed below), each of which
shall be comprised of one or more of its members, and may designate
one or more of its members as alternate members of any committee, who
may, subject to any limitations by the Board of Directors, replace
absent or disqualified members at any meeting of that committee. Any
such committee, to the extent provided in such resolution or in
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the Restated Certificate of Incorporation or these Bylaws, shall have
and may exercise all of the authority of the Board of Directors to
the extent permitted by the DGCL, including, without limitation, the
power and authority to declare a dividend, to authorize the issuance
of stock or to adopt a certificate of ownership and merger pursuant
to Section 253 of the DGCL. Any such committee may authorize the seal
of the Corporation to be affixed to all papers which may require it.
In addition to the above, such committee or committees shall have
such other powers and limitations of authority as may be determined
from time to time by resolution adopted by the Board of Directors.
(b) The Board of Directors shall have the power at any time to change the
membership of any such committee and to fill vacancies in it. A
majority of the number of members of any such committee shall
constitute a quorum for the transaction of business unless a greater
number is required by a resolution adopted by the Board of Directors.
The act of the majority of the members of a committee present at any
meeting at which a quorum is present shall be the act of such
committee, unless the act of a greater number is required by a
resolution adopted by the Board of Directors. Each such committee may
elect a chairman and appoint such subcommittees and assistants as it
may deem necessary. Except as otherwise provided by the Board of
Directors, meetings of any committee shall be conducted in accordance
with Sections 3.5, 3.6, 3.7, 3.8, 3.9, 3.10 and 7.3 hereof. In the
absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place
of the absent or disqualified member. Any member of any such
committee elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of a member of a committee
shall not of itself create contract rights.
(c) Any action taken by any committee of the Board of Directors shall
promptly be recorded in the minutes and filed with the Secretary of
the Corporation.
(d) EXECUTIVE COMMITTEE. There shall be an Executive Committee of the
Board of Directors, which committee shall have and may exercise all
the powers and authority of the Board of Directors between regular or
special meetings of the Board in the management of the business and
affairs of the Corporation, except to the extent limited by Delaware
law. Without limiting the generality of the foregoing, the Executive
Committee shall have the power and authority to (i) declare dividends
on any class of capital stock of the Corporation, (ii) authorize the
issuance of capital stock of the Corporation, (iii) adopt
certificates of ownership
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and merger pursuant to Section 253 of the DGCL and (iv) in reference
to amending the Certificate of Incorporation, to the extent
authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as
provided in Section 151(a) of the DGCL, fix the designations and any
of the preferences or rights of such shares relating to dividends,
redemptions, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Corporation or fix
the number of shares of any series of stock or authorize the increase
or decrease of the shares of any series.
(e) AUDIT COMMITTEE. There shall be an Audit Committee of the Board of
Directors whose members shall consist solely of directors who are not
employees or affiliates of the Corporation and have no relationship
with the Corporation that would, in the judgment of the Board of
Directors, interfere with their exercise of independent judgment as a
member of such Committee. The Audit Committee shall have and may
exercise the power and authority to recommend to the Board of
Directors the accounting firm to be selected by the Board or to be
recommended by it for stockholder approval, as independent auditor of
the financial statements of the Corporation and its subsidiaries, and
to act on behalf of the Board in meeting and reviewing with the
independent auditors, the chief internal auditor, if any, and the
appropriate corporate officers, matters relating to corporate
financial reporting and accounting procedures and policies, adequacy
of financial, accounting and operating controls and the scope of the
respective audits of the independent auditors and the internal
auditor, if any. The Audit Committee shall also review the results of
such audits with the respective auditors and shall report the results
of those reviews to the Board of Directors. The Audit Committee shall
submit to the Board of Directors any recommendations it may have from
time to time with respect to financial reporting and accounting
practices and policies and financial, accounting and operational
controls and safeguards. The Board of Directors shall, by resolution
adopted by a majority of the Board of Directors, designate not less
than two of its qualifying members from time to time to constitute
members of the Audit Committee.
(f) NOMINATING COMMITTEE. There shall be a Nominating Committee of the
Board of Directors, which committee shall have and may exercise the
power and authority to recommend to the Board of Directors prior to
each annual meeting of the stockholders of the Corporation: (a) the
appropriate size and composition of the Board of Directors; and (b)
nominees: (i) for election to the Board of Directors for whom the
Corporation should solicit proxies; (ii) to serve as proxies in
connection with the annual stockholders' meeting; and (iii) for
election to all committees of the Board of Directors other than the
Nominating Committee. The Board of Directors shall, by resolution
adopted by a majority of the Board, designate one or
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more of its members from time to time to constitute members of the
Nominating Committee.
(g) COMPENSATION COMMITTEE. There shall be a Compensation Committee of
the Board of Directors, whose members shall consist solely of
directors who are not employees or affiliates of the Corporations and
have no relationship with the Corporation that would, in the judgment
of the Board of Directors, interfere with their exercise of
independent judgment as a member of such committee. The Compensation
Committee shall have and may exercise all the power and authority to
(i) establish a general compensation policy for officers and
employees of the Corporation, including review of officers' salaries
and participation in the benefit plans of the Corporation, (ii)
prepare any reports that may be required by the regulations of the
Securities and Exchange Commission or otherwise relating to officer
compensation, (iii) approve any increases in directors' fees and (iv)
exercise all other powers of the Board of Directors with respect to
matters involving the compensation of employees and the employee
benefits of the Corporation as shall be delegated by the Board of
Directors to the Compensation Committee from time to time. Without
limiting the generality of the foregoing, the Compensation Committee
shall have the power and authority to authorize the issuance of
capital stock of the Corporation pursuant to any compensation or
benefit plan or arrangement adopted or entered into by the
Corporation. The Board of Directors shall, by resolution adopted by a
majority of the Board, designate two or more of its members from time
to time to constitute members of the Compensation Committee.
(h) INDUSTRY RELATIONS COMMITTEE. There shall be an Industry Relations
Committee of the Board of Directors, which Committee shall monitor
events in the residential services industry and report to the Board
of Directors any significant industry developments that may, in the
judgment of the members of such Committee, affect the business of the
Corporation. The Board of Directors shall, by resolution adopted by a
majority of the Board, designate one or more of its members from time
to time to constitute members of the Industry Relations Committee.
ARTICLE IV
OFFICERS
4.1 DESIGNATION. The officers of the Corporation shall consist of a Chairman
of the Board, President, Chief Operating Officer, Secretary, Treasurer and
such Executive, Senior or other Vice Presidents, Assistant Secretaries,
Assistant Treasurers, Controller and other officers as may be elected or
appointed by the Board of Directors from time to time. Any number of
offices may be held by the same person.
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4.2 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors
shall preside at all meetings of the stockholders and of the Board of
Directors. Except where by law the signature of the President is required,
the Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. The
Chairman of the Board of Directors shall also perform such other duties
and may exercise such other powers as from time to time may be assigned to
him by these Bylaws or by the Board of Directors. In the absence or
incapacity to act of the President, the Chairman of the Board shall serve
as acting President, and when so acting, shall have all the powers of and
be subject to the restrictions of such office.
4.3 PRESIDENT. The President shall be the Chief Executive Officer of the
Corporation and shall have general supervision and control of the
business, affairs and properties of the Corporation and its general
officers, and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall have the power to appoint and
remove all subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors, and shall execute all
bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required
or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when
so authorized by these Bylaws, the Board of Directors or the President.
The President shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him by these Bylaws
or by the Board of Directors. In the absence or incapacity to act of the
Chairman of the Board, the President shall serve as acting Chairman of the
Board, and when so acting, shall have all the powers of and be subject to
the restrictions of such office.
4.4 CHIEF OPERATING OFFICER. The Chief Operating Officer, if there is one,
shall have general charge and supervision of the day to day operations of
the Corporation (subject to the direction of the President and the
authority of the Board of Directors), and, in general, shall perform such
other duties as are incident to the office of a chief operating officer of
a corporation, including those duties customarily performed by persons
occupying such office, and shall perform such other duties as, from time
to time, may be assigned to him by the Board of Directors or the
President.
4.5 VICE PRESIDENT. The President or the Board of Directors may appoint such
Vice Presidents as they deem necessary or appropriate. Vice Presidents may
be designated as Senior Vice Presidents, Executive Vice Presidents or some
other designation as the President or Board of Directors deems appropriate
(each a "Vice President"). Each Vice President shall perform such duties
as the Board of Directors may from time to time prescribe and have such
other powers as the President may from time to time prescribe.
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4.6 SECRETARY. The Secretary shall attend the meetings of the Board of
Directors and all meetings of stockholders and record the proceeding
thereat in a book or books to be kept for that purpose; the Secretary
shall also perform like duties for the standing committees when required.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. If the Secretary shall
be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if
there be no Assistant Secretary, then either the Chairman of the Board or
the President may choose another officer to cause such notice to be given.
The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have
authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the
Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
4.7 TREASURER. The Treasurer, if there is one, shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts
of receipt and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and the
Board of Directors, at its regular meeting, or when the Board of Directors
so requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books papers, vouchers, money
and other property of whatever kind in his possession or under his control
belonging to the Corporation.
4.8 ASSISTANT SECRETARIES. Except as may be otherwise provided in these
Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice- President, or the Secretary,
and in the absence of the Secretary or in the event of his disability or
refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
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4.9 ASSISTANT TREASURERS. Assistant Treasurers, if there by any, shall perform
such duties and have such powers as from time to time may be assigned to
them by the Board of Directors, the President or the Treasurer, and in the
absence of the Treasurer or in the event of his disability or refusal to
act, shall perform the duties of the Treasurer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Treasurer. If required by the Board of Directors, an Assistant Treasurer
shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging
to the Corporation.
4.10 CONTROLLER. The Controller, if there is one, shall be the chief accounting
officer of the Corporation, shall maintain records of all assets,
liabilities, and transactions of the Corporation and shall be responsible
for the design, installation and maintenance of accounting and cost
control systems and procedures for the Corporation and shall perform such
other duties and have such other powers as from time to time may be
assigned to him by the Board of Directors or the President.
4.11 OTHER OFFICERS. Such other officers as to the Board of Directors may
choose shall perform such duties and have such powers, subordinate to
those powers specifically delegated to certain officer in these Bylaws, as
from time to time may be assigned to them by the Board of Directors. The
Board of Directors may delegate to the President of the Corporation the
power to choose such other officers and to prescribe their respective
duties and powers.
4.12 VACANCIES. Whenever any vacancies shall occur in any office by death,
resignation, increase in the number of offices of the Corporation, or
otherwise, the same shall be filled by the Board of Directors (or the
President, in accordance with Section 4.3 of these Bylaws), and the
officer so appointed shall hold office until such officer's successor is
elected or appointed or until his earlier death, resignation or removal.
4.13 REMOVAL. Any officer or agent of the Corporation may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
4.14 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise
directed by the Board of Directors, the Chairman of the Board, the
President, any Vice President and the Treasurer of the Corporation shall
each have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of security holders of or with respect
to any action of security holders of any other corporation in which this
Corporation
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may hold securities and otherwise to exercise any and all rights and
powers which this Corporation may possess by reason of its ownership of
securities in such other corporation.
ARTICLE V
CAPITAL STOCK
5.1 CERTIFICATES FOR SHARES. The certificates for shares of the capital stock
of the Corporation shall be in such form as may be approved by the Board
of Directors or may be uncertificated shares. In the case of certificated
shares, the Corporation shall deliver certificates representing shares to
which stockholders are entitled. Certificates representing such
certificated shares shall be signed by the Chairman of the Board, the
President or a Vice President and either the Secretary or an Assistant
Secretary of the Corporation, and may bear the seal of the Corporation or
a facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles. The stock record books and the blank stock certificate
books shall be kept by the Secretary of the Corporation, or at the office
of such transfer agent or transfer agents as the Board of Directors may
from time to time by resolution determine. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person
were such officer at the date of its issuance.
5.2 TRANSFER OF SHARES. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof
in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of
shares.
5.3 OWNERSHIP OF SHARES. The Corporation shall be entitled to treat the holder
of record of any share or shares of capital stock of the Corporation as
the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
5.4 REGULATIONS REGARDING CERTIFICATES. The Board of Directors shall have the
power and authority to make all such rules and regulations as they may
deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the
Corporation.
5.5 LOST OR DESTROYED CERTIFICATES. The Board of Directors may determine the
conditions upon which a new certificate of stock may be issued in place of
a certificate which is alleged to have been lost, stolen or destroyed; and
may, in its discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
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Corporation and each transfer agent and registrar against any and all
losses or claims that may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE VI
INDEMNIFICATION
6.1 GENERAL. The Corporation shall, to the fullest extent permitted by
applicable law in effect on the date of effectiveness of these Bylaws, and
to such greater extent as applicable law may thereafter permit, indemnify
and hold Indemnitee harmless from and against any and all losses,
liabilities, claims, damages and, subject to Section 6.2, Expenses (as
this and all other capitalized words used in this Article VI not
previously defined in these Bylaws are defined in Section 6.16 hereof),
whatsoever arising out of any event or occurrence related to the fact that
Indemnitee is or was a director or officer of the Corporation or is or was
serving in another Corporate Status.
6.2 EXPENSES. If Indemnitee is, by reason of his Corporate Status, a party to
and is successful, on the merits or otherwise, in any Proceeding, he shall
be indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or
otherwise, as to any Matter in such Proceeding, the Corporation shall
indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf relating to such Matter. The termination of any
Matter in such a Proceeding by dismissal, with or without prejudice, shall
be deemed to be a successful result as to such Matter. To the extent that
the Indemnitee is, by reason of his Corporate Status, a witness in any
Proceeding, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
6.3 ADVANCES. In the event of any threatened or pending action, suit or
proceeding in which Indemnitee is a party or is involved and that may give
rise to a right of indemnification under this Article VI, following
written request to the Corporation by Indemnitee, the Corporation shall
promptly pay to Indemnitee amounts to cover expenses reasonably incurred
by Indemnitee in such proceeding in advance of its final disposition upon
the receipt by the Corporation of (i) a written undertaking executed by or
on behalf of Indemnitee providing that Indemnitee will repay the advance
if it shall ultimately be determined that Indemnitee is not entitled to be
indemnified by the Corporation as provided in this Agreement and (ii)
satisfactory evidence as to the amount of such expenses.
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6.4 REPAYMENT OF ADVANCES OR OTHER EXPENSES. Indemnitee agrees that Indemnitee
shall reimburse the Corporation for all expenses paid by the Corporation
in defending any civil, criminal, administrative or investigative action,
suit or proceeding against Indemnitee in the event and only to the extent
that it shall be determined pursuant to the provisions of this Article VI
or by final judgment or other final adjudication under the provisions of
any applicable law that Indemnitee is not entitled to be indemnified by
the Corporation for such expenses.
6.5 REQUEST FOR INDEMNIFICATION. To obtain indemnification, Indemnitee shall
submit to the Secretary of the Corporation a written claim or request.
Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
6.6 DETERMINATION OF ENTITLEMENT; NO CHANGE OF CONTROL. If there has been no
Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be determined
in accordance with Section 145(d) of the DGCL. If entitlement to
indemnification is to be determined by Independent Counsel, the
Corporation shall furnish notice to Indemnitee within 10 days after
receipt of the request for indemnification, specifying the identity and
address of Independent Counsel. The Indemnitee may, within 14 days after
receipt of such written notice of selection, deliver to the Corporation a
written objection to such selection. Such objection may be asserted only
on the ground that the Independent Counsel so selected does not meet the
requirements of Independent Counsel and the objection shall set forth with
particularity the factual basis for such assertion. If there is an
objection to the selection of Independent Counsel, either the Corporation
or Indemnitee may petition the Court for a determination that the
objection is without a reasonable basis and/or for the appointment of
Independent Counsel selected by the Court.
6.7 DETERMINATION OF ENTITLEMENT; CHANGE OF CONTROL. If there has been a
Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be determined
in a written opinion by Independent Counsel selected by Indemnitee.
Indemnitee shall give the Corporation written notice advising of the
identity and address of the Independent Counsel so selected. The
Corporation may, within seven days after receipt of such written notice of
selection, deliver to the Indemnitee a written objection to such
selection. Indemnitee may, within five days after the receipt of such
objection from the Corporation, submit the name of another Independent
Counsel and the Corporation may, within seven days after receipt of such
written notice of selection, deliver to the Indemnitee a written objection
to such selection. Any objections referred to in this Section 6.7 may be
asserted only on the ground that the Independent Counsel so selected does
not meet the requirements of Independent Counsel and such objection shall
set forth with particularity the factual basis for such assertion.
Indemnitee may petition the Court for a determination that the
Corporation's objection to the first and/or second
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selection of Independent Counsel is without a reasonable basis and/or for
the appointment as Independent Counsel of a person selected by the Court.
6.8 PROCEDURES OF INDEPENDENT COUNSEL. If a Change of Control shall have
occurred before the request for indemnification is sent by Indemnitee,
Indemnitee shall be presumed (except as otherwise expressly provided in
this Article VI) to be entitled to indemnification upon submission of a
request for indemnification in accordance with Section 6.5 hereof, and
thereafter the Corporation shall have the burden of proof to overcome the
presumption in reaching a determination contrary to the presumption. The
presumption shall be used by Independent Counsel as a basis for a
determination of entitlement to indemnification unless the Corporation
provides information sufficient to overcome such presumption by clear and
convincing evidence or the investigation, review and analysis of
Independent Counsel convinces him by clear and convincing evidence that
the presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or
persons empowered under Section 6.6 or 6.7 hereof to determine entitlement
to indemnification shall not have made and furnished to Indemnitee in
writing a determination within 60 days after receipt by the Corporation of
the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification unless Indemnitee knowingly
misrepresented a material fact in connection with the request for
indemnification or such indemnification is prohibited by applicable law.
The termination of any Proceeding or of any Matter therein, by judgment,
order, settlement or conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not (except as otherwise expressly provided in this
Article VI) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in
good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the Corporation, or with respect to any
criminal Proceeding, that Indemnitee had reasonable cause to believe that
his conduct was unlawful. A person who acted in good faith and in a manner
he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan of the Corporation shall be
deemed to have acted in a manner not opposed to the best interests of the
Corporation.
For purposes of any determination hereunder, a person shall be deemed
to have acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with
respect to any criminal action or Proceeding, to have had no reasonable
cause to believe his conduct was unlawful, if his action is based on the
records or books of account of the Corporation or another enterprise or on
information supplied to him by the officers of the Corporation or another
enterprise in the course of their duties or on the advice of legal counsel
for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other
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expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section shall
mean any other corporation or any partnership, limited liability company,
association, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of
this paragraph shall not be deemed to be exclusive or to limit in any way
the circumstances in which an Indemnitee may be deemed to have met the
applicable standards of conduct for determining entitlement to rights
under this Article.
6.9 INDEPENDENT COUNSEL EXPENSES. The Corporation shall pay any and all
reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this Article VI and in any proceeding to which it is a party
or witness in respect of its investigation and written report and shall
pay all reasonable fees and expenses incident to the procedures in which
such Independent Counsel was selected or appointed. No Independent Counsel
may serve if a timely objection has been made to his selection until a
court has determined that such objection is without a reasonable basis.
6.10 ADJUDICATION. In the event that (i) a determination is made pursuant to
Section 6.6 or 6.7 hereof that Indemnitee is not entitled to
indemnification under this Article VI; (ii) advancement of Expenses is not
timely made pursuant to Section 6.3 hereof; (iii) Independent Counsel has
not made and delivered a written opinion determining the request for
indemnification (a) within 90 days after being appointed by the Court, (b)
within 90 days after objections to his selection have been overruled by
the Court or (c) within 90 days after the time for the Corporation or
Indemnitee to object to his selection; or (iv) payment of indemnification
is not made within five days after a determination of entitlement to
indemnification has been made or deemed to have been made pursuant to
Section 6.6, 6.7 or 6.8 hereof, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. In the event that a
determination shall have been made that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant
to this Section 6.10 shall be conducted in all respects as a DE NOVO trial
on the merits and Indemnitee shall not be prejudiced by reason of that
adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding commenced pursuant to this Section 6.10, the
Corporation shall have the burden of proving that Indemnitee is not
entitled to indemnification or advancement of Expenses, as the case may
be. If a determination shall have been made or deemed to have been made
that Indemnitee is entitled to indemnification, the Corporation shall be
bound by such determination in any judicial proceeding commenced pursuant
to this Section 6.10, or otherwise, unless Indemnitee knowingly
misrepresented a material fact in connection with the request for
indemnification, or such indemnification is prohibited by law.
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The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 6.10 that the procedures and
presumptions of this Article VI are not valid, binding and enforceable and
shall stipulate in any such proceeding that the Corporation is bound by
all provisions of this Article VI. In the event that Indemnitee, pursuant
to this Section 6.10, seeks a judicial adjudication to enforce his rights
under, or to recover damages for breach of, this Article VI, Indemnitee
shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any and all Expenses actually and
reasonably incurred by him in such judicial adjudication, but only if he
prevails therein. If it shall be determined in such judicial adjudication
that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred
by Indemnitee in connection with such judicial adjudication or arbitration
shall be appropriately prorated.
6.11 PARTICIPATION BY THE CORPORATION. With respect to any such claim, action,
suit, proceeding or investigation as to which Indemnitee notifies the
Corporation of the commencement thereof: (a) the Corporation will be
entitled to participate therein at its own expense; (b) except as
otherwise provided below, to the extent that it may wish, the Corporation
(jointly with any other indemnifying party similarly notified) will be
entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After receipt of notice from the Corporation
to Indemnitee of the Corporation's election so to assume the defense
thereof, the Corporation will not be liable to Indemnitee under this
Article VI for any legal or other expenses subsequently incurred by
Indemnitee in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. Indemnitee shall
have the right to employ his own counsel in such action, suit, proceeding
or investigation but the fees and expenses of such counsel incurred after
notice from the Corporation of its assumption of the defense thereof shall
be at the expense of Indemnitee unless (i) the employment of counsel by
Indemnitee has been authorized by the Corporation, (ii) Indemnitee shall
have reasonably concluded that there is a conflict of interest between the
Corporation and Indemnitee in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses
of counsel employed by Indemnitee shall be subject to indemnification
pursuant to the terms of this Article VI. The Corporation shall not be
entitled to assume the defense of any action, suit, proceeding or
investigation brought in the name of or on behalf of the Corporation or as
to which Indemnitee shall have made the conclusion provided for in (ii)
above; and (c) the Corporation shall not be liable to indemnify Indemnitee
under this Article VI for any amounts paid in settlement of any action or
claim effected without its written consent, which consent shall not be
unreasonably withheld. The Corporation shall not settle any action or
claim in any manner which would impose any limitation or unindemnified
penalty on Indemnitee without Indemnitee's written consent, which consent
shall not be unreasonably withheld.
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6.12 NONEXCLUSIVITY OF RIGHTS. The rights of indemnification and advancement of
Expenses as provided by this Article VI shall not be deemed exclusive of
any other rights to which Indemnitee may at any time be entitled to under
applicable law, the Restated Certificate of Incorporation, the Bylaws, any
agreement, a vote of stockholders or a resolution of directors, or
otherwise. No amendment, alteration or repeal of this Article VI or any
provision hereof shall be effective as to any Indemnitee for acts, events
and circumstances that occurred, in whole or in part, before such
amendment, alteration or repeal. The provisions of this Article VI shall
continue as to an Indemnitee whose Corporate Status has ceased for any
reason and shall inure to the benefit of his heirs, executors and
administrators. Neither the provisions of this Article VI or those of any
agreement to which the Corporation is a party shall be deemed to preclude
the indemnification of any person who is not specified in this Article VI
as having the right to receive indemnification or is not a party to any
such agreement, but whom the Corporation has the power or obligation to
indemnify under the provisions of the DGCL.
6.13 INSURANCE AND SUBROGATION. The Corporation shall not be liable under this
Article VI to make any payment of amounts otherwise indemnifiable
hereunder if, but only to the extent that, Indemnitee has otherwise
actually received such payment under any insurance policy, contract,
agreement or otherwise.
In the event of any payment hereunder, the Corporation shall be
subrogated to the extent of such payment to all the rights of recovery of
Indemnitee, who shall execute all papers required and take all action
reasonably requested by the Corporation to secure such rights, including
execution of such documents as are necessary to enable the Corporation to
bring suit to enforce such rights.
6.14 SEVERABILITY. If any provision or provisions of this Article VI shall be
held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby; and, to the fullest
extent possible, the provisions of this Article VI shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
6.15 CERTAIN ACTIONS WHERE INDEMNIFICATION IS NOT PROVIDED. Notwithstanding any
other provision of this Article VI, no person shall be entitled to
indemnification or advancement of Expenses under this Article VI with
respect to any Proceeding, or any Matter therein, brought or made by such
person against the Corporation.
6.16 DEFINITIONS. For purposes of this Article VI:
(a) "ACQUIRING PERSON" means any Person who or which, together with all
Affiliates and Associates of such Person, is or are the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common
Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or
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become an Acquiring Person if such Person, together with its
Affiliates and Associates, shall become the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding solely as a result of a reduction in the number of shares
of Common Stock outstanding due to the repurchase of Common Stock by
the Corporation, unless and until such time as such Person or any
Affiliate or Associate of such Person shall purchase or otherwise
become the Beneficial Owner of additional shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares
of Common Stock or any other Person (or Persons) who is (or
collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares
of Common Stock shall become an Affiliate or Associate of such
Person, unless, in either such case, such Person, together with all
Affiliates and Associates of such Person, is not then the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common
Stock then outstanding.
(b) "AFFILIATE" has the meaning ascribed to that term in Exchange Act
Rule 12b-2.
(c) "ASSOCIATE" means, with reference to any Person, (i) any corporation,
firm, partnership, association, unincorporated organization or other
entity (other than the Corporation or a subsidiary of the
Corporation) of which that Person is an officer or general partner
(or officer or general partner of a general partner) or is, directly
or indirectly, the Beneficial Owner of 10% or more of any class of
its equity securities, (ii) any trust or other estate in which that
Person has a substantial beneficial interest or for or of which that
Person serves as trustee or in a similar fiduciary capacity and (iii)
any relative or spouse of that Person, or any relative of that
spouse, who has the same home as that Person.
(d) A specified Person is deemed the "BENEFICIAL OWNER" of, and is deemed
to "beneficially own," any securities:
(i) of which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner"
(as determined pursuant to Exchange Act Rule 13d-3) or otherwise
has the right to vote or dispose of, including pursuant to any
agreement, arrangement or understanding (whether or not in
writing); PROVIDED, HOWEVER, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any
security under this subparagraph (i) as a result of an
agreement, arrangement or understanding to vote that security if
that agreement, arrangement or understanding: (A) arises solely
from a revocable proxy or consent given in response to a public
(that is, not including a solicitation exempted by Exchange Act
Rule 14a-2(b)(2)) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the
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Exchange Act; and (B) is not then reportable by such Person on
Exchange Act Schedule 13D (or any comparable or successor
report);
(ii) which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, has the right or obligation
to acquire (whether that right or obligation is exercisable or
effective immediately or only after the passage of time or the
occurrence of an event) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or on the exercise
of conversion rights, exchange rights, other rights, warrants or
options, or otherwise; provided, however, that a Person shall
not be deemed the "Beneficial Owner" of, or to "beneficially
own," securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(iii)which are beneficially owned, directly or indirectly, by (A) any
other Person (or any Affiliate or Associate thereof) with which
the specified Person or any of the specified Person's Affiliates
or Associates has any agreement, arrangement or understanding
(whether or not in writing) for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy or consent
as described in the proviso to subparagraph (i) of this
definition) or disposing of any voting securities of the
Corporation or (B) any group (as that term is used in Exchange
Act Rule 13d-5(b)) of which that specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of that
acquisition. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or
demand relating to corporate action (including, without limitation,
calling a stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of
such security.
(e) "CHANGE OF CONTROL" means the occurrence of any of the following
events that occurs after the IPO Closing Date and after the date the
Indemnitee acquires his Corporate Status: (i) an event required to be
reported with respect to the Corporation in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act,
whether or not the Corporation is then subject to such reporting
requirement; (ii) any Person becomes an Acquiring Person; (iii) at
any time the then Continuing Directors cease to constitute a majority
of the members of the
-24-
Board; (iv) a merger of the Corporation with or into, or a sale by
the Corporation of its properties and assets substantially as an
entirety to, another Person occurs and, immediately after that
occurrence, any Person, other than an Exempt Person, together with
all Affiliates and Associates of such Person, shall be the Beneficial
Owner of twenty-five percent (25%) or more of the total voting power
of the then outstanding Voting Shares of the Person surviving that
transaction (in the case or a merger or consolidation) or the Person
acquiring those properties and assets substantially as an entirety.
(f) "COMMON STOCK" means the common stock, par value $.001 per share, of
the Corporation.
(g) "CONTINUING DIRECTOR" means at any time any individual who then (i)
is a member of the Board and was a member of the Board as of the IPO
Closing Date or whose nomination for his first election, or that
first election, to the Board following that date was recommended or
approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (ii) is not an Acquiring Person, an Affiliate
or Associate of an Acquiring Person or a nominee or representative of
an Acquiring Person or of any such Affiliate or Associate.
(h) "CORPORATE STATUS" describes the status of a person who is or was a
director, officer, employee or agent of the Corporation or of any
other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving
at the request of the Corporation. For purposes of this Agreement,
"serving at the request of the Corporation" includes any service by
Indemnitee which imposes duties on, or involves services by,
Indemnitee with respect to any employee benefit plan or its
participants or beneficiaries.
(i) "COURT" means the Court of Chancery of the State of Delaware or any
other court of competent jurisdiction.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(k) "EXEMPT PERSON" means (i)(A) the Corporation, any subsidiary of the
Corporation, any employee benefit plan of the Corporation or of any
subsidiary of the Corporation and (B) any Person organized, appointed
or established by the Corporation for or pursuant to the terms of any
such plan or for the purpose of funding any such plan or funding
other employee benefits for employees of the Corporation or any
subsidiary of the Corporation and (ii) Indemnitee, any Affiliate or
Associate of Indemnitee or any group (as that term is used in
Exchange Act Rule 13d-5(b)) of which Indemnitee or any Affiliate or
Associate of Indemnitee is a member.
-25-
(l) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a Proceeding.
(m) "INDEMNITEE" includes any person who is, or is threatened to be made,
a witness in or a party to any Proceeding as described in Section 6.1
or 6.2 hereof by reason of his Corporate Status.
(n) "INDEPENDENT COUNSEL" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither
presently is, nor in the five years previous to his selection or
appointment has been, retained to represent: (i) the Corporation or
Indemnitee in any matter material to either such party or (ii) any
other party to the Proceeding giving rise to a claim for
indemnification hereunder.
(o) "MATTER" is a claim, a material issue or a substantial request for
relief.
(p) "IPO" means the first time a registration statement filed under the
Securities Act of 1933, as amended, and respecting an underwritten
primary offering by the Corporation of shares of Common Stock is
declared effective under that act and the shares registered by that
registration statement are issued and sold by the Corporation
(otherwise than pursuant to the exercise of any over-allotment
option).
(q) "IPO CLOSING DATE" means the date on which the Corporation first
receives payment for the shares of Common Stock it sells in the IPO.
(r) "PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
(s) "PROCEEDING" includes any action, suit, alternate dispute resolution
mechanism, hearing or any other proceeding, whether civil, criminal,
administrative, arbitrative, investigative or mediative, any appeal
in any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding and any inquiry or investigation that
could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by
an Indemnitee pursuant to Section 6.10 to enforce his rights under
this Article VI or (ii) pending on or before the date of this
Agreement.
-26-
(t) "VOTING SHARES" means: (i) in the case of any corporation, stock of
that corporation of the class or classes having general voting power
under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general
voting power under ordinary circumstances equivalent to the Voting
Shares of a corporation.
6.17 NOTICES. Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee shall, if he
anticipates or contemplates making a claim for expenses or an advance
pursuant to the terms of this Article VI, notify the Corporation of the
commencement of such action, suit or proceeding; PROVIDED, HOWEVER, that
any delay in so notifying the Corporation shall not constitute a waiver or
release by Indemnitee of rights hereunder and that any omission by
Indemnitee to so notify the Corporation shall not relieve the Corporation
from any liability that it may have to Indemnitee otherwise than under
this Article VI. Any communication required or permitted to the
Corporation shall be addressed to the Secretary of the Corporation and any
such communication to Indemnitee shall be addressed to Indemnitee's
address as shown on the Corporation's records unless he specifies
otherwise and shall be personally delivered or delivered by overnight mail
delivery. Any such notice shall be effective upon receipt.
6.18 CONTRACTUAL RIGHTS. The right to be indemnified or to the advancement or
reimbursement of Expenses (i) is a contract right based upon good and
valuable consideration, pursuant to which Indemnitee may sue as if these
provisions were set forth in a separate written contract between
Indemnitee and the Corporation, (ii) is and is intended to be retroactive
and shall be available as to events occurring prior to the adoption of
these provisions and (iii) shall continue after any rescission or
restrictive modification of such provisions as to events occurring prior
thereto.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 BYLAW AMENDMENTS. The Board of Directors shall have the power to adopt,
amend and repeal from time to time the Bylaws of the Corporation, subject
to the right of stockholders entitled to vote with respect thereto to
amend or repeal such Bylaws as adopted or amended by the Board of
Directors. Bylaws of the Corporation may be adopted, amended or repealed
by the affirmative vote of the holders of at least two-thirds of the
combined voting power of the outstanding shares of all classes of stock of
the Corporation entitled to vote generally in the election of directors,
voting together as a single class, at any annual meeting, or at any
special meeting if notice of the proposed amendment be contained in the
notice of said special meeting, or by the Board of Directors as specified
in the preceding sentence.
-27-
7.2 BOOKS AND RECORDS. The Corporation shall keep books and records of account
and shall keep minutes of the proceedings of its stockholders, its Board
of Directors and each committee of its Board of Directors.
7.3 WAIVER OF NOTICE. Whenever any notice is required to be given to any
stockholder, director or committee member under the provisions of the DGCL
or under the Restated Certificate of Incorporation, as amended, or these
Bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, facsimile, cable or wireless transmission or (ii) by deposit
of the same in a post office box in a sealed prepaid wrapper addressed to
the person entitled thereto at his post office address, as it appears on
the records of the Corporation, and such notice shall be deemed to have
been given on the day of such transmission or mailing, as the case may be.
Whenever any notice is required to be given to any stockholder,
director or committee member under the provisions of the DGCL or under the
Restated Certificate of Incorporation, as amended, or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be
equivalent to the giving of such notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the
Restated Certificate of Incorporation or these Bylaws.
7.4 RESIGNATIONS. Any director or officer may resign at any time. Such
resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt
by the President or the Secretary of the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
7.5 SEAL. The seal of the Corporation shall be in such form as the Board of
Directors may adopt.
7.6 FISCAL YEAR. The fiscal year of the Corporation shall end on the 31st day
of December of each year or as otherwise provided by a resolution adopted
by the Board of Directors.
7.7 FACSIMILE SIGNATURES. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be
used whenever and as authorized by the Board of Directors.
-28-
7.8 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director and each member of
any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith
upon the books of account or reports made to the Corporation by any of its
officers, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors or by
any such committee, or in relying in good faith upon other records of the
Corporation.
-29-
TEMPORARY CERTIFICATE-EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY
COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE
IN DALLAS, TEXAS AND NEW YORK,
NEW YORK
ARS
AMERICAN RESIDENTIAL SERVICES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
AND LEGENDS
CUSIP 028911 10 5
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE
OF $.001 PER SHARE OF THE COMMON STOCK OF
AMERICAN RESIDENTIAL SERVICES, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to the
provisions of the laws of the State of Delaware and to all of the provisions of
the Restated Certificate of Incorporation and the Bylaws of the Corporation, as
amended from time to time (copies of which are on file at the office of the
Corporation), to all of which the holder of this certificate by acceptance
hereof assents. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
its duly authorized officers and its corporate seal to be hereto affixed.
Dated
/s/ C. CLIFFORD WRIGHT
C. Clifford Wright
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ JOHN D. HELD
John D. Held
SECRETARY
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN RESIDENTIAL SERVICES, INC.
The Corporation is authorized to issue Common Stock, par value $.001 per share,
and Preferred Stock, par value $.001 per share. The Board of Directors of the
Corporation has authority to fix the number of shares and the designation of any
series of Preferred Stock and to determine the powers, designations, preferences
and relative, participating, optional or other special rights between classes
of stock or series thereof of the Corporation, and the qualifications,
limitations or restrictions of such preferences and/or rights. The Corporation
will furnish without charge to each stockholder who so requests a full statement
of the foregoing as established from time to time by the Restated Certificate of
Incorporation of the Corporation and by any certificate of designations. Any
such request should be made to the Secretary of the Corporation at the offices
of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT - ________ Custodian ________
(Cust) (Minor)
Under Uniform Gifts to Minors
Act _________________________
(State)
UNIF TRF MIN ACT - ________ Custodian (until age ___ )
(Cust)
________ Under Uniform Transfer
(Minor)
to Minors Act ____________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________ shares of the capital stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________
NOTICE: X ______________________________
(SIGNATURE)
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN ON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT X ______________________________
OR ANY CHANGE WHATEVER. (SIGNATURE)
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between American Residential
Services, Inc. (the "Company") and ChaseMellon Shareholder Services, L.L.C.
(the "Rights Agent") dated as of August 1, 1996 as it may from time to time
be supplemented or amended (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the
principal offices of the Company. Under certain circumstances, as set forth
in the Rights Agreement, such Rights may be redeemed, may be exchanged, may
expire or may be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request therefor.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN
ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT), AND CERTAIN TRANSFEREES THEREOF, WILL BECOME
NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
EXHIBIT 4.2
DRAFT OF JULY 15, 1996
AMERICAN RESIDENTIAL SERVICES, INC.
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF AUGUST 1, 1996
TABLE OF CONTENTS
Section 1. Certain Definitions ............................................ 1
Section 2. Appointment of Rights Agent .................................... 8
Section 3. Issue of Rights Certificates ................................... 8
Section 4. Form of Rights Certificates .................................... 10
Section 5. Countersignature and Registration .............................. 10
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen
Rights Certificates ............................................ 11
Section 7. Exercise of Rights; Purchase Price ............................. 12
Section 8. Cancellation and Destruction of Rights Certificates ............ 14
Section 9. Reservation and Availability of Capital Stock .................. 14
Section 10. Preferred Stock Record Date .................................... 15
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights ............................................ 16
Section 12. Certificate of Adjusted Purchase Price or Number of Shares ..... 23
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power .................................................. 24
Section 14. Fractional Rights and Fractional Shares ........................ 26
Section 15. Rights of Action ............................................... 27
Section 16. Agreement of Rights Holders .................................... 28
Section 17. Rights Certificate Holder Not Deemed a Stockholder ............. 28
Section 18. Concerning the Rights Agent .................................... 29
Section 19. Merger or Consolidation or Change of Name of Rights Agent ...... 29
Section 20. Duties of Rights Agent ......................................... 30
-i-
Section 21. Change of Rights Agent ......................................... 32
Section 22. Issuance of New Rights Certificates ............................ 32
Section 23. Redemption and Termination ..................................... 33
Section 24. Exchange ....................................................... 34
Section 25. Notice of Certain Events ....................................... 35
Section 26. Notices ........................................................ 36
Section 27. Supplements and Amendments ..................................... 36
Section 28. Successors ..................................................... 37
Section 29. Determinations and Actions by the Board of Directors, etc ...... 37
Section 30. Benefits of this Agreement ..................................... 37
Section 31. Severability ................................................... 38
Section 32. Governing Law .................................................. 38
Section 33. Counterparts ................................................... 38
Section 34. Descriptive Headings ........................................... 38
Exhibit A - Form of Certificate of Designations of Series A Junior Participating
Preferred Stock
Exhibit B - Form of Rights Certificate
Exhibit C - Summary of Rights to Purchase Preferred Stock
-ii-
RIGHTS AGREEMENT
This Rights Agreement, dated as of August 1, 1996 (the "Agreement"),
between American Residential Services, Inc., a Delaware corporation (the
"Company"), and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent"),
W I T N E S S E T H:
WHEREAS, on July 22, 1996 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend of one
Right for each share of common stock, par value $.001 per share, of the Company
(the "Common Stock") outstanding at the close of business on August 1, 1996
Record Date (the "Record Date"), and has authorized the issuance of one Right
(as such number may hereinafter be adjusted pursuant to the provisions of
Section 11(p) hereof) for each share of Common Stock of the Company issued
(whether originally issued or delivered from the Company's treasury) between the
Record Date and the earlier of the Distribution Date (as hereinafter defined)
and the Expiration Date (as hereinafter defined), and, in certain circumstances
provided for in Section 22 hereof, after the Distribution Date, each Right
initially representing the right to purchase one Fractional Share (as
hereinafter defined) of Series A Junior Participating Preferred Stock of the
Company, upon the terms and subject to the conditions hereinafter set forth (the
"Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1.CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding, but shall not
include any Exempt Person; PROVIDED, however, that a Person shall not be or
become an Acquiring Person if such Person, together with its Affiliates and
Associates, shall become the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding solely as a result of a reduction in the number of
shares of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become 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 (or Persons) who is (or
collectively are) the Beneficial Owner of shares of Common Stock constituting 1%
or more of the then outstanding shares of Common Stock shall become an Affiliate
or Associate of such Person, unless, in either such case, such Person, together
with all Affiliates and Associates of such Person, is not then the Beneficial
Owner of 15% or more of the shares of Common Stock then outstanding; and
PROVIDED, FURTHER, that if the Board of Directors, with the concurrence of a
majority of the members of the Board of Directors who are not, and are not
representatives, nominees, Affiliates or Associates of, such Person or an
Acquiring Person, determines in good faith that a Person that would otherwise be
an
-1-
"Acquiring Person" has become such inadvertently (including, without limitation,
because (i) such Person was unaware that it beneficially owned a percentage of
Common Stock that would otherwise cause such Person to be an "Acquiring Person"
or (ii) such Person was aware of the extent of its Beneficial Ownership of
Common Stock but had no actual knowledge of the consequences of such Beneficial
Ownership under this Agreement) and without any intention of changing or
influencing control of the Company, and if such Person as promptly as
practicable divested or divests itself of Beneficial Ownership of a sufficient
number of shares of Common Stock so that such Person would no longer be an
"Acquiring Person," then such Person shall not be deemed to be or to have become
an "Acquiring Person" for any purposes of this Agreement.
Notwithstanding anything in this definition of "Acquiring Person" to
the contrary, 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 and any Affiliate or Associate thereof shall not be or
become an Acquiring Person unless and until such Person, together with all
Affiliates and Associates thereof, shall purchase or otherwise become 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 (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock shall
become an Affiliate or Associate of such Person (excluding, in each case, shares
issued or issuable upon the exercise of options granted to non-employee
directors of the Company under a plan approved by the stockholders of the
Company) unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of 15% or more
of the shares of Common Stock then outstanding.
At any time that the Rights are redeemable, the Board of Directors
may, generally or with respect to any specified Person or Persons, determine to
increase to a specified percentage greater than that set forth herein or
decrease to a specified percentage lower than that set forth herein or determine
a number of shares to be (but in no event less than or equal to the percentage
or number of shares of Common Stock then beneficially owned by such Person), the
level of Beneficial Ownership of Common Stock at which a Person or such Person
or Persons becomes an Acquiring Person.
"Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement; PROVIDED, however, that no Person shall be deemed
an "Affiliate" of Equus II solely by virtue of being an officer or director of
Equus II unless and until such officer or director, as the case may be, and
Equus II (or an Affiliate or Associate of Equus II) (i) have any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or consent as
described in the proviso to subparagraph (i) of the definition of "Beneficial
Owner") or disposing of any voting securities of the Company or (ii) are members
of any group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement)
with respect to the Company.
-2-
"Associate" shall mean, with reference to any Person, (1) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a Subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (2) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (3) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement) or
otherwise has the right to vote or dispose of, including pursuant to any
agreement, arrangement or understanding (whether or not in writing);
PROVIDED, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this subparagraph
(i) as a result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding: (A) arises
solely from a revocable proxy or consent given in response to a public
(i.e., not including a solicitation exempted by Rule 14a-2(b)(2) of the
General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement) proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General Rules and
Regulations under the Exchange Act and (B) is not then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable or
successor report);
(ii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to acquire
(whether such right or obligation is exercisable or effective immediately
or only after the passage of time or the occurrence of an event) pursuant
to any agreement, arrangement or understanding (whether or not in writing)
or upon the exercise of conversion rights, exchange rights, other rights,
warrants or options, or otherwise; PROVIDED, however, that a Person shall
not be deemed the "Beneficial Owner" of, or to "beneficially own," (A)
securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or (B)
securities issuable upon exercise of Rights at any time prior to the
occurrence of a Triggering Event, or (C) securities issuable upon exercise
of Rights from and after the occurrence of a Triggering Event which Rights
were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof (the "Original Rights") or pursuant to Section 11(i) or
(p) hereof in connection with an adjustment made with respect to any
Original Rights; or
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(iii)that are beneficially owned, directly or indirectly, by (A) any
other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to subparagraph (i) of this
definition) or disposing of any voting securities of the Company or (B)
any group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) of which such Person is a member;
PROVIDED, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition. For purposes of
this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange Act
as in effect on the date of this Agreement) in respect of such security.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"close of business" on any given date shall mean 5:00 p.m., New York
City time, on such date; PROVIDED, however, that if such date is not a Business
Day, it shall mean 5:00 p.m., New York City time, on the next succeeding
Business Day.
"Closing Price" of a security for any day shall mean the last sales
price, regular way, on such day or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, on such day,
in either case as reported in the principal transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange, or, if such security is not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading, or, if such security is not listed or
admitted to trading on any national securities exchange but sales price
information is reported for such security, as reported by NASDAQ or such other
self-regulatory organization or registered securities information processor (as
such terms are used under the Exchange Act) that then reports information
concerning such security, or, if sales price information is not so reported, the
average of the high bid and low asked prices in the over-the-counter market on
such day, as reported by NASDAQ or such other entity, or, if on such day such
security is not quoted by any such entity, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in such
security selected by the Board of Directors of the Company. If on such day no
market maker is making a market in such security, the fair value of such
security on such day as determined in good faith by the Board of Directors of
the Company shall be used.
-4-
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Company, except that "Common Stock" when used with reference to
equity interests issued by any Person other than the Company shall mean the
capital stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct the
management, of such Person.
"Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Company" shall mean the Person named as the "Company" in the
preamble of this Agreement until a successor Person shall have become such or
until a Principal Party shall assume, and thereafter be liable for, all
obligations and duties of the Company hereunder, pursuant to the applicable
provisions of this Agreement, and thereafter "Company" shall mean such successor
Person or Principal Party.
"Current Market Price" shall have the meaning set forth in Section
11(d) hereof.
"Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Distribution Date" shall mean the earlier of (i) the close of
business on the tenth day (or, if such Stock Acquisition Date results from the
consummation of a Permitted Offer, such later date as may be determined by the
Company's Board of Directors as set forth below before the Distribution Date
occurs) after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date) or (ii) the close of business on the tenth Business Day (or such
later date as may be determined by the Company's Board of Directors as set forth
below before the Distribution Date occurs) after the date that a tender offer or
exchange offer by any Person (other than any Exempt Person) is first published
or sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act as then in effect, if upon consummation
thereof, such Person would be an Acquiring Person, other than a tender or
exchange offer that is determined before the Distribution Date occurs to be a
Permitted Offer. The Board of Directors of the Company may, to the extent set
forth in the preceding sentence, defer the date set forth in clause (i) or (ii)
of the preceding sentence to a specified later date or to an unspecified later
date to be determined by a subsequent action or event (but in no event to a date
later than the close of business on the tenth day after the first occurrence of
a Triggering Event).
"Equivalent Preferred Stock" shall have the meaning set forth in
Section 11(b) hereof.
"Equus II" shall mean Equus II Incorporated.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
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"Exempt Person" shall mean the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan or for the purpose of funding any such
plan or funding other employee benefits for employees of the Company or any
Subsidiary of the Company.
"Expiration Date" shall mean the earliest of (i) the Final Expiration
Date, (ii) the time at which the Rights are redeemed as provided in Section 23
hereof, (iii) the time at which the Rights expire pursuant to Section 13(d)
hereof and (iv) the time at which all Rights then outstanding and exercisable
are exchanged pursuant to Section 24 hereof.
"Final Expiration Date" shall mean the close of business on June 30,
2006.
"Flip-In Event" shall mean an event described in Section 11(a)(ii)
hereof.
"Flip-In Trigger Date" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Flip-Over Event" shall mean any event described in clause (x), (y)
or (z) of Section 13(a) hereof, but excluding any transaction described in
Section 13(d) hereof that causes the Rights to expire.
"Fractional Share" with respect to the Preferred Stock shall mean one
one-hundredth of a share of Preferred Stock.
"NASDAQ" shall mean the National Association of Securities Dealers,
Inc. Automated Quotations System.
"Original Rights" shall have the meaning set forth in the definition
of "Beneficial Owner."
"Permitted Offer" shall mean a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors who are not officers
or employees of the Company and who are not, and are not representatives,
nominees, Affiliates or Associates of, an Acquiring Person or the person making
the offer, after receiving advice from one or more investment banking firms, to
be (a) at a price and on terms that are fair to stockholders (taking into
account all factors that such members of the Board deem relevant including,
without limitation, prices that could reasonably be achieved if the Company or
its assets were sold on an orderly basis designed to realize maximum value) and
(b) otherwise in the best interests of the Company and its stockholders.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other entity.
-6-
"Preferred Stock" shall mean shares of Series A Junior Participating
Preferred Stock, par value $.001 per share, of the Company having the rights,
powers and preferences set forth in the form of Certificate of Designations
attached hereto as Exhibit A and, to the extent that there is not a sufficient
number of shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of Preferred Stock, par
value $.001 per share, of the Company designated for such purpose containing
terms substantially similar to the terms of the Series A Junior Participating
Preferred Stock.
"Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
"Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
"Record Date" shall have the meaning set forth in the recitals clause
at the beginning of this Agreement.
"Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
"Rights" shall have the meaning set forth in the recitals clause at
the beginning of this Agreement.
"Rights Agent" shall mean the Person named as the "Rights Agent" in
the preamble of this Agreement until a successor Rights Agent shall have become
such pursuant to the applicable provisions hereof, and thereafter "Rights Agent"
shall mean such successor Rights Agent. If at any time there is more than one
Person appointed by the Company as Rights Agent pursuant to the applicable
provisions of this Agreement, "Rights Agent" shall mean and include each such
Person.
"Rights Certificates" shall mean the certificates evidencing the
Rights.
"Rights Dividend Declaration Date" shall have the meaning set forth
in the recitals clause at the beginning of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
"Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition and Section 23, shall
include, without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.
"Subsidiary" shall mean, with reference to any Person, any
corporation or other Person of which an amount of voting securities sufficient
to elect at least a majority of the directors or other persons performing
similar functions is beneficially owned, directly or indirectly, by such Person,
or otherwise controlled by such Person.
-7-
"Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Summary of Rights" shall mean the Summary of Rights to Purchase
Preferred Stock sent pursuant to Section 3(b) hereof.
"Trading Day" with respect to a security shall mean a day on which
the principal national securities exchange on which such security is listed or
admitted to trading is open for the transaction of business, or, if such
security is not listed or admitted to trading on any national securities
exchange but is quoted by NASDAQ, a day on which NASDAQ reports trades, or, if
such security is not so quoted, a Business Day.
"Triggering Event" shall mean any Flip-In Event or any Flip-Over
Event.
Section 2.APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company and to take certain actions in
respect of the holders of the Rights (who, in accordance with Section 3 hereof,
shall prior to the Distribution Date also be the holders of the Common Stock) in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable.
Section 3.ISSUE OF RIGHTS CERTIFICATES.
(a) Until the Distribution Date, (x) the Rights will be evidenced
(subject to the provisions of paragraph (b) of this Section 3) by the
certificates for Common Stock registered in the names of the holders of the
Common Stock and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Rights Agent will send by first-class, insured,
postage prepaid mail, to each record holder of the Common Stock as of the close
of business on the Distribution Date (other than any Person referred to in the
first sentence of Section 7(e)), at the address of such holder shown on the
records of the Company, one or more Rights Certificates, evidencing one Right
for each share of Common Stock so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Right Certificates, the Company shall make the necessary and
appropriate rounding adjustments (in accordance with Section 14(a) hereof) so
that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.
(b) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C, by first-class, postage
prepaid mail, to each record holder of Common Stock as of the close of business
on the Record Date, at the address of such holder shown on the records of the
Company. With respect to certificates for Common Stock outstanding as of the
Record Date,
-8-
until the Distribution Date or the earlier surrender for transfer thereof or the
Expiration Date, the Rights associated with the shares of Common Stock
represented by such certificates shall be evidenced by such certificates for
Common Stock together with the Summary of Rights, and the registered holders of
the Common Stock shall also be the registered holders of the associated Rights.
Until the earlier of the Distribution Date or the Expiration Date, the transfer
of any of the certificates for Common Stock outstanding on the Record Date, with
or without a copy of the Summary of Rights, shall also constitute the transfer
of the Rights associated with the Common Stock represented by such certificates.
(c) Rights shall be issued in respect of all shares of Common Stock
that are issued (whether originally issued or delivered from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date or, in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates issued for shares of Common
Stock that shall so become outstanding or shall be transferred or exchanged
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date shall also be deemed to be certificates for Rights, and shall
bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between American
Residential Services, Inc. (the "Company") and ChaseMellon Shareholder
Services, L.L.C. (the "Rights Agent") dated as of August 1, 1996 as it may
from time to time be supplemented or amended (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
redeemed, may be exchanged, may expire or may be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the Rights
Agreement, as in effect on the date of mailing, without charge promptly
after receipt of a written request therefor. UNDER CERTAIN CIRCUMSTANCES
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY OR
TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), AND CERTAIN TRANSFEREES THEREOF, WILL BECOME NULL AND VOID AND
WILL NO LONGER BE TRANSFERABLE.
With respect to such certificates containing the foregoing legend, until the
earlier of the Distribution Date or the Expiration Date, the Rights associated
with the Common Stock represented by such certificates shall be evidenced by
such certificates alone, and registered holders of Common Stock shall also be
the registered holders of the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with
the Common Stock represented by such certificates.
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Section 4.FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof), when, as and if issued,
shall be substantially in the form set forth in Exhibit B hereto and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or quotation system
on which the Rights may from time to time be listed or quoted, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever issued, shall be dated as of the Record Date and on their
face shall entitle the holders thereof to purchase such number of Fractional
Shares of Preferred Stock as shall be set forth therein at the price set forth
therein (such exercise price per Fractional Share (or, as set forth in this
Agreement, for other securities), the "Purchase Price"), but the amount and type
of securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by a Person described in the
first sentence of Section 7(e), and any Rights Certificate issued pursuant to
Section 6 or Section 11 hereof upon transfer, exchange, replacement or
adjustment of any such Rights, shall contain (to the extent feasible) the
following legend, modified as applicable to apply to such Person:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement). Accordingly, this Rights Certificate and the Rights
represented hereby [will] [have] become null and void in the circumstances
and with the effect specified in Section 7(e) of such Agreement.
The provisions of Section 7(e) of this Agreement shall be operative whether or
not the foregoing legend is contained on any such Rights Certificate. The
Company shall give notice to the Rights Agent promptly after it becomes aware of
the existence of any Acquiring Person or any Associate or Affiliate thereof.
Section 5.COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof, which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be countersigned by the Rights Agent,
either manually or by facsimile signature, and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Rights Certificates shall cease to be such
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officer of the Company before countersignature by the Rights Agent and issuance
and delivery by the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the certificate number and the date of
each of the Rights Certificates.
Section 6.TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e), Section
13(d), Section 14 and Section 24 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
Expiration Date, any Rights Certificate or Rights Certificates may be
transferred, split up, combined or exchanged for another Rights Certificate or
Rights Certificates, entitling the registered holder to purchase a like number
of Fractional Shares of Preferred Stock (or, following a Triggering Event,
Common Stock, other securities, cash or other assets, as the case may be) as the
Rights Certificate or Rights Certificates surrendered then entitled such holder
(or former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Rights Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) thereof or of the Affiliates or Associates thereof as
the Company shall reasonably request. Thereupon the Rights Agent shall, subject
to Section 4(b), Section 7(e), Section 13(d), Section 14 and Section 24 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment by the holder of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer,
split-up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case
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of loss, theft or destruction, of indemnity or security reasonably satisfactory
to them, and reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will, subject
to Section 4(b), Section 7(e), Section 13(d), Section 14 and Section 24, execute
and deliver a new Rights Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu of the Rights
Certificate so lost, stolen, destroyed or mutilated.
Section 7.EXERCISE OF RIGHTS; PURCHASE PRICE.
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly completed and executed, to the
Rights Agent at the principal office or offices of the Rights Agent designated
for such purpose, together with payment of the aggregate Purchase Price with
respect to the total number of Fractional Shares of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the Expiration Date.
(b) The Purchase Price for each Fractional Share of Preferred Stock
pursuant to the exercise of a Right shall initially be $40, and shall be subject
to adjustment from time to time as provided in Sections 11 and 13(a) hereof and
shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate on the reverse
side thereof duly executed, accompanied by payment, with respect to each Right
so exercised, of the Purchase Price per Fractional Share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable transfer tax,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly
(i)(A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of Fractional Shares of Preferred Stock to be
purchased, and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the shares of Preferred Stock issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing interests in such number of
Fractional Shares of Preferred Stock as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Rights
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Certificate, registered in such name or names as may be designated by such
holder and (iv) after receipt thereof, deliver such cash, if any, to or upon the
order of the registered holder of such Rights Certificate. The payment of the
Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii)
hereof) may be made in cash or by certified check, cashiers or official bank
check or bank draft payable to the order of the Company or the Rights Agent. In
the event that the Company is obligated to issue other securities (including
Common Stock) of the Company, pay cash and/or distribute other property pursuant
to Section 11(a) or Section 13(a) hereof, the Company will make all arrangements
necessary so that such other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when appropriate. The
Company reserves the right to require prior to the occurrence of a Triggering
Event that, upon exercise of Rights, a number of Rights be exercised so that
only whole shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event, any Rights beneficially
owned by or transferred to (i) an Acquiring Person or an Associate or Affiliate
of an Acquiring Person other than any such Person that became such pursuant to a
Permitted Offer and the Board of Directors in good faith determines was not
involved in and did not cause or facilitate, directly or indirectly, such
Triggering Event, (ii) a direct or indirect transferee of such Rights from such
Acquiring Person (or any such Associate or Affiliate) who becomes a transferee
after such Triggering Event or (iii) a direct or indirect transferee of such
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with such Triggering Event and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from
such Acquiring Person (or such Affiliate or Associate) to holders of equity
interests in such Acquiring Person (or such Affiliate or Associate) or to any
Person with whom such Acquiring Person (or such Affiliate or Associate) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer that the Board of Directors of the Company determines
is part of a plan, arrangement or understanding that has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action, no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise, and such Rights shall not be transferable. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless
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such registered holder shall have (i) completed and signed the certificate
contained in the form of election to purchase set forth on the reverse side of
the Rights Certificate surrendered for such exercise and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
Section 8.CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9.RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement, including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as any shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights are listed on any national
securities exchange or quoted on any trading system, the Company shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such
exchange, or quoted on such system, upon official notice of issuance upon such
exercise. Following the occurrence of a Triggering Event, the Company will use
its best efforts to list (or continue the listing of) the Rights and the
securities issuable and deliverable upon the exercise of the Rights on one or
more national securities exchanges or to cause the Rights and the securities
purchasable upon exercise of the Rights to be reported by NASDAQ or such other
transaction reporting system then in use.
(c) The Company shall use its best efforts to (i) prepare and file,
as soon as practicable following the first occurrence of a Flip-In Event or, if
applicable, as soon as practicable following the earliest date after the first
occurrence of a Flip-In Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined pursuant to this
Agreement (including in accordance with Section 11(a)(iii) hereof), a
registration statement on an
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appropriate form under the Securities Act with respect to the securities
purchasable upon exercise of the Rights, (ii) cause such registration statement
to become effective as soon as practicable after such filing, and (iii) cause
such registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities and
(B) the Expiration Date. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed 90 days
after the date set forth in clause (i) of the first sentence of this Section
9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. In addition, if the
Company shall determine that the Securities Act requires an effective
registration statement under the Securities Act following the Distribution Date,
the Company may temporarily suspend the exercisability of the Rights until such
time as such a registration statement has been declared effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained, the exercise thereof shall not
be permitted under applicable law or any required registration statement shall
not have been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Fractional Shares of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or
other securities) delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges that
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of Fractional Shares of Preferred Stock (or
Common Stock and/or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax that
may be payable in respect of any transfer or delivery of Rights Certificates to
a Person other than, or the issuance or delivery of a number of Fractional
Shares of Preferred Stock (or Common Stock and/or other securities, as the case
may be) in respect of a name other than that of, the registered holder of the
Rights Certificates evidencing Rights surrendered for exercise or to issue or
deliver any certificates for a number of Fractional Shares of Preferred Stock
(or Common Stock and/or other securities, as the case may be) in a name other
than that of the registered holder upon the exercise of any Rights until such
tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.
Section 10.PREFERRED STOCK RECORD DATE. Each Person in whose name any
certificate for a number of Fractional Shares of Preferred Stock (or Common
Stock and/or other
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securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of such shares
(fractional or otherwise) of Preferred Stock (or Common Stock and/or other
securities, as the case may be) represented thereby on, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and all
applicable transfer taxes) was made; PROVIDED, however, that if the date of such
surrender and payment is a date upon which the Preferred Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares (fractional or otherwise) on, and such certificate shall be dated, the
next succeeding Business Day on which the Preferred Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company are
open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
Section 11.ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares or other
securities subject to purchase upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
(a)(i)In the event the Company shall at any time after the
Rights Dividend Declaration Date (A) declare a dividend on the outstanding
shares of Preferred Stock payable in shares of Preferred Stock, (B)
subdivide the outstanding shares of Preferred Stock, (C) combine the
outstanding shares of Preferred Stock into a smaller number of shares or
(D) otherwise reclassify the outstanding shares of Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Preferred Stock or
capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive, upon payment of the Purchase Price
then in effect, the aggregate number and kind of shares of Preferred Stock
or capital stock, as the case may be, which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred
Stock transfer books of the Company were open, he would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs which
would require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to Sections 23 and 24 of this Agreement, in the
event any Person shall, at any time after the Rights Dividend Declaration
Date, become an Acquiring
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Person, unless the event causing such Person to become an Acquiring Person
is (1) a Flip- Over Event or (2) an acquisition of shares of Common Stock
pursuant to a Permitted Offer (PROVIDED that this clause (2) shall cease
to apply if such Acquiring Person thereafter becomes the Beneficial Owner
of any additional shares of Common Stock other than pursuant to such
Permitted Offer or a transaction set forth in Section 13(a) or 13(d)
hereof), then (x) the Purchase Price shall be adjusted to be the Purchase
Price immediately prior to the first occurrence of a Flip-In Event
multiplied by the number of Fractional Shares of Preferred Stock for which
a Right was exercisable immediately prior to such first occurrence and (y)
each holder of a Right (except as provided below in Section 11(a)(iii) and
in Section 7(e) hereof) shall thereafter have the right to receive, upon
exercise thereof at a price equal to the Purchase Price in accordance with
the terms of this Agreement, in lieu of shares of Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the result
obtained by dividing the Purchase Price by 50% of the Current Market Price
per share of Common Stock on the date of such first occurrence (such
number of shares, the "Adjustment Shares"); PROVIDED that the Purchase
Price and the number of Adjustment Shares shall be further adjusted as
provided in this Agreement to reflect any events occurring after the date
of such first occurrence.
(iii)In the event that the number of shares of Common Stock that
are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights is not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall, to the extent permitted by applicable law and
regulation, (A) determine the excess of (1) the value of the Adjustment
Shares issuable upon the exercise of a Right (computed using the Current
Market Price used to determine the number of Adjustment Shares) (the
"Current Value") over (2) the Purchase Price (such excess is herein
referred to as the "Spread"), and (B) with respect to each Right, make
adequate provision to substitute for the Adjustment Shares, upon the
exercise of the Rights and payment of the applicable Purchase Price, (1)
cash, (2) a reduction in the Purchase Price, (3) Common Stock or other
equity securities of the Company (including, without limitation, shares,
or units of shares, of preferred stock (including, without limitation, the
Preferred Stock) that the Board of Directors of the Company has determined
to have the same value as shares of Common Stock (such shares of preferred
stock are herein referred to as "Common Stock Equivalents")), (4) debt
securities of the Company, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where
such aggregate value has been determined by the Board of Directors of the
Company based upon the advice of a nationally recognized investment
banking firm selected by the Board of Directors of the Company; PROVIDED,
however, if the Company shall not have made adequate provision to deliver
value pursuant to clause (B) above within 30 days following the later of
(x) the first occurrence of a Flip-In Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later
of (x) and (y) being referred to herein as the "Flip-In Trigger Date"),
then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price,
shares of Common Stock (to the extent available) and then, if necessary,
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cash, which shares and/or cash have an aggregate value equal to the
Spread. If the Board of Directors of the Company shall determine in good
faith that it is likely that sufficient additional shares of Common Stock
could be authorized for issuance upon exercise in full of the Rights, the
30-day period set forth above may be extended to the extent necessary, but
not more than 90 days after the Flip-In Trigger Date, in order that the
Company may seek stockholder approval for the authorization of such
additional shares (such period, as it may be extended, the "Substitution
Period"). To the extent that the Company or the Board of Directors
determines that some action need be taken pursuant to the first and/or
second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares and/or to
decide the appropriate form of distribution to be made pursuant to such
first sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer
in effect. For purposes of this Section 11(a)(iii), the value of the
Common Stock shall be the Current Market Price per share of the Common
Stock on the Flip-In Trigger Date and the value of any Common Stock
Equivalent shall be deemed to have the same value as the Common Stock on
such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within 45 calendar days after
such record date) Preferred Stock (or shares having the same rights, privileges
and preferences as the shares of Preferred Stock ("Equivalent Preferred Stock"))
or securities convertible into Preferred Stock or Equivalent Preferred Stock at
a price per share of Preferred Stock or per share of Equivalent Preferred Stock
(or having a conversion price per share, if a security convertible into
Preferred Stock or Equivalent Preferred Stock) less than the Current Market
Price per share of Preferred Stock on such record date, the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock that the
aggregate offering price of the total number of shares of Preferred Stock and/or
Equivalent Preferred Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such Current Market Price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or Equivalent Preferred Stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by delivery of consideration, part or all of which may be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights or
warrants are
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not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation) of evidences of indebtedness, cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Market
Price per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent) of the portion of the cash,
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to a share of Preferred Stock and the denominator
of which shall be such Current Market Price per share of Preferred Stock. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such record
date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "Current
Market Price" per share of Common Stock of a Person on any date shall be
deemed to be the average of the daily Closing Prices per share of such
Common Stock for the 30 consecutive Trading Days immediately prior to such
date, and for purposes of computations made pursuant to Section 11(a)(iii)
hereof, the "Current Market Price" per share of Common Stock on any date
shall be deemed to be the average of the daily Closing Prices per share of
such Common Stock for the 10 consecutive Trading Days immediately
following such date; PROVIDED, however, that in the event that the Current
Market Price per share of Common Stock is determined during a period
following the announcement of (A) a dividend or distribution on such
Common Stock other than a regular quarterly cash dividend or the dividend
of the Rights, or (B) any subdivision, combination or reclassification of
such Common Stock, and the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, shall not have occurred prior to the commencement of the
requisite 30 Trading Day or 10 Trading Day period, as set forth above,
then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. If the Common Stock is
not publicly held or not so listed or traded, "Current Market Price" per
share shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
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(ii) For the purpose of any computation hereunder, the "Current
Market Price" per share (or Fractional Share) of Preferred Stock shall be
determined in the same manner as set forth above for the Common Stock in
clause (i) of this Section 11(d) (other than the last sentence thereof).
If the Current Market Price per share (or Fractional Share) of Preferred
Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner
described in clause (i) of this Section 11(d), the "Current Market Price"
per share of Preferred Stock shall be conclusively deemed to be an amount
equal to 100 (as such number may be appropriately adjusted for such events
as stock splits, stock dividends and recapitalizations with respect to the
Common Stock occurring after the date of this Agreement) multiplied by the
Current Market Price per share of the Common Stock. If neither the Common
Stock nor the Preferred Stock is publicly held or so listed or traded,
Current Market Price per share of the Preferred Stock shall mean the fair
value per share as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes. For all
purposes of this Agreement, the Current Market Price of a Fractional Share
of Preferred Stock shall be equal to the Current Market Price of one share
of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; PROVIDED, however,
that any adjustments that by reason of this Section 11(e) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest ten-thousandth of a share of Common Stock or other share
or to the nearest ten- thousandth of a Fractional Share of Preferred Stock, as
the case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which mandates such
adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive in respect of such Right any shares of capital stock other
than Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (f), (g), (h), (i), (j), (k) and (m) hereof, and
the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the
Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Fractional Shares of
Preferred Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
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(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Fractional Shares of
Preferred Stock (calculated to the nearest one ten-thousandth of a Fractional
Share) obtained by (i) multiplying (x) the number of Fractional Shares of
Preferred Stock covered by a Right immediately prior to this adjustment by (y)
the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price, and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect, on or after the date of any adjustment of
the Purchase Price, to adjust the number of Rights in lieu of any adjustment in
the number of Fractional Shares of Preferred Stock purchasable upon the exercise
of a Right. Each of the Rights outstanding after the adjustment in the number of
Rights shall be exercisable for the number of Fractional Shares of Preferred
Stock for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest ten-thousandth) obtained
by dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of
the Purchase Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued, shall be at least
10 days later than the date of the public announcement. If Rights Certificates
have been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Rights Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Rights Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Rights Certificates
so to be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and shall be registered in the names of the holders of record of
Rights Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of Fractional Shares of Preferred Stock issuable upon the exercise of
the Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price per Fractional Share and the number of
Fractional Shares that were expressed in the initial Rights Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, or the stated capital of
the number of Fractional
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Shares of Preferred Stock or of the number of shares of Common Stock or other
securities issuable upon exercise of a Right, the Company shall take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable such
number of Fractional Shares of Preferred Stock or such number of shares of
Common Stock or other securities at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Fractional Shares of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of Fractional Shares of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; PROVIDED, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities that by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11 hereafter made by the Company to holders of its Preferred Stock shall
not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time
that there is an Acquiring Person, (i) consolidate with any other Person, (ii)
merge with or into any other Person, or (iii) sell, lease or transfer (or permit
one or more Subsidiaries to sell, lease or transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person or Persons, if (x) at the time of or immediately
after such consolidation, merger, sale, lease or transfer there are any rights,
warrants or other instruments or securities of the Company or any other Person
outstanding or agreements, arrangements or understandings in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, (y) prior to, simultaneously with or immediately after
such consolidation, merger, sale, lease or transfer, the stockholders or other
equity owners of the Person who constitutes, or would constitute, the "Principal
Party" for purposes of Section 13(a) hereof shall have received a distribution
of Rights previously owned by such Person or any of its Affiliates or
Associates, or (z) the identity, form or nature of organization of the Principal
Party (including without limitation the selection of the Person that will be the
Principal Party as a result of the Company's entering into one or more
consolidations, mergers, sales, leases, transfers or transactions with more than
one party) would
-22-
preclude or limit the exercise of Rights or otherwise diminish substantially or
eliminate the benefits intended to be afforded by the Rights.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23, Section 24 or Section 27
hereof, take (or permit any Subsidiary to take) any action if the purpose of
such action is to, or if at the time such action is taken it is reasonably
foreseeable that such action will, diminish substantially or eliminate the
benefits intended to be afforded by the Rights.
(p) Notwithstanding Section 3(c) hereof or any other provision of
this Agreement to the contrary, in the event that the Company shall at any time
after the Rights Dividend Declaration Date and prior to the Distribution Date
(i) declare a dividend on the outstanding shares of Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock,
(iii) combine the outstanding shares of Common Stock into a smaller number of
shares or (iv) otherwise reclassify the outstanding shares of Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), the
number of Rights associated with each share of Common Stock then outstanding, or
issued or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction (the "Adjustment
Fraction") the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event. In lieu of such
adjustment in the number of Rights associated with one share of Common Stock,
the Company may elect to adjust the number of Fractional Shares of Preferred
Stock purchasable upon the exercise of one Right and the Purchase Price. If the
Company makes such election, the number of Rights associated with one share of
Common Stock shall remain unchanged, and the number of Fractional Shares of
Preferred Stock purchasable upon exercise of one Right and the Purchase Price
shall be proportionately adjusted so that (i) the number of Fractional Shares of
Preferred Stock purchasable upon exercise of a Right following such adjustment
shall equal the product of the number of Fractional Shares of Preferred Stock
purchasable upon exercise of a Right immediately prior to such adjustment
multiplied by the Adjustment Fraction and (ii) the Purchase Price following such
adjustment shall equal the product of the Purchase Price immediately prior to
such adjustment multiplied by the Adjustment Fraction.
Section 12.CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 or Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate and (c) mail a
brief summary thereof to each registered holder of a Rights Certificate (or, if
prior to the Distribution Date, to each registered holder of a certificate
representing shares of Common Stock) in accordance
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with Section 26 hereof. The Rights Agent shall be fully protected in relying on
any such certificate and on any adjustment therein contained.
Section 13.CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) In the event that, from and after the time an Acquiring Person
has become such, directly or indirectly, (x) the Company shall consolidate with,
or merge with and into, any other Person, and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (y) any
Person shall consolidate with, or merge with or into, the Company, and the
Company shall be the continuing or surviving corporation of such consolidation
or merger, and, in connection with such consolidation or merger, all or part of
the outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of the Company or any other Person or cash or any
other property, or (z) the Company shall sell, lease or otherwise transfer (or
one or more of its Subsidiaries shall sell, lease or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any wholly owned Subsidiary of the Company or any combination thereof in one
or more transactions each of which complies (and all of which together comply)
with Section 11(o) hereof), then, and in each such case (except as may be
contemplated by Section 13(d) hereof), proper provision shall be made so that:
(i) the Purchase Price shall be adjusted to be the Purchase Price immediately
prior to the first occurrence of a Triggering Event multiplied by the number of
Fractional Shares of Preferred Stock for which a Right was exercisable
immediately prior to such first occurrence; (ii) on and after the Distribution
Date, each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof at the Purchase
Price in accordance with the terms of this Agreement, in lieu of shares of
Preferred Stock or Common Stock of the Company, such number of validly
authorized and issued, fully paid, nonassessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by dividing the Purchase Price
by 50% of the Current Market Price per share of the Common Stock of such
Principal Party on the date of consummation of such Flip-Over Event; PROVIDED
that the Purchase Price and the number of shares of Common Stock of such
Principal Party issuable upon exercise of each Right shall be further adjusted
as provided in this Agreement to reflect any events occurring after the date of
such first occurrence of a Triggering Event or after the date of such Flip-Over
Event, as applicable; (iii) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Flip-Over Event, all the obligations and
duties of the Company pursuant to this Agreement; (iv) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Flip- Over Event; (v) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock
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thereafter deliverable upon the exercise of the Rights; and (vi) the provisions
of Section 11(a)(ii) hereof shall be of no effect following the occurrence of
any Flip-Over Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), (A) the Person that is the issuer of
any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, or, if there is more than one
such issuer, the issuer the Common Stock of which has the greatest
aggregate market value, or (B) if no securities are so issued, (x) the
Person that survives such consolidation or is the other party to the
merger and survives such merger, or, if there is more than one such
Person, the Person the Common Stock of which has the greatest aggregate
market value or (y) if the Person that is the other party to the merger
does not survive the merger, the Person that does survive the merger
(including the Company if it survives); and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant
to such transaction or transactions, or, if each Person that is a party to
such transaction or transactions receives the same portion of the assets
or earning power so transferred, or if the Person receiving the greatest
portion of the assets or earning power cannot be determined, the Person
the Common Stock of which has the greatest aggregate market value;
PROVIDED, however, that in any such case, if the Common Stock of such Person is
not at such time and has not been continuously over the preceding twelve-month
period registered under Section 12 of the Exchange Act, and if (1) such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, "Principal Party" shall refer to such other
Person; (2) such Person is a Subsidiary, directly or indirectly, of more than
one Person, the Common Stocks of all of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value; and (3) such Person is
owned, directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules set
forth in (1) and (2) above shall apply to each of the chains of ownership having
an interest in such joint venture as if such party were a "Subsidiary" of both
or all of such joint venturers and the Principal Parties in each such chain
shall bear the obligations set forth in this Section 13 in the same ratio as
their direct or indirect interests in such Person bear to the total of such
interests.
(c) The Company shall not consummate any Flip-Over Event unless each
Principal Party (or Person that may become a Principal Party as a result of such
Flip-Over Event) shall have a sufficient number of authorized shares of its
Common Stock that have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and unless
prior thereto the Company and each such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in
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paragraphs (a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of such Flip-Over Event, the Principal Party at its
own expense will
(i) prepare and file a registration statement under the Securities
Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the "blue sky"
laws of such jurisdictions as may be necessary or appropriate;
(iii)use its best efforts, if the Common Stock of the Principal Party
is or shall become listed on a national securities exchange, to list (or
continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on such securities exchange and, if the Common
Stock of the Principal Party shall not be listed on a national securities
exchange, to cause the Rights and the securities purchasable upon exercise
of the Rights to be reported by NASDAQ or such other transaction reporting
system then in use; and
(iv) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates that comply in all
respects with the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Flip-Over Event
shall occur at any time after the occurrence of a Flip-In Event, the Rights that
have not theretofore been exercised shall thereafter become exercisable in the
manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a Permitted
Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is not less than the
price per share of Common Stock paid to all holders of Common Stock whose shares
were purchased pursuant to such Permitted Offer, and (iii) the form of
consideration being offered to the remaining holders of shares of Common Stock
pursuant to such transaction is the same as the form of consideration paid
pursuant to such Permitted Offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
Section 14.FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates or
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scrip evidencing fractional Rights. In lieu of such fractional Rights, there
shall be paid to the registered holders of the Rights Certificates with regard
to which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the Closing Price of one Right for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than, except as provided in Section 7(c) hereof,
fractions that are integral multiples of a Fractional Share of Preferred Stock)
upon exercise of the Rights or to distribute certificates or scrip evidencing
fractional shares of Preferred Stock (other than, except as provided in Section
7(c) hereof, fractions that are integral multiples of a Fractional Share of
Preferred Stock). Interests in fractions of shares of Preferred Stock in
integral multiples of a Fractional Share of Preferred Stock may, at the election
of the Company in its sole discretion, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it, provided that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the shares of Preferred Stock
represented by such depositary receipts. In lieu of fractional shares of
Preferred Stock that are not integral multiples of a Fractional Share of
Preferred Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of one one-hundredth of the Closing Price of
a share of Preferred Stock for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates or scrip evidencing fractional shares
of Common Stock. In lieu of fractional shares of Common Stock, the Company may
pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
Closing Price of one share of Common Stock for the Trading Day immediately prior
to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15.RIGHTS OF ACTION. All rights of action in respect of this
Agreement, other than rights of action vested in the Rights Agent pursuant to
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock) and, where applicable, the Company; and any registered holder of
any Rights Certificate (or, prior to the Distribution Date, of the Common
Stock), without the consent of the Rights Agent or of the holder of any other
Rights Certificate (or, prior to the Distribution Date, of the Common Stock),
may, in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by such
Rights Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the
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foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
After a Triggering Event, holders of Rights shall be entitled to recover the
reasonable costs and expenses, including attorneys' fees, incurred by them in
any action to enforce the provisions of this Agreement.
Section 16.AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will not be evidenced
by Rights Certificates and will be transferable only in connection with the
transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates will be
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the form of assignment set forth on the reverse side thereof and the
certificate contained therein duly completed and fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the Person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17.RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of Fractional
Shares of Preferred Stock or any other securities of the Company that may at any
time be issuable upon the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the
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holder of any Rights Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18.CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other reasonable disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises. In no case will the
Rights Agent be liable for special, indirect, incidental or consequential loss
or damages of any kind whatsoever, even if the Rights Agent has been advised of
the possibility of such damages.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it, after proper inquiry or examination, to be
genuine and to be signed, executed and, where necessary, guaranteed, verified or
acknowledged, by the proper Person or Persons.
Section 19.MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; PROVIDED, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name
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of the successor Rights Agent; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20.DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "Current Market Price") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct. In no event shall the Rights Agent
be liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Rights Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by
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the Rights Agent) or in respect of the validity or execution of any Rights
Certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Rights Certificate; nor shall it be responsible for any
adjustment required under the provisions of Section 11 or Section 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Rights Certificates
after receipt of actual knowledge of any such adjustment); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock or Common Stock or
other securities to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Preferred Stock or Common Stock or
other securities will, when so issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, omission, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
omission, default, neglect or misconduct; PROVIDED, however, that reasonable
care was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
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(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21.CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company, and to each transfer
agent of the Common Stock and the Preferred Stock, by registered or certified
mail, and to the registered holders, if any, of the Rights Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent (with or without cause) upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and the Preferred Stock, by registered or
certified mail, and to the registered holders of the Rights Certificates, if
any, by first-class mail. If the Rights Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. Notwithstanding the foregoing provisions of this
Section 21, in no event shall the resignation or removal of a Rights Agent be
effective until a successor Rights Agent shall have been appointed and have
accepted such appointment. If the Company shall fail to make such appointment
within a period of 30 days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the registered holder of a Rights Certificate
(who shall, with such notice, submit his Rights Certificate for inspection by
the Company), then the Rights Agent or the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of the State of New York (or of
any other state of the United States so long as such corporation is authorized
to conduct a stock transfer or corporate trust business in the State of New
York), in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an affiliate of a corporation described in clause (a) of
this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
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Section 22.ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the Expiration Date, the Company (a) shall, with respect to
shares of Common Stock so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement granted or awarded on or prior
to the Distribution Date, or upon the exercise, conversion or exchange of
securities issued by the Company on or prior to the Distribution Date, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale; PROVIDED, however,
that (i) no such Rights Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23.REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth day
following the first date of public announcement of the occurrence of a Flip-In
Event (or, if such date shall have occurred prior to the Record Date, the close
of business on the tenth day following the Record Date) and (ii) the Expiration
Date, cause the Company to redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, as such amount may be
appropriately adjusted, if necessary, to reflect any stock split, stock dividend
or similar transaction occurring after the Rights Dividend Declaration Date
(such redemption price being hereinafter referred to as the "Redemption Price");
PROVIDED, however, that the Rights may not be redeemed following any merger to
which the Company is a party that (i) occurs when there is an Acquiring Person
and (ii) was not approved prior to such merger by the Board of Directors of the
Company and by the stockholders of the Company at a stockholders' meeting.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Flip-In Event until
such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the Current Market Price of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by the Board
of Directors.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the redemption of the Rights (the
effectiveness of which action may be conditioned on the occurrence of one or
more events or on the existence of one or more facts or may be effective at some
future time), evidence of which shall be filed with the Rights Agent and without
any further action and without any notice, the right to exercise the Rights will
terminate and the only
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right thereafter of the holders of Rights shall be to receive the Redemption
Price for each Right so held. Promptly after the effectiveness of the action of
the Board of Directors ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the registered holders of
the then outstanding Rights by mailing such notice to all such holders at each
holder's last address as it appears upon the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the Company for the
Common Stock. Any notice that is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption shall state the method by which the payment of the Redemption Price
will be made.
Section 24.EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any
time and from time to time after the occurrence of a Flip-In Event, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
for shares of Common Stock or Common Stock Equivalents or any combination
thereof, at an exchange ratio of one share of Common Stock, or such number of
Common Stock Equivalents or units representing fractions thereof as would be
deemed to have the same value as one share of Common Stock, per Right,
appropriately adjusted, if necessary, to reflect any stock split, stock dividend
or similar transaction occurring after the Rights Dividend Declaration Date
(such exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors may not effect such
exchange at any time after (i) any Person (other than an Exempt Person),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the shares of Common Stock then outstanding
or (ii) the occurrence of a Flip-Over Event.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to and in
accordance with subsection (a) of this Section 24 (the effectiveness of which
action may be conditioned on the occurrence of one or more events or on the
existence of one or more facts or may be effective at some future time) and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock and/or Common Stock
Equivalents equal to the number of such Rights held by such holder multiplied by
the Exchange Ratio. The Company shall promptly give public notice of any such
exchange; PROVIDED, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the registered holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the shares of Common
Stock and/or Common Stock Equivalents for Rights will be effected and, in the
event of any partial exchange, the number of Rights that will be exchanged. Any
partial exchange shall be effected as nearly pro rata as possible based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
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(c) In the event that the number of shares of Common Stock that are
authorized by the Company's certificate of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights is not
sufficient to permit an exchange of Rights as contemplated in accordance with
this Section 24, the Company may, at its option, take all such action as may be
necessary to authorize additional shares of Common Stock for issuance upon
exchange of the Rights.
(d) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates or scrip evidencing fractional shares
of Common Stock. In lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of Rights with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the value of a whole share of Common Stock. For
purposes of this Section 24, the value of a whole share of Common Stock shall be
the Closing Price per share of Common Stock for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24, and the value of any
Common Stock Equivalent shall be deemed to have the same value as the Common
Stock on such date.
Section 25.NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a wholly owned Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or to
effect any sale, lease or other transfer of all or substantially all the
Company's assets to any other Person or Persons (other than a wholly owned
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or (v) to effect the liquidation, dissolution or winding up of the
Company, then, in each such case, the Company shall give to each holder of
record of a Rights Certificate, to the extent feasible and in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, lease, transfer, liquidation, dissolution or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least 20 days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least 20
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock, whichever
shall be the earlier. The failure to give notice required by this Section 25 or
any defect therein shall not affect the legality or validity of the action taken
by the Company or the vote upon any such action.
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(b) In case any Flip-In Event or Flip-Over Event shall occur, then
the Company shall as soon as practicable thereafter give to each registered
holder of a Rights Certificate (or if occurring prior to the Distribution Date,
the registered holders of Common Stock), in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) or
Section 13(a) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 26.NOTICES. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
American Residential Services, Inc.
5850 San Felipe, Suite 500
Houston, Texas 77057-6177
Attention: General Counsel
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
Attention: __________________
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27.SUPPLEMENTS AND AMENDMENTS. Except as provided in the last
sentence of this Section 27, at any time when the Rights are then redeemable,
the Company may in its sole and absolute discretion and the Rights Agent shall,
if the Company so directs, supplement or amend any provision of this Agreement
in any respect without the approval of any holders of Rights or holders of
Common Stock. At any time when the Rights are not redeemable, except as provided
in the last sentence of this Section 27, the Company may and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein that may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder or (iv) to change or supplement the provisions hereunder
in any manner that
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the Company may deem necessary or desirable; PROVIDED that no such amendment or
supplement shall materially adversely affect the interests of the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); and FURTHER PROVIDED that this Agreement may not be
supplemented or amended pursuant to this sentence to lengthen (A) a time period
relating to when the Rights may be redeemed or (B) any other time period unless
the lengthening of such other time period is for the purpose of protecting,
enhancing or clarifying the rights of, and/or the benefits to, the holders of
Rights (other than any Acquiring Person and its Affiliates and Associates). Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment;
PROVIDED, however, that the Rights Agent may, but shall not be obligated to,
enter into any such supplement or amendment that affects the Rights Agent's own
rights, duties or immunities under this Agreement. Notwithstanding anything
contained in this Agreement to the contrary, no supplement or amendment shall be
made that decreases the Redemption Price.
Section 28.SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29.DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement. The Board of
Directors of the Company (or, as set forth herein, certain specified members
thereof) shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors of the Company or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including, without limitation, a determination
to redeem or not redeem the Rights or to amend this Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that
are done or made by the Board of Directors of the Company in good faith, shall
(x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights, as such, and all other parties, and (y) not subject the
Board of Directors to any liability to the holders of the Rights.
Section 30.BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders
-37-
of the Rights Certificates (and, prior to the Distribution Date, registered
holders of the Common Stock).
Section 31.SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, then, unless there has occurred any merger referred to
in the proviso to the first sentence of Section 23(a), the right of redemption
set forth in Section 23 hereof shall be reinstated and shall not expire until
the close of business on the tenth day following the date of such determination
by the Board of Directors of the Company. Without limiting the foregoing, if any
provision requiring that a determination be made by less than the entire Board
of Directors of the Company is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, such determination shall
then be made by the entire Board of Directors of the Company.
Section 32.GOVERNING LAW. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33.COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34.DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By ________________________________
Name:
Title:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By _________________________________
Name:
Title:
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EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
AMERICAN RESIDENTIAL SERVICES, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
AMERICAN RESIDENTIAL SERVICES, INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Restated Certificate of Incorporation of
the said Corporation, the said Board of Directors on July 22, 1996 adopted the
following resolution creating a series of 500,000 shares of Preferred Stock
designated as "Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Restated Certificate of Incorporation, a series of Preferred Stock, par
value $.001 per share, of the Corporation be and hereby is created, and
that the designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other rights
of the shares of such series and the qualifications, limitations and
restrictions thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
that shall be designated as "Series A Junior Participating Preferred Stock," and
the number of shares constituting such series shall be 500,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series
A Junior Participating Preferred Stock to less than the number of shares then
issued and outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
A-1
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock, in
preference to the holders of shares of any class or series of stock of the
Corporation ranking junior to the Series A Junior Participating Preferred Stock,
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in
cash on the last day of March, June, Septmeber and December in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $10 or (b) the Adjustment Number (as defined below) times the aggregate
per share amount of all cash dividends, and the Adjustment Number times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. The "Adjustment Number" shall initially be
100. In the event the Corporation shall at any time after July 22, 1996 (the
"Rights Declaration Date") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such
A-2
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Junior Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to a number of votes equal to the Adjustment Number
on all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein, in the Restated Certificate
of Incorporation or by law, the holders of shares of Series A Junior
Participating Preferred Stock, the holders of shares of any other class or
series entitled to vote with the Common Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C)(i)If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") that shall extend until such time
when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, (1) the number of
Directors shall be increased by two, effective as of the time of election of
such Directors as herein provided, and (2) the holders of Preferred Stock
(including holders of the Series A Junior Participating Preferred Stock) upon
which these or like voting rights have been conferred and are exercisable (the
"Voting Preferred Stock") with dividends in arrears in an amount equal to six
quarterly dividends thereon, voting as a class, irrespective of series, shall
have the right to elect such two Directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at
any annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that such voting right shall not be exercised unless the
holders of at least one-third in number of the shares of Voting Preferred Stock
outstanding shall be
A-3
present in person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Voting Preferred Stock of
such voting right.
(iii)Unless the holders of Voting Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent of the total number of shares
of Voting Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Voting Preferred Stock, which
meeting shall thereupon be called by the Chairman of the Board, the President, a
Vice President or the Secretary of the Corporation. Notice of such meeting and
of any annual meeting at which holders of Voting Preferred Stock are entitled to
vote pursuant to this paragraph (C)(iii) shall be given to each holder of record
of Voting Preferred Stock by mailing a copy of such notice to him at his last
address as the same appears on the books of the Corporation. Such meeting shall
be called for a time not earlier than 20 days and not later than 60 days after
such order or request or, in default of the calling of such meeting within 60
days after such order or request, such meeting may be called on similar notice
by any stockholder or stockholders owning in the aggregate not less than ten
percent of the total number of shares of Voting Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (C)(iii), no such special
meeting shall be called during the period within 60 days immediately preceding
the date fixed for the next annual meeting of the stockholders.
(iv) In any default period, after the holders of Voting Preferred
Stock shall have exercised their right to elect Directors voting as a class, (x)
the Directors so elected by the holders of Voting Preferred Stock shall continue
in office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the Board of
Directors may be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class or classes of stock which
elected the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class or
classes of stock shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Voting Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Voting
Preferred Stock as a class shall terminate and (z) the number of Directors shall
be such number as may be provided for in the Restated Certificate of
Incorporation or By-Laws irrespective of any increase made pursuant to the
provisions of paragraph (C) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law or in the Restated
Certificate of Incorporation or By-Laws). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
A-4
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series
A Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled; or
(iii)redeem or purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or any shares
of stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of Series A Junior Participating Preferred Stock, or to all such
holders and the holders of any such shares ranking on a parity therewith,
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. REACQUIRED SHARES. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to any conditions and restrictions on issuance set forth
herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made
A-5
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation Preference,
no additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) the Adjustment Number. Following the payment of
the full amount of the Series A Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall, subject to the
prior rights of all other series of Preferred Stock, if any, ranking prior
thereto, receive their ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number to 1 with respect to
such Series A Junior Participating Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any, that
rank on a parity with the Series A Junior Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6, but the sale, lease or conveyance of all or substantially all the
Corporation's assets shall be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 6.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. REDEMPTION. (A) The Corporation, at its option, may redeem shares
of the Series A Junior Participating Preferred Stock in whole at any time and in
part from time to time, at a redemption price equal to the Adjustment Number
times the current per share market price (as
A-6
such term is hereinafter defined) of the Common Stock on the date of the mailing
of the notice of redemption, together with unpaid accumulated dividends to the
date of such redemption. The "current per share market price" on any date shall
be deemed to be the average of the closing price per share of such Common Stock
for the ten consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; PROVIDED, however, that in the event that the
current per share market price of the Common Stock is determined during a period
following the announcement of (A) a dividend or distribution on the Common Stock
other than a regular quarterly cash dividend or (B) any subdivision, combination
or reclassification of such Common Stock and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, shall not have occurred prior to the commencement of such
ten Trading Day period, then, and in each such case, the current per share
market price shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sales price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange, or, if the Common Stock is
not listed or admitted to trading on the New York Stock Exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange but sales price information is
reported for such security, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
self-regulatory organization or registered securities information processor (as
such terms are used under the Securities Exchange Act of 1934, as amended) that
then reports information concerning the Common Stock, or, if sales price
information is not so reported, the average of the high bid and low asked prices
in the over-the-counter market on such day, as reported by NASDAQ or such other
entity, or, if on any such date the Common Stock is not quoted by any such
entity, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Corporation. If on any such date no such market maker
is making a market in the Common Stock, the fair value of the Common Stock on
such date as determined in good faith by the Board of Directors of the
Corporation shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
but is quoted by NASDAQ, a day on which NASDAQ reports trades, or, if the Common
Stock is not so quoted, a Monday, Tuesday, Wednesday, Thursday or Friday on
which banking institutions in the State of New York are not authorized or
obligated by law or executive order to close.
(B) In the event that fewer than all the outstanding shares of the
Series A Junior Participating Preferred Stock are to be redeemed, the number of
shares to be redeemed shall be determined by the Board of Directors and the
shares to be redeemed shall be determined by lot or pro rata as may be
determined by the Board of Directors or by any other method that may be
determined by the Board of Directors in its sole discretion to be equitable.
(C) Notice of any such redemption shall be given by mailing to the
holders of the shares of Series A Junior Participating Preferred Stock to be
redeemed a notice of such redemption,
A-7
first class postage prepaid, not later than the fifteenth day and not earlier
than the sixtieth day before the date fixed for redemption, at their last
address as the same shall appear upon the books of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the number of shares to be
redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on the close of
business on such redemption date. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the stockholder received such notice, and failure duly to give such notice by
mail, or any defect in such notice, to any holder of Series A Junior
Participating Preferred Stock shall not affect the validity of the proceedings
for the redemption of any other shares of Series A Junior Participating
Preferred Stock that are to be redeemed. On or after the date fixed for
redemption as stated in such notice, each holder of the shares called for
redemption shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the redemption price. If fewer than all the
shares represented by any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(D) The shares of Series A Junior Participating Preferred Stock shall
not be subject to the operation of any purchase, retirement or sinking fund.
9. RANKING. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise, and shall rank senior to the Common Stock
as to such matters.
10. AMENDMENT. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds or more of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
11. FRACTIONAL SHARES. Series A Junior Participating Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
A-8
IN WITNESS WHEREOF, the undersigned has executed this Certificate and
does affirm the foregoing as true this ___ day of _______, 199_.
[Vice] President
A-9
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER JUNE 30, 2006 EXPIRATION DATE OR EARLIER IF REDEEMED OR
EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF
THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
RIGHTS CERTIFICATE
AMERICAN RESIDENTIAL SERVICES, INC.
This certifies that _____________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of August 1, 1996 as it may from time to time be
supplemented or amended (the "Rights Agreement"), between American Residential
Services, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., a national banking association (the "Rights
Agent"), to purchase from the Company at any time prior to 5:00 p.m. (New York
City time) on June 30, 2006 at the principal office or offices of the Rights
Agent designated for such purpose, or its successors as Rights Agent, one
one-hundredth of a fully paid, nonassessable share (a "Fractional Share") of
Series A Junior Participating Preferred Stock (the "Preferred Stock") of the
Company, at a purchase price of $40 per one one-hundredth of a share (the
"Purchase Price"), upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase and related Certificate set forth on the
reverse hereof duly executed. The Purchase Price may be paid in cash or by
certified check, cashiers or official bank check or bank draft payable to the
order of the Company or the Rights Agent. The number of Rights evidenced by this
Rights Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Purchase Price per Fractional Share
set forth above, are the number and Purchase Price as of August 1, 1996, based
on the Preferred Stock as constituted at such date. The Company reserves the
right to require prior to the occurrence of a Triggering Event (as such term is
defined in the Rights Agreement) that a number of Rights be exercised so that
only whole shares of Preferred Stock will be issued.
B-1
From and after the first occurrence of a Triggering Event (as such
term is defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by or transferred to (i) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person (as such terms are defined
in the Rights Agreement), (ii) a transferee of any such Acquiring Person,
Associate or Affiliate, or (iii) under certain circumstances specified in the
Rights Agreement, a transferee of a person who, concurrently with or after such
transfer, became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, such Rights shall, with certain exceptions, become null and
void in the circumstances set forth in the Rights Agreement, and no holder
hereof shall have any rights whatsoever with respect to such Rights from and
after the occurrence of such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities or assets that
may be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Fractional Shares of Preferred Stock as the
Rights evidenced by the Rights Certificate or Rights Certificates surrendered
shall have entitled such holder to purchase. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at its option
at a redemption price of $.01 per Right, payable, at the election of the
Company, in cash or shares of Common Stock or such other consideration as the
Board of Directors may determine, at any time prior to the earlier of the close
of business on (a) the tenth day following the first public announcement of the
occurrence of a Flip- In Event (as such time period may be extended or shortened
pursuant to the Rights Agreement) and (b) the Expiration Date (as such term is
defined in the Rights Agreement) or (ii) may be exchanged in whole or in part
for shares of the Company's Common Stock, par value $.001 per share, and/or
other equity securities of the Company deemed to have the same value as shares
of Common Stock,
B-2
at any time prior to a person's becoming the beneficial owner of 50% or more of
the shares of Common Stock outstanding or the occurrence of a Flip-Over Event.
No fractional shares of Preferred Stock are required to be issued
upon the exercise of any Right or Rights evidenced hereby (other than, except as
set forth above, fractions that are integral multiples of a Fractional Share of
Preferred Stock, which may, at the election of the Company, be evidenced by
depositary receipts), but in lieu thereof a cash payment may be made, as
provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock or of any other securities of the Company that may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of August 1, 1996 Record Date
ATTEST: AMERICAN RESIDENTIAL SERVICES, INC.
________________________ By ________________________________
Secretary Title:
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By ________________________________
Authorized Signature
B-3
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
any Rights evidenced by the Rights Certificate.)
FOR VALUE RECEIVED ______________________________________ hereby sells, assigns
and transfers unto
(Please print name and address of transferee)
_________ Rights evidenced by this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
__________________ Attorney, to transfer the said Rights on the books of the
within-named Company, with full power of substitution.
Dated: _________________, 199__
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
B-4
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being sold, assigned and transferred by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or who is a direct or indirect
transferee of an Acquiring Person or of an Affiliate or Associate of an
Acquiring Person.
Dated: _____________, 199__
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-5
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by
the Rights Certificate.)
To: AMERICAN RESIDENTIAL SERVICES, INC.
The undersigned hereby irrevocably elects to exercise _________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person that may be issuable upon the
exercise of the Rights) and requests that certificates for such shares (or other
securities) be issued in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
Dated: ____________, 199__
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
B-6
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person or who is a direct or indirect transferee of an
Acquiring Person or of an Affiliate or Associate of an Acquiring Person.
Dated: _____________, 199__
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-7
EXHIBIT C
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT), AND CERTAIN TRANSFEREES THEREOF, WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
Pursuant to action taken by the Board of Directors of American
Residential Services, Inc. (the "Company"), each share of the Company's Common
Stock, par value $.001 per share ("Common Stock"), currently includes one right
to purchase preferred stock ("Right"). Each Right entitles the registered holder
to purchase from the Company a unit consisting of one one-hundredth of a share
(a "Fractional Share") of Series A Junior Participating Preferred Stock, par
value $.001 per share (the "Preferred Stock"), at a purchase price of $40 per
Fractional Share, subject to adjustment (the "Purchase Price"). The description
and terms of the Rights are set forth in a Rights Agreement dated as of August
1, 1996 as it may from time to time be supplemented or amended (the "Rights
Agreement") between the Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent.
Initially, the Rights will be attached to all certificates
representing outstanding shares of Common Stock, 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, with
certain exceptions, upon the earlier of (i) ten 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) ten business days
following the commencement of a tender offer or exchange offer that would result
in a person's becoming an Acquiring Person. So long as Equus II Incorporated
("Equus II"), together with all affiliates and associates, 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 certain increases
in its beneficial ownership occur or are deemed to occur. In certain
circumstances, the Distribution Date may be deferred by the Board of Directors.
Certain inadvertent 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 (bearing the notation referred to below) and will be
transferred with and only with such Common Stock certificates, (b) new 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
will also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on June 30, 2006, unless earlier redeemed or
exchanged by the Company as described below.
C-1
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. All shares of
Common Stock issued prior to the Distribution Date will be issued with Rights.
Shares of Common Stock issued after the Distribution Date in connection with
certain employee benefit plans or upon conversion of certain securities will be
issued with Rights. Except as otherwise determined by the Board of Directors, no
other shares of Common Stock issued after the Distribution Date will be issued
with 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 a majority of the independent
directors of the Company 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, upon exercise of
such 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
Triggering Event, all Rights that are, or (under certain circumstances specified
in the Rights Agreement) were, beneficially owned by or transferred to an
Acquiring Person (or by certain related parties) will be null and void in the
circumstances set forth in the Rights Agreement. However, 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 from and after
the time an Acquiring Person becomes such, (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
are voided as set forth above) shall thereafter have the right to receive, upon
exercise, 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 Fractional Shares of
Preferred Stock or other securities or property issuable, upon 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 Preferred Stock, (ii) if holders of the Preferred Stock
are granted certain rights or warrants to subscribe for Preferred Stock or
convertible securities at less than the current market price of the Preferred
Stock, or (iii) upon the distribution to holders of the 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 shares of Preferred Stock that are not integral multiples
of a Fractional Share are required to be issued and,
C-2
in lieu thereof, an adjustment in cash may be made based on the market price of
the 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, upon any exercise of Rights,
a number of Rights be exercised so that only whole shares of Preferred Stock
will be issued.
At any time until ten days following the first date of public
announcement of the occurrence of a Flip-In Event, 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 Common Stock or such other
consideration as the Board of Directors may determine. 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 or the occurrence of a Flip-Over Event, the Company may
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.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights should not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company as long as the
Rights are redeemable. Thereafter, the provisions of the Rights Agreement other
than the redemption price may be amended by the Board of Directors 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.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an exhibit to the Company's Registration Statement on
Form S-1. A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-3
EXHIBIT 10.1
1996 INCENTIVE PLAN
OF
AMERICAN RESIDENTIAL SERVICES, INC.
1. PLAN. This 1996 Incentive Plan of American Residential Services,
Inc. (the "Plan") is an amendment and restatement of the American Residential
Services, Inc. 1996 Stock Option Plan (the "Existing Plan"), which was adopted
by American Residential Services, Inc. to reward certain corporate officers and
key employees of American Residential Services, Inc. by enabling them to acquire
shares of common stock of American Residential Services, Inc. Upon the Amendment
Effective Date (as hereinafter defined), the Existing Plan shall be amended and
restated in its entirety as set forth herein.
2. OBJECTIVES. This Plan is designed to attract and retain key
employees of the Company and its Subsidiaries (as hereinafter defined), to
attract and retain qualified directors of the Company, to attract and retain
consultants and other independent contractors, to encourage the sense of
proprietorship of such employees, directors and independent contractors and to
stimulate the active interest of such persons in the development and financial
success of the Company and its Subsidiaries. These objectives are to be
accomplished by making Awards (as hereinafter defined) under this Plan and
thereby providing Participants (as hereinafter defined) with a proprietary
interest in the growth and performance of the Company and its Subsidiaries.
3. DEFINITIONS. As used herein, the terms set forth below shall have
the following respective meanings:
"Amendment Effective Date" has the meaning set forth in paragraph 19
hereof.
"Annual Director Award Date" means, for each year beginning on or
after the Amendment Effective Date, the first business day of the month next
succeeding the date upon which the annual meeting of stockholders of the Company
is held in such year.
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award
Agreement).
"Award" means an Employee Award, a Director Award or an Independent
Contractor Award.
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"Award Agreement" means any Employee Award Agreement, Director Award
Agreement or Independent Contractor Award Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer the
Plan.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company.
"Company" means American Residential Services, Inc., a Delaware
corporation.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option or Director
Restricted Stock.
"Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations specified
in paragraph 9(a) hereof.
"Director Restricted Stock" means Common Stock granted to
Nonemployee Directors pursuant to the applicable terms, conditions and
limitations specified in paragraph 9(b) hereof.
"Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a Director for a continuous period of more
than three months by reason of any medically determinable physical or mental
impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its
Subsidiaries and an individual who has agreed to become an Employee of the
Company or any of its Subsidiaries and actually becomes such an Employee within
the following six months.
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"Employee Award" means the grant of any Option, SAR, Stock Award,
Cash Award or Performance Award, whether granted singly, in combination or in
tandem, to a Participant who is an Employee pursuant to such applicable terms,
conditions and limitations as the Committee may establish in order to fulfill
the objectives of the Plan.
"Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee setting forth the terms, conditions
and limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported, (ii)
if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (iii) if the Common Stock
is not so listed or quoted, the mean between the closing bid and asked price on
that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by the
Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the
National Quotation Bureau Incorporated or (iv) if shares of Common Stock are not
publicly traded, the most recent value determined by an independent appraiser
appointed by the Company for such purpose.
"Incentive Option" means an Option that is intended to comply with
the requirements set forth in Section 422 of the Code.
"Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries except an Employee or Nonemployee Director.
"Independent Contractor Award" means the grant of any Nonqualified
Stock Option, SAR, Stock Award, Cash Award or Performance Award, whether granted
singly, in combination or in tandem, to a Participant who is an Independent
Contractor pursuant to such applicable terms, conditions and limitations as the
Committee may establish in order to fulfill the objectives of the Plan.
"Independent Contractor Award Agreement" means a written agreement
between the Company and a Participant who is an Independent Contractor setting
forth the terms, conditions and limitations applicable to an Independent
Contractor Award.
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"IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that Act and the
shares registered by that registration statement are issued and sold by the
Company (otherwise than pursuant to the exercise of any overallotment option).
"IPO Closing Date" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"Nonemployee Director" has the meaning set forth in paragraph 4(b)
hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.
"Participant" means an Employee, Director or Independent Contractor
to whom an Award has been made under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor who is subject to the
attainment of one or more Performance Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means any Common Stock that is restricted or
subject to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price, in each case, as determined by the Committee.
"Stock Award" means an award in the form of shares of Common Stock
or units denominated in shares of Common Stock.
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"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing more than
50% of the combined voting power of the shares of all classes or series of
capital stock of such corporation which have the right to vote generally on
matters submitted to a vote of the stockholders of such corporation and (ii) in
the case of a partnership or other business entity not organized as a
corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
4. ELIGIBILITY.
(a) EMPLOYEES. Key Employees eligible for Employee Awards under this
Plan are those who hold positions of responsibility and whose performance,
in the judgment of the Committee, can have a significant effect on the
success of the Company and its Subsidiaries, including those individuals
who are expected to become Employees within six months.
(b) DIRECTORS. Directors eligible for Director Awards under this
Plan are those who are not employees of the Company or any of its
Subsidiaries ("Nonemployee Directors").
(c) INDEPENDENT CONTRACTORS. Independent Contractors eligible for
Independent Contractor Awards under this Plan are those Independent
Contractors providing services to, or who will provide services to, the
Company or any of its Subsidiaries.
5. COMMON STOCK AVAILABLE FOR AWARDS. Subject to the provisions of
paragraph 15 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options that may be
exercised for or settled in Common Stock) an aggregate of the greater of (a)
1,550,000 shares of Common Stock and (b) 15% of the number of shares of Stock
issued and outstanding on the last day of each calendar quarter, of which an
aggregate of not more than 250,000 shares shall be available for Director Awards
and the remainder shall be available for Employee Awards and Independent
Contractor Awards. No more than 1,500,000 shares of Common Stock shall be
available for Incentive Options. The number of shares of Common Stock that are
the subject of Awards under this Plan, that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner such
that all or some of the shares covered by an Award are not issued to a
Participant or are exchanged for Awards that do not involve Common Stock, shall
again immediately become available for Awards hereunder. The Committee may from
time to time adopt and observe such procedures concerning the counting of shares
against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
shares of Common Stock are available for issuance pursuant to Awards.
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6. ADMINISTRATION.
(a) This Plan, as it applies to Participants who are Employees or
Independent Contractors but not with respect to Participants who are
Nonemployee Directors, shall be administered by the Committee. To the
extent required in order for Employee Awards to be exempt from Section 16
of the Exchange Act by virtue of the provisions of Rule 16b-3, the
Committee shall consist of at least two members of the Board who meet the
requirements of the definition of "non-employee director" set forth in
Rule 16b-3(b)(3)(i) promulgated under the Exchange Act.
(b) Subject to the provisions hereof, insofar as this Plan relates
to the Employee Awards or Independent Contractor Awards, the Committee
shall have full and exclusive power and authority to administer this Plan
and to take all actions that are specifically contemplated hereby or are
necessary or appropriate in connection with the administration hereof.
Insofar as this Plan relates to Employee Awards or Independent Contractor
Awards, the Committee shall also have full and exclusive power to
interpret this Plan and to adopt such rules, regulations and guidelines
for carrying out this Plan as it may deem necessary or proper, all of
which powers shall be exercised in the best interests of the Company and
in keeping with the objectives of this Plan. The Committee may, in its
discretion, provide for the extension of the exercisability of an Employee
Award or Independent Contractor Award, accelerate the vesting or
exercisability of an Employee Award or Independent Contractor Award,
eliminate or make less restrictive any restrictions contained in an
Employee Award or Independent Contractor Award, waive any restriction or
other provision of this Plan or an Employee Award or Independent
Contractor Award or otherwise amend or modify an Employee Award or
Independent Contractor Award in any manner that is either (i) not adverse
to the Participant to whom such Employee Award or Independent Contractor
Award was granted or (ii) consented to by such Participant. The Committee
may make an award to an individual who it expects to become an Employee of
the Company or any of its Subsidiaries within the next six months, with
such award being subject to the individual's actually becoming an Employee
within such time period, and subject to such other terms and conditions as
may be established by the Committee. The Committee may correct any defect
or supply any omission or reconcile any inconsistency in this Plan or in
any Employee Award or Independent Contractor Award in the manner and to
the extent the Committee deems necessary or desirable to further the Plan
purposes. Any decision of the Committee in the interpretation and
administration of this Plan shall lie within its sole and absolute
discretion and shall be final, conclusive and binding on all parties
concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to
be done by him or her, by any member of the Committee or by any officer of
the Company in connection with the performance of any duties under this
Plan, except for his or her own willful misconduct or as expressly
provided by statute.
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7. DELEGATION OF AUTHORITY. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to, Participants
who are subject to Section 16 of the Exchange Act.
8. EMPLOYEE AND INDEPENDENT CONTRACTOR AWARDS.
(a) The Committee shall determine the type or types of Employee
Awards to be made under this Plan and shall designate from time to time
the Employees who are to be the recipients of such Awards. Each Employee
Award may be embodied in an Employee Award Agreement, which shall contain
such terms, conditions and limitations as shall be determined by the
Committee in its sole discretion and shall be signed by the Participant to
whom the Employee Award is made and by an Authorized Officer for and on
behalf of the Company. Employee Awards may consist of those listed in this
paragraph 8(a) hereof and may be granted singly, in combination or in
tandem. Employee Awards may also be made in combination or in tandem with,
in replacement of, or as alternatives to, grants or rights under this Plan
or any other employee plan of the Company or any of its Subsidiaries,
including the plan of any acquired entity. An Employee Award may provide
for the grant or issuance of additional, replacement or alternative
Employee Awards upon the occurrence of specified events, including the
exercise of the original Employee Award granted to a Participant. All or
part of an Employee Award may be subject to conditions established by the
Committee, which may include, but are not limited to, continuous service
with the Company and its Subsi diaries, achievement of specific business
objectives, increases in specified indices, attainment of specified growth
rates and other comparable measurements of performance. Upon the
termination of employment by a Participant who is an Employee, any
unexercised, deferred, unvested or unpaid Employee Awards shall be treated
as set forth in the applicable Employee Award Agreement.
(i) STOCK OPTION. An Employee Award may be in the form of an
Option. An Option awarded pursuant to this Plan may consist of an
Incentive Option or a Nonqualified Option. The price at which shares
of Common Stock may be purchased upon the exercise of an Incentive
Option shall be not less than the Fair Market Value of the Common
Stock on the date of grant. The price at which shares of Common
Stock may be purchased upon the exercise of a Nonqualified Option
shall be not less than the Fair Market Value of the Common Stock on
the date of grant. Subject to the foregoing provisions, the terms,
conditions and limitations applicable to any Options awarded
pursuant to this Plan, including the term of any Options and the
date or dates upon which they become exercisable, shall be
determined by the Committee.
(ii) STOCK APPRECIATION RIGHT. An Employee Award may be in the
form of an SAR. The terms, conditions and limitations applicable to
any SARs awarded
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pursuant to this Plan, including the term of any SARs and the date
or dates upon which they become exercisable, shall be determined by
the Committee.
(iii) STOCK AWARD. An Employee Award may be in the form of a
Stock Award. The terms, conditions and limitations applicable to any
Stock Awards granted pursuant to this Plan shall be determined by
the Committee.
(iv) CASH AWARD. An Employee Award may be in the form of a
Cash Award. The terms, conditions and limitations applicable to any
Cash Awards granted pursuant to this Plan shall be determined by the
Committee.
(v) PERFORMANCE AWARD. Without limiting the type or number of
Employee Awards that may be made under the other provisions of this
Plan, an Employee Award may be in the form of a Performance Award. A
Performance Award shall be paid, vested or otherwise deliverable
solely on account of the attainment of one or more pre-established,
objective Performance Goals established by the Committee prior to
the earlier to occur of (x) 90 days after the commencement of the
period of service to which the Performance Goal relates and (y) the
lapse of 25% of the period of service (as scheduled in good faith at
the time the goal is established), and in any event while the
outcome is substantially uncertain. A Performance Goal is objective
if a third party having knowledge of the relevant facts could
determine whether the goal is met. Such a Performance Goal may be
based on one or more business criteria that apply to the individual,
one or more business units of the Company, or the Company as a
whole, and may include one or more of the following: increased
revenue, net income, stock price, market share, earnings per share,
return on equity, return on assets or decrease in costs. Unless
otherwise stated, such a Performance Goal need not be based upon an
increase or positive result under a particular business criterion
and could include, for example, maintaining the status quo or
limiting economic losses (measured, in each case, by reference to
specific business criteria). In interpreting Plan provisions
applicable to Performance Goals and Performance Awards, it is the
intent of the Plan to conform with the standards of Section 162(m)
of the Code and Treasury Regulation ss. 1.162- 27(e)(2)(i), and the
Committee in establishing such goals and interpreting the Plan shall
be guided by such provisions. Prior to the payment of any
compensation based on the achievement of Performance Goals, the
Committee must certify in writing that applicable Performance Goals
and any of the material terms thereof were, in fact, satisfied.
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Performance Awards made pursuant to
this Plan shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan,
the following limitations shall apply to any Employee Awards made
hereunder:
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(i) no Participant may be granted, during any one-year period,
Employee Awards consisting of Options or SARs that are exercisable
for more than 250,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year
period, Stock Awards covering or relating to more than 10,000 shares
of Common Stock (the limitation set forth in this clause (ii),
together with the limitation set forth in clause (i) above, being
hereinafter collectively referred to as the "Stock Based Awards
Limitations"); and
(iii) no Participant may be granted Employee Awards consisting
of cash or in any other form permitted under this Plan (other than
Employee Awards consisting of Options or SARs or otherwise
consisting of shares of Common Stock or units denominated in such
shares) in respect of any one-year period having a value determined
on the date of grant in excess of $1,000,000.
(c) Prior to the Amendment Effective Date, certain awards consisting
of options on 1,430,000 shares of Common Stock (the "Existing Options")
have been made to Employees and Independent Contractors under the Existing
Plan as in effect from time to time. As of the Amendment Effective Date,
each Existing Option shall be adjusted so that such Option shall consist
of or relate to the same number of shares of Common Stock that are the
subject of such Existing Option immediately prior to such date, without
any alteration or enlargement of the rights of the holders thereof.
(d) The Committee shall have the sole responsibility and authority
to determine the type or types of Independent Contractor Awards to be made
under this Plan and may make any such Awards as could be made to an
Employee, other than Incentive Options; provided that the limitations
described in paragraph 8(b) shall be inapplicable to Independent
Contractor Awards.
9. DIRECTOR AWARDS. Each Nonemployee Director of the Company shall
be granted Director Awards in accordance with this paragraph 9 and subject to
the applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be made in any year in which a
sufficient number of shares of Common Stock are not available to make such
Awards under this Plan.
(a) DIRECTOR OPTIONS. On the Amendment Effective Date, each
Nonemployee Director shall be automatically awarded a Director Option that
provides for the purchase of 10,000 shares of Common Stock. In addition,
on each Annual Director Award Date, each Nonemployee Director shall
automatically be granted a Director Option that provides for the purchase
of 5,000 shares of Common Stock. In the event that a Nonemployee Director
is elected after the Amendment Effective Date otherwise than by election
at an annual meeting
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of stockholders of the Company, on the date of his or her election, such
Nonemployee Director shall automatically be granted a Director Option that
provides for the purchase of a number of shares of Common Stock (rounded
up to the nearest whole number) 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 such Nonemployee Director and the next scheduled Annual
Director Award Date (or, if no such date has been scheduled, the first
anniversary of the immediately preceding Annual Director Award Date) and
the denominator of which is 365. Each Director Option shall have a term of
ten years from the date of grant, notwithstanding any earlier termination
of the status of the holder as a Nonemployee Director. The purchase price
of each share of Common Stock subject to a Director Option shall be equal
to the Fair Market Value of the Common Stock on the date of grant. All
Director Options shall vest and become exercisable in increments of
one-third of the total number of shares of Common Stock that are subject
thereto (rounded up to the nearest whole number) on the first and second
anniversaries of the date of grant and of all remaining shares of Common
Stock that are subject thereto on the third anniversary of the date of
grant. All unvested Director Options shall be forfeited if the Nonemployee
Director resigns as a Director without the consent of a majority of the
other Directors.
The Board may determine, at its discretion, to increase the number
of shares of Common Stock to be subject to Director Options granted on any
subsequent Annual Director Award Date to not more than 25,000 shares.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations set
forth above and shall be signed by the Participant to whom the Director
Options are granted and by an Authorized Officer for and on behalf of the
Company.
(b) DIRECTOR RESTRICTED STOCK. A Nonemployee Director may make an
annual election to receive, in lieu of all or any portion of the
Director's fees he would otherwise be entitled to receive in cash during
the next year (including both annual retainer and meeting fees), a number
of shares of Director Restricted Stock (rounded up to the nearest whole
number) having a Fair Market Value equal to 100% of a fraction the
numerator of which is equal to the dollar amount of fees the Nonemployee
Director elects to forego in the next year in exchange for Director
Restricted Stock and the denominator of which is equal to the Fair Market
Value of the Common Stock on the date of the election. Each annual
election made by a Nonemployee Director pursuant to this paragraph 9(b)(i)
shall take the form of a written document signed by such Nonemployee
Director and filed with the Secretary of the Company, (ii) shall designate
the dollar amount of the fees the Nonemployee Director elects to forego in
the next year in exchange for Director Restricted Stock and (iii) to the
extent provided by the Board, shall be irrevocable and shall be made at
least six months prior to the date as of which such Award of Director
Restricted Stock is to be effective. An Award of Director Restricted Stock
at the election of a Nonemployee Director shall be effective on the next
Annual Director Award Date.
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Any Award of Director Restricted Stock shall be embodied in a
Director Award Agreement, which shall contain the terms, conditions and
limitations set forth above and shall be signed by the Participant to whom
the Director Restricted Stock is granted and by an Authorized Officer for
and on behalf of the Company.
10. PAYMENT OF AWARDS.
(a) GENERAL. Payment of Employee Awards or Independent Contractor
Awards may be made in the form of cash or Common Stock, or a combination
thereof, and may include such restrictions as the Committee shall
determine, including, in the case of Common Stock, restrictions on
transfer and forfeiture provisions. If payment of an Employee Award or
Independent Contractor Award is made in the form of Restricted Stock, the
applicable Award Agreement relating to such shares shall specify whether
they are to be issued at the beginning or end of the Restriction Period.
In the event that shares of Restricted Stock are to be issued at the
beginning of the Restriction Period, the certificates evidencing such
shares (to the extent that such shares are so evidenced) shall contain
appropriate legends and restrictions that describe the terms and
conditions of the restrictions applicable thereto. In the event that
shares of Restricted Stock are to be issued at the end of the Restricted
Period, the right to receive such shares shall be evidenced by book entry
registration or in such other manner as the Committee may determine.
(b) DEFERRAL. With the approval of the Committee, amounts payable in
respect of Employee Awards or Independent Contractor Awards may be
deferred and paid either in the form of installments or as a lump-sum
payment. The Committee may permit selected Participants to elect to defer
payments of some or all types of Employee Awards or Independent Contractor
Awards in accordance with procedures established by the Committee. Any
deferred payment of an Employee Award or Independent Contractor Award,
whether elected by the Participant or specified by the Award Agreement or
by the Committee, may be forfeited if and to the extent that the Award
Agreement so provides.
(c) DIVIDENDS AND INTEREST. Rights to dividends or Dividend
Equivalents may be extended to and made part of any Employee Award or
Independent Contractor Award consisting of shares of Common Stock or units
denominated in shares of Common Stock, subject to such terms, conditions
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and Dividend Equivalents for Employee Awards or Independent
Contractor Awards consisting of shares of Common Stock or units
denominated in shares of Common Stock.
(d) SUBSTITUTION OF AWARDS. At the discretion of the Committee, a
Participant who is an Employee or Independent Contractor may be offered an
election to substitute an Employee Award or Independent Contractor Award
for another Employee Award or
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Independent Contractor Award or Employee Awards or Independent Contractor
Awards of the same or different type.
11. STOCK OPTION EXERCISE. The price at which shares of Common Stock
may be purchased under an Option shall be paid in full at the time of exercise
in cash or, if elected by the optionee, the optionee may purchase such shares by
means of tendering Common Stock or surrendering another Award, including
Restricted Stock or Director Restricted Stock, valued at Fair Market Value on
the date of exercise, or any combination thereof. The Committee shall determine
acceptable methods for Participants who are Employees or Independent Contractors
to tender Common Stock or other Employee Awards or Independent Contractor
Awards; provided that any Common Stock that is or was the subject of an Employee
Award or Independent Contractor Award may be so tendered only if it has been
held by the Participant for six months. The Committee may provide for procedures
to permit the exercise or purchase of such Awards by use of the proceeds to be
received from the sale of Common Stock issuable pursuant to an Employee Award or
Independent Contractor Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as consideration
for the exercise of an Option, a number of the shares issued upon the exercise
of the Option, equal to the number of shares of Restricted Stock or Director
Restricted Stock used as consideration therefor, shall be subject to the same
restrictions as the Restricted Stock or Director Restricted Stock so submitted
as well as any additional restrictions that may be imposed by the Committee.
12. TAXES. The Company shall 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 this Plan, an appropriate amount
of cash or number of shares of Common Stock or a combination thereof for payment
of taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such taxes.
The Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the
Employee Award with respect to which withholding is required. If shares of
Common Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
The Committee may provide for loans, on either a short term or demand basis,
from the Company to a Participant who is an Employee or Independent Contractor
to permit the payment of taxes required by law.
13. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION. The Board
may amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that (i) no amendment or alteration that would adversely affect
the rights of any Participant under any Award previously granted to such
Participant shall be made without the consent of such Participant and (ii) no
amendment or alteration shall be effective prior to its approval by the
stockholders of the Company to the extent such approval is then required
pursuant to Rule 16b-3 in order to preserve the applicability of any exemption
provided by such rule to any Award then outstanding (unless the
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holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.
14. ASSIGNABILITY. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c) under the
Exchange Act shall be assignable or otherwise transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. The Committee may prescribe and include
in applicable Award Agreements other restrictions on transfer. Any attempted
assignment of an Award or any other benefit under this Plan in violation of this
paragraph 14 shall be null and void.
15. ADJUSTMENTS.
(a) The existence of outstanding Awards shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock (whether or not such issue is prior
to, on a parity with or junior to the Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then, except with respect to the
Existing Options, (i) the number of shares of Common Stock reserved under
this 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
such Awards, (v) the number of shares of Common Stock covered by Director
Options automatically granted pursuant to paragraph 9(a) hereof and (vi)
the Stock Based Awards Limitations shall each be proportionately adjusted
by the Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or entity,
the 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 or dividends payable in Common
Stock), the Board shall make appropriate adjustments to (i) the number of
shares of Common Stock covered by Awards in the form of Common Stock or
units denominated in Common Stock, (ii) the exercise or other price in
respect of such Awards, (iii) the appropriate Fair Market Value and other
price determinations for such Awards, (iv) the number of shares of Common
Stock covered by Director Options automatically granted pursuant to
paragraph 9(a) hereof and
-13-
(v) the Stock Based Awards Limitations to give effect to such transaction
shall each be proportionately adjusted by the Board to reflect such
transaction; provided that such adjustments shall only be such as are
necessary to maintain the proportionate interest of the holders of the
Awards and preserve, without exceeding, the value of such Awards. In the
event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Board shall be
authorized to issue or assume Awards by means of substitution of new
Awards, as appropriate, for previously issued Awards or to assume
previously issued Awards as part of such adjustment.
16. RESTRICTIONS. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the Company
that grants of Awards under this Plan comply with Rule 16b-3 with respect to
persons subject to Section 16 of the Exchange Act unless otherwise provided
herein or in an Award Agreement, that any ambiguities or inconsistencies in the
construction of such an Award or this Plan be interpreted to give effect to such
intention. Certificates evidencing shares of Common Stock delivered under this
Plan (to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the rules, regula tions and other requirements of the Securities and
Exchange Commission, any securities exchange or transaction reporting system
upon which the Common Stock is then listed or to which it is admitted for
quotation and any applicable federal or state securities law. The Committee may
cause a legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.
17. UNFUNDED PLAN. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with respect
to an Award of cash, Common Stock or rights thereto under this Plan shall be
based solely upon any contractual obligations that may be created by this Plan
and any Award Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any obligation that
may be created by this Plan.
18. GOVERNING LAW. This Plan and all determinations made and actions
taken pur suant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
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19. EFFECTIVENESS. The Existing Plan shall be amended and restated
in its entirety as set forth herein as of the day before the IPO Closing Date
(the "Amendment Effective Date").
-15-
Exhibit 10.2
Howard S. Hoover, Jr.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), as amended and
restated as of May 1, 1996, is entered into and effective as of November 1, 1995
(the "Effective Date") by and between AMERICAN RESIDENTIAL SERVICES, INC., a
Delaware corporation (the "Company"), and HOWARD S. HOOVER, JR. (the
"Employee").
RECITALS
In entering into this Agreement, the Company desires to
provide the Employee with substantial incentives to serve the Company as a
senior executive performing at the highest levels of leadership and stewardship,
without distraction or concern over minimum compensation, benefits or tenure, to
develop and implement the Company's initial development plan and thereafter
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
mutual provisions contained herein, and for other good and valuable
consideration, the parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms
have the meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to
the repurchase of Common Stock by the Company, unless and until such
time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a) the
Part-time Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned by the
Employee during that Compensation Year, including all amounts deferred
at the election of the Employee pursuant to a Compensation Plan
intended to qualify as a plan under Section 401(k) of the Code or
otherwise. If salary or bonus is paid in whole or in part in property
other than cash (such as Common Stock) the amount so paid shall be the
fair market value thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Part-time Employment Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the two (2)
Compensation Years next preceding that date or, if less than two (2)
Compensation Years have occurred prior to that date and since the
Effective Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized basis, the
Annual Cash Compensation in each partial Compensation Year (up to a
maximum of two (2) partial Compensation Years) next preceding the
Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable by the
Company to the Employee pursuant to Section 4(A); and (b) on and after
the Part-time Employment Effective Date, the guaranteed minimum annual
salary payable by the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote
or dispose of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (a) as a result of an agreement,
arrangement or understanding to vote that security if that
agreement, arrangement or understanding: (1) arises solely
from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by
Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation
made pursuant to, and in accordance with, the applicable
provisions of the Exchange Act; and (2) is not then reportable
by such Person on Exchange Act Schedule 13D (or any comparable
or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of that acquisition. For purposes of this Agreement, "voting"
a security shall include voting, granting a proxy, acting by consent,
making a request or demand relating to corporate action (including,
without limitation, calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a felony crime
that enriched the Employee at the expense of the Company; or (b) the
Employee's deliberate and intentional continuing failure to
substantially perform his duties and responsibilities hereunder (except
by reason of the Employee's incapacity due to physical or mental
illness or injury) for a period of forty-five (45) days after the
Required Board Majority has delivered to the Employee a written demand
for substantial performance hereunder which specifically identifies the
bases for the Required Board Majority's determination that the Employee
has not substantially performed his duties and responsibilities
hereunder (such period being the "Grace Period"); provided, that for
purposes of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of the
Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice
and at which the Employee was afforded the opportunity to be
represented by counsel, appear and be heard, the Required Board
Majority shall adopt a written resolution which (A) sets forth the
Required Board Majority's determination that the failure of the
Employee to substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to physical or
mental illness or injury) continued past the Grace Period and (B)
specifically identifies the bases for that determination and (2) the
Company, at the written direction of the Required Board Majority, shall
deliver to the Employee a Notice of Termination for Cause to which a
copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. Cause
of the type referred to in clause (a) of the preceding sentence is a
"Type I Cause," while Cause of the type referred to in clause (b) of
the preceding sentence is a "Type II Cause." For purposes of
determining whether a Type II Cause has occurred, no act or failure to
act on the part of the Employee shall be considered "deliberate and
intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(c) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary during the
term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a
Delaware corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to Section
9(D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer or any member of the family of any Executive Officer, (a)
including (i) any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the Code or whose
benefits are limited by the Code or ERISA, (iii) any "employee welfare
plan" (as defined in Section 3(1) of ERISA), (iv) any arrangement,
plan, policy, practice or program providing for severance pay, deferred
compensation or insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing and
providing for the payment or reimbursement of expenses attributable to
first-class air travel and first-class hotel occupancy while on travel
or (B) providing for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air time or other
recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it
provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the compensation of
Executive Officers and the administration of Incentive Plans, if any,
intended to qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, 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 sale programs, customer lists,
records of customer service requirements, capital expenditure projects,
cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any
governmental authority and all other confidential, nonpublic concepts,
methods of
5
doing business, ideas, materials or information prepared or performed
for, by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers--All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as published
by the United States Department of Labor, Bureau of Labor Statistics
(or its successor) for that period.
"CONTINUING DIRECTOR" means at any time any individual who
then (a) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or
that first election, to the Board following that date was recommended
or approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on all
Persons, absent manifest error), as a result of a physical or mental
illness or personal injury he has incurred (including illness or injury
resulting from any substance abuse), by a Qualified Physician (who may
be the doctor treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by the
Employee with the consent of the Company, or by the Company with the
consent of the Employee (which consent shall not be unreasonably
withheld in either case), to be unable to perform, at the time of that
determination and, in all reasonable medical likelihood, indefinitely
thereafter, the normal duties then most recently assigned, under and in
accordance with the terms hereof, to the Employee while on Active
Status; provided that, the determination whether the Employee has
incurred a Disability shall be made by a majority of three (3)
Qualified Physicians, (a) one (1) of whom shall be selected by the
Employee, (b) one (1) of whom shall be selected by the Company and (c)
the remaining one (1) of whom shall be selected by the Qualified
Physicians selected by the Employee and the Company pursuant to clauses
(a) and (b) of this proviso and the fees and expenses of whom will be
shared and paid in equal amounts by the Employee and the Company, if:
(1)(A) the Company has reasonably withheld its consent to the Qualified
Physician, if any, selected by the Employee or (B) the Employee has
reasonably withheld his consent to the Qualified Physician, if any,
selected by the Company and (2) the Qualified Physicians selected by
the Employee and the Company disagree as to whether the Employee has
incurred a Disability. For purposes of this definition, if the Employee
is unable by reason of illness or injury to give an informed consent to
the performance of the treatment of that illness or injury, a Qualified
Physician selected by any Person who is authorized by applicable law to
give that consent will be deemed to have been selected by the Employee.
"EFFECTIVE DATE" means November 1, 1995.
6
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief
financial officer, the president, any executive or senior vice
president or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule
13d-5(b)) of which the Employee or any Affiliate or Associate of the
Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under, any such Compensation Plan, unless (A) in the case of
either subclause (1) or (2) of this clause, there is substituted a
comparable Compensation Plan that is at least economically equivalent,
in terms of the benefit offered to the Employee, to the Compensation
Plan being ended or in which the Employee's participation is being
adversely affected or the Employee's benefits are being materially
reduced or (B) in the case of that subclause (1), the failure, or in
the case of that subclause (2), the taking of action, adversely affects
Executive Officers generally; or (c) the assignment to the Employee of
duties inconsistent in any material respect with the Employee's then
current positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any other
action by the Company which results in a material diminution in those
positions, authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer and which provides for incentive, bonus or other
performance-based awards of cash, securities or the phantom equivalent
of securities, including any stock option, stock appreciation right and
restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more
of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective
under that act and the shares registered by that registration statement
are issued and sold by the Company (otherwise than pursuant to the
exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's Employment, and if the
Termination Date is other than the date of receipt of the notice, (b)
sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any subsidiary
of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to terminate
the Employee's Employment other than for Cause or (b) if the Employee
elects pursuant to the applicable provision hereof to terminate his
Employment for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part- time Employment Effective Date and ends on the
first to occur of (a) the third (3rd) anniversary of that Part-time
Employment Effective Date, (b) the termination by the Company of the
Employee's Employment for Type I Cause or (c) the death or Retirement
of the Employee.
"PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a)
holding an M.D. degree from a medical school located in the United
States and having a national reputation in the United States as a
8
leading medical school, (b) specializing and board-certified in the
treatment of the injury or illness that has or may have caused that
Disability, (c) licensed to practice that speciality in the State of
Texas or the state in which the Employee then is domiciled and (d)
having admission privileges to one or more private hospitals located in
the Texas Medical Center in Houston, Texas or in a hospital of
comparable reputation in the state in which the Employee then is
domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment by means
of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
following a Change of Control pursuant to Section 5(B)(i)(b), the first
date on which the Company pays to the Employee in full the amounts owed
to the Employee pursuant to Section 5(B)(iii); (c) if the Employee's
Employment is terminated by reason of the Employee's giving a Notice of
Termination without Good Reason and other than for Disability pursuant
to Section 5(B)(i)(c), the elapse of the thirtieth (30th) day after the
Company receives that notice; (d) if the Employee's Employment is
terminated by the Company at any time for Type I Cause or, prior to the
Part-time Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination for
Cause; and (e) if the Employee's Employment is terminated for any other
reason, at the expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (b) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
9
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise
specified herein, all references herein to any statute defined or referred to
herein, including the Code, ERISA and the Exchange Act, shall be deemed
references to that statute or any successor statute, as the same may have been
or may be amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(ii) 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 word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as its Chairman of the Board and the Employee will serve in the
Company's employ in that position. The Employee shall perform such duties, and
have such powers, authority, functions, duties and responsibilities for the
Company and corporations affiliated with the Company as are commensurate and
consistent with his employment as the Company's Chairman of the Board. The
Employee also shall have such additional powers, authority, functions, duties
and responsibilities as may be assigned to him by the Board; provided that,
without the Employee's written consent, such additional powers, authority,
functions, duties and responsibilities shall not be inconsistent or interfere
with, or detract from, those herein vested in, or otherwise then being performed
for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not interfere
materially with the Employee's duties and responsibilities for the Company at
that time, except that the Employee shall be entitled, subject to the provisions
of Section 7, (a) to continue with such activities as the Employee has carried
on prior to the Effective Date, including making and managing his personal
investments and participating in other business or civic activities and (b) to
serve on corporate or other business, civic or charitable boards or committees
and trade association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the
Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and
10
renewing each day thereafter for an additional day without any further action by
either the Company or the Employee, it being the intention of the parties that
there shall be continuously a remaining term of three (3) years' duration of the
Employee's Employment 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 5. When the Termination Date shall have occurred and the Company shall
have paid to the Employee all the applicable amounts Section 5 provides the
Company shall pay as a result of the termination of the Employee's Employment,
including all amounts accruing during the Part-time Employment Period, if any,
this Agreement will terminate and have no further force or effect, except that
Sections 4(C), 8, 9, 10 and 11 shall survive that termination indefinitely and
Section 7 shall survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee
by the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the first to
occur of the Part-time Employment Effective Date or the Termination Date . That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less infrequently than semi-monthly),
shall be payable initially at the annual rate of $160,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in the CPI for
the twelve (12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be determined in the
sole discretion of the Compensation Committee, but only in such form
and to such extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such determinations
or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state having a
personal income tax, or if the Employee resides in a state without a
personal income tax on the date hereof which subsequently adopts a
personal income tax, then, in either case, the Base Salary in effect at
the time of such relocation or adoption, as applicable, shall
immediately be increased by the amount equal to the Base Salary
immediately prior to this increase multiplied by seventy percent (70%)
of the highest personal income tax rate of such state; for example, if
the Employee relocates from a state without a personal income tax to a
state having a personal income tax and the highest rate of that tax is
six percent (6%) when the Base Salary is $200,000, then the Base Salary
will be increased by $8,400 (computed at 70% x 6% x $200,000);
11
provided, however, that the obligation of the Company to pay the Base Salary
earned by the Employee for his service in the period beginning on the Effective
Date and ending on the date that is the first to occur of (a) the IPO Closing
Date, (b) the Termination Date or (c) such other date as the Board in its sole
discretion may determine shall be deferred to the last day of that period in
such amounts as the Board in its sole discretion may from time to time
determine, on which day the Company shall pay in full to the Employee, without
interest, the aggregate earned but unpaid amount of the Base Salary for that
period. Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to
participate in all Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee is an Executive
Officer. All awards to the Employee under all Incentive Plans shall take into
account the Employee's positions with and duties and responsibilities to the
Company and its subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment in the
nature of compensation, singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
12
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee reasonably determines (based upon the opinion of
his tax counsel) that such contest is inconsistent with the overall tax
interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND
DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company
shall be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Date for any Business
Reason. The Company's termination of the Employee's Employment for Cause will be
effective on the date the Company delivers a Notice of Termination for Cause to
the Employee pursuant to this Section 5(A)(i)(together, in the case of a
termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid, and, when that
payment is made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of the Company and the
Employee during the Part-time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee
shall be entitled to terminate his Employment (a) for a Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred sixty-five (365)
days after that Change of Control occurs (provided, however, that the Employee
shall not be entitled to terminate his Employment by reason of that Change of
Control if it occurs (1) during the thirty (30) day period following the
Company's receipt of the Employee's Notice of Termination without Good Reason
and other than for Disability pursuant to this Section 5(B)(i), (2) after (A)
13
the receipt by the Nonterminating Party of the Terminating Party's Notice of
Termination pursuant to Section 5(C) or (B) the Employee's receipt of the
Company's Notice of Termination for a Business Reason (other than in connection
with that Change of Control) pursuant to Section 5(A) or (3) more than three
hundred sixty-five (365) days after the Company's receipt of the Employee's
Notice of Termination for Good Reason pursuant to this Section 5(B)(i)) or (c)
without Good Reason and other than for Disability at any time. The Employee's
termination of his Employment for Good Reason will be effective on the third
(3rd) anniversary of the date the Employee delivers a Notice of Termination for
Good Reason to the Company pursuant to this Section 5(B)(i). The Employee's
termination of his Employment by reason of a Change of Control will be effective
on the first date on which the Change of Control Payment shall have been paid in
full to the Employee. The Employee's termination of his Employment without Good
Reason and other than for Disability will be effective on the thirtieth (30th)
day following the Employee's delivery of a Notice of Termination without Good
Reason and other than for Disability pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company and the Employee
during the Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to the Employee, in
a cash lump sum within five (5) business days after the Termination Date, the
amount equal to the sum of (a) the portion of the Base Salary to and including
the Termination Date which has not yet been paid, (b) all compensation
previously deferred by the Employee (together with any accrued interest and
earnings thereon) which has not yet been paid, (c) any accrued but unpaid
vacation pay and (d) the amount equal to fifty percent (50%) of the Base Salary
being paid for the Compensation Year in which the Company receives the
Employee's Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates his Employment
without Good Reason and other than for Disability within six (6) months of the
theretofore scheduled final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the amount determined
pursuant to that clause multiplied by a fraction the numerator of which is the
number of days from and excluding the date the Company receives the Notice of
Termination to and including that final day and the denominator of which is one
hundred eighty-two (182). For purposes of this Section 5(B)(iv), if the
anniversary of the Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and other than for
Disability has not occurred on or prior to
14
the date of that receipt, the Base Salary for that Compensation Year will be
calculated on the assumption that no increase in the amount thereof would be
made effective as of that anniversary pursuant to Section 4(A) or 5(E)(i), as
applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective rights and
obligations of the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his death. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of (i) the portion
of the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of (1) the Base Salary being paid for the Compensation Year
in which he dies multiplied by (2) three (3) or (b) if the Employee dies during
the Part-time Employment Period, the product of (1) one-twelfth (1/12th) of the
Base Salary being paid for the Compensation Year in which the Employee dies
multiplied by (2) the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the intervals
consistent with the Company's normal payroll schedules (but in no event less
frequently than semi-monthly) from the Part-time Employment Effective Date to
and including the Termination Date in the amounts determined from time to time
as follows: Effective as of the Part-time Employment Effective Date, the Base
Salary payable by the Company to the Employee for the period from and including
that date to and excluding the third (3rd) anniversary of that date shall be as
follows:
15
(a) if the Part-time Employment Effective Date occurs as a
result of the receipt by the Nonterminating Party of a Notice of
Termination for a Business Reason pursuant to Section 5(A) or a Notice
of Termination for Good Reason pursuant to Section 5(B)(i), the amount
equal to the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date; and (b) if
the Part-time Employment Effective Date occurs as a result of the
receipt by the Nonterminating Party of a Notice of Termination for
Disability pursuant to Section 5(C), the amount equal to the amount by
which (1) seventy-five percent (75%) of the Average Annual Cash
Compensation of the Employee determined as of the Part-time Employment
Effective Date exceeds (2) the aggregate amount of periodic payments
the Employee receives during the twelve (12) months beginning on that
date under Compensation Plans then in effect and providing for the
payment to the Employee solely as a result or on account of disability;
and
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary payable pursuant
to this Section 5(E) shall be increased (but not decreased) by the same
percentage increase (if any) in the CPI for the twelve (12) month
period immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years
of service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or engaging in (and
devoting substantially all his time to) other business activities or (B)
required to perform any regular duties for the Company (except to provide such
services consistent with the Employee's educational background, experience and
prior positions with the Company as may be acceptable to the Employee) or to
seek or accept additional employment with any other Person. If the Employee, at
his discretion, shall accept any such additional employment or engage in any
such other business activity there shall be no offset, reduction or effect upon
any rights, benefits or payments to which the Employee is entitled pursuant to
this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity.
16
The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within thirty-five
(35) miles of the Employee's principal residence, in any case reasonably
acceptable to the Employee, alternate but comparable office space, furnishings,
facilities, reserved parking, supplies, services, equipment, secretarial and
administrative assistance that are in each case at least commensurate with the
size and quality of that which were provided to the Employee during the
Compensation Year immediately preceding the Part-time Employment Effective Date
pursuant to Section 6(C), but in no event less than are being furnished or
provided on the date hereof. The Company and Employee may mutually agree upon an
equivalent monthly cash allowance in lieu of the Employee being provided all or
any part of these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his representatives) shall
promptly deliver and return to the Company all the Company's property that is in
the possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of the
Employee's Employment for Cause, all stock options previously granted to the
Employee under Incentive Plans that have not been exercised and are outstanding
as of the time immediately prior to the Termination Date shall, notwithstanding
any contrary provision of any applicable Incentive Plan, remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier; and (ii) in the
case of a termination of the Employee's Employment for Cause, all stock options
previously granted to the Employee under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to the Employee under
any Incentive Plan shall, notwithstanding any contrary provision of that
Incentive Plan, expire or fail to become exercisable or, if exercisable, cease
to be exercisable by reason of either (i) the occurrence of the Employee's
Part-time Employment Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than full-time.
6. OTHER EMPLOYEE RIGHTS
17
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to
not less than four (4) weeks of annual vacation and all legal holidays during
which times his applicable compensation shall be paid in full.
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
twenty (20) day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by the Company with office space, furnishings, and facilities, reserved
parking, secretarial and administrative assistance, supplies and other support
equipment (including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to
move his principal place of residence from the Houston, Texas area or to perform
regular duties that could reasonably be expected to require either such move
against his wish or to spend amounts of time each week outside the Houston,
Texas area which are unreasonable in relation to the duties and responsibilities
of the Employee hereunder, and the Company agrees that, if it requests the
Employee to make such a move and the Employee declines that request, (i) that
declination shall not constitute any basis for a determination that Type II
Cause exists and (ii) no animosity or prejudice will be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his Employment and for a
period of one (1) year after the Termination Date, he will not, within fifty
(50) miles of the geographic location in which the he has devoted substantial
attention at such location to the material business interests of the Company:
(i) accept employment or render service to any Person that is engaged in a
business directly competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, employee, consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be competitive with the
business of the Company.
18
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon application to any court
of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the provisions of this
Section 7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue
to have access to various Confidential Information. The Employee agrees,
therefore, that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by the
Employee solely or jointly with any other Person or Persons during the period of
his Employment and which pertain primarily to the material business activities
of the Company, and the Employee hereby assigns and agrees to assign all his
interests therein to the Company or to its nominee; whenever requested to do so
by the Company, the Employee shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply for and
obtain Letters of Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein. These obligations shall (i)
continue beyond the Termination Date with respect to inventions, improvements,
and valuable discoveries, whether patentable or not, conceived, made or acquired
by the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
19
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its undertakings in, this
Agreement shall not be affected by any right of set-off, counterclaim,
recoupment, defense or other action, claim or right the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any provision hereof, and those amounts shall not
be reduced, regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee
and, without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If the Employee is not
an Executive Officer, but is an officer of a subsidiary of the Company, the
Company shall be entitled to assign all its obligations hereunder to that
subsidiary and treat the Employee as an employee of that subsidiary for all
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
20
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company substantially
as an entirety expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would have been required to
perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Howard S. Hoover, Jr.
5822 Valley Forge
Houston, Texas 77057
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to assert any right under,
this Agreement (including the right of the Employee to terminate his Employment
for Good Reason or by reason of a Change of Control pursuant to Section 5(B)
(i)) shall not be deemed a waiver of that provision or of any other provision of
or right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE
TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents
with respect to any action, suit or other legal proceeding pertaining directly
to this Agreement or to the
21
interpretation or enforcement of any of the Employee's rights hereunder to
service of process in the State of Texas and hereby waives any right to contest
or oppose receipt of such service of process. The Company irrevocably (i) agrees
that any such action, suit or other legal proceeding may be brought in the
courts of such state or in the courts of the United States sitting in such
state, (ii) consents to the jurisdiction of each such court in any such action,
suit or other legal proceeding and (iii) waives any objection it may have to the
laying of venue of any such action, suit or other legal proceeding in any of
such courts.
J. HEADINGS. The headings of Sections and subsections hereof
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed
to the Employee hereunder are not so paid or reimbursed at the times provided
herein (including amounts required to be paid by the Company pursuant to
Sections 6 and 10, those amounts shall accrue interest compounded daily at the
annual percentage rate which is three percentage points (3%) above the interest
rate announced by Texas Commerce Bank National Association, Houston, Texas (or
its successor), from time to time, as its Base Rate (or prime lending rate),
from the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that,
except to the extent required by law or legal process (including the Exchange
Act and the Securities Act), it will not make or publish, without the prior
written consent of the Employee, any written or oral statement concerning the
terms of the Employee's employment relationship with the Company and will not,
if a Notice of Termination is given by either the Company or the Employee for
any reason, publish or cause to be published any statement concerning the
Employee, including his work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision
hereof, the Company may withhold from amounts payable hereunder all Federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee (i)
acknowledge that this Agreement amends and restates the Employment Agreement
dated as of November 1, 1995 between the Company and the Employee and (ii) agree
that this Agreement supersedes all prior written and oral agreements between
them with respect to the employment of the Employee by the Company, but has no
effect on the Agreement and Plan of Reorganization dated as of June 13, 1996 to
which the Company and the Employee are parties.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES;
RESOLUTION OF DISPUTES
22
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into
this Agreement the Company intends that the Employee receive without reduction
or delay all the intended benefits of this Agreement and that those benefits,
and the terms and conditions hereof, be construed in a manner most favorable to
the Employee; the Company, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in the Employee's favor and to his
benefit any ambiguities or uncertainties that may be created by the express
language hereof. If, however, at any time during the term hereof or afterwards:
(i) there should exist a dispute or conflict between the Employee and the
Company or another Person as to the validity, interpretation or application of
any term or condition hereof, or as to the Employee's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of the
Employee, (ii) the Employee must (A) defend the validity of this Agreement, (B)
contest any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred
to in Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to agree in writing to an acceptable ADR process within
that ten (10) business day period, then the parties shall submit to a mandatory
ADR process by making joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the selection of an ADR
23
process for the parties. The parties shall diligently in good faith participate
in the ADR process chosen by that judge. If the parties are unable to resolve
their dispute after diligent good faith participation in the ADR process, then
either party shall be free to initiate such litigation as that party deems
appropriate under the circumstances. Under no circumstances shall the Employee
be obligated to pay for the cost of any ADR process or to pay or reimburse the
Company for any attorneys' fees, costs or other expenses incurred by the Company
in connection with any process undertaken by the Employee to resolve disputes
under this Agreement. As used in this Section 10, the term "Employee" includes,
if the Employee has died or become incompetent as a matter of applicable law,
the Employee's legal representative acting in his capacity as such under
applicable law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the
maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ C. CLIFFORD WRIGHT,JR.
C. Clifford Wright, Jr.
President and Chief Executive Officer
EMPLOYEE
/s/ HOWARD S. HOOVER, JR.
Howard S. Hoover, Jr.
Employee's Permanent Address:
5822 Valley Forge
Houston, Texas 77057
25
Exhibit 10.3
C. Clifford Wright, Jr.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), as amended and
restated as of May 1, 1996, is entered into and effective as of November 1, 1995
(the "Effective Date") by and between AMERICAN RESIDENTIAL SERVICES, INC., a
Delaware corporation (the "Company"), and C. CLIFFORD WRIGHT, JR. (the
"Employee").
RECITALS
In entering into this Agreement, the Company desires to
provide the Employee with substantial incentives to serve the Company as a
senior executive performing at the highest levels of leadership and stewardship,
without distraction or concern over minimum compensation, benefits or tenure, to
develop and implement the Company's initial development plan and thereafter
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
mutual provisions contained herein, and for other good and valuable
consideration, the parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms
have the meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to
the repurchase of Common Stock by the Company, unless and until such
time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a) the
Part-time Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned by the
Employee during that Compensation Year, including all amounts deferred
at the election of the Employee pursuant to a Compensation Plan
intended to qualify as a plan under Section 401(k) of the Code or
otherwise. If salary or bonus is paid in whole or in part in property
other than cash (such as Common Stock) the amount so paid shall be the
fair market value thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Part-time Employment Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the two (2)
Compensation Years next preceding that date or, if less than two (2)
Compensation Years have occurred prior to that date and since the
Effective Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized basis, the
Annual Cash Compensation in each partial Compensation Year (up to a
maximum of two (2) partial Compensation Years) next preceding the
Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable by the
Company to the Employee pursuant to Section 4(A); and (b) on and after
the Part-time Employment Effective Date, the guaranteed minimum annual
salary payable by the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote
or dispose of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (a) as a result of an agreement,
arrangement or understanding to vote that security if that
agreement, arrangement or understanding: (1) arises solely
from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by
Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation
made pursuant to, and in accordance with, the applicable
provisions of the Exchange Act; and (2) is not then reportable
by such Person on Exchange Act Schedule 13D (or any comparable
or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of that acquisition. For purposes of this Agreement, "voting"
a security shall include voting, granting a proxy, acting by consent,
making a request or demand relating to corporate action (including,
without limitation, calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a felony crime
that enriched the Employee at the expense of the Company; or (b) the
Employee's deliberate and intentional continuing failure to
substantially perform his duties and responsibilities hereunder (except
by reason of the Employee's incapacity due to physical or mental
illness or injury) for a period of forty-five (45) days after the
Required Board Majority has delivered to the Employee a written demand
for substantial performance hereunder which specifically identifies the
bases for the Required Board Majority's determination that the Employee
has not substantially performed his duties and responsibilities
hereunder (such period being the "Grace Period"); provided, that for
purposes of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of the
Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice
and at which the Employee was afforded the opportunity to be
represented by counsel, appear and be heard, the Required Board
Majority shall adopt a written resolution which (A) sets forth the
Required Board Majority's determination that the failure of the
Employee to substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to physical or
mental illness or injury) continued past the Grace Period and (B)
specifically identifies the bases for that determination and (2) the
Company, at the written direction of the Required Board Majority, shall
deliver to the Employee a Notice of Termination for Cause to which a
copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. Cause
of the type referred to in clause (a) of the preceding sentence is a
"Type I Cause," while Cause of the type referred to in clause (b) of
the preceding sentence is a "Type II Cause." For purposes of
determining whether a Type II Cause has occurred, no act or failure to
act on the part of the Employee shall be considered "deliberate and
intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(c) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary during the
term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a
Delaware corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to Section
9(D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer or any member of the family of any Executive Officer, (a)
including (i) any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the Code or whose
benefits are limited by the Code or ERISA, (iii) any "employee welfare
plan" (as defined in Section 3(1) of ERISA), (iv) any arrangement,
plan, policy, practice or program providing for severance pay, deferred
compensation or insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing and
providing for the payment or reimbursement of expenses attributable to
first-class air travel and first-class hotel occupancy while on travel
or (B) providing for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air time or other
recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it
provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the compensation of
Executive Officers and the administration of Incentive Plans, if any,
intended to qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, 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 sale programs, customer lists,
records of customer service requirements, capital expenditure projects,
cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any governmental
authority and all other confidential, nonpublic concepts, methods of
5
doing business, ideas, materials or information prepared or performed
for, by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers-- All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as published
by the United States Department of Labor, Bureau of Labor Statistics
(or its successor) for that period.
"CONTINUING DIRECTOR" means at any time any individual who
then (a) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or
that first election, to the Board following that date was recommended
or approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on all
Persons, absent manifest error), as a result of a physical or mental
illness or personal injury he has incurred (including illness or injury
resulting from any substance abuse), by a Qualified Physician (who may
be the doctor treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by the
Employee with the consent of the Company, or by the Company with the
consent of the Employee (which consent shall not be unreasonably
withheld in either case), to be unable to perform, at the time of that
determination and, in all reasonable medical likelihood, indefinitely
thereafter, the normal duties then most recently assigned, under and in
accordance with the terms hereof, to the Employee while on Active
Status; provided that, the determination whether the Employee has
incurred a Disability shall be made by a majority of three (3)
Qualified Physicians, (a) one (1) of whom shall be selected by the
Employee, (b) one (1) of whom shall be selected by the Company and (c)
the remaining one (1) of whom shall be selected by the Qualified
Physicians selected by the Employee and the Company pursuant to clauses
(a) and (b) of this proviso and the fees and expenses of whom will be
shared and paid in equal amounts by the Employee and the Company, if:
(1)(A) the Company has reasonably withheld its consent to the Qualified
Physician, if any, selected by the Employee or (B) the Employee has
reasonably withheld his consent to the Qualified Physician, if any,
selected by the Company and (2) the Qualified Physicians selected by
the Employee and the Company disagree as to whether the Employee has
incurred a Disability. For purposes of this definition, if the Employee
is unable by reason of illness or injury to give an informed consent to
the performance of the treatment of that illness or injury, a Qualified
Physician selected by any Person who is authorized by applicable law to
give that consent will be deemed to have been selected by the Employee.
"EFFECTIVE DATE" means November 1, 1995.
6
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief
financial officer, the president, any executive or senior vice
president or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule
13d-5(b)) of which the Employee or any Affiliate or Associate of the
Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under, any such Compensation Plan, unless (A) in the case of
either subclause (1) or (2) of this clause, there is substituted a
comparable Compensation Plan that is at least economically equivalent,
in terms of the benefit offered to the Employee, to the Compensation
Plan being ended or in which the Employee's participation is being
adversely affected or the Employee's benefits are being materially
reduced or (B) in the case of that subclause (1), the failure, or in
the case of that subclause (2), the taking of action, adversely affects
Executive Officers generally; or (c) the assignment to the Employee of
duties inconsistent in any material respect with the Employee's then
current positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any other
action by the Company which results in a material diminution in those
positions, authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer and which provides for incentive, bonus or other
performance-based awards of cash, securities or the phantom equivalent
of securities, including any stock option, stock appreciation right and
restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more
of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective
under that act and the shares registered by that registration statement
are issued and sold by the Company (otherwise than pursuant to the
exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's Employment, and if the
Termination Date is other than the date of receipt of the notice, (b)
sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any subsidiary
of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to terminate
the Employee's Employment other than for Cause or (b) if the Employee
elects pursuant to the applicable provision hereof to terminate his
Employment for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part-time Employment Effective Date and ends on the first
to occur of (a) the third (3rd) anniversary of that Part-time
Employment Effective Date, (b) the termination by the Company of the
Employee's Employment for Type I Cause or (c) the death or Retirement
of the Employee.
"PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a)
holding an M.D. degree from a medical school located in the United
States and having a national reputation in the United
8
States as a leading medical school, (b) specializing and
board-certified in the treatment of the injury or illness that has or
may have caused that Disability, (c) licensed to practice that
speciality in the State of Texas or the state in which the Employee
then is domiciled and (d) having admission privileges to one or more
private hospitals located in the Texas Medical Center in Houston, Texas
or in a hospital of comparable reputation in the state in which the
Employee then is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment by means
of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
following a Change of Control pursuant to Section 5(B)(i)(b), the first
date on which the Company pays to the Employee in full the amounts owed
to the Employee pursuant to Section 5(B)(iii); (c) if the Employee's
Employment is terminated by reason of the Employee's giving a Notice of
Termination without Good Reason and other than for Disability pursuant
to Section 5(B)(i)(c), the elapse of the thirtieth (30th) day after the
Company receives that notice; (d) if the Employee's Employment is
terminated by the Company at any time for Type I Cause or, prior to the
Part-time Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination for
Cause; and (e) if the Employee's Employment is terminated for any other
reason, at the expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (b) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
9
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise
specified herein, all references herein to any statute defined or referred to
herein, including the Code, ERISA and the Exchange Act, shall be deemed
references to that statute or any successor statute, as the same may have been
or may be amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(ii) 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 word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as its Chief Executive Officer (the most senior Executive Officer) and
the Employee will serve in the Company's employ in that position. The Employee
shall perform such duties, and have such powers, authority, functions, duties
and responsibilities for the Company and corporations affiliated with the
Company as are commensurate and consistent with his employment as the Company's
Chief Executive Officer. The Employee also shall have such additional powers,
authority, functions, duties and responsibilities as may be assigned to him by
the Board; provided that, without the Employee's written consent, such
additional powers, authority, functions, duties and responsibilities shall not
be inconsistent or interfere with, or detract from, those herein vested in, or
otherwise then being performed for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not interfere
materially with the Employee's duties and responsibilities for the Company at
that time, except that the Employee shall be entitled, subject to the provisions
of Section 7, (a) to continue with such activities as the Employee has carried
on prior to the Effective Date, including making and managing his personal
investments and participating in other business or civic activities and (b) to
serve on corporate or other business, civic or charitable boards or committees
and trade association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the
Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and
10
renewing each day thereafter for an additional day without any further action by
either the Company or the Employee, it being the intention of the parties that
there shall be continuously a remaining term of three (3) years' duration of the
Employee's Employment 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 5. When the Termination Date shall have occurred and the Company shall
have paid to the Employee all the applicable amounts Section 5 provides the
Company shall pay as a result of the termination of the Employee's Employment,
including all amounts accruing during the Part-time Employment Period, if any,
this Agreement will terminate and have no further force or effect, except that
Sections 4(C), 8, 9, 10 and 11 shall survive that termination indefinitely and
Section 7 shall survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee
by the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the first to
occur of the Part-time Employment Effective Date or the Termination Date . That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less infrequently than semi-monthly),
shall be payable initially at the annual rate of $175,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in the CPI for
the twelve (12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be determined in the
sole discretion of the Compensation Committee, but only in such form
and to such extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such determinations
or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state having a
personal income tax, or if the Employee resides in a state without a
personal income tax on the date hereof which subsequently adopts a
personal income tax, then, in either case, the Base Salary in effect at
the time of such relocation or adoption, as applicable, shall
immediately be increased by the amount equal to the Base Salary
immediately prior to this increase multiplied by seventy percent (70%)
of the highest personal income tax rate of such state; for example, if
the Employee relocates from a state without a personal income tax to a
state having a personal income tax and the highest rate of that tax is
six percent (6%) when the Base Salary is $200,000, then the Base Salary
will be increased by $8,400 (computed at 70% x 6% x $200,000);
11
provided, however, that the obligation of the Company to pay the Base Salary
earned by the Employee for his service in the period beginning on the Effective
Date and ending on the date that is the first to occur of (a) the IPO Closing
Date, (b) the Termination Date or (c) such other date as the Board in its sole
discretion may determine shall be deferred to the last day of that period in
such amounts as the Board in its sole discretion may from time to time
determine, on which day the Company shall pay in full to the Employee, without
interest, the aggregate earned but unpaid amount of the Base Salary for that
period. Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to
participate in all Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee is an Executive
Officer. All awards to the Employee under all Incentive Plans shall take into
account the Employee's positions with and duties and responsibilities to the
Company and its subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment in the
nature of compensation, singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the
12
Company the ability to contest the imposition of such excise or similar purpose
tax; provided, however, that the Employee will not be required to afford the
Company any right to contest the applicability of any such excise or similar
purpose tax to the extent that the Employee reasonably determines (based upon
the opinion of his tax counsel) that such contest is inconsistent with the
overall tax interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND
DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company
shall be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Date for any Business
Reason. The Company's termination of the Employee's Employment for Cause will be
effective on the date the Company delivers a Notice of Termination for Cause to
the Employee pursuant to this Section 5(A)(i)(together, in the case of a
termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid, and, when that
payment is made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee
shall be entitled to terminate his Employment (a) for a Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred sixty-five (365)
days after that Change of Control occurs (provided, however, that the Employee
shall not be entitled to terminate his Employment by reason of that Change of
Control if it occurs (1) during the thirty (30) day period following the
Company's receipt of the Employee's Notice of Termination without Good Reason
and other than for Disability pursuant
13
to this Section 5(B)(i), (2) after (A) the receipt by the Nonterminating Party
of the Terminating Party's Notice of Termination pursuant to Section 5(C) or (B)
the Employee's receipt of the Company's Notice of Termination for a Business
Reason (other than in connection with that Change of Control) pursuant to
Section 5(A) or (3) more than three hundred sixty-five (365) days after the
Company's receipt of the Employee's Notice of Termination for Good Reason
pursuant to this Section 5(B)(i)) or (c) without Good Reason and other than for
Disability at any time. The Employee's termination of his Employment for Good
Reason will be effective on the third (3rd) anniversary of the date the Employee
delivers a Notice of Termination for Good Reason to the Company pursuant to this
Section 5(B)(i). The Employee's termination of his Employment by reason of a
Change of Control will be effective on the first date on which the Change of
Control Payment shall have been paid in full to the Employee. The Employee's
termination of his Employment without Good Reason and other than for Disability
will be effective on the thirtieth (30th) day following the Employee's delivery
of a Notice of Termination without Good Reason and other than for Disability
pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company and the Employee
during the Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to the Employee, in
a cash lump sum within five (5) business days after the Termination Date, the
amount equal to the sum of (a) the portion of the Base Salary to and including
the Termination Date which has not yet been paid, (b) all compensation
previously deferred by the Employee (together with any accrued interest and
earnings thereon) which has not yet been paid, (c) any accrued but unpaid
vacation pay and (d) the amount equal to fifty percent (50%) of the Base Salary
being paid for the Compensation Year in which the Company receives the
Employee's Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates his Employment
without Good Reason and other than for Disability within six (6) months of the
theretofore scheduled final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the amount determined
pursuant to that clause multiplied by a fraction the numerator of which is the
number of days from and excluding the date the Company receives the Notice of
Termination to and including that final day and the denominator of which is one
hundred eighty-two (182). For purposes of this Section 5(B)(iv), if the
anniversary of the Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and other than for
Disability has not occurred on or prior to
14
the date of that receipt, the Base Salary for that Compensation Year will be
calculated on the assumption that no increase in the amount thereof would be
made effective as of that anniversary pursuant to Section 4(A) or 5(E)(i), as
applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective rights and
obligations of the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his death. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of (i) the portion
of the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of (1) the Base Salary being paid for the Compensation Year
in which he dies multiplied by (2) three (3) or (b) if the Employee dies during
the Part-time Employment Period, the product of (1) one-twelfth (1/12th) of the
Base Salary being paid for the Compensation Year in which the Employee dies
multiplied by (2) the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the intervals
consistent with the Company's normal payroll schedules (but in no event less
frequently than semi-monthly) from the Part-time Employment Effective Date to
and including the Termination Date in the amounts determined from time to time
as follows: Effective as of the Part-time Employment Effective Date, the Base
Salary payable by the Company to the Employee for the period from and including
that date to and excluding the third (3rd) anniversary of that date shall be as
follows:
15
(a) if the Part-time Employment Effective Date occurs as a
result of the receipt by the Nonterminating Party of a Notice of
Termination for a Business Reason pursuant to Section 5(A) or a Notice
of Termination for Good Reason pursuant to Section 5(B)(i), the amount
equal to the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date; and (b) if
the Part-time Employment Effective Date occurs as a result of the
receipt by the Nonterminating Party of a Notice of Termination for
Disability pursuant to Section 5(C), the amount equal to the amount by
which (1) seventy-five percent (75%) of the Average Annual Cash
Compensation of the Employee determined as of the Part-time Employment
Effective Date exceeds (2) the aggregate amount of periodic payments
the Employee receives during the twelve (12) months beginning on that
date under Compensation Plans then in effect and providing for the
payment to the Employee solely as a result or on account of disability;
and
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary payable pursuant
to this Section 5(E) shall be increased (but not decreased) by the same
percentage increase (if any) in the CPI for the twelve (12) month
period immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years
of service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or engaging in (and
devoting substantially all his time to) other business activities or (B)
required to perform any regular duties for the Company (except to provide such
services consistent with the Employee's educational background, experience and
prior positions with the Company as may be acceptable to the Employee) or to
seek or accept additional employment with any other Person. If the Employee, at
his discretion, shall accept any such additional employment or engage in any
such other business activity there shall be no offset, reduction or effect upon
any rights, benefits or payments to which the Employee is entitled pursuant to
this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity.
16
The Employee shall, however, make himself generally available for special
projects or to consult with the Company and its employees at such times and at
such places as may be reasonably requested by the Company and which shall be
reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within thirty-five
(35) miles of the Employee's principal residence, in any case reasonably
acceptable to the Employee, alternate but comparable office space, furnishings,
facilities, reserved parking, supplies, services, equipment, secretarial and
administrative assistance that are in each case at least commensurate with the
size and quality of that which were provided to the Employee during the
Compensation Year immediately preceding the Part-time Employment Effective Date
pursuant to Section 6(C), but in no event less than are being furnished or
provided on the date hereof. The Company and Employee may mutually agree upon an
equivalent monthly cash allowance in lieu of the Employee being provided all or
any part of these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his representatives) shall
promptly deliver and return to the Company all the Company's property that is in
the possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of the
Employee's Employment for Cause, all stock options previously granted to the
Employee under Incentive Plans that have not been exercised and are outstanding
as of the time immediately prior to the Termination Date shall, notwithstanding
any contrary provision of any applicable Incentive Plan, remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier; and (ii) in the
case of a termination of the Employee's Employment for Cause, all stock options
previously granted to the Employee under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to the Employee under
any Incentive Plan shall, notwithstanding any contrary provision of that
Incentive Plan, expire or fail to become exercisable or, if exercisable, cease
to be exercisable by reason of either (i) the occurrence of the Employee's
Part-time Employment Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than full-time.
6. OTHER EMPLOYEE RIGHTS
17
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to
not less than four (4) weeks of annual vacation and all legal holidays during
which times his applicable compensation shall be paid in full.
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
twenty (20) day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by the Company with office space, furnishings, and facilities, reserved
parking, secretarial and administrative assistance, supplies and other support
equipment (including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to
move his principal place of residence from the Houston, Texas area or to perform
regular duties that could reasonably be expected to require either such move
against his wish or to spend amounts of time each week outside the Houston,
Texas area which are unreasonable in relation to the duties and responsibilities
of the Employee hereunder, and the Company agrees that, if it requests the
Employee to make such a move and the Employee declines that request, (i) that
declination shall not constitute any basis for a determination that Type II
Cause exists and (ii) no animosity or prejudice will be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his Employment and for a
period of one (1) year after the Termination Date, he will not, within fifty
(50) miles of the geographic location in which the he has devoted substantial
attention at such location to the material business interests of the Company:
(i) accept employment or render service to any Person that is engaged in a
business directly competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, employee, consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be competitive with the
business of the Company.
18
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon application to any court
of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the provisions of this
Section 7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue
to have access to various Confidential Information. The Employee agrees,
therefore, that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by the
Employee solely or jointly with any other Person or Persons during the period of
his Employment and which pertain primarily to the material business activities
of the Company, and the Employee hereby assigns and agrees to assign all his
interests therein to the Company or to its nominee; whenever requested to do so
by the Company, the Employee shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply for and
obtain Letters of Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein. These obligations shall (i)
continue beyond the Termination Date with respect to inventions, improvements,
and valuable discoveries, whether patentable or not, conceived, made or acquired
by the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
19
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its undertakings in, this
Agreement shall not be affected by any right of set-off, counterclaim,
recoupment, defense or other action, claim or right the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any provision hereof, and those amounts shall not
be reduced, regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee
and, without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If the Employee is not
an Executive Officer, but is an officer of a subsidiary of the Company, the
Company shall be entitled to assign all its obligations hereunder to that
subsidiary and treat the Employee as an employee of that subsidiary for all
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
20
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company substantially
as an entirety expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would have been required to
perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
C. Clifford Wright, Jr.
5658 Cedar Creek
Houston, Texas 77056
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to assert any right under,
this Agreement (including the right of the Employee to terminate his Employment
for Good Reason or by reason of a Change of Control pursuant to Section 5(B)
(i)) shall not be deemed a waiver of that provision or of any other provision of
or right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE
TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents
with respect to any action, suit or other legal proceeding pertaining directly
to this Agreement or to the
21
interpretation or enforcement of any of the Employee's rights hereunder to
service of process in the State of Texas and hereby waives any right to contest
or oppose receipt of such service of process. The Company irrevocably (i) agrees
that any such action, suit or other legal proceeding may be brought in the
courts of such state or in the courts of the United States sitting in such
state, (ii) consents to the jurisdiction of each such court in any such action,
suit or other legal proceeding and (iii) waives any objection it may have to the
laying of venue of any such action, suit or other legal proceeding in any of
such courts.
J. HEADINGS. The headings of Sections and subsections hereof
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed
to the Employee hereunder are not so paid or reimbursed at the times provided
herein (including amounts required to be paid by the Company pursuant to
Sections 6 and 10, those amounts shall accrue interest compounded daily at the
annual percentage rate which is three percentage points (3%) above the interest
rate announced by Texas Commerce Bank National Association, Houston, Texas (or
its successor), from time to time, as its Base Rate (or prime lending rate),
from the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that,
except to the extent required by law or legal process (including the Exchange
Act and the Securities Act), it will not make or publish, without the prior
written consent of the Employee, any written or oral statement concerning the
terms of the Employee's employment relationship with the Company and will not,
if a Notice of Termination is given by either the Company or the Employee for
any reason, publish or cause to be published any statement concerning the
Employee, including his work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision
hereof, the Company may withhold from amounts payable hereunder all Federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee (i)
acknowledge that this Agreement amends and restates the Employment Agreement
dated as of November 1, 1995 between the Company and the Employee and (ii) agree
that this Agreement supersedes all prior written and oral agreements between
them with respect to the employment of the Employee by the Company, but has no
effect on the Agreement and Plan of Reorganization dated as of June 13, 1996 to
which the Company and the Employee are parties.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES;
RESOLUTION OF DISPUTES
22
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into
this Agreement the Company intends that the Employee receive without reduction
or delay all the intended benefits of this Agreement and that those benefits,
and the terms and conditions hereof, be construed in a manner most favorable to
the Employee; the Company, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in the Employee's favor and to his
benefit any ambiguities or uncertainties that may be created by the express
language hereof. If, however, at any time during the term hereof or afterwards:
(i) there should exist a dispute or conflict between the Employee and the
Company or another Person as to the validity, interpretation or application of
any term or condition hereof, or as to the Employee's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of the
Employee, (ii) the Employee must (A) defend the validity of this Agreement, (B)
contest any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred
to in Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to agree in writing to an acceptable ADR process within
that ten (10) business day period, then the parties shall submit to a mandatory
ADR process by making joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the selection of an ADR
23
process for the parties. The parties shall diligently in good faith participate
in the ADR process chosen by that judge. If the parties are unable to resolve
their dispute after diligent good faith participation in the ADR process, then
either party shall be free to initiate such litigation as that party deems
appropriate under the circumstances. Under no circumstances shall the Employee
be obligated to pay for the cost of any ADR process or to pay or reimburse the
Company for any attorneys' fees, costs or other expenses incurred by the Company
in connection with any process undertaken by the Employee to resolve disputes
under this Agreement. As used in this Section 10, the term "Employee" includes,
if the Employee has died or become incompetent as a matter of applicable law,
the Employee's legal representative acting in his capacity as such under
applicable law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the
maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ HOWARD S. HOOVER, JR.
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
/s/ C. CLIFFORD WRIGHT, JR.
C. CLIFFORD WRIGHT, JR.
Employee's Permanent Address:
5658 Cedar Creek
Houston, Texas 77056
25
EXHIBIT 10.4
William P. McCaughey
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), as amended and
restated as of May 1, 1996, is entered into and effective as of November 1, 1995
(the "Effective Date") by and between AMERICAN RESIDENTIAL SERVICES, INC., a
Delaware corporation (the "Company"), and WILLIAM P. MCCAUGHEY (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company as a senior executive
performing at the highest levels of leadership and stewardship, without
distraction or concern over minimum compensation, benefits or tenure, to develop
and implement the Company's initial development plan and thereafter managing the
Company's future growth and development and maximizing the returns to the
Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms have the
meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together with all
Affiliates and Associates of such Person, is or are the Beneficial Owner
of twenty-five percent (25%) or more of the shares of Common Stock then
outstanding, but does not include any Exempt Person; provided, however,
that a Person shall not be or become an Acquiring Person if such Person,
together with its Affiliates and Associates, shall become the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding solely as a result of a reduction in the number of shares
of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial
Owner of additional shares of Common Stock constituting one percent (1%)
or more of the then outstanding shares of Common Stock or any other Person
(or Persons) who is (or collectively are) the Beneficial Owner of shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock shall become an Affiliate or Associate
of such Person, unless, in either such case, such Person, together with
all Affiliates and Associates of such Person, is not then the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from the
Effective Date to and including the first to occur of (a) the Part-time
Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange Act
Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any Compensation Year
means the sum of the salary and bonus earned by the Employee during that
Compensation Year, including all amounts deferred at the election of the
Employee pursuant to a Compensation Plan intended to qualify as a plan
under Section 401(k) of the Code or otherwise. If salary or bonus is paid
in whole or in part in property other than cash (such as Common Stock) the
amount so paid shall be the fair market value thereof on the date of
payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which that Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the
Beneficial Owner of 10% or more of any class of its equity securities, (b)
any trust or other estate in which that Person has a substantial
beneficial interest or for or of which that Person serves as trustee or in
a similar fiduciary capacity and (c) any relative or spouse of that
Person, or any relative of that spouse, who has the same home as that
Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as of the
Part-time Employment Effective Date, the average of (a) the Annual Cash
Compensation earned by the Employee in each of the two (2) Compensation
Years next preceding that date or, if less than two (2) Compensation Years
have occurred prior to that date and since the Effective Date, (b) the
Annual Cash Compensation in each whole Compensation Year, if any, and,
restated on an annualized basis, the Annual Cash Compensation in each
partial Compensation Year (up to a maximum of two (2) partial Compensation
Years) next preceding the Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment Effective
Date, the guaranteed minimum annual salary payable by the Company to the
Employee pursuant to Section 4(A); and (b) on and after the Part-time
Employment Effective Date, the guaranteed minimum annual salary payable by
the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" (as
determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote or
dispose of, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (a) as a
result of an agreement, arrangement or understanding to vote that
security if that agreement, arrangement or understanding: (1) arises
solely from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the
Exchange Act; and (2) is not then reportable by such Person on
Exchange Act Schedule 13D (or any comparable or successor report);
(b) which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to
acquire (whether that right or obligation is exercisable or
effective immediately or only after the passage of time or the
occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or on the exercise of
conversion rights, exchange rights, other rights, warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer made by
that Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or exchange; or
(c) which are beneficially owned, directly or indirectly, by
(1) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to subparagraph (a) of this
definition) or disposing of any voting securities of the Company or
(2) any group (as that term is used in Exchange Act Rule 13d-5(b))
of which that specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of that
acquisition. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or
demand relating to corporate action (including, without limitation,
calling a stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of
such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the Employee's
Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's Employment
means: (a) the Employee's final conviction of a felony crime that enriched
the Employee at the expense of the Company; or (b) the Employee's
deliberate and intentional continuing failure to substantially perform his
duties and responsibilities hereunder (except by reason of the Employee's
incapacity due to physical or mental illness or injury) for a period of
forty-five (45) days after the Required Board Majority has delivered to
the Employee a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Employee has not substantially performed his duties
and responsibilities hereunder (such period being the "Grace Period");
provided, that for purposes of this clause (b), the Company shall not have
Cause to terminate the Employee's Employment unless (1) at a meeting of
the Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice and
at which the Employee was afforded the opportunity to be represented by
counsel, appear and be heard, the Required Board Majority shall adopt a
written resolution which (A) sets forth the Required Board Majority's
determination that the failure of the Employee to substantially perform
his duties and responsibilities hereunder has (except by reason of his
incapacity due to physical or mental illness or injury) continued past the
Grace Period and (B) specifically identifies the bases for that
determination and (2) the Company, at the written direction of the
Required Board Majority, shall deliver to the Employee a Notice of
Termination for Cause to which a copy of that resolution, certified as
being true and correct by the secretary or any assistant secretary of the
Company, is attached. Cause of the type referred to in clause (a) of the
preceding sentence is a "Type I Cause," while Cause of the type referred
to in clause (b) of the preceding sentence is a "Type II Cause." For
purposes of determining whether a Type II Cause has occurred, no act or
failure to act on the part of the Employee shall be considered "deliberate
and intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the following
events that occurs after the IPO Closing Date: (a) any Person becomes an
Acquiring Person; (b) at any time the then Continuing Directors cease to
constitute a majority of the members of the Board; (c) a merger of the
Company with or into, or a sale by the Company of its properties and
assets substantially as an entirety to, another Person occurs and,
immediately after that occurrence, any Person, other than an Exempt
Person, together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of twenty-five percent (25%) or more of the total
voting power of the then outstanding Voting Shares of the Person surviving
that transaction (in the case or a merger or consolidation) or the Person
acquiring those properties and assets substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal to
three (3) times the Employee's then highest Base Salary during the term of
this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a Delaware
corporation, and (b) any Person that assumes the obligations of "the
Company" hereunder, by operation of law, pursuant to Section 9(D)(iii) or
otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or any
subsidiary of the Company contributes, on behalf of any Executive Officer
or any member of the family of any Executive Officer, (a) including (i)
any "employee pension benefit plan" (as defined in Section 3(2) of ERISA)
or other "employee benefit plan" (as defined in Section 3(3) of ERISA),
(ii) any other retirement and savings plan, including any supplemental
benefit arrangement relating to any plan intended to be qualified under
Section 401(a) of the Code or whose benefits are limited by the Code or
ERISA, (iii) any "employee welfare plan" (as defined in Section 3(1) of
ERISA), (iv) any arrangement, plan, policy, practice or program providing
for severance pay, deferred compensation or insurance benefit, (v) any
Incentive Plan and (vi) any arrangement, plan, policy, practice or program
(A) authorizing and providing for the payment or reimbursement of expenses
attributable to first-class air travel and first-class hotel occupancy
while on travel or (B) providing for the payment of business luncheon and
country club dues, long-distance charges, mobile phone monthly air time or
other recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it provides
for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to which
the Board has delegated duties respecting the compensation of Executive
Officers and the administration of Incentive Plans, if any, intended to
qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company or any
subsidiary of the Company, 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 sale programs, customer lists, records of
customer service requirements, capital expenditure projects, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any governmental authority and all
other confidential, nonpublic concepts, methods of
5
doing business, ideas, materials or information prepared or performed for,
by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All Urban
Consumers--All Items Index for Houston, Texas (or any substantially
similar index published for the same area), as published by the United
States Department of Labor, Bureau of Labor Statistics (or its successor)
for that period.
"CONTINUING DIRECTOR" means at any time any individual who then (a)
is a member of the Board and was a member of the Board as of the IPO
Closing Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved by
a majority of the then Continuing Directors (acting separately or as a
part of any action taken by the Board or any committee thereof) and (b) is
not an Acquiring Person, an Affiliate or Associate of an Acquiring Person
or a nominee or representative of an Acquiring Person or of any such
Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been determined
(which determination shall be final and binding on all Persons, absent
manifest error), as a result of a physical or mental illness or personal
injury he has incurred (including illness or injury resulting from any
substance abuse), by a Qualified Physician (who may be the doctor treating
or otherwise acting as the Employee's doctor in connection with the
illness or injury in question) selected by the Employee with the consent
of the Company, or by the Company with the consent of the Employee (which
consent shall not be unreasonably withheld in either case), to be unable
to perform, at the time of that determination and, in all reasonable
medical likelihood, indefinitely thereafter, the normal duties then most
recently assigned, under and in accordance with the terms hereof, to the
Employee while on Active Status; provided that, the determination whether
the Employee has incurred a Disability shall be made by a majority of
three (3) Qualified Physicians, (a) one (1) of whom shall be selected by
the Employee, (b) one (1) of whom shall be selected by the Company and (c)
the remaining one (1) of whom shall be selected by the Qualified
Physicians selected by the Employee and the Company pursuant to clauses
(a) and (b) of this proviso and the fees and expenses of whom will be
shared and paid in equal amounts by the Employee and the Company, if:
(1)(A) the Company has reasonably withheld its consent to the Qualified
Physician, if any, selected by the Employee or (B) the Employee has
reasonably withheld his consent to the Qualified Physician, if any,
selected by the Company and (2) the Qualified Physicians selected by the
Employee and the Company disagree as to whether the Employee has incurred
a Disability. For purposes of this definition, if the Employee is unable
by reason of illness or injury to give an informed consent to the
performance of the treatment of that illness or injury, a Qualified
Physician selected by any Person who is authorized by applicable law to
give that consent will be deemed to have been selected by the Employee.
"EFFECTIVE DATE" means November 1, 1995.
6
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EMPLOYMENT" means the salaried employment of the Employee by the
Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board, the
chief executive officer, the chief operating officer, the chief financial
officer, the president, any executive or senior vice president or the
general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of
the Company and (2) any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees
of the Company or any subsidiary of the Company and (b) the Employee, any
Affiliate or Associate of the Employee or any group (as that term is used
in Exchange Act Rule 13d-5(b)) of which the Employee or any Affiliate or
Associate of the Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's benefits
under, any such Compensation Plan, unless (A) in the case of either
subclause (1) or (2) of this clause, there is substituted a comparable
Compensation Plan that is at least economically equivalent, in terms of
the benefit offered to the Employee, to the Compensation Plan being ended
or in which the Employee's participation is being adversely affected or
the Employee's benefits are being materially reduced or (B) in the case of
that subclause (1), the failure, or in the case of that subclause (2), the
taking of action, adversely affects Executive Officers generally; or (c)
the assignment to the Employee of duties inconsistent in any material
respect with the Employee's then current positions (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by the Company which results in a
material diminution in those positions, authority, duties or
responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan, policy,
practice or program established, maintained or sponsored by the Company or
any subsidiary of the Company, or to which the Company or any subsidiary
of the Company contributes, on behalf of any Executive Officer and which
provides for incentive, bonus or other performance-based awards of cash,
securities or the phantom equivalent of securities, including any stock
option, stock appreciation right and restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more of
Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed under the
Securities Act and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that act and
the shares registered by that registration statement are issued and sold
by the Company (otherwise than pursuant to the exercise of any
over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as the
case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a written
notice that: (a) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Employee's Employment, and if the Termination Date is other than the
date of receipt of the notice, (b) sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at that
time who is not then an employee of the Company or any subsidiary of the
Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the Company
elects pursuant to any applicable provision hereof to terminate the
Employee's Employment other than for Cause or (b) if the Employee elects
pursuant to the applicable provision hereof to terminate his Employment
for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which begins
on the Parttime Employment Effective Date and ends on the first to occur
of (a) the third (3rd) anniversary of that Part-time Employment Effective
Date, (b) the termination by the Company of the Employee's Employment for
Type I Cause or (c) the death or Retirement of the Employee.
"PERSON" means any natural person, 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, joint venture, estate, trust, union
or employee organization or governmental authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a) holding
an M.D. degree from a medical school located in the United States and
having a national reputation in the United
8
States as a leading medical school, (b) specializing and board-certified
in the treatment of the injury or illness that has or may have caused that
Disability, (c) licensed to practice that speciality in the State of Texas
or the state in which the Employee then is domiciled and (d) having
admission privileges to one or more private hospitals located in the Texas
Medical Center in Houston, Texas or in a hospital of comparable reputation
in the state in which the Employee then is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the case
may be, who or which terminates the Employee's Employment by means of a
Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is terminated
by reason of the Employee's giving a Notice of Termination following a
Change of Control pursuant to Section 5(B)(i)(b), the first date on which
the Company pays to the Employee in full the amounts owed to the Employee
pursuant to Section 5(B)(iii); (c) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
without Good Reason and other than for Disability pursuant to Section
5(B)(i)(c), the elapse of the thirtieth (30th) day after the Company
receives that notice; (d) if the Employee's Employment is terminated by
the Company at any time for Type I Cause or, prior to the Part-time
Employment Effective Date, at any time for Type II Cause, the date the
Employee receives the Company's Notice of Termination for Cause; and (e)
if the Employee's Employment is terminated for any other reason, at the
expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause (a) of
the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause (b) of
the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation, stock of
that corporation of the class or classes having general voting power under
ordinary circumstances to elect a majority of that corporation's board of
directors; and (b) in the case of any other entity, equity interests of
the class or classes having general voting power under ordinary
circumstances equivalent to the Voting Shares of a corporation.
9
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise specified
herein, all references herein to any statute defined or referred to herein,
including the Code, ERISA and the Exchange Act, shall be deemed references to
that statute or any successor statute, as the same may have been or may be
amended or supplemented from time to time, and any rules or regulations
promulgated thereunder.
(ii) 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 word "Section" refers to a
Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number includes
the plural and vice versa, and a reference to one gender includes each other
gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set forth,
and beginning as of the Effective Date, the Company will employ the Employee as
its Executive Vice President-Planning and Development and the Employee will
serve in the Company's employ in that position. The Employee shall perform such
duties, and have such powers, authority, functions, duties and responsibilities
for the Company and corporations affiliated with the Company as are commensurate
and consistent with his employment as the Company's Executive Vice
President--Planning and Development. The Employee also shall have such
additional powers, authority, functions, duties and responsibilities as may be
assigned to him by the Board; provided that, without the Employee's written
consent, such additional powers, authority, functions, duties and
responsibilities shall not be inconsistent or interfere with, or detract from,
those herein vested in, or otherwise then being performed for the Company by,
the Employee.
B. The Employee shall not, at any time during his Employment, engage
in any other activities unless those activities do not interfere materially with
the Employee's duties and responsibilities for the Company at that time, except
that the Employee shall be entitled, subject to the provisions of Section 7, (a)
to continue with such activities as the Employee has carried on prior to the
Effective Date, including making and managing his personal investments and
participating in other business or civic activities and (b) to serve on
corporate or other business, civic or charitable boards or committees and trade
association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the Employee's
Employment shall be for a continually
10
renewing term of three (3) years commencing on the Effective Date and renewing
each day thereafter for an additional day without any further action by either
the Company or the Employee, it being the intention of the parties that there
shall be continuously a remaining term of three (3) years' duration of the
Employee's Employment 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 5. When the Termination Date shall have occurred and the Company shall
have paid to the Employee all the applicable amounts Section 5 provides the
Company shall pay as a result of the termination of the Employee's Employment,
including all amounts accruing during the Part-time Employment Period, if any,
this Agreement will terminate and have no further force or effect, except that
Sections 4(C), 8, 9, 10 and 11 shall survive that termination indefinitely and
Section 7 shall survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY.A Base Salary shall be payable to the Employee by the
Company as a guaranteed minimum annual amount hereunder for each Compensation
Year during the period from the Effective Date to the first to occur of the
Part-time Employment Effective Date or the Termination Date . That Base Salary
shall be payable in the intervals consistent with the Company's normal payroll
schedules (but in no event less infrequently than semi-monthly), shall be
payable initially at the annual rate of $140,000 and shall be increased (but not
decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the Effective
Date, by the same percentage increase (if any) in the CPI for the twelve
(12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the Effective
Date, by such additional amount as shall be determined in the sole
discretion of the Compensation Committee, but only in such form and to
such extent as the Compensation Committee may from time to time approve,
as evidenced by the written minutes or records of the Compensation
Committee and its written notices of such determinations or approvals to
the Employee; and
(iii) if the Employee relocates from a state without a personal
income tax at the time of his relocation to a state having a personal
income tax, or if the Employee resides in a state without a personal
income tax on the date hereof which subsequently adopts a personal income
tax, then, in either case, the Base Salary in effect at the time of such
relocation or adoption, as applicable, shall immediately be increased by
the amount equal to the Base Salary immediately prior to this increase
multiplied by seventy percent (70%) of the highest personal income tax
rate of such state; for example, if the Employee relocates from a state
without a personal income tax to a state having a personal income tax and
the highest rate of that tax is six percent (6%) when the Base Salary is
$200,000, then the Base Salary will be increased by $8,400 (computed at
70% x 6% x $200,000);
11
provided, however, that the obligation of the Company to pay the Base Salary
earned by the Employee for his service in the period beginning on the Effective
Date and ending on the date that is the first to occur of (a) the IPO Closing
Date, (b) the Termination Date or (c) such other date as the Board in its sole
discretion may determine shall be deferred to the last day of that period in
such amounts as the Board in its sole discretion may from time to time
determine, on which day the Company shall pay in full to the Employee, without
interest, the aggregate earned but unpaid amount of the Base Salary for that
period. Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to participate
in all Compensation Plans from time to time in effect while he remains on Active
Status, regardless of whether the Employee is an Executive Officer. All awards
to the Employee under all Incentive Plans shall take into account the Employee's
positions with and duties and responsibilities to the Company and its
subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary, other
incentive or supplemental compensation, benefits, allowances, awards, payments,
reimbursements or other perquisites, or any other payment in the nature of
compensation, singly, in any combination or in the aggregate, that are provided
for hereunder to be paid to or for the benefit of the Employee be determined or
alleged to be subject to an excise or similar purpose tax pursuant to Section
4999 of the Code, or any successor or other comparable federal, state or local
tax law by reason of being a "parachute payment" (within the meaning of Section
280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the
12
Company the ability to contest the imposition of such excise or similar purpose
tax; provided, however, that the Employee will not be required to afford the
Company any right to contest the applicability of any such excise or similar
purpose tax to the extent that the Employee reasonably determines (based upon
the opinion of his tax counsel) that such contest is inconsistent with the
overall tax interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND
DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company shall
be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Date for any Business
Reason. The Company's termination of the Employee's Employment for Cause will be
effective on the date the Company delivers a Notice of Termination for Cause to
the Employee pursuant to this Section 5(A)(i)(together, in the case of a
termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for Cause,
the Company promptly thereafter, and in any event within five (5) business days
thereafter, shall pay the Employee his Base Salary to and including the
Termination Date and the amount of all compensation previously deferred by the
Employee (together with any accrued interest or earnings thereon), in each case
to the extent not theretofore paid, and, when that payment is made, the Company
shall, notwithstanding Section 3, have no further or other obligations hereunder
to the Employee.
(iii) If the Company terminates the Employee's Employment for a
Business Reason, the respective rights and obligations of the Company and the
Employee during the Part-time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee shall
be entitled to terminate his Employment (a) for a Good Reason at any time within
one hundred eighty (180) days after the facts or circumstances constituting that
Good Reason first exist and are known to the Employee, (b) by reason of a Change
of Control at any time within three hundred sixty-five (365) days after that
Change of Control occurs (provided, however, that the Employee shall not be
entitled to terminate his Employment by reason of that Change of Control if it
occurs (1) during the thirty (30) day period following the Company's receipt of
the Employee's Notice of Termination without Good Reason and other than for
Disability pursuant
13
to this Section 5(B)(i), (2) after (A) the receipt by the Nonterminating Party
of the Terminating Party's Notice of Termination pursuant to Section 5(C) or (B)
the Employee's receipt of the Company's Notice of Termination for a Business
Reason (other than in connection with that Change of Control) pursuant to
Section 5(A) or (3) more than three hundred sixty-five (365) days after the
Company's receipt of the Employee's Notice of Termination for Good Reason
pursuant to this Section 5(B)(i)) or (c) without Good Reason and other than for
Disability at any time. The Employee's termination of his Employment for Good
Reason will be effective on the third (3rd) anniversary of the date the Employee
delivers a Notice of Termination for Good Reason to the Company pursuant to this
Section 5(B)(i). The Employee's termination of his Employment by reason of a
Change of Control will be effective on the first date on which the Change of
Control Payment shall have been paid in full to the Employee. The Employee's
termination of his Employment without Good Reason and other than for Disability
will be effective on the thirtieth (30th) day following the Employee's delivery
of a Notice of Termination without Good Reason and other than for Disability
pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good Reason, the
respective rights and obligations of the Company and the Employee during the
Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good Reason
and other than for Disability, the Company shall pay to the Employee, in a cash
lump sum within five (5) business days after the Termination Date, the amount
equal to the sum of (a) the portion of the Base Salary to and including the
Termination Date which has not yet been paid, (b) all compensation previously
deferred by the Employee (together with any accrued interest and earnings
thereon) which has not yet been paid, (c) any accrued but unpaid vacation pay
and (d) the amount equal to fifty percent (50%) of the Base Salary being paid
for the Compensation Year in which the Company receives the Employee's Notice of
Termination without Good Reason and other than for Disability; provided,
however, that if the Employee terminates his Employment without Good Reason and
other than for Disability within six (6) months of the theretofore scheduled
final day of the Part-time Employment Period, the amount payable pursuant to
clause (d) of this sentence shall be the amount determined pursuant to that
clause multiplied by a fraction the numerator of which is the number of days
from and excluding the date the Company receives the Notice of Termination to
and including that final day and the denominator of which is one hundred
eighty-two (182). For purposes of this Section 5(B)(iv), if the anniversary of
the Effective Date in the Compensation Year in which the Company receives the
Notice of Termination without Good Reason and other than for Disability has not
occurred on or prior to
14
the date of that receipt, the Base Salary for that
Compensation Year will be calculated on the assumption that no increase in the
amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs any
Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective rights and
obligations of the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's Employment
shall terminate automatically at the time of his death. If the Employee's
Employment is terminated by reason of the Employee's death, the Company shall
pay to the Person the Employee has designated in a written notice delivered to
the Company as his beneficiary entitled to such payment, if any, or to the
Employee's estate, as applicable, in a cash lump sum within thirty (30) days
after the Termination Date, the amount equal to the sum of (i) the portion of
the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of (1) the Base Salary being paid for the Compensation Year
in which he dies multiplied by (2) three (3) or (b) if the Employee dies during
the Part-time Employment Period, the product of (1) one-twelfth (1/12th) of the
Base Salary being paid for the Compensation Year in which the Employee dies
multiplied by (2) the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD. (i) The
Company shall pay the Employee a Base Salary, in the intervals consistent with
the Company's normal payroll schedules (but in no event less frequently than
semi-monthly) from the Part-time Employment Effective Date to and including the
Termination Date in the amounts determined from time to time as follows:
Effective as of the Part-time Employment Effective Date, the Base Salary payable
by the Company to the Employee for the period from and including that date to
and excluding the third (3rd) anniversary of that date shall be as follows:
15
(a) if the Part-time Employment Effective Date occurs as a result of
the receipt by the Nonterminating Party of a Notice of Termination for a
Business Reason pursuant to Section 5(A) or a Notice of Termination for
Good Reason pursuant to Section 5(B)(i), the amount equal to the Average
Annual Cash Compensation of the Employee determined as of the Part-time
Employment Effective Date; and (b) if the Part-time Employment Effective
Date occurs as a result of the receipt by the Nonterminating Party of a
Notice of Termination for Disability pursuant to Section 5(C), the amount
equal to the amount by which (1) seventy-five percent (75%) of the Average
Annual Cash Compensation of the Employee determined as of the Part-time
Employment Effective Date exceeds (2) the aggregate amount of periodic
payments the Employee receives during the twelve (12) months beginning on
that date under Compensation Plans then in effect and providing for the
payment to the Employee solely as a result or on account of disability;
and
(b) on the first and each subsequent anniversary of the Part-time
Employment Effective Date, the Base Salary payable pursuant to this
Section 5(E) shall be increased (but not decreased) by the same percentage
increase (if any) in the CPI for the twelve (12) month period immediately
preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years of
service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee shall not
be (A) prevented from accepting other employment or engaging in (and devoting
substantially all his time to) other business activities or (B) required to
perform any regular duties for the Company (except to provide such services
consistent with the Employee's educational background, experience and prior
positions with the Company as may be acceptable to the Employee) or to seek or
accept additional employment with any other Person. If the Employee, at his
discretion, shall accept any such additional employment or engage in any such
other business activity there shall be no offset, reduction or effect upon any
rights, benefits or payments to which the Employee is entitled pursuant to this
Agreement. Furthermore, the Employee shall have no obligation to account for,
remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
16
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within thirty-five
(35) miles of the Employee's principal residence, in any case reasonably
acceptable to the Employee, alternate but comparable office space, furnishings,
facilities, reserved parking, supplies, services, equipment, secretarial and
administrative assistance that are in each case at least commensurate with the
size and quality of that which were provided to the Employee during the
Compensation Year immediately preceding the Part-time Employment Effective Date
pursuant to Section 6(C), but in no event less than are being furnished or
provided on the date hereof. The Company and Employee may mutually agree upon an
equivalent monthly cash allowance in lieu of the Employee being provided all or
any part of these items.
(v) The Employee shall remain entitled to the benefits of Section
4(C).
F. RETURN OF PROPERTY. On termination of the Employee's Employment,
however brought about, the Employee (or his representatives) shall promptly
deliver and return to the Company all the Company's property that is in the
possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this Agreement to
the contrary: (i) except in the case of a termination of the Employee's
Employment for Cause, all stock options previously granted to the Employee under
Incentive Plans that have not been exercised and are outstanding as of the time
immediately prior to the Termination Date shall, notwithstanding any contrary
provision of any applicable Incentive Plan, remain outstanding (and continue to
become exercisable pursuant to their respective terms) until exercised or the
expiration of their term, whichever is earlier; and (ii) in the case of a
termination of the Employee's Employment for Cause, all stock options previously
granted to the Employee under Incentive Plans that have not been exercised and
are outstanding as of the time immediately prior to the Termination Date shall,
notwithstanding any contrary provision of any applicable Incentive Plan, remain
outstanding and continue to be exercisable until exercised or the date that is
ten (10) days after the Termination Date, whichever is earlier. No stock option
previously granted to the Employee under any Incentive Plan shall,
notwithstanding any contrary provision of that Incentive Plan, expire or fail to
become exercisable or, if exercisable, cease to be exercisable by reason of
either (i) the occurrence of the Employee's Part-time Employment Effective Date
or (ii) the Employee's service during the Employee's Part-time Employment Period
being less than full-time.
6. OTHER EMPLOYEE RIGHTS
17
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to not
less than four (4) weeks of annual vacation and all legal holidays during which
times his applicable compensation shall be paid in full.
B. BUSINESS EXPENSES. The Employee is authorized to incur, and will
be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
twenty (20) day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be provided
by the Company with office space, furnishings, and facilities, reserved parking,
secretarial and administrative assistance, supplies and other support equipment
(including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to move
his principal place of residence from the Houston, Texas area or to perform
regular duties that could reasonably be expected to require either such move
against his wish or to spend amounts of time each week outside the Houston,
Texas area which are unreasonable in relation to the duties and responsibilities
of the Employee hereunder, and the Company agrees that, if it requests the
Employee to make such a move and the Employee declines that request, (i) that
declination shall not constitute any basis for a determination that Type II
Cause exists and (ii) no animosity or prejudice will be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly competitive
businesses in which the Company is engaged, personal contact is of primary
importance in securing new customers and in retaining the accounts and goodwill
of present customers and protecting the business of the Company. The Employee,
therefore, agrees that during the term of his Employment and for a period of one
(1) year after the Termination Date, he will not, within fifty (50) miles of the
geographic location in which the he has devoted substantial attention at such
location to the material business interests of the Company: (i) accept
employment or render service to any Person that is engaged in a business
directly competitive with the business then engaged in by the Company or (ii)
enter into or take part in or lend his name, counsel or assistance to any
business, either as proprietor, principal, investor, partner, director, officer,
employee, consultant, advisor, agent, independent contractor, or in any other
capacity whatsoever, for any purpose that would be competitive with the business
of the Company.
18
B. If the provisions of this Section 7 are violated in any material
respect, the Company shall be entitled, upon application to any court of proper
jurisdiction, to a temporary restraining order or preliminary injunction
(without the necessity of posting any bond with respect thereto) to restrain and
enjoin the Employee from that violation. If the provisions of this Section 7
should ever be deemed to exceed the time, geographic or occupational limitations
permitted by the applicable law, the Employee and the Company agree that such
provisions shall be and are hereby reformed to the maximum time, geographic or
occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue to
have access to various Confidential Information. The Employee agrees, therefore,
that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and all
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by the Employee solely or
jointly with any other Person or Persons during the period of his Employment and
which pertain primarily to the material business activities of the Company, and
the Employee hereby assigns and agrees to assign all his interests therein to
the Company or to its nominee; whenever requested to do so by the Company, the
Employee shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters of Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein. These obligations shall (i) continue
beyond the Termination Date with respect to inventions, improvements, and
valuable discoveries, whether patentable or not, conceived, made or acquired by
the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
19
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or limit
the Employee's continuing or future participation in any Compensation Plan or,
subject to Section 9(N), limit or otherwise affect such rights as the Employee
may have under any other contract or agreement with the Company. Vested benefits
and other amounts to which the Employee is or becomes entitled to receive under
any Compensation Plan on or after the Termination Date shall be payable in
accordance with that Compensation Plan, except as expressly modified hereby.
C. FULL SETTLEMENT. The Company's obligations to make the payments
provided for in, and otherwise to perform its undertakings in, this Agreement
shall not be affected by any right of set-off, counterclaim, recoupment, defense
or other action, claim or right the Company may have against the Employee or
others. In no event shall the Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any provision hereof, and those amounts shall not be reduced,
regardless of whether the Employee obtains other employment or becomes
self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee and,
without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns. If the Employee is not an
Executive Officer, but is an officer of a subsidiary of the Company, the Company
shall be entitled to assign all its obligations hereunder to that subsidiary and
treat the Employee as an employee of that subsidiary for all purposes, but the
Company shall remain liable for the full, timely performance of all the
obligations so assigned as if the assignment had not been made.
20
(iii) The Company shall require any successor (direct or indirect
and whether by purchase, merger, consolidation, share exchange or otherwise) to
the business, properties and assets of the Company substantially as an entirety
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would have been required to perform it had no
such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
William P. McCaughey
3210 Suttler's Way
Sugar Land, Texas 77479
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to insist
on strict compliance with any provision of, or to assert any right under, this
Agreement (including the right of the Employee to terminate his Employment for
Good Reason or by reason of a Change of Control pursuant to Section 5(B) (i))
shall not be deemed a waiver of that provision or of any other provision of or
right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ANY
PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents with
respect to any action, suit or other legal proceeding pertaining directly to
this Agreement or to the
21
interpretation or enforcement of any of the Employee's rights hereunder to
service of process in the State of Texas and hereby waives any right to contest
or oppose receipt of such service of process. The Company irrevocably (i) agrees
that any such action, suit or other legal proceeding may be brought in the
courts of such state or in the courts of the United States sitting in such
state, (ii) consents to the jurisdiction of each such court in any such action,
suit or other legal proceeding and (iii) waives any objection it may have to the
laying of venue of any such action, suit or other legal proceeding in any of
such courts.
J. HEADINGS. The headings of Sections and subsections hereof are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed to the
Employee hereunder are not so paid or reimbursed at the times provided herein
(including amounts required to be paid by the Company pursuant to Sections 6 and
10, those amounts shall accrue interest compounded daily at the annual
percentage rate which is three percentage points (3%) above the interest rate
announced by Texas Commerce Bank National Association, Houston, Texas (or its
successor), from time to time, as its Base Rate (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that, except to
the extent required by law or legal process (including the Exchange Act and the
Securities Act), it will not make or publish, without the prior written consent
of the Employee, any written or oral statement concerning the terms of the
Employee's employment relationship with the Company and will not, if a Notice of
Termination is given by either the Company or the Employee for any reason,
publish or cause to be published any statement concerning the Employee,
including his work-related performance or the reasons or basis for the giving of
that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all Federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
N. ENTIRE AGREEMENT. The Company and the Employee (i) acknowledge
that this Agreement amends and restates the Employment Agreement dated as of
November 1, 1995 between the Company and the Employee and (ii) agree that this
Agreement supersedes all prior written and oral agreements between them with
respect to the employment of the Employee by the Company, but has no effect on
the Agreement and Plan of Reorganization dated as of June 13, 1996 to which the
Company and the Employee are parties.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES;
RESOLUTION OF DISPUTES
22
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into this
Agreement the Company intends that the Employee receive without reduction or
delay all the intended benefits of this Agreement and that those benefits, and
the terms and conditions hereof, be construed in a manner most favorable to the
Employee; the Company, therefore, agrees that it will strive expeditiously and
in good faith to construe and resolve in the Employee's favor and to his benefit
any ambiguities or uncertainties that may be created by the express language
hereof. If, however, at any time during the term hereof or afterwards: (i) there
should exist a dispute or conflict between the Employee and the Company or
another Person as to the validity, interpretation or application of any term or
condition hereof, or as to the Employee's entitlement to any benefit intended to
be bestowed hereby, which is not resolved to the satisfaction of the Employee,
(ii) the Employee must (A) defend the validity of this Agreement, (B) contest
any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred to in
Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to agree in writing to an acceptable ADR process within
that ten (10) business day period, then the parties shall submit to a mandatory
ADR process by making joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the selection of an ADR
23
process for the parties. The parties shall diligently in good faith participate
in the ADR process chosen by that judge. If the parties are unable to resolve
their dispute after diligent good faith participation in the ADR process, then
either party shall be free to initiate such litigation as that party deems
appropriate under the circumstances. Under no circumstances shall the Employee
be obligated to pay for the cost of any ADR process or to pay or reimburse the
Company for any attorneys' fees, costs or other expenses incurred by the Company
in connection with any process undertaken by the Employee to resolve disputes
under this Agreement. As used in this Section 10, the term "Employee" includes,
if the Employee has died or become incompetent as a matter of applicable law,
the Employee's legal representative acting in his capacity as such under
applicable law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the maximum
extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:/s/C. CLIFFORD WRIGHT, JR.
C. Clifford Wright, Jr.
President and Chief Executive Officer
EMPLOYEE
/s/ WILLIAM P. MCCAUGHEY
WILLIAM P. MCCAUGHEY
Employee's Permanent Address:
3210 Suttler's Way
Sugar Land, Texas 77479
25
Exhibit 10.5
John D. Held
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), as amended and
restated as of May 1, 1996, is entered into and effective as of March 6, 1996
(the "Effective Date") by and between AMERICAN RESIDENTIAL SERVICES, INC., a
Delaware corporation (the "Company"), and JOHN D. HELD (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to
provide the Employee with substantial incentives to serve the Company as a
senior executive performing at the highest levels of leadership and stewardship,
without distraction or concern over minimum compensation, benefits or tenure, to
develop and implement the Company's initial development plan and thereafter
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
mutual provisions contained herein, and for other good and valuable
consideration, the parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms
have the meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to
the repurchase of Common Stock by the Company, unless and until such
time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a) the
Part-time Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned by the
Employee during that Compensation Year, including all amounts deferred
at the election of the Employee pursuant to a Compensation Plan
intended to qualify as a plan under Section 401(k) of the Code or
otherwise. If salary or bonus is paid in whole or in part in property
other than cash (such as Common Stock) the amount so paid shall be the
fair market value thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Part-time Employment Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the two (2)
Compensation Years next preceding that date or, if less than two (2)
Compensation Years have occurred prior to that date and since the
Effective Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized basis, the
Annual Cash Compensation in each partial Compensation Year (up to a
maximum of two (2) partial Compensation Years) next preceding the
Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable by the
Company to the Employee pursuant to Section 4(A); and (b) on and after
the Part-time Employment Effective Date, the guaranteed minimum annual
salary payable by the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote
or dispose of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (a) as a result of an agreement,
arrangement or understanding to vote that security if that
agreement, arrangement or understanding: (1) arises solely
from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by
Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation
made pursuant to, and in accordance with, the applicable
provisions of the Exchange Act; and (2) is not then reportable
by such Person on Exchange Act Schedule 13D (or any comparable
or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of that acquisition. For purposes of this Agreement, "voting"
a security shall include voting, granting a proxy, acting by consent,
making a request or demand relating to corporate action (including,
without limitation, calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a felony crime
that enriched the Employee at the expense of the Company; or (b) the
Employee's deliberate and intentional continuing failure to
substantially perform his duties and responsibilities hereunder (except
by reason of the Employee's incapacity due to physical or mental
illness or injury) for a period of forty-five (45) days after the
Required Board Majority has delivered to the Employee a written demand
for substantial performance hereunder which specifically identifies the
bases for the Required Board Majority's determination that the Employee
has not substantially performed his duties and responsibilities
hereunder (such period being the "Grace Period"); provided, that for
purposes of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of the
Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice
and at which the Employee was afforded the opportunity to be
represented by counsel, appear and be heard, the Required Board
Majority shall adopt a written resolution which (A) sets forth the
Required Board Majority's determination that the failure of the
Employee to substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to physical or
mental illness or injury) continued past the Grace Period and (B)
specifically identifies the bases for that determination and (2) the
Company, at the written direction of the Required Board Majority, shall
deliver to the Employee a Notice of Termination for Cause to which a
copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. Cause
of the type referred to in clause (a) of the preceding sentence is a
"Type I Cause," while Cause of the type referred to in clause (b) of
the preceding sentence is a "Type II Cause." For purposes of
determining whether a Type II Cause has occurred, no act or failure to
act on the part of the Employee shall be considered "deliberate and
intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(c) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary during the
term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a
Delaware corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to Section
9(D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer or any member of the family of any Executive Officer, (a)
including (i) any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the Code or whose
benefits are limited by the Code or ERISA, (iii) any "employee welfare
plan" (as defined in Section 3(1) of ERISA), (iv) any arrangement,
plan, policy, practice or program providing for severance pay, deferred
compensation or insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing and
providing for the payment or reimbursement of expenses attributable to
first-class air travel and first-class hotel occupancy while on travel
or (B) providing for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air time or other
recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it
provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the compensation of
Executive Officers and the administration of Incentive Plans, if any,
intended to qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, 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 sale programs, customer lists,
records of customer service requirements, capital expenditure projects,
cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any governmental
authority and all other confidential, nonpublic concepts, methods of
5
doing business, ideas, materials or information prepared or performed
for, by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers--All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as published
by the United States Department of Labor, Bureau of Labor Statistics
(or its successor) for that period.
"CONTINUING DIRECTOR" means at any time any individual who
then (a) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or
that first election, to the Board following that date was recommended
or approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on all
Persons, absent manifest error), as a result of a physical or mental
illness or personal injury he has incurred (including illness or injury
resulting from any substance abuse), by a Qualified Physician (who may
be the doctor treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by the
Employee with the consent of the Company, or by the Company with the
consent of the Employee (which consent shall not be unreasonably
withheld in either case), to be unable to perform, at the time of that
determination and, in all reasonable medical likelihood, indefinitely
thereafter, the normal duties then most recently assigned, under and in
accordance with the terms hereof, to the Employee while on Active
Status; provided that, the determination whether the Employee has
incurred a Disability shall be made by a majority of three (3)
Qualified Physicians, (a) one (1) of whom shall be selected by the
Employee, (b) one (1) of whom shall be selected by the Company and (c)
the remaining one (1) of whom shall be selected by the Qualified
Physicians selected by the Employee and the Company pursuant to clauses
(a) and (b) of this proviso and the fees and expenses of whom will be
shared and paid in equal amounts by the Employee and the Company, if:
(1)(A) the Company has reasonably withheld its consent to the Qualified
Physician, if any, selected by the Employee or (B) the Employee has
reasonably withheld his consent to the Qualified Physician, if any,
selected by the Company and (2) the Qualified Physicians selected by
the Employee and the Company disagree as to whether the Employee has
incurred a Disability. For purposes of this definition, if the Employee
is unable by reason of illness or injury to give an informed consent to
the performance of the treatment of that illness or injury, a Qualified
Physician selected by any Person who is authorized by applicable law to
give that consent will be deemed to have been selected by the Employee.
"EFFECTIVE DATE" means March 6, 1996.
6
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief
financial officer, the president, any executive or senior vice
president or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule
13d-5(b)) of which the Employee or any Affiliate or Associate of the
Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under, any such Compensation Plan, unless (A) in the case of
either subclause (1) or (2) of this clause, there is substituted a
comparable Compensation Plan that is at least economically equivalent,
in terms of the benefit offered to the Employee, to the Compensation
Plan being ended or in which the Employee's participation is being
adversely affected or the Employee's benefits are being materially
reduced or (B) in the case of that subclause (1), the failure, or in
the case of that subclause (2), the taking of action, adversely affects
Executive Officers generally; or (c) the assignment to the Employee of
duties inconsistent in any material respect with the Employee's then
current positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any other
action by the Company which results in a material diminution in those
positions, authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer and which provides for incentive, bonus or other
performance-based awards of cash, securities or the phantom equivalent
of securities, including any stock option, stock appreciation right and
restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more
of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective
under that act and the shares registered by that registration statement
are issued and sold by the Company (otherwise than pursuant to the
exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's Employment, and if the
Termination Date is other than the date of receipt of the notice, (b)
sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any subsidiary
of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to terminate
the Employee's Employment other than for Cause or (b) if the Employee
elects pursuant to the applicable provision hereof to terminate his
Employment for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part- time Employment Effective Date and ends on the
first to occur of (a) the third (3rd) anniversary of that Part-time
Employment Effective Date, (b) the termination by the Company of the
Employee's Employment for Type I Cause or (c) the death or Retirement
of the Employee.
"PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a)
holding an M.D. degree from a medical school located in the United
States and having a national reputation in the United
8
States as a leading medical school, (b) specializing and
board-certified in the treatment of the injury or illness that has or
may have caused that Disability, (c) licensed to practice that
speciality in the State of Texas or the state in which the Employee
then is domiciled and (d) having admission privileges to one or more
private hospitals located in the Texas Medical Center in Houston, Texas
or in a hospital of comparable reputation in the state in which the
Employee then is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment by means
of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
following a Change of Control pursuant to Section 5(B)(i)(b), the first
date on which the Company pays to the Employee in full the amounts owed
to the Employee pursuant to Section 5(B)(iii); (c) if the Employee's
Employment is terminated by reason of the Employee's giving a Notice of
Termination without Good Reason and other than for Disability pursuant
to Section 5(B)(i)(c), the elapse of the thirtieth (30th) day after the
Company receives that notice; (d) if the Employee's Employment is
terminated by the Company at any time for Type I Cause or, prior to the
Part-time Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination for
Cause; and (e) if the Employee's Employment is terminated for any other
reason, at the expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (b) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
9
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise
specified herein, all references herein to any statute defined or referred to
herein, including the Code, ERISA and the Exchange Act, shall be deemed
references to that statute or any successor statute, as the same may have been
or may be amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(ii) 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 word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as its Senior Vice President, General Counsel and Secretary and the
Employee will serve in the Company's employ in that position. The Employee shall
perform such duties, and have such powers, authority, functions, duties and
responsibilities for the Company and corporations affiliated with the Company as
are commensurate and consistent with his employment as the Company's Senior Vice
President, General Counsel and Secretary. The Employee also shall have such
additional powers, authority, functions, duties and responsibilities as may be
assigned to him by the Board; provided that, without the Employee's written
consent, such additional powers, authority, functions, duties and
responsibilities shall not be inconsistent or interfere with, or detract from,
those herein vested in, or otherwise then being performed for the Company by,
the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not interfere
materially with the Employee's duties and responsibilities for the Company at
that time, except that the Employee shall be entitled, subject to the provisions
of Section 7, (a) to continue with such activities as the Employee has carried
on prior to the Effective Date, including making and managing his personal
investments and participating in other business or civic activities and (b) to
serve on corporate or other business, civic or charitable boards or committees
and trade association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the
Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and
10
renewing each day thereafter for an additional day without any further action by
either the Company or the Employee, it being the intention of the parties that
there shall be continuously a remaining term of three (3) years' duration of the
Employee's Employment 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 5. When the Termination Date shall have occurred and the Company shall
have paid to the Employee all the applicable amounts Section 5 provides the
Company shall pay as a result of the termination of the Employee's Employment,
including all amounts accruing during the Part-time Employment Period, if any,
this Agreement will terminate and have no further force or effect, except that
Sections 4(C), 8, 9, 10 and 11 shall survive that termination indefinitely and
Section 7 shall survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee
by the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the first to
occur of the Part-time Employment Effective Date or the Termination Date . That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less infrequently than semi-monthly),
shall be payable initially at the annual rate of $120,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in the CPI for
the twelve (12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be determined in the
sole discretion of the Compensation Committee, but only in such form
and to such extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such determinations
or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state having a
personal income tax, or if the Employee resides in a state without a
personal income tax on the date hereof which subsequently adopts a
personal income tax, then, in either case, the Base Salary in effect at
the time of such relocation or adoption, as applicable, shall
immediately be increased by the amount equal to the Base Salary
immediately prior to this increase multiplied by seventy percent (70%)
of the highest personal income tax rate of such state; for example, if
the Employee relocates from a state without a personal income tax to a
state having a personal income tax and the highest rate of that tax is
six percent (6%) when the Base Salary is $200,000, then the Base Salary
will be increased by $8,400 (computed at 70% x 6% x $200,000);
11
provided, however, that the obligation of the Company to pay the Base Salary
earned by the Employee for his service in the period beginning on the Effective
Date and ending on the date that is the first to occur of (a) the IPO Closing
Date, (b) the Termination Date or (c) such other date as the Board in its sole
discretion may determine shall be deferred to the last day of that period in
such amounts as the Board in its sole discretion may from time to time
determine, on which day the Company shall pay in full to the Employee, without
interest, the aggregate earned but unpaid amount of the Base Salary for that
period. Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to
participate in all Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee is an Executive
Officer. All awards to the Employee under all Incentive Plans shall take into
account the Employee's positions with and duties and responsibilities to the
Company and its subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment in the
nature of compensation, singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the
12
Company the ability to contest the imposition of such excise or similar purpose
tax; provided, however, that the Employee will not be required to afford the
Company any right to contest the applicability of any such excise or similar
purpose tax to the extent that the Employee reasonably determines (based upon
the opinion of his tax counsel) that such contest is inconsistent with the
overall tax interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND
DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company
shall be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Date for any Business
Reason. The Company's termination of the Employee's Employment for Cause will be
effective on the date the Company delivers a Notice of Termination for Cause to
the Employee pursuant to this Section 5(A)(i)(together, in the case of a
termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid, and, when that
payment is made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of the Company and the
Employee during the Part-time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee
shall be entitled to terminate his Employment (a) for a Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred sixty-five (365)
days after that Change of Control occurs (provided, however, that the Employee
shall not be entitled to terminate his Employment by reason of that Change of
Control if it occurs (1) during the thirty (30) day period following the
Company's receipt of the Employee's Notice of Termination without Good Reason
and other than for Disability pursuant
13
to this Section 5(B)(i), (2) after (A) the receipt by the Nonterminating Party
of the Terminating Party's Notice of Termination pursuant to Section 5(C) or (B)
the Employee's receipt of the Company's Notice of Termination for a Business
Reason (other than in connection with that Change of Control) pursuant to
Section 5(A) or (3) more than three hundred sixty-five (365) days after the
Company's receipt of the Employee's Notice of Termination for Good Reason
pursuant to this Section 5(B)(i)) or (c) without Good Reason and other than for
Disability at any time. The Employee's termination of his Employment for Good
Reason will be effective on the third (3rd) anniversary of the date the Employee
delivers a Notice of Termination for Good Reason to the Company pursuant to this
Section 5(B)(i). The Employee's termination of his Employment by reason of a
Change of Control will be effective on the first date on which the Change of
Control Payment shall have been paid in full to the Employee. The Employee's
termination of his Employment without Good Reason and other than for Disability
will be effective on the thirtieth (30th) day following the Employee's delivery
of a Notice of Termination without Good Reason and other than for Disability
pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company and the Employee
during the Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to the Employee, in
a cash lump sum within five (5) business days after the Termination Date, the
amount equal to the sum of (a) the portion of the Base Salary to and including
the Termination Date which has not yet been paid, (b) all compensation
previously deferred by the Employee (together with any accrued interest and
earnings thereon) which has not yet been paid, (c) any accrued but unpaid
vacation pay and (d) the amount equal to fifty percent (50%) of the Base Salary
being paid for the Compensation Year in which the Company receives the
Employee's Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates his Employment
without Good Reason and other than for Disability within six (6) months of the
theretofore scheduled final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the amount determined
pursuant to that clause multiplied by a fraction the numerator of which is the
number of days from and excluding the date the Company receives the Notice of
Termination to and including that final day and the denominator of which is one
hundred eighty-two (182). For purposes of this Section 5(B)(iv), if the
anniversary of the Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and other than for
Disability has not occurred on or prior to
14
the date of that receipt, the Base Salary for that Compensation Year will be
calculated on the assumption that no increase in the amount thereof would be
made effective as of that anniversary pursuant to Section 4(A) or 5(E)(i), as
applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective rights and
obligations of the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his death. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of (i) the portion
of the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of (1) the Base Salary being paid for the Compensation Year
in which he dies multiplied by (2) three (3) or (b) if the Employee dies during
the Part-time Employment Period, the product of (1) one-twelfth (1/12th) of the
Base Salary being paid for the Compensation Year in which the Employee dies
multiplied by (2) the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the intervals
consistent with the Company's normal payroll schedules (but in no event less
frequently than semi-monthly) from the Part-time Employment Effective Date to
and including the Termination Date in the amounts determined from time to time
as follows: Effective as of the Part-time Employment Effective Date, the Base
Salary payable by the Company to the Employee for the period from and including
that date to and excluding the third (3rd) anniversary of that date shall be as
follows:
15
(a) if the Part-time Employment Effective Date occurs as a
result of the receipt by the Nonterminating Party of a Notice of
Termination for a Business Reason pursuant to Section 5(A) or a Notice
of Termination for Good Reason pursuant to Section 5(B)(i), the amount
equal to the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date; and (b) if
the Part-time Employment Effective Date occurs as a result of the
receipt by the Nonterminating Party of a Notice of Termination for
Disability pursuant to Section 5(C), the amount equal to the amount by
which (1) seventy-five percent (75%) of the Average Annual Cash
Compensation of the Employee determined as of the Part-time Employment
Effective Date exceeds (2) the aggregate amount of periodic payments
the Employee receives during the twelve (12) months beginning on that
date under Compensation Plans then in effect and providing for the
payment to the Employee solely as a result or on account of disability;
and
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary payable pursuant
to this Section 5(E) shall be increased (but not decreased) by the same
percentage increase (if any) in the CPI for the twelve (12) month
period immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years
of service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or engaging in (and
devoting substantially all his time to) other business activities or (B)
required to perform any regular duties for the Company (except to provide such
services consistent with the Employee's educational background, experience and
prior positions with the Company as may be acceptable to the Employee) or to
seek or accept additional employment with any other Person. If the Employee, at
his discretion, shall accept any such additional employment or engage in any
such other business activity there shall be no offset, reduction or effect upon
any rights, benefits or payments to which the Employee is entitled pursuant to
this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity.
16
The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within thirty-five
(35) miles of the Employee's principal residence, in any case reasonably
acceptable to the Employee, alternate but comparable office space, furnishings,
facilities, reserved parking, supplies, services, equipment, secretarial and
administrative assistance that are in each case at least commensurate with the
size and quality of that which were provided to the Employee during the
Compensation Year immediately preceding the Part-time Employment Effective Date
pursuant to Section 6(C), but in no event less than are being furnished or
provided on the date hereof. The Company and Employee may mutually agree upon an
equivalent monthly cash allowance in lieu of the Employee being provided all or
any part of these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his representatives) shall
promptly deliver and return to the Company all the Company's property that is in
the possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of the
Employee's Employment for Cause, all stock options previously granted to the
Employee under Incentive Plans that have not been exercised and are outstanding
as of the time immediately prior to the Termination Date shall, notwithstanding
any contrary provision of any applicable Incentive Plan, remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier; and (ii) in the
case of a termination of the Employee's Employment for Cause, all stock options
previously granted to the Employee under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to the Employee under
any Incentive Plan shall, notwithstanding any contrary provision of that
Incentive Plan, expire or fail to become exercisable or, if exercisable, cease
to be exercisable by reason of either (i) the occurrence of the Employee's
Part-time Employment Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than full-time.
6. OTHER EMPLOYEE RIGHTS
17
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to
not less than four (4) weeks of annual vacation and all legal holidays during
which times his applicable compensation shall be paid in full.
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
twenty (20) day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by the Company with office space, furnishings, and facilities, reserved
parking, secretarial and administrative assistance, supplies and other support
equipment (including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to
move his principal place of residence from the Houston, Texas area or to perform
regular duties that could reasonably be expected to require either such move
against his wish or to spend amounts of time each week outside the Houston,
Texas area which are unreasonable in relation to the duties and responsibilities
of the Employee hereunder, and the Company agrees that, if it requests the
Employee to make such a move and the Employee declines that request, (i) that
declination shall not constitute any basis for a determination that Type II
Cause exists and (ii) no animosity or prejudice will be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his Employment and for a
period of one (1) year after the Termination Date, he will not, within fifty
(50) miles of the geographic location in which the he has devoted substantial
attention at such location to the material business interests of the Company:
(i) accept employment or render service to any Person that is engaged in a
business directly competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, employee, consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be competitive with the
business of the Company.
18
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon application to any court
of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the provisions of this
Section 7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue
to have access to various Confidential Information. The Employee agrees,
therefore, that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by the
Employee solely or jointly with any other Person or Persons during the period of
his Employment and which pertain primarily to the material business activities
of the Company, and the Employee hereby assigns and agrees to assign all his
interests therein to the Company or to its nominee; whenever requested to do so
by the Company, the Employee shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply for and
obtain Letters of Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein. These obligations shall (i)
continue beyond the Termination Date with respect to inventions, improvements,
and valuable discoveries, whether patentable or not, conceived, made or acquired
by the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
19
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its undertakings in, this
Agreement shall not be affected by any right of set-off, counterclaim,
recoupment, defense or other action, claim or right the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any provision hereof, and those amounts shall not
be reduced, regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee
and, without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If the Employee is not
an Executive Officer, but is an officer of a subsidiary of the Company, the
Company shall be entitled to assign all its obligations hereunder to that
subsidiary and treat the Employee as an employee of that subsidiary for all
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
20
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company substantially
as an entirety expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would have been required to
perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
John D. Held
4230 Dartmouth
Houston, Texas 77005
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to assert any right under,
this Agreement (including the right of the Employee to terminate his Employment
for Good Reason or by reason of a Change of Control pursuant to Section 5(B)
(i)) shall not be deemed a waiver of that provision or of any other provision of
or right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE
TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents
with respect to any action, suit or other legal proceeding pertaining directly
to this Agreement or to the
21
interpretation or enforcement of any of the Employee's rights hereunder to
service of process in the State of Texas and hereby waives any right to contest
or oppose receipt of such service of process. The Company irrevocably (i) agrees
that any such action, suit or other legal proceeding may be brought in the
courts of such state or in the courts of the United States sitting in such
state, (ii) consents to the jurisdiction of each such court in any such action,
suit or other legal proceeding and (iii) waives any objection it may have to the
laying of venue of any such action, suit or other legal proceeding in any of
such courts.
J. HEADINGS. The headings of Sections and subsections hereof
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed
to the Employee hereunder are not so paid or reimbursed at the times provided
herein (including amounts required to be paid by the Company pursuant to
Sections 6 and 10, those amounts shall accrue interest compounded daily at the
annual percentage rate which is three percentage points (3%) above the interest
rate announced by Texas Commerce Bank National Association, Houston, Texas (or
its successor), from time to time, as its Base Rate (or prime lending rate),
from the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that,
except to the extent required by law or legal process (including the Exchange
Act and the Securities Act), it will not make or publish, without the prior
written consent of the Employee, any written or oral statement concerning the
terms of the Employee's employment relationship with the Company and will not,
if a Notice of Termination is given by either the Company or the Employee for
any reason, publish or cause to be published any statement concerning the
Employee, including his work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision
hereof, the Company may withhold from amounts payable hereunder all Federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee (i)
acknowledge that this Agreement amends and restates the Employment Agreement
dated as of March 6, 1996 between the Company and the Employee and (ii) agree
that this Agreement supersedes all prior written and oral agreements between
them with respect to the employment of the Employee by the Company.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES;
RESOLUTION OF DISPUTES
22
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into
this Agreement the Company intends that the Employee receive without reduction
or delay all the intended benefits of this Agreement and that those benefits,
and the terms and conditions hereof, be construed in a manner most favorable to
the Employee; the Company, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in the Employee's favor and to his
benefit any ambiguities or uncertainties that may be created by the express
language hereof. If, however, at any time during the term hereof or afterwards:
(i) there should exist a dispute or conflict between the Employee and the
Company or another Person as to the validity, interpretation or application of
any term or condition hereof, or as to the Employee's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of the
Employee, (ii) the Employee must (A) defend the validity of this Agreement, (B)
contest any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred
to in Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to agree in writing to an acceptable ADR process within
that ten (10) business day period, then the parties shall submit to a mandatory
ADR process by making joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the selection of an ADR
23
process for the parties. The parties shall diligently in good faith participate
in the ADR process chosen by that judge. If the parties are unable to resolve
their dispute after diligent good faith participation in the ADR process, then
either party shall be free to initiate such litigation as that party deems
appropriate under the circumstances. Under no circumstances shall the Employee
be obligated to pay for the cost of any ADR process or to pay or reimburse the
Company for any attorneys' fees, costs or other expenses incurred by the Company
in connection with any process undertaken by the Employee to resolve disputes
under this Agreement. As used in this Section 10, the term "Employee" includes,
if the Employee has died or become incompetent as a matter of applicable law,
the Employee's legal representative acting in his capacity as such under
applicable law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the
maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ C. CLIFFORD WRIGHT, JR.
C. Clifford Wright, Jr.
President and Chief Executive Officer
EMPLOYEE
/s/ JOHN D. HELD
JOHN D. HELD
Employee's Permanent Address:
4230 Dartmouth
Houston, Texas 77005
25
Exhibit 10.8
Elliot Sokolow
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of June 13, 1996 to become effective as of the Effective Date (as herein
defined) by and between AMERICAN RESIDENTIAL SERVICES, INC., a Delaware
corporation (the "Company"), and ELLIOT SOKOLOW (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to
provide the Employee with substantial incentives to serve the Company as a
senior executive performing at the highest levels of leadership and stewardship,
without distraction or concern over minimum compensation, benefits or tenure, to
develop and implement the Company's initial development plan and thereafter
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
mutual provisions contained herein, and for other good and valuable
consideration, the parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms
have the meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to
the repurchase of Common Stock by the Company, unless and until such
time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a) the
Part-time Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned by the
Employee during that Compensation Year, including all amounts deferred
at the election of the Employee pursuant to a Compensation Plan
intended to qualify as a plan under Section 401(k) of the Code or
otherwise. If salary or bonus is paid in whole or in part in property
other than cash (such as Common Stock) the amount so paid shall be the
fair market value thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Part-time Employment Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the two (2)
Compensation Years next preceding that date or, if less than two (2)
Compensation Years have occurred prior to that date and since the
Effective Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized basis, the
Annual Cash Compensation in each partial Compensation Year (up to a
maximum of two (2) partial Compensation Years) next preceding the
Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable by the
Company to the Employee pursuant to Section 4(A); and (b) on and after
the Part-time Employment Effective Date, the guaranteed minimum annual
salary payable by the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote
or dispose of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (a) as a result of an agreement,
arrangement or understanding to vote that security if that
agreement, arrangement or understanding: (1) arises solely
from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by
Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation
made pursuant to, and in accordance with, the applicable
provisions of the Exchange Act; and (2) is not then reportable
by such Person on Exchange Act Schedule 13D (or any comparable
or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of that acquisition. For purposes of this Agreement, "voting"
a security shall include voting, granting a proxy, acting by consent,
making a request or demand relating to corporate action (including,
without limitation, calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a felony crime
that enriched the Employee at the expense of the Company; or (b) the
Employee's deliberate and intentional continuing failure to
substantially perform his duties and responsibilities hereunder (except
by reason of the Employee's incapacity due to physical or mental
illness or injury) for a period of forty-five (45) days after the
Required Board Majority has delivered to the Employee a written demand
for substantial performance hereunder which specifically identifies the
bases for the Required Board Majority's determination that the Employee
has not substantially performed his duties and responsibilities
hereunder (such period being the "Grace Period"); provided, that for
purposes of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of the
Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice
and at which the Employee was afforded the opportunity to be
represented by counsel, appear and be heard, the Required Board
Majority shall adopt a written resolution which (A) sets forth the
Required Board Majority's determination that the failure of the
Employee to substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to physical or
mental illness or injury) continued past the Grace Period and (B)
specifically identifies the bases for that determination and (2) the
Company, at the written direction of the Required Board Majority, shall
deliver to the Employee a Notice of Termination for Cause to which a
copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. Cause
of the type referred to in clause (a) of the preceding sentence is a
"Type I Cause," while Cause of the type referred to in clause (b) of
the preceding sentence is a "Type II Cause." For purposes of
determining whether a Type II Cause has occurred, no act or failure to
act on the part of the Employee shall be considered "deliberate and
intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(c) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary during the
term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a
Delaware corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to Section
9(D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer or any member of the family of any Executive Officer, (a)
including (i) any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the Code or whose
benefits are limited by the Code or ERISA, (iii) any "employee welfare
plan" (as defined in Section 3(1) of ERISA), (iv) any arrangement,
plan, policy, practice or program providing for severance pay, deferred
compensation or insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing and
providing for the payment or reimbursement of expenses attributable to
first-class air travel and first-class hotel occupancy while on travel
or (B) providing for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air time or other
recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it
provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the compensation of
Executive Officers and the administration of Incentive Plans, if any,
intended to qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, 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 sale programs, customer lists,
records of customer service requirements, capital expenditure projects,
cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any governmental
authority and all other confidential, nonpublic concepts, methods of
5
doing business, ideas, materials or information prepared or performed
for, by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers-- All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as published
by the United States Department of Labor, Bureau of Labor Statistics
(or its successor) for that period.
"CONTINUING DIRECTOR" means at any time any individual who
then (a) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or
that first election, to the Board following that date was recommended
or approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on all
Persons, absent manifest error), as a result of a physical or mental
illness or personal injury he has incurred (including illness or injury
resulting from any substance abuse), by a Qualified Physician (who may
be the doctor treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by the
Employee with the consent of the Company, or by the Company at its
expense and with the consent of the Employee (which consent shall not
be unreasonably withheld in either case), to be unable to perform, at
the time of that determination and, in all reasonable medical
likelihood, indefinitely thereafter, the normal duties then most
recently assigned, under and in accordance with the terms hereof, to
the Employee while on Active Status; provided that, the determination
whether the Employee has incurred a Disability shall be made by a
majority of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be selected by
the Company and (c) the remaining one (1) of whom shall be selected by
the Qualified Physicians selected by the Employee and the Company
pursuant to clauses (a) and (b) of this proviso and the fees and
expenses of whom will be shared and paid in equal amounts by the
Employee and the Company, if: (1) (A) the Company has reasonably
withheld its consent to the Qualified Physician, if any, selected by
the Employee or (B) the Employee has reasonably withheld his consent to
the Qualified Physician, if any, selected by the Company and (2) the
Qualified Physicians selected by the Employee and the Company disagree
as to whether the Employee has incurred a Disability. For purposes of
this definition, if the Employee is unable by reason of illness or
injury to give an informed consent to the performance of the treatment
of that illness or injury, a Qualified Physician selected by any Person
who is authorized by applicable law to give that consent will be deemed
to have been selected by the Employee.
"EFFECTIVE DATE" has the meaning ascribed to that term in
Section 9(O).
6
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief
financial officer, the president, any executive or senior vice
president or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule
13d-5(b)) of which the Employee or any Affiliate or Associate of the
Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under, any such Compensation Plan, unless (A) in the case of
either subclause (1) or (2) of this clause, there is substituted a
comparable Compensation Plan that is at least economically equivalent,
in terms of the benefit offered to the Employee, to the Compensation
Plan being ended or in which the Employee's participation is being
adversely affected or the Employee's benefits are being materially
reduced or (B) in the case of that subclause (1), the failure, or in
the case of that subclause (2), the taking of action, adversely affects
Executive Officers generally; or (c) the assignment to the Employee of
duties inconsistent in any material respect with the Employee's then
current positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any other
action by the Company which results in a material diminution in those
positions, authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer and which provides for incentive, bonus or other
performance-based awards of cash, securities or the phantom equivalent
of securities, including any stock option, stock appreciation right and
restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more
of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective
under that act and the shares registered by that registration statement
are issued and sold by the Company (otherwise than pursuant to the
exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's Employment, and if the
Termination Date is other than the date of receipt of the notice, (b)
sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any subsidiary
of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to terminate
the Employee's Employment other than for Cause or (b) if the Employee
elects pursuant to the applicable provision hereof to terminate his
Employment for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part-time Employment Effective Date and ends on the first
to occur of (a) the third (3rd) anniversary of that Part-time
Employment Effective Date, (b) the termination by the Company of the
Employee's Employment for Type I Cause or (c) the death or Retirement
of the Employee.
"PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a)
holding an M.D. degree from a medical school located in the United
States, (b) specializing and board-certified in the
8
treatment of the injury or illness that has or may have caused that
Disability and (c) having admission privileges to one or more hospitals
located in Texas or in the state in which the Employee then is
domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment by means
of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
following a Change of Control pursuant to Section 5(B)(i)(b), the first
date on which the Company pays to the Employee in full the amounts owed
to the Employee pursuant to Section 5(B)(iii); (c) if the Employee's
Employment is terminated by reason of the Employee's giving a Notice of
Termination without Good Reason and other than for Disability pursuant
to Section 5(B)(i)(c), the elapse of the thirtieth (30th) day after the
Company receives that notice; (d) if the Employee's Employment is
terminated by the Company at any time for Type I Cause or, prior to the
Part-time Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination for
Cause; and (e) if the Employee's Employment is terminated for any other
reason, at the expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the first sentence of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the first sentence of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (b) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise
specified herein, all references herein to any statute defined or referred to
herein, including the Code, ERISA and the
9
Exchange Act, shall be deemed references to that statute or any successor
statute, as the same may have been or may be amended or supplemented from time
to time, and any rules or regulations promulgated thereunder.
(ii) 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 word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as President of Florida Heating & Air Conditioning, Inc. in Fort
Lauderdale, Florida, and the Employee will serve in the Company's employ in that
position. The Employee shall perform such duties, and have such powers,
authority, functions, duties and responsibilities for the Company and
corporations affiliated with the Company as are commensurate and consistent with
his employment as President of Florida Heating & Air Conditioning, Inc. The
Employee also shall have such additional powers, authority, functions, duties
and responsibilities as may be assigned to him by the Board; provided that,
without the Employee's written consent, such additional powers, authority,
functions, duties and responsibilities shall not be inconsistent or interfere
with, or detract from, those herein vested in, or otherwise then being performed
for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not interfere
materially with the Employee's duties and responsibilities for the Company at
that time, except that the Employee shall be entitled, subject to the provisions
of Section 7, (a) to continue with such activities as the Employee has carried
on prior to the Effective Date, including making and managing his personal
investments and participating in other business or civic activities and (b) to
serve on corporate or other business, civic or charitable boards or committees
and trade association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the
Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and renewing each day thereafter for an
additional day without any further action by either the
10
Company or the Employee, it being the intention of the parties that there shall
be continuously a remaining term of three (3) years' duration of the Employee's
Employment 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
5. When the Termination Date shall have occurred and the Company shall have paid
to the Employee all the applicable amounts Section 5 provides the Company shall
pay as a result of the termination of the Employee's Employment, including all
amounts accruing during the Part-time Employment Period, if any, this Agreement
will terminate and have no further force or effect, except that Sections 4(c),
8, 9, 10 and 11 shall survive that termination indefinitely and Section 7 shall
survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee
by the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the first to
occur of the Part-time Employment Effective Date or the Termination Date . That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less infrequently than semi-monthly),
shall be payable initially at the annual rate of $150,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in the CPI for
the twelve (12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be determined in the
sole discretion of the Compensation Committee, but only in such form
and to such extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such determinations
or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state having a
personal income tax, or if the Employee resides in a state without a
personal income tax on the date hereof which subsequently adopts a
personal income tax, then, in either case, the Base Salary in effect at
the time of such relocation or adoption, as applicable, shall
immediately be increased by the amount equal to the Base Salary
immediately prior to this increase multiplied by seventy percent (70%)
of the highest personal income tax rate of such state; for example, if
the Employee relocates from a state without a personal income tax to a
state having a personal income tax and the highest rate of that tax is
six percent (6%) when the Base Salary is $200,000, then the Base Salary
will be increased by $8,400 (computed at 70% x 6% x $200,000).
Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
11
B. OTHER COMPENSATION. The Employee shall be entitled to
participate in all Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee is an Executive
Officer. All awards to the Employee under all Incentive Plans shall take into
account the Employee's positions with and duties and responsibilities to the
Company and its subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment in the
nature of compensation, singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee reasonably determines (based upon the opinion of
his tax counsel) that such contest is inconsistent with the overall tax
interests of the Employee.
12
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company
shall be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Effective Date for any
Business Reason. The Company's termination of the Employee's Employment for
Cause will be effective on the date the Company delivers a Notice of Termination
for Cause to the Employee pursuant to this Section 5(A)(i)(together, in the case
of a termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid, and, when that
payment is made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee
shall be entitled to terminate his Employment (a) for a Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred sixty-five (365)
days after that Change of Control occurs (provided, however, that the Employee
shall not be entitled to terminate his Employment by reason of that Change of
Control if it occurs (1) during the thirty (30) day period following the
Company's receipt of the Employee's Notice of Termination without Good Reason
and other than for Disability pursuant to this Section 5(B)(i), (2) after (A)
the receipt by the Nonterminating Party of the Terminating Party's Notice of
Termination pursuant to Section 5(C) or (B) the Employee's receipt of the
Company's Notice of Termination for a Business Reason (other than in connection
with that Change of Control) pursuant to Section 5(A) or (3) more than three
hundred sixty-five (365) days after the Company's receipt of the Employee's
Notice of Termination for Good Reason pursuant to this Section 5(B)(i)) or (c)
without Good Reason and other than for Disability at any time.
13
The Employee's termination of his Employment for Good Reason will be effective
on the third (3rd) anniversary of the date the Employee delivers a Notice of
Termination for Good Reason to the Company pursuant to this Section 5(B)(i). The
Employee's termination of his Employment by reason of a Change of Control will
be effective on the first date on which the Change of Control Payment shall have
been paid in full to the Employee. The Employee's termination of his Employment
without Good Reason and other than for Disability will be effective on the
thirtieth (30th) day following the Employee's delivery of a Notice of
Termination without Good Reason and other than for Disability pursuant to this
Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company and the Employee
during the Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to the Employee, in
a cash lump sum within five (5) business days after the Termination Date, the
amount equal to the sum of (a) the portion of the Base Salary to and including
the Termination Date which has not yet been paid, (b) all compensation
previously deferred by the Employee (together with any accrued interest and
earnings thereon) which has not yet been paid, (c) any accrued but unpaid
vacation pay and (d) the amount equal to fifty percent (50%) of the Base Salary
being paid for the Compensation Year in which the Company receives the
Employee's Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates his Employment
without Good Reason and other than for Disability within six (6) months of the
theretofore scheduled final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the amount determined
pursuant to that clause multiplied by a fraction the numerator of which is the
number of days from and excluding the date the Company receives the Notice of
Termination to and including that final day and the denominator of which is one
hundred eighty-two (182). For purposes of this Section 5(B)(iv), if the
anniversary of the Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and other than for
Disability has not occurred on or prior to the date of that receipt, the Base
Salary for that Compensation Year will be calculated on the assumption that no
increase in the amount thereof would be made effective as of that anniversary
pursuant to Section 4(A) or 5(E)(i), as applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or the Company may
terminate the Employee's
14
Employment effective on the third (3rd) anniversary of the date the
Nonterminating Party receives a Notice of Termination from the Terminating Party
pursuant to this Section 5(C). If the Employee's Employment is terminated by
reason of the Employee's Disability, the respective rights and obligations of
the Company and the Employee during the Part-time Employment Period will be as
set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his death. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of (i) the portion
of the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of the Base Salary being paid for the Compensation Year in
which he dies multiplied by three (3) or (b) if the Employee dies during the
Part-time Employment Period, the product of one-twelfth (1/12th) of the Base
Salary being paid for the Compensation Year in which the Employee dies
multiplied by the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the intervals
consistent with the Company's normal payroll schedules (but in no event less
frequently than semi-monthly) from the Part-time Employment Effective Date to
and including the Termination Date in the amounts determined from time to time
as follows: Effective as of the Part-time Employment Effective Date, the Base
Salary payable by the Company to the Employee for the period from and including
that date to and excluding the third (3rd) anniversary of that date shall be as
follows:
(a) if the Part-time Employment Effective Date occurs as a
result of the receipt by the Nonterminating Party of a Notice of
Termination for a Business Reason pursuant to Section 5(A) or a Notice
of Termination for Good Reason pursuant to Section 5(B)(i), the amount
equal to the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date; and (b) if
the Part-time Employment Effective Date occurs as a result of the
receipt by the Nonterminating Party of a Notice of Termination for
Disability pursuant to Section 5(C), the amount equal to the amount
15
by which (1) seventy-five percent (75%) of the Average Annual Cash
Compensation of the Employee determined as of the Part-time Employment
Effective Date exceeds (2) the aggregate amount of periodic payments
the Employee receives during the twelve (12) months beginning on that
date under Compensation Plans then in effect and providing for the
payment to the Employee solely as a result or on account of disability;
and
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary payable pursuant
to this Section 5(E) shall be increased (but not decreased) by the same
percentage increase (if any) in the CPI for the twelve (12) month
period immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years
of service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or engaging in (and
devoting substantially all his time to) other business activities or (B)
required to perform any regular duties for the Company (except to provide such
services consistent with the Employee's educational background, experience and
prior positions with the Company as may be acceptable to the Employee) or to
seek or accept additional employment with any other Person. If the Employee, at
his discretion, shall accept any such additional employment or engage in any
such other business activity there shall be no offset, reduction or effect upon
any rights, benefits or payments to which the Employee is entitled pursuant to
this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
16
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within 35 miles of
the Employee's principal residence, in any case reasonably acceptable to the
Employee, alternate but comparable office space, furnishings, facilities,
reserved parking, supplies, services, equipment, secretarial and administrative
assistance that are in each case at least commensurate with the size and quality
of that which were provided to the Employee during the Compensation Year
immediately preceding the Part-time Employment Effective Date pursuant to
Section 6(C), but in no event less than are being furnished or provided on the
date hereof. The Company and Employee may mutually agree upon an equivalent
monthly cash allowance in lieu of the Employee being provided all or any part of
these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his representatives) shall
promptly deliver and return to the Company all the Company's property that is in
the possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of the
Employee's Employment for Cause, all stock options previously granted to the
Employee under Incentive Plans that have not been exercised and are outstanding
as of the time immediately prior to the Termination Date shall, notwithstanding
any contrary provision of any applicable Incentive Plan, remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier; and (ii) in the
case of a termination of the Employee's Employment for Cause, all stock options
previously granted to Employee under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to the Employee under
any Incentive Plan shall, notwithstanding any contrary provision of that
Incentive Plan, expire or fail to become exercisable or, if exercisable, cease
to be exercisable by reason of either (i) the occurrence of the Employee's
Part-time Employment Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to
not less than four (4) weeks of annual vacation and all legal holidays during
which times his applicable compensation shall be paid in full.
17
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
20-day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by theCompany with office space, furnishings, and facilities, reserved
parking, secretarial and administrative assistance, supplies and other support
equipment (including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to
move his principal place of residence from the southeast Florida coast area or
to perform regular duties that could reasonably be expected to require either
such move against his wish or to spend amounts of time each week outside the
southeast Florida coast area which are unreasonable in relation to the duties
and responsibilities of the Employee hereunder, and the Company agrees that, if
it requests the Employee to make such a move and the Employee declines that
request, (i) that declination shall not constitute any basis for a determination
that Type II Cause exists and (ii) no animosity or prejudice will be held
against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his Employment and for a
period of one (1) year after the Termination Date, he will not, within fifty
(50) miles of the geographic location in which the he has devoted substantial
attention at such location to the material business interests of the Company:
(i) accept employment or render service to any Person that is engaged in a
business directly competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, employee, consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be competitive with the
business of the Company.
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon application to any court
of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the provisions of this
Section
18
7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue
to have access to various Confidential Information. The Employee agrees,
therefore, that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by the
Employee solely or jointly with any other Person or Persons during the period of
his Employment and which pertain primarily to the material business activities
of the Company, and the Employee hereby assigns and agrees to assign all his
interests therein to the Company or to its nominee; whenever requested to do so
by the Company, the Employee shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply for and
obtain Letters of Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein. These obligations shall (i)
continue beyond the Termination Date with respect to inventions, improvements,
and valuable discoveries, whether patentable or not, conceived, made or acquired
by the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be
19
invalid, illegal or unenforceable in any respect, (i) such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, (ii) this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein (except that this clause
(ii) shall not prohibit any modification allowed under Section 7(B)) and (iii)
if the effect of a holding or finding that any such provision is invalid,
illegal or unenforceable is to modify to the Employee's detriment, reduce or
eliminate any compensation, reimbursement, payment, allowance or other benefit
to the Employee intended by the Company and Employee in entering into this
Agreement, the Company shall, within thirty (30) days after the date of such
finding or holding, negotiate and expeditiously enter into an agreement with the
Employee which contains alternative provisions (reasonably acceptable to the
Employee) that will restore to the Employee (to the extent lawfully permissible)
substantially the same economic, substantive and income tax benefits and legal
rights the Employee would have enjoyed had such provision been upheld as legal,
valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its undertakings in, this
Agreement shall not be affected by any right of set-off, counterclaim,
recoupment, defense or other action, claim or right the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any provision hereof, and those amounts shall not
be reduced, regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee
and, without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If the Employee is not
an Executive Officer, but is an officer of a subsidiary of the Company, the
Company shall be entitled to assign all its obligations hereunder to that
subsidiary and treat the Employee as an employee of that subsidiary for all
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and
20
assets of the Company substantially as an entirety expressly to assume and agree
to perform this Agreement in the same manner and to the same extent the Company
would have been required to perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Elliot Sokolow 2751 Northeast 47th Street Lighthouse Point,
Florida 33064
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to assert any right under,
this Agreement (including the right of the Employee to terminate his Employment
for Good Reason or by reason of a Change of Control pursuant to Section 5(B)
(i)) shall not be deemed a waiver of that provision or of any other provision of
or right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE
TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents
with respect to any action, suit or other legal proceeding pertaining directly
to this Agreement or to the interpretation or enforcement of any of Employee's
right hereunder to service of process in the State of Texas and hereby waives
any right to contest or oppose receipt of such service of
21
process. The Company irrevocably (i) agrees that any such action, suit or other
legal proceeding may be brought in the courts of such state or in the courts of
the United States sitting in such state, (ii) consents to the jurisdiction of
each such court in any such action, suit or other legal proceeding and (iii)
waives any objection it may have to the laying of venue of any such action, suit
or other legal proceeding in any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed
to the Employee hereunder are not so paid or reimbursed at the times provided
herein (including amounts required to be paid by the Company pursuant to
Sections 6 and 10, those amounts shall accrue interest compounded daily at the
annual percentage rate which is three percentage points (3%) above the interest
rate announced by Texas Commerce Bank National Association, Houston, Texas (or
its successor) from time to time, as its Base Rate (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that,
except to the extent required by law or legal process (including the Exchange
Act and the Securities Act), it will not make or publish, without the prior
written consent of the Employee, any written or oral statement concerning the
terms of the Employee's employment relationship with the Company and will not,
if a Notice of Termination is given by either the Company or the Employee for
any reason, publish or cause to be published any statement concerning the
Employee, including his work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision
hereof, the Company may withhold from amounts payable hereunder all Federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee agree that
this Agreement supersedes all prior written and oral agreements between them
with respect to the employment of the Employee by the Company, but has no effect
on any Compensation Plan in which the Employee was participating prior to the
Effective Date or on the Agreement and Plan of Reorganization dated as of June
13, 1996 to which the Company and the Employee are parties.
O. EFFECTIVE DATE. This Agreement shall be effective on the
date on which the Effective Time occurs (the "Effective Date"), and the term
"Effective Time" has the meaning specified in the Agreement and Plan of
Reorganization dated as of June 13, 1996 among the Company, the Employee and the
other parties thereto, including Florida Heating and Air Conditioning, Inc. (the
"Merger Agreement"). If the Merger Agreement is terminated prior to
22
the Effective Time, this Agreement will be deemed for all purposes to have been
abandoned and of no force or effect as of and after the time of that
termination.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES; RESOLUTION OF
DISPUTES
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into
this Agreement the Company intends that the Employee receive without reduction
or delay all the intended benefits of this Agreement and that those benefits,
and the terms and conditions hereof, be construed in a manner most favorable to
the Employee; the Company, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in the Employee's favor and to his
benefit any ambiguities or uncertainties that may be created by the express
language hereof. If, however, at any time during the term hereof or afterwards:
(i) there should exist a dispute or conflict between the Employee and the
Company or another Person as to the validity, interpretation or application of
any term or condition hereof, or as to the Employee's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of the
Employee, (ii) the Employee must (A) defend the validity of this Agreement, (B)
contest any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred
to in Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties
23
shall strive diligently in good faith to agree within ten (10) business days
after either party has given written notice to the other party that it is unable
to concur in the other party's final proposed negotiated resolution of the
dispute. If the Company and the Employee are unable to agree in writing to an
acceptable ADR process within that ten (10) business day period, then the
parties shall submit to a mandatory ADR process by making joint application to
the then Chief United States Federal District Judge in the Southern District of
Texas for the selection of an ADR process for the parties. The parties shall
diligently in good faith participate in the ADR process chosen by that judge. If
the parties are unable to resolve their dispute after diligent good faith
participation in the ADR process, then either party shall be free to initiate
such litigation as that party deems appropriate under the circumstances. Under
no circumstances shall the Employee be obligated to pay for the cost of any ADR
process or to pay or reimburse the Company for any attorneys' fees, costs or
other expenses incurred by the Company in connection with any process undertaken
by the Employee to resolve disputes under this Agreement. As used in this
Section 10, the term "Employee" includes, if the Employee has died or become
incompetent as a matter of applicable law, the Employee's legal representative
acting in his capacity as such under applicable law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the
maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:________________________________
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
___________________________________
Elliot Sokolow
Employee's Permanent Address:
2751 Northeast 47th Street
Lighthouse Point, Florida 33064
25
Exhibit 10.9
Howard W. Hauser
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
June 13, 1996 to become effective as of the Effective Date (as herein defined)
by and between AMERICAN RESIDENTIAL SERVICES, INC., a Delaware corporation (the
"Company"), and HOWARD W. HAUSER (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company without distraction or
concern over minimum compensation, benefits or tenure, to develop and implement
the Company's initial development plan and thereafter managing the Company's
future growth and development and maximizing the returns to the Company's
stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms have the
meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together with all
Affiliates and Associates of such Person, is or are the Beneficial Owner
of twenty-five percent (25%) or more of the shares of Common Stock then
outstanding, but does not include any Exempt Person; provided, however,
that a Person shall not be or become an Acquiring Person if such Person,
together with its Affiliates and Associates, shall become the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding solely as a result of a reduction in the number of shares
of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial
Owner of additional shares of Common Stock constituting one percent (1%)
or more of the then outstanding shares of Common Stock or any other Person
(or Persons) who is (or collectively are) the Beneficial Owner of shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock shall become an Affiliate or Associate
of such Person, unless, in either such case, such Person, together with
all Affiliates and Associates of such Person, is not then the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from the
Effective Date to and including the first to occur of (a) the Part-time
Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange Act
Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any Compensation Year
means the sum of the salary and bonus earned by the Employee during that
Compensation Year, including all amounts deferred at the election of the
Employee pursuant to a Compensation Plan intended to qualify as a plan
under Section 401(k) of the Code or otherwise. If salary or bonus is paid
in whole or in part in property other than cash (such as Common Stock) the
amount so paid shall be the fair market value thereof on the date of
payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which that Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the
Beneficial Owner of 10% or more of any class of its equity securities, (b)
any trust or other estate in which that Person has a substantial
beneficial interest or for or of which that Person serves as trustee or in
a similar fiduciary capacity and (c) any relative or spouse of that
Person, or any relative of that spouse, who has the same home as that
Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as of the
Part-time Employment Effective Date, the average of (a) the Annual Cash
Compensation earned by the Employee in each of the two (2) Compensation
Years next preceding that date or, if less than two (2) Compensation Years
have occurred prior to that date and since the Effective Date, (b) the
Annual Cash Compensation in each whole Compensation Year, if any, and,
restated on an annualized basis, the Annual Cash Compensation in each
partial Compensation Year (up to a maximum of two (2) partial Compensation
Years) next preceding the Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment Effective
Date, the guaranteed minimum annual salary payable by the Company to the
Employee pursuant to Section 4(A); and (b) on and after the Part-time
Employment Effective Date, the guaranteed minimum annual salary payable by
the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" (as
determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote or
dispose of, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (a) as a
result of an agreement, arrangement or understanding to vote that
security if that agreement, arrangement or understanding: (1) arises
solely from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the
Exchange Act; and (2) is not then reportable by such Person on
Exchange Act Schedule 13D (or any comparable or successor report);
(b) which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to
acquire (whether that right or obligation is exercisable or
effective immediately or only after the passage of time or the
occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or on the exercise of
conversion rights, exchange rights, other rights, warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer made by
that Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or exchange; or
(c) which are beneficially owned, directly or indirectly, by
(1) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to subparagraph (a) of this
definition) or disposing of any voting securities of the Company or
(2) any group (as that term is used in Exchange Act Rule 13d-5(b))
of which that specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of that
acquisition. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or
demand relating to corporate action (including, without limitation,
calling a stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of
such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the Employee's
Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's Employment
means: (a) the Employee's final conviction of a felony crime that enriched
the Employee at the expense of the Company; or (b) the Employee's
deliberate and intentional continuing failure to substantially perform his
duties and responsibilities hereunder (except by reason of the Employee's
incapacity due to physical or mental illness or injury) for a period of
forty-five (45) days after the Required Board Majority has delivered to
the Employee a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Employee has not substantially performed his duties
and responsibilities hereunder (such period being the "Grace Period");
provided, that for purposes of this clause (b), the Company shall not have
Cause to terminate the Employee's Employment unless (1) at a meeting of
the Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice and
at which the Employee was afforded the opportunity to be represented by
counsel, appear and be heard, the Required Board Majority shall adopt a
written resolution which (A) sets forth the Required Board Majority's
determination that the failure of the Employee to substantially perform
his duties and responsibilities hereunder has (except by reason of his
incapacity due to physical or mental illness or injury) continued past the
Grace Period and (B) specifically identifies the bases for that
determination and (2) the Company, at the written direction of the
Required Board Majority, shall deliver to the Employee a Notice of
Termination for Cause to which a copy of that resolution, certified as
being true and correct by the secretary or any assistant secretary of the
Company, is attached. Cause of the type referred to in clause (a) of the
preceding sentence is a "Type I Cause," while Cause of the type referred
to in clause (b) of the preceding sentence is a "Type II Cause." For
purposes of determining whether a Type II Cause has occurred, no act or
failure to act on the part of the Employee shall be considered "deliberate
and intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the following
events that occurs after the IPO Closing Date: (a) any Person becomes an
Acquiring Person; (b) at any time the then Continuing Directors cease to
constitute a majority of the members of the Board; (c) a merger of the
Company with or into, or a sale by the Company of its properties and
assets substantially as an entirety to, another Person occurs and,
immediately after that occurrence, any Person, other than an Exempt
Person, together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of twenty-five percent (25%) or more of the total
voting power of the then outstanding Voting Shares of the Person surviving
that transaction (in the case or a merger or consolidation) or the Person
acquiring those properties and assets substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal to
three (3) times the Employee's then highest Base Salary during the term of
this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a Delaware
corporation, and (b) any Person that assumes the obligations of "the
Company" hereunder, by operation of law, pursuant to Section 9(D)(iii) or
otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or any
subsidiary of the Company contributes, on behalf of any Executive Officer
or any member of the family of any Executive Officer, (a) including (i)
any "employee pension benefit plan" (as defined in Section 3(2) of ERISA)
or other "employee benefit plan" (as defined in Section 3(3) of ERISA),
(ii) any other retirement and savings plan, including any supplemental
benefit arrangement relating to any plan intended to be qualified under
Section 401(a) of the Code or whose benefits are limited by the Code or
ERISA, (iii) any "employee welfare plan" (as defined in Section 3(1) of
ERISA), (iv) any arrangement, plan, policy, practice or program providing
for severance pay, deferred compensation or insurance benefit, (v) any
Incentive Plan and (vi) any arrangement, plan, policy, practice or program
(A) authorizing and providing for the payment or reimbursement of expenses
attributable to first-class air travel and first-class hotel occupancy
while on travel or (B) providing for the payment of business luncheon and
country club dues, long-distance charges, mobile phone monthly air time or
other recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it provides
for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to which
the Board has delegated duties respecting the compensation of Executive
Officers and the administration of Incentive Plans, if any, intended to
qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company or any
subsidiary of the Company, 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 sale programs, customer lists, records of
customer service requirements, capital expenditure projects, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any governmental authority and all
other confidential, nonpublic concepts, methods of
5
doing business, ideas, materials or information prepared or performed for,
by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All Urban
Consumers-- All Items Index for Houston, Texas (or any substantially
similar index published for the same area), as published by the United
States Department of Labor, Bureau of Labor Statistics (or its successor)
for that period.
"CONTINUING DIRECTOR" means at any time any individual who then (a)
is a member of the Board and was a member of the Board as of the IPO
Closing Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved by
a majority of the then Continuing Directors (acting separately or as a
part of any action taken by the Board or any committee thereof) and (b) is
not an Acquiring Person, an Affiliate or Associate of an Acquiring Person
or a nominee or representative of an Acquiring Person or of any such
Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been determined
(which determination shall be final and binding on all Persons, absent
manifest error), as a result of a physical or mental illness or personal
injury he has incurred (including illness or injury resulting from any
substance abuse), by a Qualified Physician (who may be the doctor treating
or otherwise acting as the Employee's doctor in connection with the
illness or injury in question) selected by the Employee with the consent
of the Company, or by the Company at its expense and with the consent of
the Employee (which consent shall not be unreasonably withheld in either
case), to be unable to perform, at the time of that determination and, in
all reasonable medical likelihood, indefinitely thereafter, the normal
duties then most recently assigned, under and in accordance with the terms
hereof, to the Employee while on Active Status; provided that, the
determination whether the Employee has incurred a Disability shall be made
by a majority of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be selected by the
Company and (c) the remaining one (1) of whom shall be selected by the
Qualified Physicians selected by the Employee and the Company pursuant to
clauses (a) and (b) of this proviso and the fees and expenses of whom will
be shared and paid in equal amounts by the Employee and the Company if:
(1)(A) the Company has reasonably withheld its consent to the Qualified
Physician, if any, selected by the Employee or (B) the Employee has
reasonably withheld his consent to the Qualified Physician, if any,
selected by the Company and (2) the Qualified Physicians selected by the
Employee and the Company disagree as to whether the Employee has incurred
a Disability. For purposes of this definition, if the Employee is unable
by reason of illness or injury to give an informed consent to the
performance of the treatment of that illness or injury, a Qualified
Physician selected by any Person who is authorized by applicable law to
give that consent will be deemed to have been selected by the Employee.
"EFFECTIVE DATE" has the meaning ascribed to that term in Section
9(O).
6
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EMPLOYMENT" means the salaried employment of the Employee by the
Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board, the
chief executive officer, the chief operating officer, the chief financial
officer, the president, any executive or senior vice president or the
general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of
the Company and (2) any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees
of the Company or any subsidiary of the Company and (b) the Employee, any
Affiliate or Associate of the Employee or any group (as that term is used
in Exchange Act Rule 13d-5(b)) of which the Employee or any Affiliate or
Associate of the Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's benefits
under, any such Compensation Plan, unless (A) in the case of either
subclause (1) or (2) of this clause, there is substituted a comparable
Compensation Plan that is at least economically equivalent, in terms of
the benefit offered to the Employee, to the Compensation Plan being ended
or in which the Employee's participation is being adversely affected or
the Employee's benefits are being materially reduced or (B) in the case of
that subclause (1), the failure, or in the case of that subclause (2), the
taking of action, adversely affects Executive Officers generally; or (c)
the assignment to the Employee of duties inconsistent in any material
respect with the Employee's then current positions (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by the Company which results in a
material diminution in those positions, authority, duties or
responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan, policy,
practice or program established, maintained or sponsored by the Company or
any subsidiary of the Company, or to which the Company or any subsidiary
of the Company contributes, on behalf of any Executive Officer and which
provides for incentive, bonus or other performance-based awards of cash,
securities or the phantom equivalent of securities, including any stock
option, stock appreciation right and restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more of
Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed under the
Securities Act and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that act and
the shares registered by that registration statement are issued and sold
by the Company (otherwise than pursuant to the exercise of any
over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as the
case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a written
notice that: (a) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Employee's Employment, and if the Termination Date is other than the
date of receipt of the notice, (b) sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at that
time who is not then an employee of the Company or any subsidiary of the
Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the Company
elects pursuant to any applicable provision hereof to terminate the
Employee's Employment other than for Cause or (b) if the Employee elects
pursuant to the applicable provision hereof to terminate his Employment
for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which begins
on the Part-time Employment Effective Date and ends on the first to occur
of (a) the third (3rd) anniversary of that Part-time Employment Effective
Date, (b) the termination by the Company of the Employee's Employment for
Type I Cause or (c) the death or Retirement of the Employee.
"PERSON" means any natural person, 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, joint venture, estate, trust, union
or employee organization or governmental authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a) holding
an M.D. degree from a medical school located in the United States, (b)
specializing and board certified in the
8
treatment of the injury or illness that has or may have caused that
Disability and (c) having admission privileges to one or more hospitals
located in Texas or in the state in which the Employee then is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the case
may be, who or which terminates the Employee's Employment by means of a
Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is terminated
by reason of the Employee's giving a Notice of Termination following a
Change of Control pursuant to Section 5(B)(i)(b), the first date on which
the Company pays to the Employee in full the amounts owed to the Employee
pursuant to Section 5(B)(iii); (c) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
without Good Reason and other than for Disability pursuant to Section
5(B)(i)(c), the elapse of the thirtieth (30th) day after the Company
receives that notice; (d) if the Employee's Employment is terminated by
the Company at any time for Type I Cause or, prior to the Part-time
Employment Effective Date, at any time for Type II Cause, the date the
Employee receives the Company's Notice of Termination for Cause; and (e)
if the Employee's Employment is terminated for any other reason, at the
expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause (a) of
the first sentence of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause (b) of
the first sentence of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation, stock of
that corporation of the class or classes having general voting power under
ordinary circumstances to elect a majority of that corporation's board of
directors; and (b) in the case of any other entity, equity interests of
the class or classes having general voting power under ordinary
circumstances equivalent to the Voting Shares of a corporation.
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise specified
herein, all references herein to any statute defined or referred to herein,
including the Code, ERISA and the
9
Exchange Act, shall be deemed references to that statute or any successor
statute, as the same may have been or may be amended or supplemented from time
to time, and any rules or regulations promulgated thereunder.
(ii) 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 word "Section" refers to a
Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number includes
the plural and vice versa, and a reference to one gender includes each other
gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set forth,
and beginning as of the Effective Date, the Company will employ the Employee as
President of Climatic Corporation in the southeast Florida area and the Employee
will serve in the Company's employ in that position. The Employee shall perform
such duties, and have such powers, authority, functions, duties and
responsibilities for the Company and corporations affiliated with the Company as
are commensurate and consistent with his employment as President of Climatic
Corporation it being acknowledged that Employee shall not be required to devote
full time to such employment. The Employee also shall have such additional
powers, authority, functions, duties and responsibilities as may be assigned to
him by the Board; provided that, without the Employee's written consent, such
additional powers, authority, functions, duties and responsibilities shall not
be inconsistent or interfere with, or detract from, those herein vested in, or
otherwise then being performed for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment, engage
in any other activities unless those activities do not interfere materially with
the Employee's duties and responsibilities for the Company at that time, except
that the Employee shall be entitled, subject to the provisions of Section 7, (a)
to continue with such activities as the Employee has carried on prior to the
Effective Date, including making and managing his personal investments and
participating in other business or civic activities and (b) to serve on
corporate or other business, civic or charitable boards or committees and trade
association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the Employee's
Employment shall be for a continually renewing term of three (3) years
commencing on the Effective Date and renewing each day thereafter for an
additional day without any further action by either the
10
Company or the Employee, it being the intention of the parties that there shall
be continuously a remaining term of three (3) years' duration of the Employee's
Employment 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
5. When the Termination Date shall have occurred and the Company shall have paid
to the Employee all the applicable amounts Section 5 provides the Company shall
pay as a result of the termination of the Employee's Employment, including all
amounts accruing during the Part-time Employment Period, if any, this Agreement
will terminate and have no further force or effect, except that Sections 4(c),
8, 9, 10 and 11 shall survive that termination indefinitely and Section 7 shall
survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY.A Base Salary shall be payable to the Employee by the
Company as a guaranteed minimum annual amount hereunder for each Compensation
Year during the period from the Effective Date to the first to occur of the
Part-time Employment Effective Date or the Termination Date . That Base Salary
shall be payable in the intervals consistent with the Company's normal payroll
schedules (but in no event less infrequently than semi-monthly), shall be
payable initially at the annual rate of $75,000 and shall be increased (but not
decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the Effective
Date, by the same percentage increase (if any) in the CPI for the twelve
(12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the Effective
Date, by such additional amount as shall be determined in the sole
discretion of the Compensation Committee, but only in such form and to
such extent as the Compensation Committee may from time to time approve,
as evidenced by the written minutes or records of the Compensation
Committee and its written notices of such determinations or approvals to
the Employee; and
(iii) if the Employee relocates from a state without a personal
income tax at the time of his relocation to a state having a personal
income tax, or if the Employee resides in a state without a personal
income tax on the date hereof which subsequently adopts a personal income
tax, then, in either case, the Base Salary in effect at the time of such
relocation or adoption, as applicable, shall immediately be increased by
the amount equal to the Base Salary immediately prior to this increase
multiplied by seventy percent (70%) of the highest personal income tax
rate of such state; for example, if the Employee relocates from a state
without a personal income tax to a state having a personal income tax and
the highest rate of that tax is six percent (6%) when the Base Salary is
$200,000, then the Base Salary will be increased by $8,400 (computed at
70% x 6% x $200,000).
Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
11
B. OTHER COMPENSATION. The Employee shall be entitled to participate
in all Compensation Plans from time to time in effect while he remains on Active
Status, regardless of whether the Employee is an Executive Officer. All awards
to the Employee under all Incentive Plans shall take into account the Employee's
positions with and duties and responsibilities to the Company and its
subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary, other
incentive or supplemental compensation, benefits, allowances, awards, payments,
reimbursements or other perquisites, or any other payment in the nature of
compensation, singly, in any combination or in the aggregate, that are provided
for hereunder to be paid to or for the benefit of the Employee be determined or
alleged to be subject to an excise or similar purpose tax pursuant to Section
4999 of the Code, or any successor or other comparable federal, state or local
tax law by reason of being a "parachute payment" (within the meaning of Section
280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee reasonably determines (based upon the opinion of
his tax counsel) that such contest is inconsistent with the overall tax
interests of the Employee.
12
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company shall
be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Effective Date for any
Business Reason. The Company's termination of the Employee's Employment for
Cause will be effective on the date the Company delivers a Notice of Termination
for Cause to the Employee pursuant to this Section 5(A)(i)(together, in the case
of a termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for Cause,
the Company promptly thereafter, and in any event within five (5) business days
thereafter, shall pay the Employee his Base Salary to and including the
Termination Date and the amount of all compensation previously deferred by the
Employee (together with any accrued interest or earnings thereon), in each case
to the extent not theretofore paid, and, when that payment is made, the Company
shall, notwithstanding Section 3, have no further or other obligations hereunder
to the Employee.
(iii) If the Company terminates the Employee's Employment for a
Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee shall
be entitled to terminate his Employment (a) for a Good Reason at any time within
one hundred eighty (180) days after the facts or circumstances constituting that
Good Reason first exist and are known to the Employee, (b) by reason of a Change
of Control at any time within three hundred sixty-five (365) days after that
Change of Control occurs (provided, however, that the Employee shall not be
entitled to terminate his Employment by reason of that Change of Control if it
occurs (1) during the thirty (30) day period following the Company's receipt of
the Employee's Notice of Termination without Good Reason and other than for
Disability pursuant to this Section 5(B)(i), (2) after (A) the receipt by the
Nonterminating Party of the Terminating Party's Notice of Termination pursuant
to Section 5(C) or (B) the Employee's receipt of the Company's Notice of
Termination for a Business Reason (other than in connection with that Change of
Control) pursuant to Section 5(A) or (3) more than three hundred sixty-five
(365) days after the Company's receipt of the Employee's Notice of Termination
for Good Reason pursuant to this Section 5(B)(i)) or (c) without Good Reason and
other than for Disability at any time.
13
The Employee's termination of his Employment for Good Reason will be effective
on the third (3rd) anniversary of the date the Employee delivers a Notice of
Termination for Good Reason to the Company pursuant to this Section 5(B)(i). The
Employee's termination of his Employment by reason of a Change of Control will
be effective on the first date on which the Change of Control Payment shall have
been paid in full to the Employee. The Employee's termination of his Employment
without Good Reason and other than for Disability will be effective on the
thirtieth (30th) day following the Employee's delivery of a Notice of
Termination without Good Reason and other than for Disability pursuant to this
Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good Reason, the
respective rights and obligations of the Company and the Employee during the
Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good Reason
and other than for Disability, the Company shall pay to the Employee, in a cash
lump sum within five (5) business days after the Termination Date, the amount
equal to the sum of (a) the portion of the Base Salary to and including the
Termination Date which has not yet been paid, (b) all compensation previously
deferred by the Employee (together with any accrued interest and earnings
thereon) which has not yet been paid, (c) any accrued but unpaid vacation pay
and (d) the amount equal to fifty percent (50%) of the Base Salary being paid
for the Compensation Year in which the Company receives the Employee's Notice of
Termination without Good Reason and other than for Disability; provided,
however, that if the Employee terminates his Employment without Good Reason and
other than for Disability within six (6) months of the theretofore scheduled
final day of the Part-time Employment Period, the amount payable pursuant to
clause (d) of this sentence shall be the amount determined pursuant to that
clause multiplied by a fraction the numerator of which is the number of days
from and excluding the date the Company receives the Notice of Termination to
and including that final day and the denominator of which is one hundred
eighty-two (182). For purposes of this Section 5(B)(iv), if the anniversary of
the Effective Date in the Compensation Year in which the Company receives the
Notice of Termination without Good Reason and other than for Disability has not
occurred on or prior to the date of that receipt, the Base Salary for that
Compensation Year will be calculated on the assumption that no increase in the
amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs any
Disability while on Active Status, either the Employee or the Company may
terminate the Employee's
14
Employment effective on the third (3rd) anniversary of the date the
Nonterminating Party receives a Notice of Termination from the Terminating Party
pursuant to this Section 5(C). If the Employee's Employment is terminated by
reason of the Employee's Disability, the respective rights and obligations of
the Company and the Employee during the Part-time Employment Period will be as
set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's Employment
shall terminate automatically at the time of his death. If the Employee's
Employment is terminated by reason of the Employee's death, the Company shall
pay to the Person the Employee has designated in a written notice delivered to
the Company as his beneficiary entitled to such payment, if any, or to the
Employee's estate, as applicable, in a cash lump sum within thirty (30) days
after the Termination Date, the amount equal to the sum of (i) the portion of
the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of the Base Salary being paid for the Compensation Year in
which he dies multiplied by three (3) or (b) if the Employee dies during the
Part-time Employment Period, the product of one-twelfth (1/12th) of the Base
Salary being paid for the Compensation Year in which the Employee dies
multiplied by the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD. (i) The
Company shall pay the Employee a Base Salary, in the intervals consistent with
the Company's normal payroll schedules (but in no event less frequently than
semi-monthly) from the Part-time Employment Effective Date to and including the
Termination Date in the amounts determined from time to time as follows:
Effective as of the Part-time Employment Effective Date, the Base Salary payable
by the Company to the Employee for the period from and including that date to
and excluding the third (3rd) anniversary of that date shall be as follows:
(a) if the Part-time Employment Effective Date occurs as a result of
the receipt by the Nonterminating Party of a Notice of Termination for a
Business Reason pursuant to Section 5(A) or a Notice of Termination for
Good Reason pursuant to Section 5(B)(i), the amount equal to the Average
Annual Cash Compensation of the Employee determined as of the Part-time
Employment Effective Date; and (b) if the Part-time Employment Effective
Date occurs as a result of the receipt by the Nonterminating Party of a
Notice of Termination for Disability pursuant to Section 5(C), the amount
equal to the amount
15
by which (1) seventy-five percent (75%) of the Average Annual Cash
Compensation of the Employee determined as of the Part-time Employment
Effective Date exceeds (2) the aggregate amount of periodic payments the
Employee receives during the twelve (12) months beginning on that date
under Compensation Plans then in effect and providing for the payment to
the Employee solely as a result or on account of disability; and
(b) on the first and each subsequent anniversary of the Part-time
Employment Effective Date, the Base Salary payable pursuant to this
Section 5(E) shall be increased (but not decreased) by the same percentage
increase (if any) in the CPI for the twelve (12) month period immediately
preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years of
service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee shall not
be (A) prevented from accepting other employment or engaging in (and devoting
substantially all his time to) other business activities or (B) required to
perform any regular duties for the Company (except to provide such services
consistent with the Employee's educational background, experience and prior
positions with the Company as may be acceptable to the Employee) or to seek or
accept 17 additional employment with any other Person. If the Employee, at his
discretion, shall accept any such additional employment or engage in any such
other business activity there shall be no offset, reduction or effect upon any
rights, benefits or payments to which the Employee is entitled pursuant to this
Agreement. Furthermore, the Employee shall have no obligation to account for,
remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
16
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within 35 miles of
the Employee's principal residence, in any case reasonably acceptable to the
Employee, alternate but comparable office space, furnishings, facilities,
reserved parking, supplies, services, equipment, secretarial and administrative
assistance that are in each case at least commensurate with the size and quality
of that which were provided to the Employee during the Compensation Year
immediately preceding the Part-time Employment Effective Date pursuant to
Section 6(C), but in no event less than are being furnished or provided on the
date hereof. The Company and Employee may mutually agree upon an equivalent
monthly cash allowance in lieu of the Employee being provided all or any part of
these items.
(v) The Employee shall remain entitled to the benefits of Section
4(C).
F. RETURN OF PROPERTY. On termination of the Employee's Employment,
however brought about, the Employee (or his representatives) shall promptly
deliver and return to the Company all the Company's property that is in the
possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this Agreement to
the contrary: (i) except in the case of a termination of the Employee's
Employment for Cause, all stock options previously granted to the Employee under
Incentive Plans that have not been exercised and are outstanding as of the time
immediately prior to the Termination Date shall, notwithstanding any contrary
provision of any applicable Incentive Plan, remain outstanding (and continue to
become exercisable pursuant to their respective terms) until exercised or the
expiration of their term, whichever is earlier; and (ii) in the case of a
termination of the Employee's Employment for Cause, all stock options previously
granted to Employee under Incentive Plans that have not been exercised and are
outstanding as of the time immediately prior to the Termination Date shall,
notwithstanding any contrary provision of any applicable Incentive Plan, remain
outstanding and continue to be exercisable until exercised or the date that is
ten (10) days after the Termination Date, whichever is earlier. No stock option
previously granted to the Employee under any Incentive Plan shall,
notwithstanding any contrary provision of that Incentive Plan, expire or fail to
become exercisable or, if exercisable, cease to be exercisable by reason of
either (i) the occurrence of the Employee's Part-time Employment Effective Date
or (ii) the Employee's service during the Employee's Part-time Employment Period
being less than full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to not
less than four (4) weeks of annual vacation and all legal holidays during which
times his applicable compensation shall be paid in full.
17
B. BUSINESS EXPENSES. The Employee is authorized to incur, and will
be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
20-day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be provided
by the Company with office space, furnishings, and facilities, reserved parking,
secretarial and administrative assistance, supplies and other support equipment
(including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to move
his principal place of residence from the southeast Florida coast area or to
perform regular duties that could reasonably be expected to require either such
move against his wish or to spend amounts of time each week outside the
southeast Florida coast area which are unreasonable in relation to the duties
and responsibilities of the Employee hereunder, and the Company agrees that, if
it requests the Employee to make such a move and the Employee declines that
request, (i) that declination shall not constitute any basis for a determination
that Type II Cause exists and (ii) no animosity or prejudice will be held
against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly competitive
businesses in which the Company is engaged, personal contact is of primary
importance in securing new customers and in retaining the accounts and goodwill
of present customers and protecting the business of the Company. The Employee,
therefore, agrees that during the term of his Employment and for a period of one
(1) year after the Termination Date, he will not, within the Indian River, St.
Lucie, Martin and Palm Beach Counties (the "Treasure Coast Area"): (i) accept
employment or render service to any Person that is engaged in a business
directly competitive with the business then engaged in by the Company or (ii)
enter into or take part in or lend his name, counsel or assistance to any
business, either as proprietor, principal, investor, partner, director, officer,
employee, consultant, advisor, agent, independent contractor, or in any other
capacity whatsoever, for any purpose that would be competitive with the business
of the Company; provided, however, this restriction shall not apply to the
businesses then engaged in by Coastal Mechanical Services, Inc., Eastern
Construction Company and CMS Mechanical Service Company (the "Hauser Companies")
while Employee is an owner of the majority of the Common Stock of such
companies.
18
B. If the provisions of this Section 7 are violated in any material
respect, the Company shall be entitled, upon application to any court of proper
jurisdiction, to a temporary restraining order or preliminary injunction
(without the necessity of posting any bond with respect thereto) to restrain and
enjoin the Employee from that violation. If the provisions of this Section 7
should ever be deemed to exceed the time, geographic or occupational limitations
permitted by the applicable law, the Employee and the Company agree that such
provisions shall be and are hereby reformed to the maximum time, geographic or
occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue to
have access to various Confidential Information. The Employee agrees, therefore,
that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee or information obtained by Employee in the course
of his service with the Hauser Companies. In the event of a breach or threatened
breach by the Employee of the provisions of this Section 8(A) with respect to
any Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and all
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by the Employee solely or
jointly with any other Person or Persons during the period of his Employment and
which pertain primarily to the material business activities of the Company, and
the Employee hereby assigns and agrees to assign all his interests therein to
the Company or to its nominee; whenever requested to do so by the Company, the
Employee shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters of Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein. These obligations shall (i) continue
beyond the Termination Date with respect to inventions, improvements, and
valuable discoveries, whether patentable or not, conceived, made or acquired by
the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors,
19
administrators and other legal representatives; provided, however that these
obligations shall not apply to such items relating to Employee's service with
the Hauser Companies.
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or limit
the Employee's continuing or future participation in any Compensation Plan or,
subject to Section 9(N), limit or otherwise affect such rights as the Employee
may have under any other contract or agreement with the Company. Vested benefits
and other amounts to which the Employee is or becomes entitled to receive under
any Compensation Plan on or after the Termination Date shall be payable in
accordance with that Compensation Plan, except as expressly modified hereby.
C. FULL SETTLEMENT. The Company's obligations to make the payments
provided for in, and otherwise to perform its undertakings in, this Agreement
shall not be affected by any right of set-off, counterclaim, recoupment, defense
or other action, claim or right the Company may have against the Employee or
others. In no event shall the Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any provision hereof, and those amounts shall not be reduced,
regardless of whether the Employee obtains other employment or becomes
self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee and,
without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
20
(ii) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns. If the Employee is not an
Executive Officer, but is an officer of a subsidiary of the Company, the Company
shall be entitled to assign all its obligations hereunder to that subsidiary and
treat the Employee as an employee of that subsidiary for all purposes, but the
Company shall remain liable for the full, timely performance of all the
obligations so assigned as if the assignment had not been made.
(iii) The Company shall require any successor (direct or indirect
and whether by purchase, merger, consolidation, share exchange or otherwise) to
the business, properties and assets of the Company substantially as an entirety
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would have been required to perform it had no
such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Howard W. Hauser
185 Ocean Way
Vero Beach, Florida 32963
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to insist
on strict compliance with any provision of, or to assert any right under, this
Agreement (including the right of the Employee to terminate his Employment for
Good Reason or by reason of a Change of Control pursuant to Section 5(B) (i))
shall not be deemed a waiver of that provision or of any other provision of or
right under this Agreement.
21
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ANY
PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents with
respect to any action, suit or other legal proceeding pertaining directly to
this Agreement or to the interpretation or enforcement of any of Employee's
right hereunder to service of process in the State of Texas and hereby waives
any right to contest or oppose receipt of such service of process. The Company
irrevocably (i) agrees that any such action, suit or other legal proceeding may
be brought in the courts of such state or in the courts of the United States
sitting in such state, (ii) consents to the jurisdiction of each such court in
any such action, suit or other legal proceeding and (iii) waives any objection
it may have to the laying of venue of any such action, suit or other legal
proceeding in any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed to the
Employee hereunder are not so paid or reimbursed at the times provided herein
(including amounts required
22
to be paid by the Company pursuant to Sections 6 and 10, those amounts shall
accrue interest compounded daily at the annual percentage rate which is three
percentage points (3%) above the interest rate announced by Texas Commerce Bank
National Association, Houston, Texas (or its successor) from time to time, as
its Base Rate (or prime lending rate), from the date those amounts were required
to have been paid or reimbursed to the Employee until those amounts are finally
and fully paid or reimbursed; provided, however, that in no event shall the
amount of interest contracted for, charged or received hereunder exceed the
maximum non-usurious amount of interest allowed by applicable law.
L. PUBLICITY. The Company agrees with the Employee that, except to
the extent required by law or legal process (including the Exchange Act and the
Securities Act), it will not make or publish, without the prior written consent
of the Employee, any written or oral statement concerning the terms of the
Employee's employment relationship with the Company and will not, if a Notice of
Termination is given by either the Company or the Employee for any reason,
publish or cause to be published any statement concerning the Employee,
including his work-related performance or the reasons or basis for the giving of
that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all Federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
N. ENTIRE AGREEMENT. The Company and the Employee agree that this
Agreement supersedes all prior written and oral agreements between them with
respect to the employment of the Employee by the Company, but has no effect on
any Compensation Plan in which the Employee was participating prior to the
Effective Date or on the Agreement and Plan of Reorganization dated as of June
13, 1996 to which the Company and the Employee are parties.
O. EFFECTIVE DATE. This Agreement shall be effective on the date on
which the Effective Time occurs (the "Effective Date"), and the term "Effective
Time" has the meaning specified in the Agreement and Plan of Reorganization
dated as of June 13, 1996 among the Company, the Employee and the other parties
thereto, including Climatic Corporation (the "Merger Agreement"). If the Merger
Agreement is terminated prior to the Effective Time, this Agreement will be
deemed for all purposes to have been abandoned and of no force or effect as of
and after the time of that termination.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES; RESOLUTION OF DISPUTES
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into this
Agreement the Company intends that the Employee receive without reduction or
delay all the intended benefits of this Agreement and that those benefits, and
the terms and conditions hereof, be construed in a manner most favorable to the
Employee; the Company, therefore, agrees that it will strive
23
expeditiously and in good faith to construe and resolve in the Employee's favor
and to his benefit any ambiguities or uncertainties that may be created by the
express language hereof. If, however, at any time during the term hereof or
afterwards: (i) there should exist a dispute or conflict between the Employee
and the Company or another Person as to the validity, interpretation or
application of any term or condition hereof, or as to the Employee's entitlement
to any benefit intended to be bestowed hereby, which is not resolved to the
satisfaction of the Employee, (ii) the Employee must (A) defend the validity of
this Agreement, (B) contest any determination by the Company concerning the
amounts payable (or reimbursable) by the Company to the Employee or (C)
determine in any tax year of the Employee the tax consequences to the Employee
of any amounts payable (or reimbursable) under Section 4(C) or 4(B)(iii), or
(iii) the Employee must prepare responses to an Internal Revenue Service ("IRS")
audit of, or otherwise defend, his personal income tax return for any year the
subject of any such audit, or an adverse determination, administrative
proceedings or civil litigation arising therefrom that is occasioned by or
related to an audit by the IRS of the Company's income tax returns, then the
Company hereby unconditionally agrees: (a) on written demand of the Company by
the Employee, to provide sums sufficient to advance and pay on a current basis
(either by paying directly or by reimbursing the Employee) not less than thirty
(30) days after a written request therefor is submitted by the Employee, the
Employee's out of pocket costs and expenses (including attorney's fees, expenses
of investigation, travel, lodging, copying, delivery services and disbursements
for the fees and expenses of experts, etc.) incurred by the Employee in
connection with any such matter; (b) the Employee shall be entitled, upon
application to any court of competent jurisdiction, to the entry of a mandatory
injunction without the necessity of posting any bond with respect thereto which
compels the Company to pay or advance such costs and expenses on a current
basis; and (c) the company's obligations under this Section 10(A) will not be
affected if the Employee is not the prevailing party in the final resolution of
any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred to in
Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to agree in writing to an acceptable ADR process within
that ten (10) business day period, then the parties shall submit to a mandatory
ADR process by making joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the selection of an ADR
process for the parties. The parties shall diligently in good faith participate
in the ADR process chosen by that judge. If the parties are unable to resolve
their dispute after diligent good faith participation in the ADR process, then
either party shall be free to initiate such litigation as that party deems
appropriate under the circumstances. Under no circumstances shall the Employee
be obligated to pay for the cost of any ADR process or to pay or reimburse the
Company for any attorneys' fees, costs or other expenses incurred by the Company
in connection with any process undertaken by the Employee to resolve disputes
under this
24
Agreement. As used in this Section 10, the term "Employee" includes, if the
Employee has died or become incompetent as a matter of applicable law, the
Employee's legal representative acting in his capacity as such under applicable
law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the maximum
extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
Howard W. Hauser
Employee's Permanent Address:
185 Ocean Way
Vero Beach, FL 32963
25
Exhibit 10.10
Gorden H. Timmons
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
June 13, 1996 to become effective as of the Effective Date (as herein defined)
by and between AMERICAN RESIDENTIAL SERVICES, INC., a Delaware corporation (the
"Company"), and GORDEN H. TIMMONS (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company as a senior executive
performing at the highest levels of leadership and stewardship, without
distraction or concern over minimum compensation, benefits or tenure, to develop
and implement the Company's initial development plan and thereafter managing the
Company's future growth and development and maximizing the returns to the
Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms have the
meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together with all
Affiliates and Associates of such Person, is or are the Beneficial Owner
of twenty-five percent (25%) or more of the shares of Common Stock then
outstanding, but does not include any Exempt Person; provided, however,
that a Person shall not be or become an Acquiring Person if such Person,
together with its Affiliates and Associates, shall become the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding solely as a result of a reduction in the number of shares
of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial
Owner of additional shares of Common Stock constituting one percent (1%)
or more of the then outstanding shares of Common Stock or any other Person
(or Persons) who is (or collectively are) the Beneficial Owner of shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock shall become an Affiliate or Associate
of such Person, unless, in either such case, such Person, together with
all Affiliates and Associates of such Person, is not then the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from the
Effective Date to and including the first to occur of (a) the Part-time
Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange Act
Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any Compensation Year
means the sum of the salary and bonus earned by the Employee during that
Compensation Year, including all amounts deferred at the election of the
Employee pursuant to a Compensation Plan intended to qualify as a plan
under Section 401(k) of the Code or otherwise. If salary or bonus is paid
in whole or in part in property other than cash (such as Common Stock) the
amount so paid shall be the fair market value thereof on the date of
payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which that Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the
Beneficial Owner of 10% or more of any class of its equity securities, (b)
any trust or other estate in which that Person has a substantial
beneficial interest or for or of which that Person serves as trustee or in
a similar fiduciary capacity and (c) any relative or spouse of that
Person, or any relative of that spouse, who has the same home as that
Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as of the
Part-time Employment Effective Date, the average of (a) the Annual Cash
Compensation earned by the Employee in each of the two (2) Compensation
Years next preceding that date or, if less than two (2) Compensation Years
have occurred prior to that date and since the Effective Date, (b) the
Annual Cash Compensation in each whole Compensation Year, if any, and,
restated on an annualized basis, the Annual Cash Compensation in each
partial Compensation Year (up to a maximum of two (2) partial Compensation
Years) next preceding the Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment Effective
Date, the guaranteed minimum annual salary payable by the Company to the
Employee pursuant to Section 4(A); and (b) on and after the Part-time
Employment Effective Date, the guaranteed minimum annual salary payable by
the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" (as
determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote or
dispose of, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (a) as a
result of an agreement, arrangement or understanding to vote that
security if that agreement, arrangement or understanding: (1) arises
solely from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the
Exchange Act; and (2) is not then reportable by such Person on
Exchange Act Schedule 13D (or any comparable or successor report);
(b) which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to
acquire (whether that right or obligation is exercisable or
effective immediately or only after the passage of time or the
occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or on the exercise of
conversion rights, exchange rights, other rights, warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer made by
that Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or exchange; or
(c) which are beneficially owned, directly or indirectly, by
(1) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to subparagraph (a) of this
definition) or disposing of any voting securities of the Company or
(2) any group (as that term is used in Exchange Act Rule 13d-5(b))
of which that specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of that
acquisition. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or
demand relating to corporate action (including, without limitation,
calling a stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of
such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the Employee's
Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's Employment
means: (a) the Employee's final conviction of a felony crime that enriched
the Employee at the expense of the Company; or (b) the Employee's
deliberate and intentional continuing failure to substantially perform his
duties and responsibilities hereunder (except by reason of the Employee's
incapacity due to physical or mental illness or injury) for a period of
forty-five (45) days after the Required Board Majority has delivered to
the Employee a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Employee has not substantially performed his duties
and responsibilities hereunder (such period being the "Grace Period");
provided, that for purposes of this clause (b), the Company shall not have
Cause to terminate the Employee's Employment unless (1) at a meeting of
the Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice and
at which the Employee was afforded the opportunity to be represented by
counsel, appear and be heard, the Required Board Majority shall adopt a
written resolution which (A) sets forth the Required Board Majority's
determination that the failure of the Employee to substantially perform
his duties and responsibilities hereunder has (except by reason of his
incapacity due to physical or mental illness or injury) continued past the
Grace Period and (B) specifically identifies the bases for that
determination and (2) the Company, at the written direction of the
Required Board Majority, shall deliver to the Employee a Notice of
Termination for Cause to which a copy of that resolution, certified as
being true and correct by the secretary or any assistant secretary of the
Company, is attached. Cause of the type referred to in clause (a) of the
preceding sentence is a "Type I Cause," while Cause of the type referred
to in clause (b) of the preceding sentence is a "Type II Cause." For
purposes of determining whether a Type II Cause has occurred, no act or
failure to act on the part of the Employee shall be considered "deliberate
and intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the following
events that occurs after the IPO Closing Date: (a) any Person becomes an
Acquiring Person; (b) at any time the then Continuing Directors cease to
constitute a majority of the members of the Board; (c) a merger of the
Company with or into, or a sale by the Company of its properties and
assets substantially as an entirety to, another Person occurs and,
immediately after that occurrence, any Person, other than an Exempt
Person, together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of twenty-five percent (25%) or more of the total
voting power of the then outstanding Voting Shares of the Person surviving
that transaction (in the case or a merger or consolidation) or the Person
acquiring those properties and assets substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal to
three (3) times the Employee's then highest Base Salary during the term of
this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a Delaware
corporation, and (b) any Person that assumes the obligations of "the
Company" hereunder, by operation of law, pursuant to Section 9(D)(iii) or
otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or any
subsidiary of the Company contributes, on behalf of any Executive Officer
or any member of the family of any Executive Officer, (a) including (i)
any "employee pension benefit plan" (as defined in Section 3(2) of ERISA)
or other "employee benefit plan" (as defined in Section 3(3) of ERISA),
(ii) any other retirement and savings plan, including any supplemental
benefit arrangement relating to any plan intended to be qualified under
Section 401(a) of the Code or whose benefits are limited by the Code or
ERISA, (iii) any "employee welfare plan" (as defined in Section 3(1) of
ERISA), (iv) any arrangement, plan, policy, practice or program providing
for severance pay, deferred compensation or insurance benefit, (v) any
Incentive Plan and (vi) any arrangement, plan, policy, practice or program
(A) authorizing and providing for the payment or reimbursement of expenses
attributable to first-class air travel and first-class hotel occupancy
while on travel or (B) providing for the payment of business luncheon and
country club dues, long-distance charges, mobile phone monthly air time or
other recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it provides
for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to which
the Board has delegated duties respecting the compensation of Executive
Officers and the administration of Incentive Plans, if any, intended to
qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company or any
subsidiary of the Company, 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 sale programs, customer lists, records of
customer service requirements, capital expenditure projects, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any governmental authority and all
other confidential, nonpublic concepts, methods of
5
doing business, ideas, materials or information prepared or performed for,
by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All Urban
Consumers-- All Items Index for Houston, Texas (or any substantially
similar index published for the same area), as published by the United
States Department of Labor, Bureau of Labor Statistics (or its successor)
for that period.
"CONTINUING DIRECTOR" means at any time any individual who then (a)
is a member of the Board and was a member of the Board as of the IPO
Closing Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved by
a majority of the then Continuing Directors (acting separately or as a
part of any action taken by the Board or any committee thereof) and (b) is
not an Acquiring Person, an Affiliate or Associate of an Acquiring Person
or a nominee or representative of an Acquiring Person or of any such
Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been determined
(which determination shall be final and binding on all Persons, absent
manifest error), as a result of a physical or mental illness or personal
injury he has incurred (including illness or injury resulting from any
substance abuse), by a Qualified Physician (who may be the doctor treating
or otherwise acting as the Employee's doctor in connection with the
illness or injury in question) selected by the Employee with the consent
of the Company, or by the Company at its expense and with the consent of
the Employee (which consent shall not be unreasonably withheld in either
case), to be unable to perform, at the time of that determination and, in
all reasonable medical likelihood, indefinitely thereafter, the normal
duties then most recently assigned, under and in accordance with the terms
hereof, to the Employee while on Active Status; provided that, the
determination whether the Employee has incurred a Disability shall be made
by a majority of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be selected by the
Company and (c) the remaining one (1) of whom shall be selected by the
Qualified Physicians selected by the Employee and the Company pursuant to
clauses (a) and (b) of this proviso and the fees and expenses of whom will
be shared and paid in equal amounts by the Employee and the Company if:
(1)(A) the Company has reasonably withheld its consent to the Qualified
Physician, if any, selected by the Employee or (B) the Employee has
reasonably withheld his consent to the Qualified Physician, if any,
selected by the Company and (2) the Qualified Physicians selected by the
Employee and the Company disagree as to whether the Employee has incurred
a Disability. For purposes of this definition, if the Employee is unable
by reason of illness or injury to give an informed consent to the
performance of the treatment of that illness or injury, a Qualified
Physician selected by any Person who is authorized by applicable law to
give that consent will be deemed to have been selected by the Employee.
"EFFECTIVE DATE" has the meaning ascribed to that term in Section
9(O).
6
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EMPLOYMENT" means the salaried employment of the Employee by the
Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board, the
chief executive officer, the chief operating officer, the chief financial
officer, the president, any executive or senior vice president or the
general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of
the Company and (2) any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees
of the Company or any subsidiary of the Company and (b) the Employee, any
Affiliate or Associate of the Employee or any group (as that term is used
in Exchange Act Rule 13d-5(b)) of which the Employee or any Affiliate or
Associate of the Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's benefits
under, any such Compensation Plan, unless (A) in the case of either
subclause (1) or (2) of this clause, there is substituted a comparable
Compensation Plan that is at least economically equivalent, in terms of
the benefit offered to the Employee, to the Compensation Plan being ended
or in which the Employee's participation is being adversely affected or
the Employee's benefits are being materially reduced or (B) in the case of
that subclause (1), the failure, or in the case of that subclause (2), the
taking of action, adversely affects Executive Officers generally; or (c)
the assignment to the Employee of duties inconsistent in any material
respect with the Employee's then current positions (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by the Company which results in a
material diminution in those positions, authority, duties or
responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan, policy,
practice or program established, maintained or sponsored by the Company or
any subsidiary of the Company, or to which the Company or any subsidiary
of the Company contributes, on behalf of any Executive Officer and which
provides for incentive, bonus or other performance-based awards of cash,
securities or the phantom equivalent of securities, including any stock
option, stock appreciation right and restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more of
Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed under the
Securities Act and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that act and
the shares registered by that registration statement are issued and sold
by the Company (otherwise than pursuant to the exercise of any
over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as the
case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a written
notice that: (a) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Employee's Employment, and if the Termination Date is other than the
date of receipt of the notice, (b) sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at that
time who is not then an employee of the Company or any subsidiary of the
Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the Company
elects pursuant to any applicable provision hereof to terminate the
Employee's Employment other than for Cause or (b) if the Employee elects
pursuant to the applicable provision hereof to terminate his Employment
for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which begins
on the Part-time Employment Effective Date and ends on the first to occur
of (a) the third (3rd) anniversary of that Part-time Employment Effective
Date, (b) the termination by the Company of the Employee's Employment for
Type I Cause or (c) the death or Retirement of the Employee.
"PERSON" means any natural person, 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, joint venture, estate, trust, union
or employee organization or governmental authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a) holding
an M.D. degree from a medical school located in the United States, (b)
specializing and board-certified in the
8
treatment of the injury or illness that has or may have caused that
Disability and (c) having admission privileges to one or more hospitals
located in Texas or in the state in which the Employee then is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the case
may be, who or which terminates the Employee's Employment by means of a
Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is terminated
by reason of the Employee's giving a Notice of Termination following a
Change of Control pursuant to Section 5(B)(i)(b), the first date on which
the Company pays to the Employee in full the amounts owed to the Employee
pursuant to Section 5(B)(iii); (c) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
without Good Reason and other than for Disability pursuant to Section
5(B)(i)(c), the elapse of the thirtieth (30th) day after the Company
receives that notice; (d) if the Employee's Employment is terminated by
the Company at any time for Type I Cause or, prior to the Part-time
Employment Effective Date, at any time for Type II Cause, the date the
Employee receives the Company's Notice of Termination for Cause; and (e)
if the Employee's Employment is terminated for any other reason, at the
expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause (a) of
the first sentence of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause (b) of
the first sentence of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation, stock of
that corporation of the class or classes having general voting power under
ordinary circumstances to elect a majority of that corporation's board of
directors; and (b) in the case of any other entity, equity interests of
the class or classes having general voting power under ordinary
circumstances equivalent to the Voting Shares of a corporation.
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise specified
herein, all references herein to any statute defined or referred to herein,
including the Code, ERISA and the
9
Exchange Act, shall be deemed references to that statute or any successor
statute, as the same may have been or may be amended or supplemented from time
to time, and any rules or regulations promulgated thereunder.
(ii) 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 word "Section" refers to a
Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number includes
the plural and vice versa, and a reference to one gender includes each other
gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set forth,
and beginning as of the Effective Date, the Company will employ the Employee as
its Chief Operating Officer and the Employee will serve in the Company's employ
in that position. The Employee shall perform such duties, and have such powers,
authority, functions, duties and responsibilities for the Company and
corporations affiliated with the Company as are commensurate and consistent with
his employment as the Company's Chief Operating Officer. The Employee also shall
have such additional powers, authority, functions, duties and responsibilities
as may be assigned to him by the Board; provided that, without the Employee's
written consent, such additional powers, authority, functions, duties and
responsibilities shall not be inconsistent or interfere with, or detract from,
those herein vested in, or otherwise then being performed for the Company by,
the Employee.
B. The Employee shall not, at any time during his Employment, engage
in any other activities unless those activities do not interfere materially with
the Employee's duties and responsibilities for the Company at that time, except
that the Employee shall be entitled, subject to the provisions of Section 7, (a)
to continue with such activities as the Employee has carried on prior to the
Effective Date, including making and managing his personal investments and
participating in other business or civic activities and (b) to serve on
corporate or other business, civic or charitable boards or committees and trade
association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the Employee's
Employment shall be for a continually renewing term of three (3) years
commencing on the Effective Date and renewing each day thereafter for an
additional day without any further action by either the Company or the Employee,
it being the intention of the parties that there shall be continuously
10
a remaining term of three (3) years' duration of the Employee's Employment 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 5. When the
Termination Date shall have occurred and the Company shall have paid to the
Employee all the applicable amounts Section 5 provides the Company shall pay as
a result of the termination of the Employee's Employment, including all amounts
accruing during the Part-time Employment Period, if any, this Agreement will
terminate and have no further force or effect, except that Sections 4(c), 8, 9,
10 and 11 shall survive that termination indefinitely and Section 7 shall
survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY.A Base Salary shall be payable to the Employee by the
Company as a guaranteed minimum annual amount hereunder for each Compensation
Year during the period from the Effective Date to the first to occur of the
Part-time Employment Effective Date or the Termination Date . That Base Salary
shall be payable in the intervals consistent with the Company's normal payroll
schedules (but in no event less infrequently than semi-monthly), shall be
payable initially at the annual rate of $150,000 and shall be increased (but not
decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the Effective
Date, by the same percentage increase (if any) in the CPI for the twelve
(12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the Effective
Date, by such additional amount as shall be determined in the sole
discretion of the Compensation Committee, but only in such form and to
such extent as the Compensation Committee may from time to time approve,
as evidenced by the written minutes or records of the Compensation
Committee and its written notices of such determinations or approvals to
the Employee; and
(iii) if the Employee relocates from a state without a personal
income tax at the time of his relocation to a state having a personal
income tax, or if the Employee resides in a state without a personal
income tax on the date hereof which subsequently adopts a personal income
tax, then, in either case, the Base Salary in effect at the time of such
relocation or adoption, as applicable, shall immediately be increased by
the amount equal to the Base Salary immediately prior to this increase
multiplied by seventy percent (70%) of the highest personal income tax
rate of such state; for example, if the Employee relocates from a state
without a personal income tax to a state having a personal income tax and
the highest rate of that tax is six percent (6%) when the Base Salary is
$200,000, then the Base Salary will be increased by $8,400 (computed at
70% x 6% x $200,000).
Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
11
B. OTHER COMPENSATION. The Employee shall be entitled to participate
in all Compensation Plans from time to time in effect while he remains on Active
Status, regardless of whether the Employee is an Executive Officer. All awards
to the Employee under all Incentive Plans shall take into account the Employee's
positions with and duties and responsibilities to the Company and its
subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary, other
incentive or supplemental compensation, benefits, allowances, awards, payments,
reimbursements or other perquisites, or any other payment in the nature of
compensation, singly, in any combination or in the aggregate, that are provided
for hereunder to be paid to or for the benefit of the Employee be determined or
alleged to be subject to an excise or similar purpose tax pursuant to Section
4999 of the Code, or any successor or other comparable federal, state or local
tax law by reason of being a "parachute payment" (within the meaning of Section
280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee reasonably determines (based upon the opinion of
his tax counsel) that such contest is inconsistent with the overall tax
interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND DEATH
12
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company shall
be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Effective Date for any
Business Reason. The Company's termination of the Employee's Employment for
Cause will be effective on the date the Company delivers a Notice of Termination
for Cause to the Employee pursuant to this Section 5(A)(i)(together, in the case
of a termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for Cause,
the Company promptly thereafter, and in any event within five (5) business days
thereafter, shall pay the Employee his Base Salary to and including the
Termination Date and the amount of all compensation previously deferred by the
Employee (together with any accrued interest or earnings thereon), in each case
to the extent not theretofore paid, and, when that payment is made, the Company
shall, notwithstanding Section 3, have no further or other obligations hereunder
to the Employee.
(iii) If the Company terminates the Employee's Employment for a
Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee shall
be entitled to terminate his Employment (a) for a Good Reason at any time within
one hundred eighty (180) days after the facts or circumstances constituting that
Good Reason first exist and are known to the Employee, (b) by reason of a Change
of Control at any time within three hundred sixty-five (365) days after that
Change of Control occurs (provided, however, that the Employee shall not be
entitled to terminate his Employment by reason of that Change of Control if it
occurs (1) during the thirty (30) day period following the Company's receipt of
the Employee's Notice of Termination without Good Reason and other than for
Disability pursuant to this Section 5(B)(i), (2) after (A) the receipt by the
Nonterminating Party of the Terminating Party's Notice of Termination pursuant
to Section 5(C) or (B) the Employee's receipt of the Company's Notice of
Termination for a Business Reason (other than in connection with that Change of
Control) pursuant to Section 5(A) or (3) more than three hundred sixty-five
(365) days after the Company's receipt of the Employee's Notice of Termination
for Good Reason pursuant to this Section 5(B)(i)) or (c) without Good Reason and
other than for Disability at any time. The Employee's termination of his
Employment for Good Reason will be effective on the third (3rd) anniversary of
the date the Employee delivers a Notice of Termination for Good Reason to the
Company pursuant to this Section 5(B)(i). The Employee's termination of his
13
Employment by reason of a Change of Control will be effective on the first date
on which the Change of Control Payment shall have been paid in full to the
Employee. The Employee's termination of his Employment without Good Reason and
other than for Disability will be effective on the thirtieth (30th) day
following the Employee's delivery of a Notice of Termination without Good Reason
and other than for Disability pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good Reason, the
respective rights and obligations of the Company and the Employee during the
Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good Reason
and other than for Disability, the Company shall pay to the Employee, in a cash
lump sum within five (5) business days after the Termination Date, the amount
equal to the sum of (a) the portion of the Base Salary to and including the
Termination Date which has not yet been paid, (b) all compensation previously
deferred by the Employee (together with any accrued interest and earnings
thereon) which has not yet been paid, (c) any accrued but unpaid vacation pay
and (d) the amount equal to fifty percent (50%) of the Base Salary being paid
for the Compensation Year in which the Company receives the Employee's Notice of
Termination without Good Reason and other than for Disability; provided,
however, that if the Employee terminates his Employment without Good Reason and
other than for Disability within six (6) months of the theretofore scheduled
final day of the Part-time Employment Period, the amount payable pursuant to
clause (d) of this sentence shall be the amount determined pursuant to that
clause multiplied by a fraction the numerator of which is the number of days
from and excluding the date the Company receives the Notice of Termination to
and including that final day and the denominator of which is one hundred
eighty-two (182). For purposes of this Section 5(B)(iv), if the anniversary of
the Effective Date in the Compensation Year in which the Company receives the
Notice of Termination without Good Reason and other than for Disability has not
occurred on or prior to the date of that receipt, the Base Salary for that
Compensation Year will be calculated on the assumption that no increase in the
amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs any
Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective
14
rights and obligations of the Company and the Employee during the Part-time
Employment Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's Employment
shall terminate automatically at the time of his death. If the Employee's
Employment is terminated by reason of the Employee's death, the Company shall
pay to the Person the Employee has designated in a written notice delivered to
the Company as his beneficiary entitled to such payment, if any, or to the
Employee's estate, as applicable, in a cash lump sum within thirty (30) days
after the Termination Date, the amount equal to the sum of (i) the portion of
the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of the Base Salary being paid for the Compensation Year in
which he dies multiplied by three (3) or (b) if the Employee dies during the
Part-time Employment Period, the product of one-twelfth (1/12th) of the Base
Salary being paid for the Compensation Year in which the Employee dies
multiplied by the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD. (i) The
Company shall pay the Employee a Base Salary, in the intervals consistent with
the Company's normal payroll schedules (but in no event less frequently than
semi-monthly) from the Part-time Employment Effective Date to and including the
Termination Date in the amounts determined from time to time as follows:
Effective as of the Part-time Employment Effective Date, the Base Salary payable
by the Company to the Employee for the period from and including that date to
and excluding the third (3rd) anniversary of that date shall be as follows:
(a) if the Part-time Employment Effective Date occurs as a result of
the receipt by the Nonterminating Party of a Notice of Termination for a
Business Reason pursuant to Section 5(A) or a Notice of Termination for
Good Reason pursuant to Section 5(B)(i), the amount equal to the Average
Annual Cash Compensation of the Employee determined as of the Part-time
Employment Effective Date; and (b) if the Part-time Employment Effective
Date occurs as a result of the receipt by the Nonterminating Party of a
Notice of Termination for Disability pursuant to Section 5(C), the amount
equal to the amount by which (1) seventy-five percent (75%) of the Average
Annual Cash Compensation of the Employee determined as of the Part-time
Employment Effective Date exceeds (2) the aggregate amount of periodic
payments the Employee receives during the twelve (12)
15
months beginning on that date under Compensation Plans then in effect and
providing for the payment to the Employee solely as a result or on account
of disability; and
(b) on the first and each subsequent anniversary of the Part-time
Employment Effective Date, the Base Salary payable pursuant to this
Section 5(E) shall be increased (but not decreased) by the same percentage
increase (if any) in the CPI for the twelve (12) month period immediately
preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years of
service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee shall not
be (A) prevented from accepting other employment or engaging in (and devoting
substantially all his time to) other business activities or (B) required to
perform any regular duties for the Company (except to provide such services
consistent with the Employee's educational background, experience and prior
positions with the Company as may be acceptable to the Employee) or to seek or
accept additional employment with any other Person. If the Employee, at his
discretion, shall accept any such additional employment or engage in any such
other business activity there shall be no offset, reduction or effect upon any
rights, benefits or payments to which the Employee is entitled pursuant to this
Agreement. Furthermore, the Employee shall have no obligation to account for,
remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within 35 miles of
the Employee's principal residence, in any case reasonably acceptable to the
Employee, alternate but comparable office space, furnishings,
16
facilities, reserved parking, supplies, services, equipment, secretarial and
administrative assistance that are in each case at least commensurate with the
size and quality of that which were provided to the Employee during the
Compensation Year immediately preceding the Part-time Employment Effective Date
pursuant to Section 6(C), but in no event less than are being furnished or
provided on the date hereof. The Company and Employee may mutually agree upon an
equivalent monthly cash allowance in lieu of the Employee being provided all or
any part of these items.
(v) The Employee shall remain entitled to the benefits of Section
4(C).
F. RETURN OF PROPERTY. On termination of the Employee's Employment,
however brought about, the Employee (or his representatives) shall promptly
deliver and return to the Company all the Company's property that is in the
possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this Agreement to
the contrary: (i) except in the case of a termination of the Employee's
Employment for Cause, all stock options previously granted to the Employee under
Incentive Plans that have not been exercised and are outstanding as of the time
immediately prior to the Termination Date shall, notwithstanding any contrary
provision of any applicable Incentive Plan, remain outstanding (and continue to
become exercisable pursuant to their respective terms) until exercised or the
expiration of their term, whichever is earlier; and (ii) in the case of a
termination of the Employee's Employment for Cause, all stock options previously
granted to Employee under Incentive Plans that have not been exercised and are
outstanding as of the time immediately prior to the Termination Date shall,
notwithstanding any contrary provision of any applicable Incentive Plan, remain
outstanding and continue to be exercisable until exercised or the date that is
ten (10) days after the Termination Date, whichever is earlier. No stock option
previously granted to the Employee under any Incentive Plan shall,
notwithstanding any contrary provision of that Incentive Plan, expire or fail to
become exercisable or, if exercisable, cease to be exercisable by reason of
either (i) the occurrence of the Employee's Part-time Employment Effective Date
or (ii) the Employee's service during the Employee's Part-time Employment Period
being less than full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to not
less than four (4) weeks of annual vacation and all legal holidays during which
times his applicable compensation shall be paid in full.
B. BUSINESS EXPENSES. The Employee is authorized to incur, and will
be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports,
17
receipts or similar documentation of those expenses. The Company shall either
pay directly or promptly reimburse the Employee for such expenses not more than
twenty (20) days after the submission to the Company by the Employee from time
to time of an itemized accounting of such expenditures for which direct payment
or reimbursement is sought. Unpaid reimbursements after such 20-day period shall
accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be provided
by the Company with office space, furnishings, and facilities, reserved parking,
secretarial and administrative assistance, supplies and other support equipment
(including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to move
his principal place of residence from South Carolina or to perform regular
duties that could reasonably be expected to require either such move against his
wish or to spend amounts of time each week outside South Carolina which are
unreasonable in relation to the duties and responsibilities of the Employee
hereunder, and the Company agrees that, if it requests the Employee to make such
a move and the Employee declines that request, (i) that declination shall not
constitute any basis for a determination that Type II Cause exists and (ii) no
animosity or prejudice will be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly competitive
businesses in which the Company is engaged, personal contact is of primary
importance in securing new customers and in retaining the accounts and goodwill
of present customers and protecting the business of the Company. The Employee,
therefore, agrees that during the term of his Employment and for a period of one
(1) year after the Termination Date, he will not, within fifty (50) miles of the
geographic location in which the he has devoted substantial attention at such
location to the material business interests of the Company: (i) accept
employment or render service to any Person that is engaged in a business
directly competitive with the business then engaged in by the Company or (ii)
enter into or take part in or lend his name, counsel or assistance to any
business, either as proprietor, principal, investor, partner, director, officer,
employee, consultant, advisor, agent, independent contractor, or in any other
capacity whatsoever, for any purpose that would be competitive with the business
of the Company.
B. If the provisions of this Section 7 are violated in any material
respect, the Company shall be entitled, upon application to any court of proper
jurisdiction, to a temporary restraining order or preliminary injunction
(without the necessity of posting any bond with respect thereto) to restrain and
enjoin the Employee from that violation. If the provisions of this Section 7
should ever be deemed to exceed the time, geographic or occupational limitations
permitted by the applicable law, the Employee and the Company agree that such
provisions shall be and are hereby reformed to the maximum time, geographic or
occupational limitations permitted by the applicable law.
18
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue to
have access to various Confidential Information. The Employee agrees, therefore,
that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and all
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by the Employee solely or
jointly with any other Person or Persons during the period of his Employment and
which pertain primarily to the material business activities of the Company, and
the Employee hereby assigns and agrees to assign all his interests therein to
the Company or to its nominee; whenever requested to do so by the Company, the
Employee shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters of Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein. These obligations shall (i) continue
beyond the Termination Date with respect to inventions, improvements, and
valuable discoveries, whether patentable or not, conceived, made or acquired by
the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to
19
modify to the Employee's detriment, reduce or eliminate any compensation,
reimbursement, payment, allowance or other benefit to the Employee intended by
the Company and Employee in entering into this Agreement, the Company shall,
within thirty (30) days after the date of such finding or holding, negotiate and
expeditiously enter into an agreement with the Employee which contains
alternative provisions (reasonably acceptable to the Employee) that will restore
to the Employee (to the extent lawfully permissible) substantially the same
economic, substantive and income tax benefits and legal rights the Employee
would have enjoyed had such provision been upheld as legal, valid and
enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or limit
the Employee's continuing or future participation in any Compensation Plan or,
subject to Section 9(N), limit or otherwise affect such rights as the Employee
may have under any other contract or agreement with the Company. Vested benefits
and other amounts to which the Employee is or becomes entitled to receive under
any Compensation Plan on or after the Termination Date shall be payable in
accordance with that Compensation Plan, except as expressly modified hereby.
C. FULL SETTLEMENT. The Company's obligations to make the payments
provided for in, and otherwise to perform its undertakings in, this Agreement
shall not be affected by any right of set-off, counterclaim, recoupment, defense
or other action, claim or right the Company may have against the Employee or
others. In no event shall the Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any provision hereof, and those amounts shall not be reduced,
regardless of whether the Employee obtains other employment or becomes
self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee and,
without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns. If the Employee is not an
Executive Officer, but is an officer of a subsidiary of the Company, the Company
shall be entitled to assign all its obligations hereunder to that subsidiary and
treat the Employee as an employee of that subsidiary for all purposes, but the
Company shall remain liable for the full, timely performance of all the
obligations so assigned as if the assignment had not been made.
(iii) The Company shall require any successor (direct or indirect
and whether by purchase, merger, consolidation, share exchange or otherwise) to
the business, properties and assets of the Company substantially as an entirety
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would have been required to perform it had no
such succession taken place.
20
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Gorden H. Timmons
840 Middle Street
Sullivans Island, South Carolina 29482
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to insist
on strict compliance with any provision of, or to assert any right under, this
Agreement (including the right of the Employee to terminate his Employment for
Good Reason or by reason of a Change of Control pursuant to Section 5(B) (i))
shall not be deemed a waiver of that provision or of any other provision of or
right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ANY
PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents with
respect to any action, suit or other legal proceeding pertaining directly to
this Agreement or to the interpretation or enforcement of any of Employee's
right hereunder to service of process in the State of Texas and hereby waives
any right to contest or oppose receipt of such service of process. The Company
irrevocably (i) agrees that any such action, suit or other legal proceeding may
be brought in the courts of such state or in the courts of the United States
sitting in such state, (ii) consents to the jurisdiction of each such court in
any such action, suit or other legal
HOU03A:364782.4
21
<PAGE>
proceeding and (iii) waives any objection it may have to the laying of venue of
any such action, suit or other legal proceeding in any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed to the
Employee hereunder are not so paid or reimbursed at the times provided herein
(including amounts required to be paid by the Company pursuant to Sections 6 and
10, those amounts shall accrue interest compounded daily at the annual
percentage rate which is three percentage points (3%) above the interest rate
announced by Texas Commerce Bank National Association, Houston, Texas (or its
successor) from time to time, as its Base Rate (or prime lending rate), from the
date those amounts were required to have been paid or reimbursed to the Employee
until those amounts are finally and fully paid or reimbursed; provided, however,
that in no event shall the amount of interest contracted for, charged or
received hereunder exceed the maximum non-usurious amount of interest allowed by
applicable law.
L. PUBLICITY. The Company agrees with the Employee that, except to
the extent required by law or legal process (including the Exchange Act and the
Securities Act), it will not make or publish, without the prior written consent
of the Employee, any written or oral statement concerning the terms of the
Employee's employment relationship with the Company and will not, if a Notice of
Termination is given by either the Company or the Employee for any reason,
publish or cause to be published any statement concerning the Employee,
including his work-related performance or the reasons or basis for the giving of
that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all Federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
N. ENTIRE AGREEMENT. The Company and the Employee agree that this
Agreement supersedes all prior written and oral agreements between them with
respect to the employment of the Employee by the Company, but has no effect on
any Compensation Plan in which the Employee was participating prior to the
Effective Date or on the Agreement and Plan of Reorganization dated as of June
13, 1996 to which the Company and the Employee are parties.
O. EFFECTIVE DATE. This Agreement shall be effective on the date on
which the Effective Time occurs (the "Effective Date"), and the term "Effective
Time" has the meaning specified in the Agreement and Plan of Reorganization
dated as of June 13, 1996 among the Company, the Employee and the other parties
thereto, including Atlas Services, Inc. ("Merger Agreement"). If the Merger
Agreement is terminated prior to the Effective Time, this Agreement will be
deemed for all purposes to have been abandoned and of no force or effect as of
and after the time of that termination.
22
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES; RESOLUTION OF DISPUTES
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into this
Agreement the Company intends that the Employee receive without reduction or
delay all the intended benefits of this Agreement and that those benefits, and
the terms and conditions hereof, be construed in a manner most favorable to the
Employee; the Company, therefore, agrees that it will strive expeditiously and
in good faith to construe and resolve in the Employee's favor and to his benefit
any ambiguities or uncertainties that may be created by the express language
hereof. If, however, at any time during the term hereof or afterwards: (i) there
should exist a dispute or conflict between the Employee and the Company or
another Person as to the validity, interpretation or application of any term or
condition hereof, or as to the Employee's entitlement to any benefit intended to
be bestowed hereby, which is not resolved to the satisfaction of the Employee,
(ii) the Employee must (A) defend the validity of this Agreement, (B) contest
any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred to in
Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to
23
agree in writing to an acceptable ADR process within that ten (10) business day
period, then the parties shall submit to a mandatory ADR process by making joint
application to the then Chief United States Federal District Judge in the
Southern District of Texas for the selection of an ADR process for the parties.
The parties shall diligently in good faith participate in the ADR process chosen
by that judge. If the parties are unable to resolve their dispute after diligent
good faith participation in the ADR process, then either party shall be free to
initiate such litigation as that party deems appropriate under the
circumstances. Under no circumstances shall the Employee be obligated to pay for
the cost of any ADR process or to pay or reimburse the Company for any
attorneys' fees, costs or other expenses incurred by the Company in connection
with any process undertaken by the Employee to resolve disputes under this
Agreement. As used in this Section 10, the term "Employee" includes, if the
Employee has died or become incompetent as a matter of applicable law, the
Employee's legal representative acting in his capacity as such under applicable
law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the maximum
extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee as the
same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:____________________________________
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
____________________________________
Gorden H. Timmons
Employee's Permanent Address:
25
Exhibit 10.11
Gary Daymon
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into
as of June 13, 1996 to become effective as of the Effective Date (as herein
defined) by and between AMERICAN RESIDENTIAL SERVICES, INC., a Delaware
corporation (the "Company"), and GARY DAYMON (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to
provide the Employee with substantial incentives to serve the Company as a
senior executive performing at the highest levels of leadership and stewardship,
without distraction or concern over minimum compensation, benefits or tenure, to
develop and implement the Company's initial development plan and thereafter
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
mutual provisions contained herein, and for other good and valuable
consideration, the parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms
have the meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to
the repurchase of Common Stock by the Company, unless and until such
time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a) the
Part-time Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned by the
Employee during that Compensation Year, including all amounts deferred
at the election of the Employee pursuant to a Compensation Plan
intended to qualify as a plan under Section 401(k) of the Code or
otherwise. If salary or bonus is paid in whole or in part in property
other than cash (such as Common Stock) the amount so paid shall be the
fair market value thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Part-time Employment Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the two (2)
Compensation Years next preceding that date or, if less than two (2)
Compensation Years have occurred prior to that date and since the
Effective Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized basis, the
Annual Cash Compensation in each partial Compensation Year (up to a
maximum of two (2) partial Compensation Years) next preceding the
Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable by the
Company to the Employee pursuant to Section 4(A); and (b) on and after
the Part-time Employment Effective Date, the guaranteed minimum annual
salary payable by the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant
2
to Exchange Act Rule 13d-3) or otherwise has the right to vote
or dispose of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (a) as a result of an agreement,
arrangement or understanding to vote that security if that
agreement, arrangement or understanding: (1) arises solely
from a revocable proxy or consent given in response to a
public (that is, not including a solicitation exempted by
Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation
made pursuant to, and in accordance with, the applicable
provisions of the Exchange Act; and (2) is not then reportable
by such Person on Exchange Act Schedule 13D (or any comparable
or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of that acquisition. For purposes of this Agreement, "voting"
a security shall include voting, granting a proxy, acting by consent,
making a request or demand relating to corporate action (including,
without limitation, calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
"BOARD" means the entire Board of Directors of the Company.
3
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a felony crime
that enriched the Employee at the expense of the Company; or (b) the
Employee's deliberate and intentional continuing failure to
substantially perform his duties and responsibilities hereunder (except
by reason of the Employee's incapacity due to physical or mental
illness or injury) for a period of forty-five (45) days after the
Required Board Majority has delivered to the Employee a written demand
for substantial performance hereunder which specifically identifies the
bases for the Required Board Majority's determination that the Employee
has not substantially performed his duties and responsibilities
hereunder (such period being the "Grace Period"); provided, that for
purposes of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of the
Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice
and at which the Employee was afforded the opportunity to be
represented by counsel, appear and be heard, the Required Board
Majority shall adopt a written resolution which (A) sets forth the
Required Board Majority's determination that the failure of the
Employee to substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to physical or
mental illness or injury) continued past the Grace Period and (B)
specifically identifies the bases for that determination and (2) the
Company, at the written direction of the Required Board Majority, shall
deliver to the Employee a Notice of Termination for Cause to which a
copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. Cause
of the type referred to in clause (a) of the preceding sentence is a
"Type I Cause," while Cause of the type referred to in clause (b) of
the preceding sentence is a "Type II Cause." For purposes of
determining whether a Type II Cause has occurred, no act or failure to
act on the part of the Employee shall be considered "deliberate and
intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(c) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
4
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary during the
term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a
Delaware corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to Section
9(D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer or any member of the family of any Executive Officer, (a)
including (i) any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the Code or whose
benefits are limited by the Code or ERISA, (iii) any "employee welfare
plan" (as defined in Section 3(1) of ERISA), (iv) any arrangement,
plan, policy, practice or program providing for severance pay, deferred
compensation or insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing and
providing for the payment or reimbursement of expenses attributable to
first-class air travel and first-class hotel occupancy while on travel
or (B) providing for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air time or other
recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it
provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the compensation of
Executive Officers and the administration of Incentive Plans, if any,
intended to qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, 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 sale programs, customer lists,
records of customer service requirements, capital expenditure projects,
cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any governmental
authority and all other confidential, nonpublic concepts, methods of
5
doing business, ideas, materials or information prepared or performed
for, by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers-- All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as published
by the United States Department of Labor, Bureau of Labor Statistics
(or its successor) for that period.
"CONTINUING DIRECTOR" means at any time any individual who
then (a) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or
that first election, to the Board following that date was recommended
or approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on all
Persons, absent manifest error), as a result of a physical or mental
illness or personal injury he has incurred (including illness or injury
resulting from any substance abuse), by a Qualified Physician (who may
be the doctor treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by the
Employee with the consent of the Company, or by the Company at its
expense and with the consent of the Employee (which consent shall not
be unreasonably withheld in either case), to be unable to perform, at
the time of that determination and, in all reasonable medical
likelihood, indefinitely thereafter, the normal duties then most
recently assigned, under and in accordance with the terms hereof, to
the Employee while on Active Status; provided that, the determination
whether the Employee has incurred a Disability shall be made by a
majority of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be selected by
the Company and (c) the remaining one (1) of whom shall be selected by
the Qualified Physicians selected by the Employee and the Company
pursuant to clauses (a) and (b) of this proviso and the fees and
expenses of whom will be shared and paid in equal amounts by the
Employee and the Company if: (1) (A) the Company has reasonably
withheld its consent to the Qualified Physician, if any, selected by
the Employee, or (B) the Employee has reasonably withheld his consent
to the Qualified Physician, if any, selected by the Company and (2) the
Qualified Physicians selected by the Employee and the Company disagree
as to whether the Employee has incurred a Disability. For purposes of
this definition, if the Employee is unable by reason of illness or
injury to give an informed consent to the performance of the treatment
of that illness or injury, a Qualified Physician selected by any Person
who is authorized by applicable law to give that consent will be deemed
to have been selected by the Employee.
"EFFECTIVE DATE" has the meaning ascribed to that term in
Section 9(O).
6
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief
financial officer, the president, any executive or senior vice
president or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule
13d-5(b)) of which the Employee or any Affiliate or Associate of the
Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under, any such Compensation Plan, unless (A) in the case of
either subclause (1) or (2) of this clause, there is substituted a
comparable Compensation Plan that is at least economically equivalent,
in terms of the benefit offered to the Employee, to the Compensation
Plan being ended or in which the Employee's participation is being
adversely affected or the Employee's benefits are being materially
reduced or (B) in the case of that subclause (1), the failure, or in
the case of that subclause (2), the taking of action, adversely affects
Executive Officers generally; or (c) the assignment to the Employee of
duties inconsistent in any material respect with the Employee's then
current positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any other
action by the Company which results in a material diminution in those
positions, authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer and which provides for incentive, bonus or other
performance-based awards of cash, securities or the phantom equivalent
of securities, including any stock option, stock appreciation right and
restricted stock plan, but
7
excluding any plan intended to qualify as a plan under any one or more
of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective
under that act and the shares registered by that registration statement
are issued and sold by the Company (otherwise than pursuant to the
exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's Employment, and if the
Termination Date is other than the date of receipt of the notice, (b)
sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any subsidiary
of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to terminate
the Employee's Employment other than for Cause or (b) if the Employee
elects pursuant to the applicable provision hereof to terminate his
Employment for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part-time Employment Effective Date and ends on the first
to occur of (a) the third (3rd) anniversary of that Part-time
Employment Effective Date, (b) the termination by the Company of the
Employee's Employment for Type I Cause or (c) the death or Retirement
of the Employee.
"PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a)
holding an M.D. degree from a medical school located in the United
States, (b) specializing and board-certified in the
8
treatment of the injury or illness that has or may have caused that
Disability and (c) having admission privileges to one or more hospitals
located in Texas or in the state in which the Employee then is
domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment by means
of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
following a Change of Control pursuant to Section 5(B)(i)(b), the first
date on which the Company pays to the Employee in full the amounts owed
to the Employee pursuant to Section 5(B)(iii); (c) if the Employee's
Employment is terminated by reason of the Employee's giving a Notice of
Termination without Good Reason and other than for Disability pursuant
to Section 5(B)(i)(c), the elapse of the thirtieth (30th) day after the
Company receives that notice; (d) if the Employee's Employment is
terminated by the Company at any time for Type I Cause or, prior to the
Part-time Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination for
Cause; and (e) if the Employee's Employment is terminated for any other
reason, at the expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the first sentence of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the first sentence of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (b) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise
specified herein, all references herein to any statute defined or referred to
herein, including the Code, ERISA and the
9
Exchange Act, shall be deemed references to that statute or any successor
statute, as the same may have been or may be amended or supplemented from time
to time, and any rules or regulations promulgated thereunder.
(ii) 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 word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as President of Meridian and Hoosier Residential Services, Inc.
(formerly named DIAL ONE Meridian and Hoosier, Inc. and located in Indianapolis,
Indiana) in the central Indiana area and the Employee will serve in the
Company's employ in that position. The Employee shall perform such duties, and
have such powers, authority, functions, duties and responsibilities for the
Company and corporations affiliated with the Company as are commensurate and
consistent with his employment as President of DIAL ONE Meridian and Hoosier,
Inc. The Employee also shall have such additional powers, authority, functions,
duties and responsibilities as may be assigned to him by the Board; provided
that, without the Employee's written consent, such additional powers, authority,
functions, duties and responsibilities shall not be inconsistent or interfere
with, or detract from, those herein vested in, or otherwise then being performed
for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not interfere
materially with the Employee's duties and responsibilities for the Company at
that time, except that the Employee shall be entitled, subject to the provisions
of Section 7, (a) to continue with such activities as the Employee has carried
on prior to the Effective Date, including making and managing his personal
investments and participating in other business or civic activities and (b) to
serve on corporate or other business, civic or charitable boards or committees
and trade association or similar boards or committees.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the
Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and
10
renewing each day thereafter for an additional day without any further action by
either the Company or the Employee, it being the intention of the parties that
there shall be continuously a remaining term of three (3) years' duration of the
Employee's Employment 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 5. When the Termination Date shall have occurred and the Company shall
have paid to the Employee all the applicable amounts Section 5 provides the
Company shall pay as a result of the termination of the Employee's Employment,
including all amounts accruing during the Part-time Employment Period, if any,
this Agreement will terminate and have no further force or effect, except that
Sections 4(c), 8, 9, 10 and 11 shall survive that termination indefinitely and
Section 7 shall survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee
by the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the first to
occur of the Part-time Employment Effective Date or the Termination Date . That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less infrequently than semi-monthly),
shall be payable initially at the annual rate of $150,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in the CPI for
the twelve (12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be determined in the
sole discretion of the Compensation Committee, but only in such form
and to such extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such determinations
or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state having a
personal income tax, or if the Employee resides in a state without a
personal income tax on the date hereof which subsequently adopts a
personal income tax, then, in either case, the Base Salary in effect at
the time of such relocation or adoption, as applicable, shall
immediately be increased by the amount equal to the Base Salary
immediately prior to this increase multiplied by seventy percent (70%)
of the highest personal income tax rate of such state; for example, if
the Employee relocates from a state without a personal income tax to a
state having a personal income tax and the highest rate of that tax is
six percent (6%) when the Base Salary is $200,000, then the Base Salary
will be increased by $8,400 (computed at 70% x 6% x $200,000).
11
Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to
participate in all Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee is an Executive
Officer. All awards to the Employee under all Incentive Plans shall take into
account the Employee's positions with and duties and responsibilities to the
Company and its subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment in the
nature of compensation, singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee reasonably determines (based upon the opinion of
his tax counsel) that such contest is inconsistent with the overall tax
interests of the Employee.
12
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company
shall be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Effective Date for any
Business Reason. The Company's termination of the Employee's Employment for
Cause will be effective on the date the Company delivers a Notice of Termination
for Cause to the Employee pursuant to this Section 5(A)(i)(together, in the case
of a termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid, and, when that
payment is made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee
shall be entitled to terminate his Employment (a) for a Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred sixty-five (365)
days after that Change of Control occurs (provided, however, that the Employee
shall not be entitled to terminate his Employment by reason of that Change of
Control if it occurs (1) during the thirty (30) day period following the
Company's receipt of the Employee's Notice of Termination without Good Reason
and other than for Disability pursuant to this Section 5(B)(i), (2) after (A)
the receipt by the Nonterminating Party of the Terminating Party's Notice of
Termination pursuant to Section 5(C) or (B) the Employee's receipt of the
Company's Notice of Termination for a Business Reason (other than in connection
with that Change of Control) pursuant to Section 5(A) or (3) more than three
hundred sixty-five (365) days after the Company's receipt of the Employee's
Notice of Termination for Good Reason pursuant to this Section 5(B)(i)) or (c)
without Good Reason and other than for Disability at any time.
13
The Employee's termination of his Employment for Good Reason will be effective
on the third (3rd) anniversary of the date the Employee delivers a Notice of
Termination for Good Reason to the Company pursuant to this Section 5(B)(i). The
Employee's termination of his Employment by reason of a Change of Control will
be effective on the first date on which the Change of Control Payment shall have
been paid in full to the Employee. The Employee's termination of his Employment
without Good Reason and other than for Disability will be effective on the
thirtieth (30th) day following the Employee's delivery of a Notice of
Termination without Good Reason and other than for Disability pursuant to this
Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company and the Employee
during the Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to the Employee, in
a cash lump sum within five (5) business days after the Termination Date, the
amount equal to the sum of (a) the portion of the Base Salary to and including
the Termination Date which has not yet been paid, (b) all compensation
previously deferred by the Employee (together with any accrued interest and
earnings thereon) which has not yet been paid, (c) any accrued but unpaid
vacation pay and (d) the amount equal to fifty percent (50%) of the Base Salary
being paid for the Compensation Year in which the Company receives the
Employee's Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates his Employment
without Good Reason and other than for Disability within six (6) months of the
theretofore scheduled final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the amount determined
pursuant to that clause multiplied by a fraction the numerator of which is the
number of days from and excluding the date the Company receives the Notice of
Termination to and including that final day and the denominator of which is one
hundred eighty-two (182). For purposes of this Section 5(B)(iv), if the
anniversary of the Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and other than for
Disability has not occurred on or prior to the date of that receipt, the Base
Salary for that Compensation Year will be calculated on the assumption that no
increase in the amount thereof would be made effective as of that anniversary
pursuant to Section 4(A) or 5(E)(i), as applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or the Company may
terminate the Employee's
14
Employment effective on the third (3rd) anniversary of the date the
Nonterminating Party receives a Notice of Termination from the Terminating Party
pursuant to this Section 5(C). If the Employee's Employment is terminated by
reason of the Employee's Disability, the respective rights and obligations of
the Company and the Employee during the Part-time Employment Period will be as
set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his death. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of (i) the portion
of the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of the Base Salary being paid for the Compensation Year in
which he dies multiplied by three (3) or (b) if the Employee dies during the
Part-time Employment Period, the product of one-twelfth (1/12th) of the Base
Salary being paid for the Compensation Year in which the Employee dies
multiplied by the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the intervals
consistent with the Company's normal payroll schedules (but in no event less
frequently than semi-monthly) from the Part-time Employment Effective Date to
and including the Termination Date in the amounts determined from time to time
as follows: Effective as of the Part-time Employment Effective Date, the Base
Salary payable by the Company to the Employee for the period from and including
that date to and excluding the third (3rd) anniversary of that date shall be as
follows:
(a) if the Part-time Employment Effective Date occurs as a
result of the receipt by the Nonterminating Party of a Notice of
Termination for a Business Reason pursuant to Section 5(A) or a Notice
of Termination for Good Reason pursuant to Section 5(B)(i), the amount
equal to the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date; and (b) if
the Part-time Employment Effective Date occurs as a result of the
receipt by the Nonterminating Party of a Notice of Termination for
Disability pursuant to Section 5(C), the amount equal to the amount
15
by which (1) seventy-five percent (75%) of the Average Annual Cash
Compensation of the Employee determined as of the Part-time Employment
Effective Date exceeds (2) the aggregate amount of periodic payments
the Employee receives during the twelve (12) months beginning on that
date under Compensation Plans then in effect and providing for the
payment to the Employee solely as a result or on account of disability;
and
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary payable pursuant
to this Section 5(E) shall be increased (but not decreased) by the same
percentage increase (if any) in the CPI for the twelve (12) month
period immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years
of service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or engaging in (and
devoting substantially all his time to) other business activities or (B)
required to perform any regular duties for the Company (except to provide such
services consistent with the Employee's educational background, experience and
prior positions with the Company as may be acceptable to the Employee) or to
seek or accept additional employment with any other Person. If the Employee, at
his discretion, shall accept any such additional employment or engage in any
such other business activity there shall be no offset, reduction or effect upon
any rights, benefits or payments to which the Employee is entitled pursuant to
this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
16
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within 35 miles of
the Employee's principal residence, in any case reasonably acceptable to the
Employee, alternate but comparable office space, furnishings, facilities,
reserved parking, supplies, services, equipment, secretarial and administrative
assistance that are in each case at least commensurate with the size and quality
of that which were provided to the Employee during the Compensation Year
immediately preceding the Part-time Employment Effective Date pursuant to
Section 6(C), but in no event less than are being furnished or provided on the
date hereof. The Company and Employee may mutually agree upon an equivalent
monthly cash allowance in lieu of the Employee being provided all or any part of
these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his representatives) shall
promptly deliver and return to the Company all the Company's property that is in
the possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of the
Employee's Employment for Cause, all stock options previously granted to the
Employee under Incentive Plans that have not been exercised and are outstanding
as of the time immediately prior to the Termination Date shall, notwithstanding
any contrary provision of any applicable Incentive Plan, remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier; and (ii) in the
case of a termination of the Employee's Employment for Cause, all stock options
previously granted to Employee under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to the Employee under
any Incentive Plan shall, notwithstanding any contrary provision of that
Incentive Plan, expire or fail to become exercisable or, if exercisable, cease
to be exercisable by reason of either (i) the occurrence of the Employee's
Part-time Employment Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to
not less than four (4) weeks of annual vacation and all legal holidays during
which times his applicable compensation shall be paid in full.
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee
17
in performing his duties and carrying out his responsibilities hereunder,
including business meal, entertainment and travel expenses, provided that the
Employee complies with the applicable policies, practices and procedures of the
Company relating to the submission of expense reports, receipts or similar
documentation of those expenses. The Company shall either pay directly or
promptly reimburse the Employee for such expenses not more than twenty (20) days
after the submission to the Company by the Employee from time to time of an
itemized accounting of such expenditures for which direct payment or
reimbursement is sought. Unpaid reimbursements after such 20-day period shall
accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by the Company with office space, furnishings, and facilities, reserved
parking, secretarial and administrative assistance, supplies and other support
equipment (including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to
move his principal place of residence from the central Indiana area or to
perform regular duties that could reasonably be expected to require either such
move against his wish or to spend amounts of time each week outside the central
Indiana area which are unreasonable in relation to the duties and
responsibilities of the Employee hereunder, and the Company agrees that, if it
requests the Employee to make such a move and the Employee declines that
request, (i) that declination shall not constitute any basis for a determination
that Type II Cause exists and (ii) no animosity or prejudice will be held
against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his Employment and for a
period of one (1) year after the Termination Date, he will not, within fifty
(50) miles of the geographic location in which the he has devoted substantial
attention at such location to the material business interests of the Company:
(i) accept employment or render service to any Person that is engaged in a
business directly competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, employee, consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be competitive with the
business of the Company; provided however that employee shall be permitted to
pursue this current employment and association with DIAL ONE of Central Indiana,
Inc.
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon application to any court
of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the provisions of this
18
Section 7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue
to have access to various Confidential Information. The Employee agrees,
therefore, that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by the
Employee solely or jointly with any other Person or Persons during the period of
his Employment and which pertain primarily to the material business activities
of the Company, and the Employee hereby assigns and agrees to assign all his
interests therein to the Company or to its nominee; whenever requested to do so
by the Company, the Employee shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply for and
obtain Letters of Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein. These obligations shall (i)
continue beyond the Termination Date with respect to inventions, improvements,
and valuable discoveries, whether patentable or not, conceived, made or acquired
by the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
HOU03A:364777.6
19
<PAGE>
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its undertakings in, this
Agreement shall not be affected by any right of set-off, counterclaim,
recoupment, defense or other action, claim or right the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any provision hereof, and those amounts shall not
be reduced, regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee
and, without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If the Employee is not
an Executive Officer, but is an officer of a subsidiary of the Company, the
Company shall be entitled to assign all its obligations hereunder to that
subsidiary and treat the Employee as an employee of that subsidiary for all
20
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company substantially
as an entirety expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would have been required to
perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Gary Daymon
10927 White Sail Court
Indianapolis, IN 46236
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to assert any right under,
this Agreement (including the right of the Employee to terminate his Employment
for Good Reason or by reason of a Change of Control pursuant to Section 5(B)
(i)) shall not be deemed a waiver of that provision or of any other provision of
or right under this Agreement.
21
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE
TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents
with respect to any action, suit or other legal proceeding pertaining directly
to this Agreement or to the interpretation or enforcement of any of Employee's
right hereunder to service of process in the State of Texas and hereby waives
any right to contest or oppose receipt of such service of process. The Company
irrevocably (i) agrees that any such action, suit or other legal proceeding may
be brought in the courts of such state or in the courts of the United States
sitting in such state, (ii) consents to the jurisdiction of each such court in
any such action, suit or other legal proceeding and (iii) waives any objection
it may have to the laying of venue of any such action, suit or other legal
proceeding in any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed
to the Employee hereunder are not so paid or reimbursed at the times provided
herein (including amounts required to be paid by the Company pursuant to
Sections 6 and 10, those amounts shall accrue interest compounded daily at the
annual percentage rate which is three percentage points (3%) above the interest
rate announced by Texas Commerce Bank National Association, Houston, Texas, (or
its successor) from time to time, as its Base Rate (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that,
except to the extent required by law or legal process (including the Exchange
Act and the Securities Act), it will not make or publish, without the prior
written consent of the Employee, any written or oral statement concerning the
terms of the Employee's employment relationship with the Company and will not,
if a Notice of Termination is given by either the Company or the Employee for
any reason, publish or cause to be published any statement concerning the
Employee, including his work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision
hereof, the Company may withhold from amounts payable hereunder all Federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee agree that
this Agreement supersedes all prior written and oral agreements between them
with respect to the employment of the Employee by the Company, but has no effect
on any Compensation Plan in
22
which the Employee was participating prior to the Effective Date or on the
Agreement and Plan of Reorganization dated as of June 13, 1996 to which the
Company and the Employee are parties.
O. EFFECTIVE DATE. This Agreement shall be effective on the
date on which the Effective Time occurs (the "Effective Date"), and the term
"Effective Time" has the meaning specified in the Agreement and Plan of
Reorganization dated as of June 13, 1996 among the Company, the Employee and the
other parties thereto, including DIAL ONE Meridian and Hoosier, Inc. (the
"Merger Agreement"). If the Merger Agreement is terminated prior to the
Effective Time, this Agreement will be deemed for all purposes to have been
abandoned and of no force or effect as of and after the time of that
termination.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES; RESOLUTION OF
DISPUTES
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into
this Agreement the Company intends that the Employee receive without reduction
or delay all the intended benefits of this Agreement and that those benefits,
and the terms and conditions hereof, be construed in a manner most favorable to
the Employee; the Company, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in the Employee's favor and to his
benefit any ambiguities or uncertainties that may be created by the express
language hereof. If, however, at any time during the term hereof or afterwards:
(i) there should exist a dispute or conflict between the Employee and the
Company or another Person as to the validity, interpretation or application of
any term or condition hereof, or as to the Employee's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of the
Employee, (ii) the Employee must (A) defend the validity of this Agreement, (B)
contest any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
23
B. RESOLUTION OF DISPUTES. If a dispute of any type referred
to in Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to agree in writing to an acceptable ADR process within
that ten (10) business day period, then the parties shall submit to a mandatory
ADR process by making joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the selection of an ADR
process for the parties. The parties shall diligently in good faith participate
in the ADR process chosen by that judge. If the parties are unable to resolve
their dispute after diligent good faith participation in the ADR process, then
either party shall be free to initiate such litigation as that party deems
appropriate under the circumstances. Under no circumstances shall the Employee
be obligated to pay for the cost of any ADR process or to pay or reimburse the
Company for any attorneys' fees, costs or other expenses incurred by the Company
in connection with any process undertaken by the Employee to resolve disputes
under this Agreement. As used in this Section 10, the term "Employee" includes,
if the Employee has died or become incompetent as a matter of applicable law,
the Employee's legal representative acting in his capacity as such under
applicable law.
24
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the
maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
25
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:__________________________________
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
_____________________________________
Gary Daymon
Employee's Permanent Address:
10927 White Sail Court
Indianapolis, IN 46236
26
Exhibit 10.12
Frank N. Menditch
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of June 13, 1996 to become effective as of the Effective Date (as herein
defined) by and between AMERICAN RESIDENTIAL SERVICES, INC., a Delaware
corporation (the "Company"), and FRANK N. MENDITCH (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to
provide the Employee with substantial incentives to serve the Company as a
senior executive performing at the highest levels of leadership and stewardship,
without distraction or concern over minimum compensation, benefits or tenure, to
develop and implement the Company's initial development plan and thereafter
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
mutual provisions contained herein, and for other good and valuable
consideration, the parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms
have the meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to
the repurchase of Common Stock by the Company, unless and until such
time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a) the
Part-time Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned by the
Employee during that Compensation Year, including all amounts deferred
at the election of the Employee pursuant to a Compensation Plan
intended to qualify as a plan under Section 401(k) of the Code or
otherwise. If salary or bonus is paid in whole or in part in property
other than cash (such as Common Stock) the amount so paid shall be the
fair market value thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Part-time Employment Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the two (2)
Compensation Years next preceding that date or, if less than two (2)
Compensation Years have occurred prior to that date and since the
Effective Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized basis, the
Annual Cash Compensation in each partial Compensation Year (up to a
maximum of two (2) partial Compensation Years) next preceding the
Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable by the
Company to the Employee pursuant to Section 4(A); and (b) on and after
the Part-time Employment Effective Date, the guaranteed minimum annual
salary payable by the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
2
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
(a) as a result of an agreement, arrangement or understanding
to vote that security if that agreement, arrangement or
understanding: (1) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (2) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of that acquisition. For purposes of this Agreement, "voting"
a security shall include voting, granting a proxy, acting by consent,
making a request or demand relating to corporate action (including,
without limitation, calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
3
"BOARD" means the entire Board of Directors of the Company.
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a felony crime
that enriched the Employee at the expense of the Company; or (b) the
Employee's deliberate and intentional continuing failure to
substantially perform his duties and responsibilities hereunder (except
by reason of the Employee's incapacity due to physical or mental
illness or injury) for a period of forty-five (45) days after the
Required Board Majority has delivered to the Employee a written demand
for substantial performance hereunder which specifically identifies the
bases for the Required Board Majority's determination that the Employee
has not substantially performed his duties and responsibilities
hereunder (such period being the "Grace Period"); provided, that for
purposes of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of the
Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice
and at which the Employee was afforded the opportunity to be
represented by counsel, appear and be heard, the Required Board
Majority shall adopt a written resolution which (A) sets forth the
Required Board Majority's determination that the failure of the
Employee to substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to physical or
mental illness or injury) continued past the Grace Period and (B)
specifically identifies the bases for that determination and (2) the
Company, at the written direction of the Required Board Majority, shall
deliver to the Employee a Notice of Termination for Cause to which a
copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. Cause
of the type referred to in clause (a) of the preceding sentence is a
"Type I Cause," while Cause of the type referred to in clause (b) of
the preceding sentence is a "Type II Cause." For purposes of
determining whether a Type II Cause has occurred, no act or failure to
act on the part of the Employee shall be considered "deliberate and
intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(c) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
4
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary during the
term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a
Delaware corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to Section
9(D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer or any member of the family of any Executive Officer, (a)
including (i) any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the Code or whose
benefits are limited by the Code or ERISA, (iii) any "employee welfare
plan" (as defined in Section 3(1) of ERISA), (iv) any arrangement,
plan, policy, practice or program providing for severance pay, deferred
compensation or insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing and
providing for the payment or reimbursement of expenses attributable to
first-class air travel and first-class hotel occupancy while on travel
or (B) providing for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air time or other
recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it
provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the compensation of
Executive Officers and the administration of Incentive Plans, if any,
intended to qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, 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 sale programs, customer lists,
records
5
of customer service requirements, capital expenditure projects, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any 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.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers-- All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as published
by the United States Department of Labor, Bureau of Labor Statistics
(or its successor) for that period.
"CONTINUING DIRECTOR" means at any time any individual who
then (a) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or
that first election, to the Board following that date was recommended
or approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on all
Persons, absent manifest error), as a result of a physical or mental
illness or personal injury he has incurred (including illness or injury
resulting from any substance abuse), by a Qualified Physician (who may
be the doctor treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by the
Employee with the consent of the Company, or by the Company at its
expense and with the consent of the Employee (which consent shall not
be unreasonably withheld in either case), to be unable to perform, at
the time of that determination and, in all reasonable medical
likelihood, indefinitely thereafter, the normal duties then most
recently assigned, under and in accordance with the terms hereof, to
the Employee while on Active Status; provided that, the determination
whether the Employee has incurred a Disability shall be made by a
majority of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be selected by
the Company and (c) the remaining one (1) of whom shall be selected by
the Qualified Physicians selected by the Employee and the Company
pursuant to clauses (a) and (b) of this proviso and the fees and
expenses of whom will be shared and paid in equal amounts by the
Employee and the Company, if: (1) (A) the Company has reasonably
withheld its consent to the Qualified Physician, if any, selected by
the Employee or (B) the Employee has reasonably withheld his consent to
the Qualified Physician, if any, selected by the Company and (2) the
Qualified Physicians selected by the Employee and the Company disagree
as to whether the Employee has incurred a Disability. For purposes of
this definition, if the Employee is unable by reason of illness or
injury to give an informed consent to the performance of the treatment
of that illness or injury, a Qualified Physician selected by any Person
who is authorized by applicable law to give that consent will be deemed
to have been selected by the Employee.
6
"EFFECTIVE DATE" has the meaning ascribed to that term in
Section 9(O).
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief
financial officer, the president, any executive or senior vice
president or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule
13d-5(b)) of which the Employee or any Affiliate or Associate of the
Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under, any such Compensation Plan, unless (A) in the case of
either subclause (1) or (2) of this clause, there is substituted a
comparable Compensation Plan that is at least economically equivalent,
in terms of the benefit offered to the Employee, to the Compensation
Plan being ended or in which the Employee's participation is being
adversely affected or the Employee's benefits are being materially
reduced or (B) in the case of that subclause (1), the failure, or in
the case of that subclause (2), the taking of action, adversely affects
Executive Officers generally; or (c) the assignment to the Employee of
duties inconsistent in any material respect with the Employee's then
current positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any other
action by the Company which results in a material diminution in those
positions, authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer and which provides for incentive, bonus or other
performance-based awards of cash, securities or the phantom equivalent
of securities,
7
including any stock option, stock appreciation right and restricted
stock plan, but excluding any plan intended to qualify as a plan under
any one or more of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective
under that act and the shares registered by that registration statement
are issued and sold by the Company (otherwise than pursuant to the
exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's Employment, and if the
Termination Date is other than the date of receipt of the notice, (b)
sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any subsidiary
of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to terminate
the Employee's Employment other than for Cause or (b) if the Employee
elects pursuant to the applicable provision hereof to terminate his
Employment for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part-time Employment Effective Date and ends on the first
to occur of (a) the third (3rd) anniversary of that Part-time
Employment Effective Date, (b) the termination by the Company of the
Employee's Employment for Type I Cause or (c) the death or Retirement
of the Employee.
"PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a)
holding an M.D. degree from a
8
medical school located in the United States, (b) specializing and
board-certified in the treatment of the injury or illness that has or
may have caused that Disability and (c) having admission privileges to
one or more hospitals located in Texas or in the state in which the
Employee then is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment by means
of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
following a Change of Control pursuant to Section 5(B)(i)(b), the first
date on which the Company pays to the Employee in full the amounts owed
to the Employee pursuant to Section 5(B)(iii); (c) if the Employee's
Employment is terminated by reason of the Employee's giving a Notice of
Termination without Good Reason and other than for Disability pursuant
to Section 5(B)(i)(c), the elapse of the thirtieth (30th) day after the
Company receives that notice; (d) if the Employee's Employment is
terminated by the Company at any time for Type I Cause or, prior to the
Part-time Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination for
Cause; and (e) if the Employee's Employment is terminated for any other
reason, at the expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the first sentence of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the first sentence of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (b) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
9
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise
specified herein, all references herein to any statute defined or referred to
herein, including the Code, ERISA and the Exchange Act, shall be deemed
references to that statute or any successor statute, as the same may have been
or may be amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(ii) 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 word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as President of General Heating & Air Conditioning Company, Inc.
(formerly named "General Heating Engineering Company, Inc.") in Manassas,
Virginia, and the Employee will serve in the Company's employ in that position.
The Employee shall perform such duties, and have such powers, authority,
functions, duties and responsibilities for the Company and corporations
affiliated with the Company as are commensurate and consistent with his
employment as President of General Heating & Air Conditioning Company, Inc. The
Employee also shall have such additional powers, authority, functions, duties
and responsibilities as may be assigned to him by the Board; provided that,
without the Employee's written consent, such additional powers, authority,
functions, duties and responsibilities shall not be inconsistent or interfere
with, or detract from, those herein vested in, or otherwise then being performed
for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not interfere
materially with the Employee's duties and responsibilities for the Company at
that time, except that the Employee shall be entitled, subject to the provisions
of Section 7, (a) to continue with such activities as the Employee has carried
on prior to the Effective Date, including making and managing his personal
investments and participating in other business or civic activities and (b) to
serve on corporate or other business, civic or charitable boards or committees
and trade association or similar boards or committees.
10
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the
Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and renewing each day thereafter for an
additional day without any further action by either the Company or the Employee,
it being the intention of the parties that there shall be continuously a
remaining term of three (3) years' duration of the Employee's Employment 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 5. When the
Termination Date shall have occurred and the Company shall have paid to the
Employee all the applicable amounts Section 5 provides the Company shall pay as
a result of the termination of the Employee's Employment, including all amounts
accruing during the Part-time Employment Period, if any, this Agreement will
terminate and have no further force or effect, except that Sections 4(c), 8, 9,
10 and 11 shall survive that termination indefinitely and Section 7 shall
survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee
by the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the first to
occur of the Part-time Employment Effective Date or the Termination Date . That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less infrequently than semi-monthly),
shall be payable initially at the annual rate of $150,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in the CPI for
the twelve (12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be determined in the
sole discretion of the Compensation Committee, but only in such form
and to such extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such determinations
or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state having a
personal income tax, or if the Employee resides in a state without a
personal income tax on the date hereof which subsequently adopts a
personal income tax, then, in either case, the Base Salary in effect at
the time of such relocation or adoption, as applicable, shall
immediately be increased by the amount equal to the Base Salary
immediately prior to this increase multiplied by seventy percent (70%)
of the highest personal income tax rate of such state; for example, if
the Employee relocates from a state without a personal income tax to a
state having a personal income
11
tax and the highest rate of that tax is six percent (6%) when the Base
Salary is $200,000, then the Base Salary will be increased by $8,400
(computed at 70% x 6% x $200,000).
Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to
participate in all Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee is an Executive
Officer. All awards to the Employee under all Incentive Plans shall take into
account the Employee's positions with and duties and responsibilities to the
Company and its subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment in the
nature of compensation, singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee
12
reasonably determines (based upon the opinion of his tax counsel) that such
contest is inconsistent with the overall tax interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND
DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company
shall be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Effective Date for any
Business Reason. The Company's termination of the Employee's Employment for
Cause will be effective on the date the Company delivers a Notice of Termination
for Cause to the Employee pursuant to this Section 5(A)(i)(together, in the case
of a termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid, and, when that
payment is made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee
shall be entitled to terminate his Employment (a) for a Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred sixty-five (365)
days after that Change of Control occurs (provided, however, that the Employee
shall not be entitled to terminate his Employment by reason of that Change of
Control if it occurs (1) during the thirty (30) day period following the
Company's receipt of the Employee's Notice of Termination without Good Reason
and other than for Disability pursuant to this Section 5(B)(i), (2) after (A)
the receipt by the Nonterminating Party of the Terminating Party's Notice of
Termination pursuant to Section 5(C) or (B) the Employee's receipt of the
Company's Notice of Termination for a Business Reason (other than in connection
with that
13
Change of Control) pursuant to Section 5(A) or (3) more than three hundred
sixty-five (365) days after the Company's receipt of the Employee's Notice of
Termination for Good Reason pursuant to this Section 5(B)(i)) or (c) without
Good Reason and other than for Disability at any time. The Employee's
termination of his Employment for Good Reason will be effective on the third
(3rd) anniversary of the date the Employee delivers a Notice of Termination for
Good Reason to the Company pursuant to this Section 5(B)(i). The Employee's
termination of his Employment by reason of a Change of Control will be effective
on the first date on which the Change of Control Payment shall have been paid in
full to the Employee. The Employee's termination of his Employment without Good
Reason and other than for Disability will be effective on the thirtieth (30th)
day following the Employee's delivery of a Notice of Termination without Good
Reason and other than for Disability pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company and the Employee
during the Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to the Employee, in
a cash lump sum within five (5) business days after the Termination Date, the
amount equal to the sum of (a) the portion of the Base Salary to and including
the Termination Date which has not yet been paid, (b) all compensation
previously deferred by the Employee (together with any accrued interest and
earnings thereon) which has not yet been paid, (c) any accrued but unpaid
vacation pay and (d) the amount equal to fifty percent (50%) of the Base Salary
being paid for the Compensation Year in which the Company receives the
Employee's Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates his Employment
without Good Reason and other than for Disability within six (6) months of the
theretofore scheduled final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the amount determined
pursuant to that clause multiplied by a fraction the numerator of which is the
number of days from and excluding the date the Company receives the Notice of
Termination to and including that final day and the denominator of which is one
hundred eighty-two (182). For purposes of this Section 5(B)(iv), if the
anniversary of the Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and other than for
Disability has not occurred on or prior to the date of that receipt, the Base
Salary for that Compensation Year will be calculated on the assumption that no
increase in the amount thereof would be made effective as of that anniversary
pursuant to Section 4(A) or 5(E)(i), as applicable.
14
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective rights and
obligations of the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his death. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of (i) the portion
of the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of the Base Salary being paid for the Compensation Year in
which he dies multiplied by three (3) or (b) if the Employee dies during the
Part-time Employment Period, the product of one-twelfth (1/12th) of the Base
Salary being paid for the Compensation Year in which the Employee dies
multiplied by the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the intervals
consistent with the Company's normal payroll schedules (but in no event less
frequently than semi-monthly) from the Part-time Employment Effective Date to
and including the Termination Date in the amounts determined from time to time
as follows: Effective as of the Part-time Employment Effective Date, the Base
Salary payable by the Company to the Employee for the period from and including
that date to and excluding the third (3rd) anniversary of that date shall be as
follows:
(a) if the Part-time Employment Effective Date occurs as a
result of the receipt by the Nonterminating Party of a Notice of
Termination for a Business Reason pursuant to Section 5(A) or a Notice
of Termination for Good Reason pursuant to Section 5(B)(i), the amount
equal to the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date; and (b) if
the Part-time Employment
15
Effective Date occurs as a result of the receipt by the Nonterminating
Party of a Notice of Termination for Disability pursuant to Section
5(C), the amount equal to the amount by which (1) seventy-five percent
(75%) of the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date exceeds (2)
the aggregate amount of periodic payments the Employee receives during
the twelve (12) months beginning on that date under Compensation Plans
then in effect and providing for the payment to the Employee solely as
a result or on account of disability; and
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary payable pursuant
to this Section 5(E) shall be increased (but not decreased) by the same
percentage increase (if any) in the CPI for the twelve (12) month
period immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years
of service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or engaging in (and
devoting substantially all his time to) other business activities or (B)
required to perform any regular duties for the Company (except to provide such
services consistent with the Employee's educational background, experience and
prior positions with the Company as may be acceptable to the Employee) or to
seek or accept additional employment with any other Person. If the Employee, at
his discretion, shall accept any such additional employment or engage in any
such other business activity there shall be no offset, reduction or effect upon
any rights, benefits or payments to which the Employee is entitled pursuant to
this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
16
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within 35 miles of
the Employee's principal residence, in any case reasonably acceptable to the
Employee, alternate but comparable office space, furnishings, facilities,
reserved parking, supplies, services, equipment, secretarial and administrative
assistance that are in each case at least commensurate with the size and quality
of that which were provided to the Employee during the Compensation Year
immediately preceding the Part-time Employment Effective Date pursuant to
Section 6(C), but in no event less than are being furnished or provided on the
date hereof. The Company and Employee may mutually agree upon an equivalent
monthly cash allowance in lieu of the Employee being provided all or any part of
these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his representatives) shall
promptly deliver and return to the Company all the Company's property that is in
the possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of the
Employee's Employment for Cause, all stock options previously granted to the
Employee under Incentive Plans that have not been exercised and are outstanding
as of the time immediately prior to the Termination Date shall, notwithstanding
any contrary provision of any applicable Incentive Plan, remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier; and (ii) in the
case of a termination of the Employee's Employment for Cause, all stock options
previously granted to Employee under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to the Employee under
any Incentive Plan shall, notwithstanding any contrary provision of that
Incentive Plan, expire or fail to become exercisable or, if exercisable, cease
to be exercisable by reason of either (i) the occurrence of the Employee's
Part-time Employment Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to
not less than four (4) weeks of annual vacation and all legal holidays during
which times his applicable compensation shall be paid in full.
17
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
20-day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by the Company with office space, furnishings, and facilities, reserved
parking, secretarial and administrative assistance, supplies and other support
equipment (including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to
move his principal place of residence from the metropolitan Washington, D.C.
area or to perform regular duties that could reasonably be expected to require
either such move against his wish or to spend amounts of time each week outside
the metropolitan Washington, D.C. area which are unreasonable in relation to the
duties and responsibilities of the Employee hereunder, and the Company agrees
that, if it requests the Employee to make such a move and the Employee declines
that request, (i) that declination shall not constitute any basis for a
determination that Type II Cause exists and (ii) no animosity or prejudice will
be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his Employment and for a
period of one (1) year after the Termination Date, he will not, within fifty
(50) miles of the geographic location in which the he has devoted substantial
attention at such location to the material business interests of the Company:
(i) accept employment or render service to any Person that is engaged in a
business directly competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, employee, consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be competitive with the
business of the Company.
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon application to any court
of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the provisions of this
Section
18
7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue
to have access to various Confidential Information. The Employee agrees,
therefore, that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by the
Employee solely or jointly with any other Person or Persons during the period of
his Employment and which pertain primarily to the material business activities
of the Company, and the Employee hereby assigns and agrees to assign all his
interests therein to the Company or to its nominee; whenever requested to do so
by the Company, the Employee shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply for and
obtain Letters of Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein. These obligations shall (i)
continue beyond the Termination Date with respect to inventions, improvements,
and valuable discoveries, whether patentable or not, conceived, made or acquired
by the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be
19
invalid, illegal or unenforceable in any respect, (i) such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, (ii) this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein (except that this clause
(ii) shall not prohibit any modification allowed under Section 7(B)) and (iii)
if the effect of a holding or finding that any such provision is invalid,
illegal or unenforceable is to modify to the Employee's detriment, reduce or
eliminate any compensation, reimbursement, payment, allowance or other benefit
to the Employee intended by the Company and Employee in entering into this
Agreement, the Company shall, within thirty (30) days after the date of such
finding or holding, negotiate and expeditiously enter into an agreement with the
Employee which contains alternative provisions (reasonably acceptable to the
Employee) that will restore to the Employee (to the extent lawfully permissible)
substantially the same economic, substantive and income tax benefits and legal
rights the Employee would have enjoyed had such provision been upheld as legal,
valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its undertakings in, this
Agreement shall not be affected by any right of set-off, counterclaim,
recoupment, defense or other action, claim or right the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any provision hereof, and those amounts shall not
be reduced, regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee
and, without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If the Employee is not
an Executive Officer, but is an officer of a subsidiary of the Company, the
Company shall be entitled to assign all its obligations hereunder to that
subsidiary and treat the Employee as an employee of that subsidiary for all
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and
20
assets of the Company substantially as an entirety expressly to assume and agree
to perform this Agreement in the same manner and to the same extent the Company
would have been required to perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Frank N. Menditch
9231 Potomac School Drive
Potomac, Maryland 20854
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to assert any right under,
this Agreement (including the right of the Employee to terminate his Employment
for Good Reason or by reason of a Change of Control pursuant to Section 5(B)
(i)) shall not be deemed a waiver of that provision or of any other provision of
or right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE
TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents
with respect to any action, suit or other legal proceeding pertaining directly
to this Agreement or to the interpretation or enforcement of any of Employee's
right hereunder to service of process in the State of Texas and hereby waives
any right to contest or oppose receipt of such service of
21
process. The Company irrevocably (i) agrees that any such action, suit or other
legal proceeding may be brought in the courts of such state or in the courts of
the United States sitting in such state, (ii) consents to the jurisdiction of
each such court in any such action, suit or other legal proceeding and (iii)
waives any objection it may have to the laying of venue of any such action, suit
or other legal proceeding in any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed
to the Employee hereunder are not so paid or reimbursed at the times provided
herein (including amounts required to be paid by the Company pursuant to
Sections 6 and 10, those amounts shall accrue interest compounded daily at the
annual percentage rate which is three percentage points (3%) above the interest
rate announced by Texas Commerce Bank National Association, Houston, Texas (or
its successor), from time to time, as its Base Rate (or prime lending rate),
from the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that,
except to the extent required by law or legal process (including the Exchange
Act and the Securities Act), it will not make or publish, without the prior
written consent of the Employee, any written or oral statement concerning the
terms of the Employee's employment relationship with the Company and will not,
if a Notice of Termination is given by either the Company or the Employee for
any reason, publish or cause to be published any statement concerning the
Employee, including his work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision
hereof, the Company may withhold from amounts payable hereunder all Federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee agree that
this Agreement supersedes all prior written and oral agreements between them
with respect to the employment of the Employee by the Company, but has no effect
on any Compensation Plan in which the Employee was participating prior to the
Effective Date or on the Agreement and Plan of Reorganization dated as of June
13, 1996 to which the Company and the Employee are parties.
O. EFFECTIVE DATE. This Agreement shall be effective on the
date on which the Effective Time occurs (the "Effective Date"), and the term
"Effective Time" has the meaning specified in the Agreement and Plan of
Reorganization dated as of June 13, 1996 among the Company, the Employee and the
other parties thereto, including General Heating Engineering Company, Inc. (the
"Merger Agreement"). If the Merger Agreement is terminated prior to the
22
Effective Time, this Agreement will be deemed for all purposes to have been
abandoned and of no force or effect as of and after the time of that
termination.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES;
RESOLUTION OF DISPUTES
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into
this Agreement the Company intends that the Employee receive without reduction
or delay all the intended benefits of this Agreement and that those benefits,
and the terms and conditions hereof, be construed in a manner most favorable to
the Employee; the Company, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in the Employee's favor and to his
benefit any ambiguities or uncertainties that may be created by the express
language hereof. If, however, at any time during the term hereof or afterwards:
(i) there should exist a dispute or conflict between the Employee and the
Company or another Person as to the validity, interpretation or application of
any term or condition hereof, or as to the Employee's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of the
Employee, (ii) the Employee must
23
(A) defend the validity of this Agreement, (B) contest any determination by the
Company concerning the amounts payable (or reimbursable) by the Company to the
Employee or (C) determine in any tax year of the Employee the tax consequences
to the Employee of any amounts payable (or reimbursable) under Section 4(C) or
4(B)(iii), or (iii) the Employee must prepare responses to an Internal Revenue
Service ("IRS") audit of, or otherwise defend, his personal income tax return
for any year the subject of any such audit, or an adverse determination,
administrative proceedings or civil litigation arising therefrom that is
occasioned by or related to an audit by the IRS of the Company's income tax
returns, then the Company hereby unconditionally agrees: (a) on written demand
of the Company by the Employee, to provide sums sufficient to advance and pay on
a current basis (either by paying directly or by reimbursing the Employee) not
less than thirty (30) days after a written request therefor is submitted by the
Employee, the Employee's out of pocket costs and expenses (including attorney's
fees, expenses of investigation, travel, lodging, copying, delivery services and
disbursements for the fees and expenses of experts, etc.) incurred by the
Employee in connection with any such matter; (b) the Employee shall be entitled,
upon application to any court of competent jurisdiction, to the entry of a
mandatory injunction without the necessity of posting any bond with respect
thereto which compels the Company to pay or advance such costs and expenses on a
current basis; and (c) the company's obligations under this Section 10(A) will
not be affected if the Employee is not the prevailing party in the final
resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred
to in Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by direct negotiation, the Company and the Employee agree
that the next step taken to resolve that dispute, prior to either party
initiating any litigation to resolve that dispute (not including any litigation
that may be required to enforce the Employee's rights to the payment or
advancement of expenses and legal fees on a current basis pursuant to Section
10(A)) shall be to submit the dispute to an agreed Alternative Dispute
Resolution ("ADR") process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after either party has
given written notice to the other party that it is unable to concur in the other
party's final proposed negotiated resolution of the dispute. If the Company and
the Employee are unable to agree in writing to an acceptable ADR process within
that ten (10) business day period, then the parties shall submit to a mandatory
ADR process by making joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the selection of an ADR
process for the parties. The parties shall diligently in good faith participate
in the ADR process chosen by that judge. If the parties are unable to resolve
their dispute after diligent good faith participation in the ADR process, then
either party shall be free to initiate such litigation as that party deems
appropriate under the circumstances. Under no circumstances shall the Employee
be obligated to pay for the cost of any ADR process or to pay or reimburse the
Company for any attorneys' fees, costs or other expenses incurred by the Company
in connection with any process undertaken by the Employee to resolve disputes
under this Agreement. As used in this Section 10, the term "Employee" includes,
if the Employee has died or become incompetent as a matter of applicable law,
the Employee's legal representative acting in his capacity as such under
applicable law.
11. INDEMNIFICATION
24
The Employee shall be indemnified by the Company to the
maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
25
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:____________________________________
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
---------------------------------------
Frank N. Menditch
Employee's Permanent Address:
9231 Potomac School Drive
Potomac, Maryland 20854
26
Exhibit 10.13
Howard C. Menditch
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
June 13, 1996 to become effective as of the Effective Date (as herein defined)
by and between AMERICAN RESIDENTIAL SERVICES, INC., a Delaware corporation (the
"Company"), and HOWARD C. MENDITCH (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company as a senior executive
performing at the highest levels of leadership and stewardship, without
distraction or concern over minimum compensation, benefits or tenure, to develop
and implement the Company's initial development plan and thereafter managing the
Company's future growth and development and maximizing the returns to the
Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms have the
meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together with all
Affiliates and Associates of such Person, is or are the Beneficial Owner
of twenty-five percent (25%) or more of the shares of Common Stock then
outstanding, but does not include any Exempt Person; provided, however,
that a Person shall not be or become an Acquiring Person if such Person,
together with its Affiliates and Associates, shall become the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding solely as a result of a reduction in the number of shares
of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial
Owner of additional shares of Common Stock constituting one percent (1%)
or more of the then outstanding shares of Common Stock or any other Person
(or Persons) who is (or collectively are) the Beneficial Owner of shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock shall become an Affiliate or Associate
of such Person, unless, in either such case, such Person, together with
all Affiliates and Associates of such Person, is not then the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding.
1
"ACTIVE STATUS" means the Employee's Employment status from the
Effective Date to and including the first to occur of (a) the Part-time
Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange Act
Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any Compensation Year
means the sum of the salary and bonus earned by the Employee during that
Compensation Year, including all amounts deferred at the election of the
Employee pursuant to a Compensation Plan intended to qualify as a plan
under Section 401(k) of the Code or otherwise. If salary or bonus is paid
in whole or in part in property other than cash (such as Common Stock) the
amount so paid shall be the fair market value thereof on the date of
payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which that Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the
Beneficial Owner of 10% or more of any class of its equity securities, (b)
any trust or other estate in which that Person has a substantial
beneficial interest or for or of which that Person serves as trustee or in
a similar fiduciary capacity and (c) any relative or spouse of that
Person, or any relative of that spouse, who has the same home as that
Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as of the
Part-time Employment Effective Date, the average of (a) the Annual Cash
Compensation earned by the Employee in each of the two (2) Compensation
Years next preceding that date or, if less than two (2) Compensation Years
have occurred prior to that date and since the Effective Date, (b) the
Annual Cash Compensation in each whole Compensation Year, if any, and,
restated on an annualized basis, the Annual Cash Compensation in each
partial Compensation Year (up to a maximum of two (2) partial Compensation
Years) next preceding the Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment Effective
Date, the guaranteed minimum annual salary payable by the Company to the
Employee pursuant to Section 4(A); and (b) on and after the Part-time
Employment Effective Date, the guaranteed minimum annual salary payable by
the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
2
(a) of which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" (as
determined pursuant to Exchange Act Rule 13d-3) or otherwise has the
right to vote or dispose of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing); provided,
however, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own," any security under this subparagraph
(a) as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or understanding:
(1) arises solely from a revocable proxy or consent given in
response to a public (that is, not including a solicitation exempted
by Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of
the Exchange Act; and (2) is not then reportable by such Person on
Exchange Act Schedule 13D (or any comparable or successor report);
(b) which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to
acquire (whether that right or obligation is exercisable or
effective immediately or only after the passage of time or the
occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or on the exercise of
conversion rights, exchange rights, other rights, warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer made by
that Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or exchange; or
(c) which are beneficially owned, directly or indirectly, by
(1) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to subparagraph (a) of this
definition) or disposing of any voting securities of the Company or
(2) any group (as that term is used in Exchange Act Rule 13d-5(b))
of which that specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of that
acquisition. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or
demand relating to corporate action (including, without limitation,
calling a stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of
such security.
3
"BOARD" means the entire Board of Directors of the Company.
"BUSINESS REASON" for the Company's termination of the Employee's
Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's Employment
means: (a) the Employee's final conviction of a felony crime that enriched
the Employee at the expense of the Company; or (b) the Employee's
deliberate and intentional continuing failure to substantially perform his
duties and responsibilities hereunder (except by reason of the Employee's
incapacity due to physical or mental illness or injury) for a period of
forty-five (45) days after the Required Board Majority has delivered to
the Employee a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Employee has not substantially performed his duties
and responsibilities hereunder (such period being the "Grace Period");
provided, that for purposes of this clause (b), the Company shall not have
Cause to terminate the Employee's Employment unless (1) at a meeting of
the Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice and
at which the Employee was afforded the opportunity to be represented by
counsel, appear and be heard, the Required Board Majority shall adopt a
written resolution which (A) sets forth the Required Board Majority's
determination that the failure of the Employee to substantially perform
his duties and responsibilities hereunder has (except by reason of his
incapacity due to physical or mental illness or injury) continued past the
Grace Period and (B) specifically identifies the bases for that
determination and (2) the Company, at the written direction of the
Required Board Majority, shall deliver to the Employee a Notice of
Termination for Cause to which a copy of that resolution, certified as
being true and correct by the secretary or any assistant secretary of the
Company, is attached. Cause of the type referred to in clause (a) of the
preceding sentence is a "Type I Cause," while Cause of the type referred
to in clause (b) of the preceding sentence is a "Type II Cause." For
purposes of determining whether a Type II Cause has occurred, no act or
failure to act on the part of the Employee shall be considered "deliberate
and intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the following
events that occurs after the IPO Closing Date: (a) any Person becomes an
Acquiring Person; (b) at any time the then Continuing Directors cease to
constitute a majority of the members of the Board; (c) a merger of the
Company with or into, or a sale by the Company of its properties and
assets substantially as an entirety to, another Person occurs and,
immediately after that occurrence, any Person, other than an Exempt
Person, together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of twenty-five percent (25%) or more of the total
voting power of the then outstanding Voting Shares
4
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal to
three (3) times the Employee's then highest Base Salary during the term of
this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a Delaware
corporation, and (b) any Person that assumes the obligations of "the
Company" hereunder, by operation of law, pursuant to Section 9(D)(iii) or
otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or any
subsidiary of the Company contributes, on behalf of any Executive Officer
or any member of the family of any Executive Officer, (a) including (i)
any "employee pension benefit plan" (as defined in Section 3(2) of ERISA)
or other "employee benefit plan" (as defined in Section 3(3) of ERISA),
(ii) any other retirement and savings plan, including any supplemental
benefit arrangement relating to any plan intended to be qualified under
Section 401(a) of the Code or whose benefits are limited by the Code or
ERISA, (iii) any "employee welfare plan" (as defined in Section 3(1) of
ERISA), (iv) any arrangement, plan, policy, practice or program providing
for severance pay, deferred compensation or insurance benefit, (v) any
Incentive Plan and (vi) any arrangement, plan, policy, practice or program
(A) authorizing and providing for the payment or reimbursement of expenses
attributable to first-class air travel and first-class hotel occupancy
while on travel or (B) providing for the payment of business luncheon and
country club dues, long-distance charges, mobile phone monthly air time or
other recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it provides
for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to which
the Board has delegated duties respecting the compensation of Executive
Officers and the administration of Incentive Plans, if any, intended to
qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company or any
subsidiary of the Company, 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 sale programs, customer lists, records
5
of customer service requirements, capital expenditure projects, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any 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.
"CPI" means for any period the Consumer Price Index for All Urban
Consumers-- All Items Index for Houston, Texas (or any substantially
similar index published for the same area), as published by the United
States Department of Labor, Bureau of Labor Statistics (or its successor)
for that period.
"CONTINUING DIRECTOR" means at any time any individual who then (a)
is a member of the Board and was a member of the Board as of the IPO
Closing Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved by
a majority of the then Continuing Directors (acting separately or as a
part of any action taken by the Board or any committee thereof) and (b) is
not an Acquiring Person, an Affiliate or Associate of an Acquiring Person
or a nominee or representative of an Acquiring Person or of any such
Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been determined
(which determination shall be final and binding on all Persons, absent
manifest error), as a result of a physical or mental illness or personal
injury he has incurred (including illness or injury resulting from any
substance abuse), by a Qualified Physician (who may be the doctor treating
or otherwise acting as the Employee's doctor in connection with the
illness or injury in question) selected by the Employee with the consent
of the Company, or by the Company at its expense and with the consent of
the Employee (which consent shall not be unreasonably withheld in either
case), to be unable to perform, at the time of that determination and, in
all reasonable medical likelihood, indefinitely thereafter, the normal
duties then most recently assigned, under and in accordance with the terms
hereof, to the Employee while on Active Status; provided that, the
determination whether the Employee has incurred a Disability shall be made
by a majority of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be selected by the
Company and (c) the remaining one (1) of whom shall be selected by the
Qualified Physicians selected by the Employee and the Company pursuant to
clauses (a) and (b) of this proviso and the fees and expenses of whom will
be shared and paid in equal amounts by the Employee and the Company, if:
(1) (A) the Company has reasonably withheld its consent to the Qualified
Physician, if any, selected by the Employee or (B) the Employee has
reasonably withheld his consent to the Qualified Physician, if any,
selected by the Company and (2) the Qualified Physicians selected by the
Employee and the Company disagree as to whether the Employee has incurred
a Disability. For purposes of this definition, if the Employee is unable
by reason of illness or injury to give an informed consent to the
performance of the treatment of that illness or injury, a Qualified
Physician selected by any Person who is authorized by applicable law to
give that consent will be deemed to have been selected by the Employee.
6
"EFFECTIVE DATE" has the meaning ascribed to that term in Section
9(O).
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EMPLOYMENT" means the salaried employment of the Employee by the
Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board, the
chief executive officer, the chief operating officer, the chief financial
officer, the president, any executive or senior vice president or the
general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of
the Company and (2) any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees
of the Company or any subsidiary of the Company and (b) the Employee, any
Affiliate or Associate of the Employee or any group (as that term is used
in Exchange Act Rule 13d-5(b)) of which the Employee or any Affiliate or
Associate of the Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's benefits
under, any such Compensation Plan, unless (A) in the case of either
subclause (1) or (2) of this clause, there is substituted a comparable
Compensation Plan that is at least economically equivalent, in terms of
the benefit offered to the Employee, to the Compensation Plan being ended
or in which the Employee's participation is being adversely affected or
the Employee's benefits are being materially reduced or (B) in the case of
that subclause (1), the failure, or in the case of that subclause (2), the
taking of action, adversely affects Executive Officers generally; or (c)
the assignment to the Employee of duties inconsistent in any material
respect with the Employee's then current positions (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by the Company which results in a
material diminution in those positions, authority, duties or
responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan, policy,
practice or program established, maintained or sponsored by the Company or
any subsidiary of the Company, or to which the Company or any subsidiary
of the Company contributes, on behalf of any Executive Officer and which
provides for incentive, bonus or other performance-based awards of cash,
securities or the phantom equivalent of securities,
7
including any stock option, stock appreciation right and restricted stock
plan, but excluding any plan intended to qualify as a plan under any one
or more of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed under the
Securities Act and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that act and
the shares registered by that registration statement are issued and sold
by the Company (otherwise than pursuant to the exercise of any
over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as the
case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a written
notice that: (a) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Employee's Employment, and if the Termination Date is other than the
date of receipt of the notice, (b) sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at that
time who is not then an employee of the Company or any subsidiary of the
Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the Company
elects pursuant to any applicable provision hereof to terminate the
Employee's Employment other than for Cause or (b) if the Employee elects
pursuant to the applicable provision hereof to terminate his Employment
for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which begins
on the Part-time Employment Effective Date and ends on the first to occur
of (a) the third (3rd) anniversary of that Part-time Employment Effective
Date, (b) the termination by the Company of the Employee's Employment for
Type I Cause or (c) the death or Retirement of the Employee.
"PERSON" means any natural person, 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, joint venture, estate, trust, union
or employee organization or governmental authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a) holding
an M.D. degree from a
8
medical school located in the United States, (b) specializing and
board-certified in the treatment of the injury or illness that has or may
have caused that Disability and (c) having admission privileges to one or
more hospitals located in Texas or in the state in which the Employee then
is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the case
may be, who or which terminates the Employee's Employment by means of a
Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is terminated
by reason of the Employee's giving a Notice of Termination following a
Change of Control pursuant to Section 5(B)(i)(b), the first date on which
the Company pays to the Employee in full the amounts owed to the Employee
pursuant to Section 5(B)(iii); (c) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
without Good Reason and other than for Disability pursuant to Section
5(B)(i)(c), the elapse of the thirtieth (30th) day after the Company
receives that notice; (d) if the Employee's Employment is terminated by
the Company at any time for Type I Cause or, prior to the Part-time
Employment Effective Date, at any time for Type II Cause, the date the
Employee receives the Company's Notice of Termination for Cause; and (e)
if the Employee's Employment is terminated for any other reason, at the
expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause (a) of
the first sentence of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause (b) of
the first sentence of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation, stock of
that corporation of the class or classes having general voting power under
ordinary circumstances to elect a majority of that corporation's board of
directors; and (b) in the case of any other entity, equity interests of
the class or classes having general voting power under ordinary
circumstances equivalent to the Voting Shares of a corporation.
9
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise specified
herein, all references herein to any statute defined or referred to herein,
including the Code, ERISA and the Exchange Act, shall be deemed references to
that statute or any successor statute, as the same may have been or may be
amended or supplemented from time to time, and any rules or regulations
promulgated thereunder.
(ii) 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 word "Section" refers to a
Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number includes
the plural and vice versa, and a reference to one gender includes each other
gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set forth,
and beginning as of the Effective Date, the Company will employ the Employee as
Executive Vice President of General Heating & Air Conditioning Company, Inc.
(formerly named "General Heating Engineering Company, Inc.") in Manassas,
Virginia, and the Employee will serve in the Company's employ in that position.
The Employee shall perform such duties, and have such powers, authority,
functions, duties and responsibilities for the Company and corporations
affiliated with the Company as are commensurate and consistent with his
employment as Executive Vice President of General Heating & Air Conditioning
Company, Inc. The Employee also shall have such additional powers, authority,
functions, duties and responsibilities as may be assigned to him by the Board;
provided that, without the Employee's written consent, such additional powers,
authority, functions, duties and responsibilities shall not be inconsistent or
interfere with, or detract from, those herein vested in, or otherwise then being
performed for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment, engage
in any other activities unless those activities do not interfere materially with
the Employee's duties and responsibilities for the Company at that time, except
that the Employee shall be entitled, subject to the provisions of Section 7, (a)
to continue with such activities as the Employee has carried on prior to the
Effective Date, including making and managing his personal investments and
participating in other business or civic activities and (b) to serve on
corporate or other business, civic or charitable boards or committees and trade
association or similar boards or committees.
10
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the Employee's
Employment shall be for a continually renewing term of three (3) years
commencing on the Effective Date and renewing each day thereafter for an
additional day without any further action by either the Company or the Employee,
it being the intention of the parties that there shall be continuously a
remaining term of three (3) years' duration of the Employee's Employment 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 5. When the
Termination Date shall have occurred and the Company shall have paid to the
Employee all the applicable amounts Section 5 provides the Company shall pay as
a result of the termination of the Employee's Employment, including all amounts
accruing during the Part-time Employment Period, if any, this Agreement will
terminate and have no further force or effect, except that Sections 4(c), 8, 9,
10 and 11 shall survive that termination indefinitely and Section 7 shall
survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY.A Base Salary shall be payable to the Employee by the
Company as a guaranteed minimum annual amount hereunder for each Compensation
Year during the period from the Effective Date to the first to occur of the
Part-time Employment Effective Date or the Termination Date . That Base Salary
shall be payable in the intervals consistent with the Company's normal payroll
schedules (but in no event less infrequently than semi-monthly), shall be
payable initially at the annual rate of $150,000 and shall be increased (but not
decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the Effective
Date, by the same percentage increase (if any) in the CPI for the twelve
(12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the Effective
Date, by such additional amount as shall be determined in the sole
discretion of the Compensation Committee, but only in such form and to
such extent as the Compensation Committee may from time to time approve,
as evidenced by the written minutes or records of the Compensation
Committee and its written notices of such determinations or approvals to
the Employee; and
(iii) if the Employee relocates from a state without a personal
income tax at the time of his relocation to a state having a personal
income tax, or if the Employee resides in a state without a personal
income tax on the date hereof which subsequently adopts a personal income
tax, then, in either case, the Base Salary in effect at the time of such
relocation or adoption, as applicable, shall immediately be increased by
the amount equal to the Base Salary immediately prior to this increase
multiplied by seventy percent (70%) of the highest personal income tax
rate of such state; for example, if the Employee relocates from a state
without a personal income tax to a state having a personal income
11
tax and the highest rate of that tax is six percent (6%) when the Base
Salary is $200,000, then the Base Salary will be increased by $8,400
(computed at 70% x 6% x $200,000).
Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to participate
in all Compensation Plans from time to time in effect while he remains on Active
Status, regardless of whether the Employee is an Executive Officer. All awards
to the Employee under all Incentive Plans shall take into account the Employee's
positions with and duties and responsibilities to the Company and its
subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary, other
incentive or supplemental compensation, benefits, allowances, awards, payments,
reimbursements or other perquisites, or any other payment in the nature of
compensation, singly, in any combination or in the aggregate, that are provided
for hereunder to be paid to or for the benefit of the Employee be determined or
alleged to be subject to an excise or similar purpose tax pursuant to Section
4999 of the Code, or any successor or other comparable federal, state or local
tax law by reason of being a "parachute payment" (within the meaning of Section
280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee reasonably
12
determines (based upon the opinion of his tax counsel) that such contest is
inconsistent with the overall tax interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company shall
be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Effective Date for any
Business Reason. The Company's termination of the Employee's Employment for
Cause will be effective on the date the Company delivers a Notice of Termination
for Cause to the Employee pursuant to this Section 5(A)(i)(together, in the case
of a termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for Cause,
the Company promptly thereafter, and in any event within five (5) business days
thereafter, shall pay the Employee his Base Salary to and including the
Termination Date and the amount of all compensation previously deferred by the
Employee (together with any accrued interest or earnings thereon), in each case
to the extent not theretofore paid, and, when that payment is made, the Company
shall, notwithstanding Section 3, have no further or other obligations hereunder
to the Employee.
(iii) If the Company terminates the Employee's Employment for a
Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee shall
be entitled to terminate his Employment (a) for a Good Reason at any time within
one hundred eighty (180) days after the facts or circumstances constituting that
Good Reason first exist and are known to the Employee, (b) by reason of a Change
of Control at any time within three hundred sixty-five (365) days after that
Change of Control occurs (provided, however, that the Employee shall not be
entitled to terminate his Employment by reason of that Change of Control if it
occurs (1) during the thirty (30) day period following the Company's receipt of
the Employee's Notice of Termination without Good Reason and other than for
Disability pursuant to this Section 5(B)(i), (2) after (A) the receipt by the
Nonterminating Party of the Terminating Party's Notice of Termination pursuant
to Section 5(C) or (B) the Employee's receipt of the Company's Notice of
Termination for a Business Reason (other than in connection with that
13
Change of Control) pursuant to Section 5(A) or (3) more than three hundred
sixty-five (365) days after the Company's receipt of the Employee's Notice of
Termination for Good Reason pursuant to this Section 5(B)(i)) or (c) without
Good Reason and other than for Disability at any time. The Employee's
termination of his Employment for Good Reason will be effective on the third
(3rd) anniversary of the date the Employee delivers a Notice of Termination for
Good Reason to the Company pursuant to this Section 5(B)(i). The Employee's
termination of his Employment by reason of a Change of Control will be effective
on the first date on which the Change of Control Payment shall have been paid in
full to the Employee. The Employee's termination of his Employment without Good
Reason and other than for Disability will be effective on the thirtieth (30th)
day following the Employee's delivery of a Notice of Termination without Good
Reason and other than for Disability pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good Reason, the
respective rights and obligations of the Company and the Employee during the
Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good Reason
and other than for Disability, the Company shall pay to the Employee, in a cash
lump sum within five (5) business days after the Termination Date, the amount
equal to the sum of (a) the portion of the Base Salary to and including the
Termination Date which has not yet been paid, (b) all compensation previously
deferred by the Employee (together with any accrued interest and earnings
thereon) which has not yet been paid, (c) any accrued but unpaid vacation pay
and (d) the amount equal to fifty percent (50%) of the Base Salary being paid
for the Compensation Year in which the Company receives the Employee's Notice of
Termination without Good Reason and other than for Disability; provided,
however, that if the Employee terminates his Employment without Good Reason and
other than for Disability within six (6) months of the theretofore scheduled
final day of the Part-time Employment Period, the amount payable pursuant to
clause (d) of this sentence shall be the amount determined pursuant to that
clause multiplied by a fraction the numerator of which is the number of days
from and excluding the date the Company receives the Notice of Termination to
and including that final day and the denominator of which is one hundred
eighty-two (182). For purposes of this Section 5(B)(iv), if the anniversary of
the Effective Date in the Compensation Year in which the Company receives the
Notice of Termination without Good Reason and other than for Disability has not
occurred on or prior to the date of that receipt, the Base Salary for that
Compensation Year will be calculated on the assumption that no increase in the
amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
14
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs any
Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective rights and
obligations of the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's Employment
shall terminate automatically at the time of his death. If the Employee's
Employment is terminated by reason of the Employee's death, the Company shall
pay to the Person the Employee has designated in a written notice delivered to
the Company as his beneficiary entitled to such payment, if any, or to the
Employee's estate, as applicable, in a cash lump sum within thirty (30) days
after the Termination Date, the amount equal to the sum of (i) the portion of
the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of the Base Salary being paid for the Compensation Year in
which he dies multiplied by three (3) or (b) if the Employee dies during the
Part-time Employment Period, the product of one-twelfth (1/12th) of the Base
Salary being paid for the Compensation Year in which the Employee dies
multiplied by the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD. (i) The
Company shall pay the Employee a Base Salary, in the intervals consistent with
the Company's normal payroll schedules (but in no event less frequently than
semi-monthly) from the Part-time Employment Effective Date to and including the
Termination Date in the amounts determined from time to time as follows:
Effective as of the Part-time Employment Effective Date, the Base Salary payable
by the Company to the Employee for the period from and including that date to
and excluding the third (3rd) anniversary of that date shall be as follows:
(a) if the Part-time Employment Effective Date occurs as a result of
the receipt by the Nonterminating Party of a Notice of Termination for a
Business Reason pursuant to Section 5(A) or a Notice of Termination for
Good Reason pursuant to Section 5(B)(i), the amount equal to the Average
Annual Cash Compensation of the Employee determined as of the Part-time
Employment Effective Date; and (b) if the Part-time Employment
15
Effective Date occurs as a result of the receipt by the Nonterminating
Party of a Notice of Termination for Disability pursuant to Section 5(C),
the amount equal to the amount by which (1) seventy-five percent (75%) of
the Average Annual Cash Compensation of the Employee determined as of the
Part-time Employment Effective Date exceeds (2) the aggregate amount of
periodic payments the Employee receives during the twelve (12) months
beginning on that date under Compensation Plans then in effect and
providing for the payment to the Employee solely as a result or on account
of disability; and
(b) on the first and each subsequent anniversary of the Part-time
Employment Effective Date, the Base Salary payable pursuant to this
Section 5(E) shall be increased (but not decreased) by the same percentage
increase (if any) in the CPI for the twelve (12) month period immediately
preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years of
service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee shall not
be (A) prevented from accepting other employment or engaging in (and devoting
substantially all his time to) other business activities or (B) required to
perform any regular duties for the Company (except to provide such services
consistent with the Employee's educational background, experience and prior
positions with the Company as may be acceptable to the Employee) or to seek or
accept additional employment with any other Person. If the Employee, at his
discretion, shall accept any such additional employment or engage in any such
other business activity there shall be no offset, reduction or effect upon any
rights, benefits or payments to which the Employee is entitled pursuant to this
Agreement. Furthermore, the Employee shall have no obligation to account for,
remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
16
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within 35 miles of
the Employee's principal residence, in any case reasonably acceptable to the
Employee, alternate but comparable office space, furnishings, facilities,
reserved parking, supplies, services, equipment, secretarial and administrative
assistance that are in each case at least commensurate with the size and quality
of that which were provided to the Employee during the Compensation Year
immediately preceding the Part-time Employment Effective Date pursuant to
Section 6(C), but in no event less than are being furnished or provided on the
date hereof. The Company and Employee may mutually agree upon an equivalent
monthly cash allowance in lieu of the Employee being provided all or any part of
these items.
(v) The Employee shall remain entitled to the benefits of Section
4(C).
F. RETURN OF PROPERTY. On termination of the Employee's Employment,
however brought about, the Employee (or his representatives) shall promptly
deliver and return to the Company all the Company's property that is in the
possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this Agreement to
the contrary: (i) except in the case of a termination of the Employee's
Employment for Cause, all stock options previously granted to the Employee under
Incentive Plans that have not been exercised and are outstanding as of the time
immediately prior to the Termination Date shall, notwithstanding any contrary
provision of any applicable Incentive Plan, remain outstanding (and continue to
become exercisable pursuant to their respective terms) until exercised or the
expiration of their term, whichever is earlier; and (ii) in the case of a
termination of the Employee's Employment for Cause, all stock options previously
granted to Employee under Incentive Plans that have not been exercised and are
outstanding as of the time immediately prior to the Termination Date shall,
notwithstanding any contrary provision of any applicable Incentive Plan, remain
outstanding and continue to be exercisable until exercised or the date that is
ten (10) days after the Termination Date, whichever is earlier. No stock option
previously granted to the Employee under any Incentive Plan shall,
notwithstanding any contrary provision of that Incentive Plan, expire or fail to
become exercisable or, if exercisable, cease to be exercisable by reason of
either (i) the occurrence of the Employee's Part-time Employment Effective Date
or (ii) the Employee's service during the Employee's Part-time Employment Period
being less than full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to not
less than four (4) weeks of annual vacation and all legal holidays during which
times his applicable compensation shall be paid in full.
17
B. BUSINESS EXPENSES. The Employee is authorized to incur, and will
be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
20-day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be provided
by the Company with office space, furnishings, and facilities, reserved parking,
secretarial and administrative assistance, supplies and other support equipment
(including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to move
his principal place of residence from the metropolitan Washington, D.C. area or
to perform regular duties that could reasonably be expected to require either
such move against his wish or to spend amounts of time each week outside the
metropolitan Washington, D.C. area which are unreasonable in relation to the
duties and responsibilities of the Employee hereunder, and the Company agrees
that, if it requests the Employee to make such a move and the Employee declines
that request, (i) that declination shall not constitute any basis for a
determination that Type II Cause exists and (ii) no animosity or prejudice will
be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly competitive
businesses in which the Company is engaged, personal contact is of primary
importance in securing new customers and in retaining the accounts and goodwill
of present customers and protecting the business of the Company. The Employee,
therefore, agrees that during the term of his Employment and for a period of one
(1) year after the Termination Date, he will not, within fifty (50) miles of the
geographic location in which the he has devoted substantial attention at such
location to the material business interests of the Company: (i) accept
employment or render service to any Person that is engaged in a business
directly competitive with the business then engaged in by the Company or (ii)
enter into or take part in or lend his name, counsel or assistance to any
business, either as proprietor, principal, investor, partner, director, officer,
employee, consultant, advisor, agent, independent contractor, or in any other
capacity whatsoever, for any purpose that would be competitive with the business
of the Company.
B. If the provisions of this Section 7 are violated in any material
respect, the Company shall be entitled, upon application to any court of proper
jurisdiction, to a temporary restraining order or preliminary injunction
(without the necessity of posting any bond with respect thereto) to restrain and
enjoin the Employee from that violation. If the provisions of this Section
18
7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue to
have access to various Confidential Information. The Employee agrees, therefore,
that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and all
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by the Employee solely or
jointly with any other Person or Persons during the period of his Employment and
which pertain primarily to the material business activities of the Company, and
the Employee hereby assigns and agrees to assign all his interests therein to
the Company or to its nominee; whenever requested to do so by the Company, the
Employee shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters of Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein. These obligations shall (i) continue
beyond the Termination Date with respect to inventions, improvements, and
valuable discoveries, whether patentable or not, conceived, made or acquired by
the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
19
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or limit
the Employee's continuing or future participation in any Compensation Plan or,
subject to Section 9(N), limit or otherwise affect such rights as the Employee
may have under any other contract or agreement with the Company. Vested benefits
and other amounts to which the Employee is or becomes entitled to receive under
any Compensation Plan on or after the Termination Date shall be payable in
accordance with that Compensation Plan, except as expressly modified hereby.
C. FULL SETTLEMENT. The Company's obligations to make the payments
provided for in, and otherwise to perform its undertakings in, this Agreement
shall not be affected by any right of set-off, counterclaim, recoupment, defense
or other action, claim or right the Company may have against the Employee or
others. In no event shall the Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any provision hereof, and those amounts shall not be reduced,
regardless of whether the Employee obtains other employment or becomes
self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee and,
without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns. If the Employee is not an
Executive Officer, but is an officer of a subsidiary of the Company, the Company
shall be entitled to assign all its obligations hereunder to that subsidiary and
treat the Employee as an employee of that subsidiary for all
20
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
(iii) The Company shall require any successor (direct or indirect
and whether by purchase, merger, consolidation, share exchange or otherwise) to
the business, properties and assets of the Company substantially as an entirety
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would have been required to perform it had no
such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Howard C. Menditch
11037 Snowshoe Lane
Rockville, Maryland 20852
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to insist
on strict compliance with any provision of, or to assert any right under, this
Agreement (including the right of the Employee to terminate his Employment for
Good Reason or by reason of a Change of Control pursuant to Section 5(B) (i))
shall not be deemed a waiver of that provision or of any other provision of or
right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ANY
PRINCIPLES OF CONFLICTS OF LAWS.
21
I. JURISDICTION AND VENUE. The Company irrevocably consents with
respect to any action, suit or other legal proceeding pertaining directly to
this Agreement or to the interpretation or enforcement of any of Employee's
right hereunder to service of process in the State of Texas and hereby waives
any right to contest or oppose receipt of such service of process. The Company
irrevocably (i) agrees that any such action, suit or other legal proceeding may
be brought in the courts of such state or in the courts of the United States
sitting in such state, (ii) consents to the jurisdiction of each such court in
any such action, suit or other legal proceeding and (iii) waives any objection
it may have to the laying of venue of any such action, suit or other legal
proceeding in any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed to the
Employee hereunder are not so paid or reimbursed at the times provided herein
(including amounts required to be paid by the Company pursuant to Sections 6 and
10, those amounts shall accrue interest compounded daily at the annual
percentage rate which is three percentage points (3%) above the interest rate
announced by Texas Commerce Bank National Association, Houston, Texas (or its
successor), from time to time, as its Base Rate (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that, except to
the extent required by law or legal process (including the Exchange Act and the
Securities Act), it will not make or publish, without the prior written consent
of the Employee, any written or oral statement concerning the terms of the
Employee's employment relationship with the Company and will not, if a Notice of
Termination is given by either the Company or the Employee for any reason,
publish or cause to be published any statement concerning the Employee,
including his work-related performance or the reasons or basis for the giving of
that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all Federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
N. ENTIRE AGREEMENT. The Company and the Employee agree that this
Agreement supersedes all prior written and oral agreements between them with
respect to the employment of the Employee by the Company, but has no effect on
any Compensation Plan in which the Employee was participating prior to the
Effective Date or on the Agreement and Plan of Reorganization dated as of June
13, 1996 to which the Company and the Employee are parties.
22
O. EFFECTIVE DATE. This Agreement shall be effective on the date on
which the Effective Time occurs (the "Effective Date"), and the term "Effective
Time" has the meaning specified in the Agreement and Plan of Reorganization
dated as of June 13, 1996 among the Company, the Employee and the other parties
thereto, including General Heating Engineering Company, Inc. (the "Merger
Agreement"). If the Merger Agreement is terminated prior to the Effective Time,
this Agreement will be deemed for all purposes to have been abandoned and of no
force or effect as of and after the time of that termination.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES; RESOLUTION OF DISPUTES
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into this
Agreement the Company intends that the Employee receive without reduction or
delay all the intended benefits of this Agreement and that those benefits, and
the terms and conditions hereof, be construed in a manner most favorable to the
Employee; the Company, therefore, agrees that it will strive expeditiously and
in good faith to construe and resolve in the Employee's favor and to his benefit
any ambiguities or uncertainties that may be created by the express language
hereof. If, however, at any time during the term hereof or afterwards: (i) there
should exist a dispute or conflict between the Employee and the Company or
another Person as to the validity, interpretation or application of any term or
condition hereof, or as to the Employee's entitlement to any benefit intended to
be bestowed hereby, which is not resolved to the satisfaction of the Employee,
(ii) the Employee must (A) defend the validity of this Agreement, (B) contest
any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred to in
Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by
23
direct negotiation, the Company and the Employee agree that the next step taken
to resolve that dispute, prior to either party initiating any litigation to
resolve that dispute (not including any litigation that may be required to
enforce the Employee's rights to the payment or advancement of expenses and
legal fees on a current basis pursuant to Section 10(A)) shall be to submit the
dispute to an agreed Alternative Dispute Resolution ("ADR") process, to which
process the parties shall strive diligently in good faith to agree within ten
(10) business days after either party has given written notice to the other
party that it is unable to concur in the other party's final proposed negotiated
resolution of the dispute. If the Company and the Employee are unable to agree
in writing to an acceptable ADR process within that ten (10) business day
period, then the parties shall submit to a mandatory ADR process by making joint
application to the then Chief United States Federal District Judge in the
Southern District of Texas for the selection of an ADR process for the parties.
The parties shall diligently in good faith participate in the ADR process chosen
by that judge. If the parties are unable to resolve their dispute after diligent
good faith participation in the ADR process, then either party shall be free to
initiate such litigation as that party deems appropriate under the
circumstances. Under no circumstances shall the Employee be obligated to pay for
the cost of any ADR process or to pay or reimburse the Company for any
attorneys' fees, costs or other expenses incurred by the Company in connection
with any process undertaken by the Employee to resolve disputes under this
Agreement. As used in this Section 10, the term "Employee" includes, if the
Employee has died or become incompetent as a matter of applicable law, the
Employee's legal representative acting in his capacity as such under applicable
law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the maximum
extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:____________________________________
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
---------------------------------------
Howard C. Menditch
Employee's Permanent Address:
11037 Snowshoe Lane
Rockville, Maryland 20852
25
Exhibit 10.14
Bruce L. Menditch
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of June 13, 1996 to become effective as of the Effective Date (as herein
defined) by and between AMERICAN RESIDENTIAL SERVICES, INC., a Delaware
corporation (the "Company"), and BRUCE L. MENDITCH (the "Employee").
RECITALS
In entering into this Agreement, the Company desires to
provide the Employee with substantial incentives to serve the Company as a
senior executive performing at the highest levels of leadership and stewardship,
without distraction or concern over minimum compensation, benefits or tenure, to
develop and implement the Company's initial development plan and thereafter
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
mutual provisions contained herein, and for other good and valuable
consideration, the parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms
have the meanings assigned to them below:
"ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to
the repurchase of Common Stock by the Company, unless and until such
time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares
of Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who
is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such
1
Person, is not then the Beneficial Owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding.
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a) the
Part-time Employment Effective Date or (b) the Termination Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned by the
Employee during that Compensation Year, including all amounts deferred
at the election of the Employee pursuant to a Compensation Plan
intended to qualify as a plan under Section 401(k) of the Code or
otherwise. If salary or bonus is paid in whole or in part in property
other than cash (such as Common Stock) the amount so paid shall be the
fair market value thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a subsidiary of
the Company) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Part-time Employment Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the two (2)
Compensation Years next preceding that date or, if less than two (2)
Compensation Years have occurred prior to that date and since the
Effective Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized basis, the
Annual Cash Compensation in each partial Compensation Year (up to a
maximum of two (2) partial Compensation Years) next preceding the
Part-time Employment Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable by the
Company to the Employee pursuant to Section 4(A); and (b) on and after
the Part-time Employment Effective Date, the guaranteed minimum annual
salary payable by the Company to the Employee pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
2
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
(a) as a result of an agreement, arrangement or understanding
to vote that security if that agreement, arrangement or
understanding: (1) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (2) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether that right or
obligation is exercisable or effective immediately or only
after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or
Associates until those tendered securities are accepted for
purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of that acquisition. For purposes of this Agreement, "voting"
a security shall include voting, granting a proxy, acting by consent,
making a request or demand relating to corporate action (including,
without limitation, calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
3
"BOARD" means the entire Board of Directors of the Company.
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a felony crime
that enriched the Employee at the expense of the Company; or (b) the
Employee's deliberate and intentional continuing failure to
substantially perform his duties and responsibilities hereunder (except
by reason of the Employee's incapacity due to physical or mental
illness or injury) for a period of forty-five (45) days after the
Required Board Majority has delivered to the Employee a written demand
for substantial performance hereunder which specifically identifies the
bases for the Required Board Majority's determination that the Employee
has not substantially performed his duties and responsibilities
hereunder (such period being the "Grace Period"); provided, that for
purposes of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of the
Board called and held following the Grace Period in the city in which
the Company's principal executive offices are located of which the
Employee was given not less than ten (10) days' prior written notice
and at which the Employee was afforded the opportunity to be
represented by counsel, appear and be heard, the Required Board
Majority shall adopt a written resolution which (A) sets forth the
Required Board Majority's determination that the failure of the
Employee to substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to physical or
mental illness or injury) continued past the Grace Period and (B)
specifically identifies the bases for that determination and (2) the
Company, at the written direction of the Required Board Majority, shall
deliver to the Employee a Notice of Termination for Cause to which a
copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. Cause
of the type referred to in clause (a) of the preceding sentence is a
"Type I Cause," while Cause of the type referred to in clause (b) of
the preceding sentence is a "Type II Cause." For purposes of
determining whether a Type II Cause has occurred, no act or failure to
act on the part of the Employee shall be considered "deliberate and
intentional" unless it is taken or omitted to be taken by the Employee
in bad faith or without a reasonable belief that the Employee's act or
omission was in the best interests of the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(c) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
4
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary during the
term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) American Residential Services, Inc., a
Delaware corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to Section
9(D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer or any member of the family of any Executive Officer, (a)
including (i) any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or other "employee benefit plan" (as defined in
Section 3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the Code or whose
benefits are limited by the Code or ERISA, (iii) any "employee welfare
plan" (as defined in Section 3(1) of ERISA), (iv) any arrangement,
plan, policy, practice or program providing for severance pay, deferred
compensation or insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing and
providing for the payment or reimbursement of expenses attributable to
first-class air travel and first-class hotel occupancy while on travel
or (B) providing for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air time or other
recurring monthly charges or any other fringe benefit, allowance or
accommodation of employment, but (b) excluding any compensation
arrangement, plan, policy, practice or program to the extent it
provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the compensation of
Executive Officers and the administration of Incentive Plans, if any,
intended to qualify for the Exchange Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, 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 sale programs, customer lists,
records
5
of customer service requirements, capital expenditure projects, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any 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.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers-- All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as published
by the United States Department of Labor, Bureau of Labor Statistics
(or its successor) for that period.
"CONTINUING DIRECTOR" means at any time any individual who
then (a) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or
that first election, to the Board following that date was recommended
or approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on all
Persons, absent manifest error), as a result of a physical or mental
illness or personal injury he has incurred (including illness or injury
resulting from any substance abuse), by a Qualified Physician (who may
be the doctor treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by the
Employee with the consent of the Company, or by the Company at its
expense and with the consent of the Employee (which consent shall not
be unreasonably withheld in either case), to be unable to perform, at
the time of that determination and, in all reasonable medical
likelihood, indefinitely thereafter, the normal duties then most
recently assigned, under and in accordance with the terms hereof, to
the Employee while on Active Status; provided that, the determination
whether the Employee has incurred a Disability shall be made by a
majority of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be selected by
the Company and (c) the remaining one (1) of whom shall be selected by
the Qualified Physicians selected by the Employee and the Company
pursuant to clauses (a) and (b) of this proviso and the fees and
expenses of whom will be shared and paid in equal amounts by the
Employee and the Company, if: (1) (A) the Company has reasonably
withheld its consent to the Qualified Physician, if any, selected by
the Employee or (B) the Employee has reasonably withheld his consent to
the Qualified Physician, if any, selected by the Company and (2) the
Qualified Physicians selected by the Employee and the Company disagree
as to whether the Employee has incurred a Disability. For purposes of
this definition, if the Employee is unable by reason of illness or
injury to give an informed consent to the performance of the treatment
of that illness or injury, a Qualified Physician selected by any Person
who is authorized by applicable law to give that consent will be deemed
to have been selected by the Employee.
6
"EFFECTIVE DATE" has the meaning ascribed to that term in
Section 9(O).
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief
financial officer, the president, any executive or senior vice
president or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or any subsidiary of the
Company and (b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule
13d-5(b)) of which the Employee or any Affiliate or Associate of the
Employee is a member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the Company;
(b) either (1) a failure of the Company to continue in effect any
Compensation Plan in which the Employee was participating or (2) the
taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under, any such Compensation Plan, unless (A) in the case of
either subclause (1) or (2) of this clause, there is substituted a
comparable Compensation Plan that is at least economically equivalent,
in terms of the benefit offered to the Employee, to the Compensation
Plan being ended or in which the Employee's participation is being
adversely affected or the Employee's benefits are being materially
reduced or (B) in the case of that subclause (1), the failure, or in
the case of that subclause (2), the taking of action, adversely affects
Executive Officers generally; or (c) the assignment to the Employee of
duties inconsistent in any material respect with the Employee's then
current positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any other
action by the Company which results in a material diminution in those
positions, authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which the Company or
any subsidiary of the Company contributes, on behalf of any Executive
Officer and which provides for incentive, bonus or other
performance-based awards of cash, securities or the phantom equivalent
of securities,
7
including any stock option, stock appreciation right and restricted
stock plan, but excluding any plan intended to qualify as a plan under
any one or more of Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective
under that act and the shares registered by that registration statement
are issued and sold by the Company (otherwise than pursuant to the
exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's Employment, and if the
Termination Date is other than the date of receipt of the notice, (b)
sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any subsidiary
of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to terminate
the Employee's Employment other than for Cause or (b) if the Employee
elects pursuant to the applicable provision hereof to terminate his
Employment for Good Reason or by reason of his Disability, the date the
Nonterminating Party receives the Terminating Party's Notice of
Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part-time Employment Effective Date and ends on the first
to occur of (a) the third (3rd) anniversary of that Part-time
Employment Effective Date, (b) the termination by the Company of the
Employee's Employment for Type I Cause or (c) the death or Retirement
of the Employee.
"PERSON" means any natural person, 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, joint venture,
estate, trust, union or employee organization or governmental
authority.
"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician (a)
holding an M.D. degree from a
8
medical school located in the United States, (b) specializing and
board-certified in the treatment of the injury or illness that has or
may have caused that Disability and (c) having admission privileges to
one or more hospitals located in Texas or in the state in which the
Employee then is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a majority of
the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment by means
of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement, the date of
that death or Retirement; (b) if the Employee's Employment is
terminated by reason of the Employee's giving a Notice of Termination
following a Change of Control pursuant to Section 5(B)(i)(b), the first
date on which the Company pays to the Employee in full the amounts owed
to the Employee pursuant to Section 5(B)(iii); (c) if the Employee's
Employment is terminated by reason of the Employee's giving a Notice of
Termination without Good Reason and other than for Disability pursuant
to Section 5(B)(i)(c), the elapse of the thirtieth (30th) day after the
Company receives that notice; (d) if the Employee's Employment is
terminated by the Company at any time for Type I Cause or, prior to the
Part-time Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination for
Cause; and (e) if the Employee's Employment is terminated for any other
reason, at the expiration of the Part-time Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the first sentence of the definition of Cause herein.
"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the first sentence of the definition of Cause herein.
"VOTING SHARES" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (b) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
9
B. OTHER DEFINITIONAL PROVISIONS. (i) Except as otherwise
specified herein, all references herein to any statute defined or referred to
herein, including the Code, ERISA and the Exchange Act, shall be deemed
references to that statute or any successor statute, as the same may have been
or may be amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(ii) 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 word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) 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.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as Vice President of General Heating & Air Conditioning Company, Inc.
(formerly named "General Heating Engineering Company, Inc.") in Manassas,
Virginia, and the Employee will serve in the Company's employ in that position.
The Employee shall perform such duties, and have such powers, authority,
functions, duties and responsibilities for the Company and corporations
affiliated with the Company as are commensurate and consistent with his
employment as Vice President of General Heating & Air Conditioning Company, Inc.
The Employee also shall have such additional powers, authority, functions,
duties and responsibilities as may be assigned to him by the Board; provided
that, without the Employee's written consent, such additional powers, authority,
functions, duties and responsibilities shall not be inconsistent or interfere
with, or detract from, those herein vested in, or otherwise then being performed
for the Company by, the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not interfere
materially with the Employee's duties and responsibilities for the Company at
that time, except that the Employee shall be entitled, subject to the provisions
of Section 7, (a) to continue with such activities as the Employee has carried
on prior to the Effective Date, including making and managing his personal
investments and participating in other business or civic activities and (b) to
serve on corporate or other business, civic or charitable boards or committees
and trade association or similar boards or committees.
10
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the term of the
Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and renewing each day thereafter for an
additional day without any further action by either the Company or the Employee,
it being the intention of the parties that there shall be continuously a
remaining term of three (3) years' duration of the Employee's Employment 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 5. When the
Termination Date shall have occurred and the Company shall have paid to the
Employee all the applicable amounts Section 5 provides the Company shall pay as
a result of the termination of the Employee's Employment, including all amounts
accruing during the Part-time Employment Period, if any, this Agreement will
terminate and have no further force or effect, except that Sections 4(c), 8, 9,
10 and 11 shall survive that termination indefinitely and Section 7 shall
survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee
by the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the first to
occur of the Part-time Employment Effective Date or the Termination Date . That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less infrequently than semi-monthly),
shall be payable initially at the annual rate of $150,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in the CPI for
the twelve (12) month period immediately preceding such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be determined in the
sole discretion of the Compensation Committee, but only in such form
and to such extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such determinations
or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state having a
personal income tax, or if the Employee resides in a state without a
personal income tax on the date hereof which subsequently adopts a
personal income tax, then, in either case, the Base Salary in effect at
the time of such relocation or adoption, as applicable, shall
immediately be increased by the amount equal to the Base Salary
immediately prior to this increase multiplied by seventy percent (70%)
of the highest personal income tax rate of such state; for example, if
the Employee relocates from a state without a personal income tax to a
state having a personal income
11
tax and the highest rate of that tax is six percent (6%) when the Base
Salary is $200,000, then the Base Salary will be increased by $8,400
(computed at 70% x 6% x $200,000).
Effective as of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section 5(E).
B. OTHER COMPENSATION. The Employee shall be entitled to
participate in all Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee is an Executive
Officer. All awards to the Employee under all Incentive Plans shall take into
account the Employee's positions with and duties and responsibilities to the
Company and its subsidiaries.
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment in the
nature of compensation, singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Code, or any successor or other comparable federal, state
or local tax law by reason of being a "parachute payment" (within the meaning of
Section 280G of the Code), the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local taxes payable by the Employee as a result of the receipt of such
additional compensation) to place the Employee in the same after-tax position
(including federal, state and local taxes) he would have been in had no such
excise or similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional compensation within
the earlier to occur of (i) five (5) business days after the Employee notifies
the Company that the Employee intends to file a tax return taking the position
that such excise or similar purpose tax is due and payable in reliance on a
written opinion of the Employee's tax counsel (such tax counsel to be chosen
solely by the Employee) that it is more likely than not that such excise tax is
due and payable or (ii) twenty-four (24) hours of any notice of or action by the
Company that it intends to take the position that such excise tax is due and
payable. The costs of obtaining the tax counsel opinion referred to in clause
(i) of the preceding sentence shall be borne by the Company, and as long as such
tax counsel was chosen by the Employee in good faith, the conclusions reached in
such opinion shall not be challenged or disputed by the Company. If the Employee
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Employee's tax liability by any federal,
state or local tax authority, the Company will pay such additional compensation
by delivering its cashier's check payable in such amount to the Employee within
five (5) business days after the Employee notifies the Company of his intention
to make such payment. Without limiting the obligation of the Company hereunder,
the Employee agrees, in the event the Employee makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to afford the Company
any right to contest the applicability of any such excise or similar purpose tax
to the extent that the Employee
12
reasonably determines (based upon the opinion of his tax counsel) that such
contest is inconsistent with the overall tax interests of the Employee.
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY. (i) The Company
shall be entitled, if acting at the direction of the Required Board Majority, to
terminate the Employee's Employment (a) at any time for Type I Cause or (b) at
any time prior to the Part-time Employment Effective Date for Type II Cause or
for any Business Reason. If the Employee is neither a member of the Board nor an
Executive Officer, the Company shall be entitled, if acting at the direction of
the chief executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Effective Date for any
Business Reason. The Company's termination of the Employee's Employment for
Cause will be effective on the date the Company delivers a Notice of Termination
for Cause to the Employee pursuant to this Section 5(A)(i)(together, in the case
of a termination for Type II Cause, with the certified resolution referred to in
clause (b) of the definition herein of Cause), while the Company's termination
of the Employee's Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a Notice of Termination
for a Business Reason to the Employee pursuant to this Section 5(A)(i).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid, and, when that
payment is made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of the Company and the
Employee during the Part- time Employment Period will be as set forth in Section
5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE. (i) The Employee
shall be entitled to terminate his Employment (a) for a Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred sixty-five (365)
days after that Change of Control occurs (provided, however, that the Employee
shall not be entitled to terminate his Employment by reason of that Change of
Control if it occurs (1) during the thirty (30) day period following the
Company's receipt of the Employee's Notice of Termination without Good Reason
and other than for Disability pursuant to this Section 5(B)(i), (2) after (A)
the receipt by the Nonterminating Party of the Terminating Party's Notice of
Termination pursuant to Section 5(C) or (B) the Employee's receipt of the
Company's Notice of Termination for a Business Reason (other than in connection
with that
13
Change of Control) pursuant to Section 5(A) or (3) more than three hundred
sixty-five (365) days after the Company's receipt of the Employee's Notice of
Termination for Good Reason pursuant to this Section 5(B)(i)) or (c) without
Good Reason and other than for Disability at any time. The Employee's
termination of his Employment for Good Reason will be effective on the third
(3rd) anniversary of the date the Employee delivers a Notice of Termination for
Good Reason to the Company pursuant to this Section 5(B)(i). The Employee's
termination of his Employment by reason of a Change of Control will be effective
on the first date on which the Change of Control Payment shall have been paid in
full to the Employee. The Employee's termination of his Employment without Good
Reason and other than for Disability will be effective on the thirtieth (30th)
day following the Employee's delivery of a Notice of Termination without Good
Reason and other than for Disability pursuant to this Section 5(B)(i).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company and the Employee
during the Part-time Employment Period will be as set forth in Section 5(E ).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a cash lump sum
within five (5) business days after the date the Company receives the Employee's
Notice of Termination by reason of that Change of Control the amount equal to
the sum of (a) the portion of the Base Salary to and including the Termination
Date which has not yet been paid, (b) all compensation previously deferred by
the Employee (together with any accrued interest and earnings thereon), (c) any
accrued but unpaid vacation pay and (d) the Change of Control Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to the Employee, in
a cash lump sum within five (5) business days after the Termination Date, the
amount equal to the sum of (a) the portion of the Base Salary to and including
the Termination Date which has not yet been paid, (b) all compensation
previously deferred by the Employee (together with any accrued interest and
earnings thereon) which has not yet been paid, (c) any accrued but unpaid
vacation pay and (d) the amount equal to fifty percent (50%) of the Base Salary
being paid for the Compensation Year in which the Company receives the
Employee's Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates his Employment
without Good Reason and other than for Disability within six (6) months of the
theretofore scheduled final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the amount determined
pursuant to that clause multiplied by a fraction the numerator of which is the
number of days from and excluding the date the Company receives the Notice of
Termination to and including that final day and the denominator of which is one
hundred eighty-two (182). For purposes of this Section 5(B)(iv), if the
anniversary of the Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and other than for
Disability has not occurred on or prior to the date of that receipt, the Base
Salary for that Compensation Year will be calculated on the assumption that no
increase in the amount thereof would be made effective as of that anniversary
pursuant to Section 4(A) or 5(E)(i), as applicable.
14
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or the Company may
terminate the Employee's Employment effective on the third (3rd) anniversary of
the date the Nonterminating Party receives a Notice of Termination from the
Terminating Party pursuant to this Section 5(C). If the Employee's Employment is
terminated by reason of the Employee's Disability, the respective rights and
obligations of the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his death. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of (i) the portion
of the Base Salary through the end of the month in which the Termination Date
occurs which has not yet been paid, (ii) all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon) which has
not yet been paid, (iii) any accrued but unpaid vacation pay (if the Employee
dies while on Active Status) and (iv) (a) if the Employee dies while on Active
Status, the product of the Base Salary being paid for the Compensation Year in
which he dies multiplied by three (3) or (b) if the Employee dies during the
Part-time Employment Period, the product of one-twelfth (1/12th) of the Base
Salary being paid for the Compensation Year in which the Employee dies
multiplied by the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar month in which he
dies and ending with the last calendar month in which the Termination Date would
have occurred if the Employee's Employment were to have continued to the end of
the Part-time Employment Period. For purposes of this Section 5(D), if the
anniversary of the Effective Date in the Compensation Year in which the Employee
dies has not occurred on or before the Termination Date, the Base Salary for
that Compensation Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that anniversary pursuant to
Section 4(A) or 5(E)(i), as applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the intervals
consistent with the Company's normal payroll schedules (but in no event less
frequently than semi-monthly) from the Part-time Employment Effective Date to
and including the Termination Date in the amounts determined from time to time
as follows: Effective as of the Part-time Employment Effective Date, the Base
Salary payable by the Company to the Employee for the period from and including
that date to and excluding the third (3rd) anniversary of that date shall be as
follows:
(a) if the Part-time Employment Effective Date occurs as a
result of the receipt by the Nonterminating Party of a Notice of
Termination for a Business Reason pursuant to Section 5(A) or a Notice
of Termination for Good Reason pursuant to Section 5(B)(i), the amount
equal to the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date; and (b) if
the Part-time Employment
15
Effective Date occurs as a result of the receipt by the Nonterminating
Party of a Notice of Termination for Disability pursuant to Section
5(C), the amount equal to the amount by which (1) seventy-five percent
(75%) of the Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective Date exceeds (2)
the aggregate amount of periodic payments the Employee receives during
the twelve (12) months beginning on that date under Compensation Plans
then in effect and providing for the payment to the Employee solely as
a result or on account of disability; and
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary payable pursuant
to this Section 5(E) shall be increased (but not decreased) by the same
percentage increase (if any) in the CPI for the twelve (12) month
period immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during the Part-time Employment
Period, provided, however, that: (1) the Employee shall not be entitled to
receive any new award or grant under any Incentive Plan, and any such new award
or grant shall be at the sole discretion of the Compensation Committee or the
Board, as applicable, with respect to that Incentive Plan; and (2) if (A) the
terms of any such plan preclude the Employee's continued participation therein
or (B) his continued participation in any such plan would or reasonably could be
expected to disqualify that plan under the Code, the Employee shall not be
entitled to participate in that plan, but the Company instead shall provide the
Employee with the after-tax equivalent of the benefits that would have been
provided to the Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including years
of service) for retirement benefits payable under any Compensation Plan, the
Employee shall be deemed to have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or engaging in (and
devoting substantially all his time to) other business activities or (B)
required to perform any regular duties for the Company (except to provide such
services consistent with the Employee's educational background, experience and
prior positions with the Company as may be acceptable to the Employee) or to
seek or accept additional employment with any other Person. If the Employee, at
his discretion, shall accept any such additional employment or engage in any
such other business activity there shall be no offset, reduction or effect upon
any rights, benefits or payments to which the Employee is entitled pursuant to
this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to the Company any compensation or other amounts
earned or derived in connection with such additional employment or business
activity. The Employee shall, however, make himself generally available for
special projects or to consult with the Company and its employees at such times
and at such places as may be reasonably requested by the Company and which shall
be reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
16
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee with either the
same or, at the Company's election, at a different location within 35 miles of
the Employee's principal residence, in any case reasonably acceptable to the
Employee, alternate but comparable office space, furnishings, facilities,
reserved parking, supplies, services, equipment, secretarial and administrative
assistance that are in each case at least commensurate with the size and quality
of that which were provided to the Employee during the Compensation Year
immediately preceding the Part-time Employment Effective Date pursuant to
Section 6(C), but in no event less than are being furnished or provided on the
date hereof. The Company and Employee may mutually agree upon an equivalent
monthly cash allowance in lieu of the Employee being provided all or any part of
these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his representatives) shall
promptly deliver and return to the Company all the Company's property that is in
the possession or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of the
Employee's Employment for Cause, all stock options previously granted to the
Employee under Incentive Plans that have not been exercised and are outstanding
as of the time immediately prior to the Termination Date shall, notwithstanding
any contrary provision of any applicable Incentive Plan, remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier; and (ii) in the
case of a termination of the Employee's Employment for Cause, all stock options
previously granted to Employee under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to the Employee under
any Incentive Plan shall, notwithstanding any contrary provision of that
Incentive Plan, expire or fail to become exercisable or, if exercisable, cease
to be exercisable by reason of either (i) the occurrence of the Employee's
Part-time Employment Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to
not less than four (4) weeks of annual vacation and all legal holidays during
which times his applicable compensation shall be paid in full.
17
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including business meal, entertainment and travel
expenses, provided that the Employee complies with the applicable policies,
practices and procedures of the Company relating to the submission of expense
reports, receipts or similar documentation of those expenses. The Company shall
either pay directly or promptly reimburse the Employee for such expenses not
more than twenty (20) days after the submission to the Company by the Employee
from time to time of an itemized accounting of such expenditures for which
direct payment or reimbursement is sought. Unpaid reimbursements after such
20-day period shall accrue interest in accordance with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by the Company with office space, furnishings, and facilities, reserved
parking, secretarial and administrative assistance, supplies and other support
equipment (including a computer, facsimile machine and photocopier).
D. NO FORCED RELOCATION. The Employee shall not be required to
move his principal place of residence from the metropolitan Washington, D.C.
area or to perform regular duties that could reasonably be expected to require
either such move against his wish or to spend amounts of time each week outside
the metropolitan Washington, D.C. area which are unreasonable in relation to the
duties and responsibilities of the Employee hereunder, and the Company agrees
that, if it requests the Employee to make such a move and the Employee declines
that request, (i) that declination shall not constitute any basis for a
determination that Type II Cause exists and (ii) no animosity or prejudice will
be held against Employee.
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his Employment and for a
period of one (1) year after the Termination Date, he will not, within fifty
(50) miles of the geographic location in which the he has devoted substantial
attention at such location to the material business interests of the Company:
(i) accept employment or render service to any Person that is engaged in a
business directly competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, employee, consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be competitive with the
business of the Company.
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon application to any court
of proper jurisdiction, to a temporary restraining order or preliminary
injunction (without the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the provisions of this
Section
18
7 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Employee and the Company agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue
to have access to various Confidential Information. The Employee agrees,
therefore, that he will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly disclose to any
other person (except as authorized by the Company) any Confidential Information.
Confidential Information shall not include (i) information that becomes known to
the public generally through no fault of the Employee, (ii) information required
to be disclosed by law or legal process or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Employee shall, if possible, give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the Employee. In the event of a breach or threatened breach by
the Employee of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a temporary
restraining order and a preliminary and permanent injunction (without the
necessity of posting any bond in connection therewith) restraining the Employee
from disclosing, in whole or in part, that Confidential Information. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
available remedy for that breach or threatened breach, including the recovery of
damages.
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by the
Employee solely or jointly with any other Person or Persons during the period of
his Employment and which pertain primarily to the material business activities
of the Company, and the Employee hereby assigns and agrees to assign all his
interests therein to the Company or to its nominee; whenever requested to do so
by the Company, the Employee shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply for and
obtain Letters of Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein. These obligations shall (i)
continue beyond the Termination Date with respect to inventions, improvements,
and valuable discoveries, whether patentable or not, conceived, made or acquired
by the Employee during the period of his Employment and (ii) be binding upon the
Employee's assigns, executors, administrators and other legal representatives.
19
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final judgment of a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, (i) such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, (ii) this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein (except that this clause (ii) shall not prohibit any modification allowed
under Section 7(B)) and (iii) if the effect of a holding or finding that any
such provision is invalid, illegal or unenforceable is to modify to the
Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by the Company and
Employee in entering into this Agreement, the Company shall, within thirty (30)
days after the date of such finding or holding, negotiate and expeditiously
enter into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee) that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits and legal rights the Employee would have enjoyed had
such provision been upheld as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its undertakings in, this
Agreement shall not be affected by any right of set-off, counterclaim,
recoupment, defense or other action, claim or right the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any provision hereof, and those amounts shall not
be reduced, regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS. (i) This Agreement is personal to the Employee
and, without the prior written consent of the Company, is not assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit and be enforceable by the Employee's legal
representatives acting in their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If the Employee is not
an Executive Officer, but is an officer of a subsidiary of the Company, the
Company shall be entitled to assign all its obligations hereunder to that
subsidiary and treat the Employee as an employee of that subsidiary for all
20
purposes, but the Company shall remain liable for the full, timely performance
of all the obligations so assigned as if the assignment had not been made.
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company substantially
as an entirety expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would have been required to
perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered by the parties
hereto or their respective successors or legal representatives acting in their
capacities as such pursuant to applicable law.
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the appropriate Person at the address of such Person set forth
below (or at such other address as such Person may designate by written notice
to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Bruce L. Menditch
9200 Potomac School Drive
Potomac, Maryland 20854
; and
(b) if to the Company, addressed as follows:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to assert any right under,
this Agreement (including the right of the Employee to terminate his Employment
for Good Reason or by reason of a Change of Control pursuant to Section 5(B)
(i)) shall not be deemed a waiver of that provision or of any other provision of
or right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE
TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
21
I. JURISDICTION AND VENUE. The Company irrevocably consents
with respect to any action, suit or other legal proceeding pertaining directly
to this Agreement or to the interpretation or enforcement of any of Employee's
right hereunder to service of process in the State of Texas and hereby waives
any right to contest or oppose receipt of such service of process. The Company
irrevocably (i) agrees that any such action, suit or other legal proceeding may
be brought in the courts of such state or in the courts of the United States
sitting in such state, (ii) consents to the jurisdiction of each such court in
any such action, suit or other legal proceeding and (iii) waives any objection
it may have to the laying of venue of any such action, suit or other legal
proceeding in any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed
to the Employee hereunder are not so paid or reimbursed at the times provided
herein (including amounts required to be paid by the Company pursuant to
Sections 6 and 10, those amounts shall accrue interest compounded daily at the
annual percentage rate which is three percentage points (3%) above the interest
rate announced by Texas Commerce Bank National Association, Houston, Texas (or
its successor), from time to time, as its Base Rate (or prime lending rate),
from the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
L. PUBLICITY. The Company agrees with the Employee that,
except to the extent required by law or legal process (including the Exchange
Act and the Securities Act), it will not make or publish, without the prior
written consent of the Employee, any written or oral statement concerning the
terms of the Employee's employment relationship with the Company and will not,
if a Notice of Termination is given by either the Company or the Employee for
any reason, publish or cause to be published any statement concerning the
Employee, including his work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision
hereof, the Company may withhold from amounts payable hereunder all Federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee agree that
this Agreement supersedes all prior written and oral agreements between them
with respect to the employment of the Employee by the Company, but has no effect
on any Compensation Plan in which the Employee was participating prior to the
Effective Date or on the Agreement and Plan of Reorganization dated as of June
13, 1996 to which the Company and the Employee are parties.
22
O. EFFECTIVE DATE. This Agreement shall be effective on the
date on which the Effective Time occurs (the "Effective Date"), and the term
"Effective Time" has the meaning specified in the Agreement and Plan of
Reorganization dated as of June 13, 1996 among the Company, the Employee and the
other parties thereto, including General Heating Engineering Company, Inc. (the
"Merger Agreement"). If the Merger Agreement is terminated prior to the
Effective Time, this Agreement will be deemed for all purposes to have been
abandoned and of no force or effect as of and after the time of that
termination.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES; RESOLUTION OF
DISPUTES
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into
this Agreement the Company intends that the Employee receive without reduction
or delay all the intended benefits of this Agreement and that those benefits,
and the terms and conditions hereof, be construed in a manner most favorable to
the Employee; the Company, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in the Employee's favor and to his
benefit any ambiguities or uncertainties that may be created by the express
language hereof. If, however, at any time during the term hereof or afterwards:
(i) there should exist a dispute or conflict between the Employee and the
Company or another Person as to the validity, interpretation or application of
any term or condition hereof, or as to the Employee's entitlement to any benefit
intended to be bestowed hereby, which is not resolved to the satisfaction of the
Employee, (ii) the Employee must (A) defend the validity of this Agreement, (B)
contest any determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Employee or (C) determine in any tax year of
the Employee the tax consequences to the Employee of any amounts payable (or
reimbursable) under Section 4(C) or 4(B)(iii), or (iii) the Employee must
prepare responses to an Internal Revenue Service ("IRS") audit of, or otherwise
defend, his personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to an audit by the
IRS of the Company's income tax returns, then the Company hereby unconditionally
agrees: (a) on written demand of the Company by the Employee, to provide sums
sufficient to advance and pay on a current basis (either by paying directly or
by reimbursing the Employee) not less than thirty (30) days after a written
request therefor is submitted by the Employee, the Employee's out of pocket
costs and expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for the fees and
expenses of experts, etc.) incurred by the Employee in connection with any such
matter; (b) the Employee shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction without the
necessity of posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c) the company's
obligations under this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred
to in Section 10(A) arises between the Company and the Employee and they fail to
resolve that dispute by
23
direct negotiation, the Company and the Employee agree that the next step taken
to resolve that dispute, prior to either party initiating any litigation to
resolve that dispute (not including any litigation that may be required to
enforce the Employee's rights to the payment or advancement of expenses and
legal fees on a current basis pursuant to Section 10(A)) shall be to submit the
dispute to an agreed Alternative Dispute Resolution ("ADR") process, to which
process the parties shall strive diligently in good faith to agree within ten
(10) business days after either party has given written notice to the other
party that it is unable to concur in the other party's final proposed negotiated
resolution of the dispute. If the Company and the Employee are unable to agree
in writing to an acceptable ADR process within that ten (10) business day
period, then the parties shall submit to a mandatory ADR process by making joint
application to the then Chief United States Federal District Judge in the
Southern District of Texas for the selection of an ADR process for the parties.
The parties shall diligently in good faith participate in the ADR process chosen
by that judge. If the parties are unable to resolve their dispute after diligent
good faith participation in the ADR process, then either party shall be free to
initiate such litigation as that party deems appropriate under the
circumstances. Under no circumstances shall the Employee be obligated to pay for
the cost of any ADR process or to pay or reimburse the Company for any
attorneys' fees, costs or other expenses incurred by the Company in connection
with any process undertaken by the Employee to resolve disputes under this
Agreement. As used in this Section 10, the term "Employee" includes, if the
Employee has died or become incompetent as a matter of applicable law, the
Employee's legal representative acting in his capacity as such under applicable
law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the
maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
24
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year indicated above.
AMERICAN RESIDENTIAL SERVICES, INC.
By:__________________________________
Howard S. Hoover, Jr.
Chairman of the Board
EMPLOYEE
-------------------------------------
Bruce L. Menditch
Employee's Permanent Address:
9200 Potomac School Drive
Potomac, Maryland 20854
25
EXHIBIT 10.15
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of
the ____ day of ___________, 1996 ("Agreement"), by and between AMERICAN
RESIDENTIAL SERVICES, INC., a Delaware corporation ("Company"), and
_______________________ ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to
serve corporations as directors or in other capacities unless they are provided
with adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to
take on additional service for or on behalf of the Company on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
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SECTION 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as a
director and officer of the Company and, as mutually agreed by Indemnitee and
the Company, as a director, officer, employee, agent or fiduciary of other
corporations, partnerships, joint ventures, trusts or other enterprises
(including, without limitation, employee benefit plans). Indemnitee may at any
time and for any reason resign from any such position (subject to any other
contractual obligation or any obligation imposed by operation of law), in which
event the Company shall have no obligation under this Agreement to continue
Indemnitee in that position. This Agreement shall not be deemed an employment
contract between the Company (or any of its subsidiaries) and Indemnitee.
Indemnitee specifically acknowledges that Indemnitee's employment with the
Company (or any of its subsidiaries), if any, is at will, and the Indemnitee may
be discharged at any time for any reason, with or without cause, except as may
be otherwise provided in any written employment contract between Indemnitee and
the Company (or any of its subsidiaries), other applicable formal severance
policies duly adopted by the Board or, with respect to service as a director of
the Company, by the Company's Certificate of Incorporation, By-laws and the
General Corporation Law of the State of Delaware. The foregoing notwithstanding,
this Agreement shall continue in force after Indemnitee has ceased to serve as
an officer or director of the Company and no longer serves at the request of the
Company as a director, officer, employee or agent of the Company or any
subsidiary of the Company.
SECTION 2. INDEMNIFICATION--GENERAL. The Company shall indemnify,
and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in
this Agreement and (b) (subject to the provisions of this Agreement) to the
fullest extent permitted by applicable law in effect on the date hereof and as
amended from time to time. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
SECTION 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF
THE COMPANY. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or a participant in any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section 3,
the Company shall indemnify Indemnitee against, and shall hold Indemnitee
harmless from and in respect of, all Expenses, judgments, penalties, fines
(including excise taxes) and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses, judgments, fines, penalties or amounts paid in settlement)
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, 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 Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
SECTION 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate
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Status, he is, or is threatened to be made, a party to or a participant in any
threatened, pending or completed Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 4, the
Company shall indemnify Indemnitee against, and shall hold Indemnitee harmless
from and in respect of, all Expenses actually and reasonably incurred by him or
on his behalf in connection with such 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 Company; PROVIDED, HOWEVER, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware, or the court in which such Proceeding shall
have been brought or is pending, shall determine that such indemnification may
be made.
SECTION 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. INDEMNIFICATION FOR EXPENSES AS A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to
which Indemnitee is not a party, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith.
SECTION 7. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
SECTION 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION. (a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent
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Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a), a determination, if required by applicable
law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred within two (2) years prior to the date of such written request, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two (2) years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; PROVIDED, HOWEVER, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 17, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is so made and substantiated,
the Independent Counsel so
-4-
selected may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If (i)
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) and (ii) within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) is then commenced, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
SECTION 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. (a) In
making a determination with respect to entitlement to indemnification hereunder,
the person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a), and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or on a plea of
NOLO CONTENDERE or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee 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 Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
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SECTION 10. REMEDIES OF INDEMNITEE. (a) In the event that (i) a
determination is made pursuant to Section 8 that Indemnitee is not entitled to
indemnification hereunder, (ii) advancement of Expenses is not timely made
pursuant to Section 7, (iii) Independent Counsel is to determine Indemnitee's
entitlement to indemnification hereunder, but does not make that determination
within ninety (90) days after receipt by the Company of the request for that
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 or 6 within ten (10) days after receipt by the Company of a written request
therefor or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification, Indemnitee shall be entitled to an adjudication from the Court
of Chancery of his entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall
commence such proceeding seeking an adjudication or an award in arbitration
within one hundred eighty (180) days following the date on which Indemnitee
first has the right to commence such proceeding pursuant to this Section 10(a);
PROVIDED, HOWEVER, that the foregoing clause shall not apply in respect of a
proceeding brought by Indemnitee to enforce his rights under Section 5.
(b) In the event that a determination shall have been made pursuant
to Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this Section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks
a judicial adjudication of or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
-6-
SECTION 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION. (a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all the rights of recovery
of Indemnitee, who shall execute all papers required and take all action
necessary to secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses
hereunder to Indemnitee with respect to Indemnitee's service at the request of
the Company as a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of Expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
SECTION 12. DURATION OF AGREEMENT. This Agreement shall continue
until and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the
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Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse (if Indemnitee resides in Texas or another community
property state), heirs, executors and administrators.
SECTION 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. IDENTICAL COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
SECTION 16. HEADINGS. The headings of the Sections hereof are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. DEFINITIONS. For purposes of this Agreement:
(a) "ACQUIRING PERSON" means any Person who or which, together with
all Affiliates and Associates of such Person, is or are the Beneficial
Owner of twenty-five percent (25%) or more of the shares of Common Stock
then outstanding, but does not include any Exempt Person; provided,
however, that a Person shall not be or become an Acquiring Person if such
Person, together with its Affiliates and Associates, shall become the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding solely as a result of a reduction in the
number of shares of Common Stock outstanding due to the repurchase of
Common Stock by the Company, unless and until such
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time as such Person or any Affiliate or Associate of such Person shall
purchase or otherwise become the Beneficial Owner of additional shares of
Common Stock constituting one percent (1%) or more of the then outstanding
shares of Common Stock or any other Person (or Persons) who is (or
collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates and
Associates of such Person, is not then the Beneficial Owner of twenty-five
percent (25%) or more of the shares of Common Stock then outstanding.
(b) "AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
(c) "ASSOCIATE" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which that Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the
Beneficial Owner of 10% or more of any class of its equity securities,
(ii) any trust or other estate in which that Person has a substantial
beneficial interest or for or of which that Person serves as trustee or in
a similar fiduciary capacity and (iii) any relative or spouse of that
Person, or any relative of that spouse, who has the same home as that
Person.
(d) A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" (as
determined pursuant to Exchange Act Rule 13d-3) or otherwise has the
right to vote or dispose of, including pursuant to any agreement,
arrangement or understanding (whether or not in writing); PROVIDED,
HOWEVER, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own," any security under this subparagraph
(i) as a result of an agreement, arrangement or understanding to
vote that security if that agreement, arrangement or understanding:
(A) arises solely from a revocable proxy or consent given in
response to a public (that is, not including a solicitation exempted
by Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of
the Exchange Act; and (B) is not then reportable by such Person on
Exchange Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to
acquire (whether that right or obligation is exercisable or
effective immediately or only after the passage of time or the
occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or on the exercise of
conversion rights,
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exchange rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," securities tendered pursuant to
a tender or exchange offer made by that Person or any of that
Person's Affiliates or Associates until those tendered securities
are accepted for purchase or exchange; or
(iii) which are beneficially owned, directly or indirectly, by
(A) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to subparagraph (i) of this
definition) or disposing of any voting securities of the Company or
(B) any group (as that term is used in Exchange Act Rule 13d-5(b))
of which that specified Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of that
acquisition. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or
demand relating to corporate action (including, without limitation,
calling a stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of
such security.
(e) "CHANGE OF CONTROL" means the occurrence of any of the following
events that occurs after the IPO Closing Date: (i) any Person becomes an
Acquiring Person; (ii) at any time the then Continuing Directors cease to
constitute a majority of the members of the Board; (iii) a merger of the
Company with or into, or a sale by the Company of its properties and
assets substantially as an entirety to, another Person occurs and,
immediately after that occurrence, any Person, other than an Exempt
Person, together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of twenty-five percent (25%) or more of the total
voting power of the then outstanding Voting Shares of the Person surviving
that transaction (in the case or a merger or consolidation) or the Person
acquiring those properties and assets substantially as an entirety.
(f) "COMMON STOCK" means the common stock, par value $.001 per
share, of the Company.
(g) "CONTINUING DIRECTOR" means at any time any individual who then
(i) is a member of the Board and was a member of the Board as of the IPO
Closing Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved by
a majority of the then Continuing Directors (acting separately
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or as a part of any action taken by the Board or any committee thereof)
and (ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person or
of any such Affiliate or Associate.
(h) "CORPORATE STATUS" describes the status of a person who is or
was a director, officer, employee or agent of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Company. For purposes of this Agreement, "serving at the request of the
Company" includes any service by Indemnitee which imposes duties on, or
involves services by, Indemnitee with respect to any employee benefit plan
or its participants or beneficiaries.
(i) "COURT OF CHANCERY" means the Court of Chancery of the State of
Delaware.
(j) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "EXEMPT PERSON" means (i)(A) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of
the Company and (B) any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees
of the Company or any subsidiary of the Company and (ii) Indemnitee, any
Affiliate or Associate of Indemnitee or any group (as that term is used in
Exchange Act Rule 13d-5(b)) of which Indemnitee or any Affiliate or
Associate of Indemnitee is a member.
(m) "EXPENSES" include all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness
in, or otherwise participating in, a Proceeding and all interest or
finance charges attributable to any thereof. Should any payments by the
Company under this Agreement be determined to be subject to any federal,
state or local income or excise tax, "Expenses" also shall include such
amounts as are necessary to place Indemnitee in the same after-tax
position (after giving effect to all applicable taxes) he would have been
in had no such tax been determined to apply to such payments.
(n) "INDEPENDENT COUNSEL" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five (5)
-11-
years has been, retained to represent: (i) the Company, its affiliates or
Indemnitee in any matter material to either such party; or (ii) any other
party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(o) "IPO" means the first time a registration statement filed under
the Securities Act of 1933, as amended, and respecting an underwritten
primary offering by the Company of shares of Common Stock is declared
effective under that act and the shares registered by that registration
statement are issued and sold by the Company (otherwise than pursuant to
the exercise of any over-allotment option).
(p) "IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
(q) "PERSON" means any natural person, 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, joint venture, estate,
trust, union or employee organization or governmental authority.
(r) "PROCEEDING" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding and any inquiry or investigation that could
lead to any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding, except one (i) initiated by an Indemnitee
pursuant to Section 10 to enforce his rights hereunder or (ii) pending on
or before the date of this Agreement.
(s) "VOTING SHARES" means: (i) in the case of any corporation, stock
of that corporation of the class or classes having general voting power
under ordinary circumstances to elect a majority of that corporation's
board of directors; and (ii) in the case of any other entity, equity
interests of the class or classes having general voting power under
ordinary circumstances equivalent to the Voting Shares of a corporation.
SECTION 18. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
-12-
SECTION 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder; however, failure to give such notice shall not
deprive Indemnitee of his rights to indemnification and advancement of Expenses
under this Agreement unless the Company is actually and materially prejudiced
thereby.
SECTION 20. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: _______________________
_______________________
_______________________
(b) If to the Company, to: American Residential Services, Inc.
5850 San Felipe, Suite 550
Houston, Texas 77056
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 21. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and the legal relations among the parties shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without regard to its conflict of laws rules. Except with respect to any
arbitration commenced by Indemnitee pursuant to Section 10(a), the Company and
Indemnitee hereby irrevocably and unconditionally (a) agree that any action or
proceeding arising out of or in connection with this Agreement shall be brought
only in the Court of Chancery and not
-13-
in any other state or federal court in the United States of America or any court
in any other country, (b) consent to submit to the exclusive jurisdiction of the
Court of Chancery for purposes of any action or proceeding arising out of or in
connection with this Agreement, (c) waive any objection to the laying of venue
of any such action or proceeding in the Court of Chancery, and (d) waive, and
agree not to plead or to make, any claim that any such action or proceeding
brought in the Court of Chancery has been brought in an improper or otherwise
inconvenient forum.
SECTION 23. MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate. When used in
this Agreement, the words "herein," "hereof" and words of similar import shall
refer to this Agreement as a whole and not to any provision of this Agreement,
and the word "Section" refers to a Section of this Agreement, unless otherwise
specified.
-14-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
ATTEST: AMERICAN RESIDENTIAL SERVICES, INC.
By:__________________________ By: ___________________________________
Name:___________________________
Title:____________________________
ATTEST: INDEMNITEE:
By: __________________________ By: ____________________________________
-15-
Exhibit 10.16
EXECUTIVE SUPPLEMENTAL DISABILITY PLAN
OF
AMERICAN RESIDENTIAL SERVICES, INC.
EFFECTIVE SEPTEMBER 1, 1996
viii
Executive Supplemental Disability Plan
Of
American Residential Services, Inc.
TABLE OF CONTENTS
PAGE
PREAMBLE ......................................................................1
ARTICLE I
DEFINITIONS AND CONSTRUCTION..........................................1
1.1 Definitions..................................................1
1.2 Construction.................................................2
ARTICLE II
ELIGIBILITY AND PARTICIPATION.........................................2
2.1 Eligibility..................................................2
2.2 Policy Issuance..............................................3
2.3 Termination of Participation.................................3
ARTICLE III
FUNDING...............................................................3
3.1 Funding of the Plan..........................................3
3.2 Company Contributions........................................3
3.3 Participant Contributions....................................3
ARTICLE IV
BENEFITS..............................................................3
4.1 Eligibility for Benefits.....................................3
4.2 Determination of Benefits....................................3
4.3 Taxability of Benefits.......................................4
ARTICLE V
ADMINISTRATION........................................................4
5.1 Administration...............................................4
5.2 Powers of the Plan Administrator.............................4
5.3 Scope of Responsibility......................................4
5.4 Claims.......................................................5
i
5.5 Payments to Incompetents.....................................6
ARTICLE VI
AMENDMENT AND TERMINATION.............................................6
6.1 Plan Amendment and Termination in General....................6
6.2 Termination of the Plan......................................6
ARTICLE VII
MISCELLANEOUS.........................................................6
7.1 Limitations on Participants' Rights and Nature of Benefits...6
7.2 Heirs and Successors.........................................7
7.3 No Assignment Permitted......................................7
ii
EXECUTIVE SUPPLEMENTAL DISABILITY PLAN
OF
AMERICAN RESIDENTIAL SERVICES, INC
EFFECTIVE SEPTEMBER 1, 1996
PREAMBLE
Effective September 1, 1996, American Residential Services, Inc., a
Delaware corporation (the "Company"), hereby establishes the Executive
Supplemental Disability Plan (the "Plan") to provide supplemental disability
coverage for specified employees.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. When a word or phrase appears in the Plan with the
initial letter capitalized, the word or phrase will generally be a term defined
in this Section 1.1. The following words or phrases have the meanings set forth
in this Section 1.1, unless a clearly different meaning is required by the
context in which the word or phrase is used.
(a) "ACT" means the Employee Retirement Income Security Act of 1974, as
amended, and any regulations or rulings issued thereunder.
(b) "ANNIVERSARY DATE" means each September 1 after the Effective Date.
(c) "BENEFICIARY" means the person or persons designated to receive any
benefits payable under a Disability policy following the Participant's death. If
a Beneficiary has not been designated, the Beneficiary shall be the
Participant's surviving spouse or, if the Participant does not have a spouse,
his estate.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended, and any
regulations or rulings issued thereunder.
(f) "COMPANY" means American Residential Services, Inc., a Delaware
corporation.
(g) "DISABLED" and "DISABILITY" shall have the meanings assigned to
those terms in the disability insurance policy purchased for a Participant under
this Plan. Any determination of a Participant's Disability made by the Insurer
shall be controlling for purposes of this Plan.
(h) "EFFECTIVE DATE" means September 1, 1996.
1
(i) "EMPLOYEE" means each person who is entitled to remuneration for
services rendered to the Company in the legal relationship of employer and
employee and not in the relationship of an independent contractor.
(j) "INSURER" means a legal reserve insurance company qualified to do
business in the State of Texas, which issues a policy or policies to a
Participant pursuant to the provisions of the Plan.
(k) "MONTHLY BASE PAY" means the Participant's regular monthly rate of
compensation and shall include bonuses and incentive compensation payable by the
Company, as provided in the Participant's Disability policy issued under the
Plan.
(l) "PARTICIPANT" means any person who is an active Employee and who is
designated by the Board or its delegate as a Participant in the Plan.
(m) "PLAN" means the Executive Supplemental Disability Plan of American
Residential Services, Inc., as set forth in this document and as may be amended
from time to time.
(n) "PLAN ADMINISTRATOR" means the Company's Human Resource Director,
or such other individual or entity appointed by the Board, pursuant to ARTICLE
V, to administer the Plan.
(o) "PLAN YEAR" means the 12-month period beginning each September 1
and ending the following August 31.
1.2 CONSTRUCTION. Masculine gender, where appearing in this Plan will
include the feminine gender, and vice versa, and the singular may include the
plural, unless the context clearly indicates the contrary. Delivery to, or
filing with the Plan Administrator, as used in this Plan, will include delivery
to a person or persons designated by the Plan Administrator for the disbursement
and receipt of administrative forms. This will be deemed to have occurred only
when the form or other communication is actually received. Headings and
subheadings are for reference only and will not be considered in the
construction of the Plan. If any provision of this Plan is determined to be for
any reason invalid or unenforceable, the remaining provisions will continue in
full force and effect. All of the provisions of this Plan will be construed and
enforced according to the laws of the State of Texas and will be administered
according to the laws of the State, except as otherwise required by the Act, the
Code or other federal law.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY. Each Employee who is initially designated as a
Participant will commence participation in the Plan on the Effective Date,
subject to the requirements of Section 2.2. An Employee who is designated as a
Participant after the Effective Date shall commence participation on the next
following Anniversary Date.
2
2.2 POLICY ISSUANCE. An Employee who is designated a Participant shall
not become entitled to benefits under the Plan until and unless a Disability
policy has been issued to the Participant.
2.3 TERMINATION OF PARTICIPATION. A Participant's participation in the
Plan will terminate on the date on which the Participant terminates his
employment with the Company, other than by reason of Disability, unless the
Participant enters into a written separation agreement with the Company that
provides otherwise.
ARTICLE III
FUNDING
3.1 FUNDING OF THE PLAN. Benefits payable pursuant to the terms of this
Plan will be provided through the purchase of Disability insurance from an
Insurer. A Participant shall be the owner of any Disability insurance policy
purchased for his benefit and shall have the right to retain all such policies
in the event of his termination of participation in the Plan.
3.2 COMPANY CONTRIBUTIONS. Unless otherwise provided in the
Participant's certificate of participation in the Plan, during the time that a
Participant remains an Employee all premium payments required on the disability
policies issued to a Participant shall be made by the Company. If a Participant
is rated by an Insurer, for health or other reasons, so that the premium costs
are higher than standard rates, at the Participant's election either a reduced
amount of insurance will be provided or the Participant can agree to pay the
premium equal to the difference between the standard rate and the amount payable
to provide the coverage specified pursuant to the Plan.
3.3 PARTICIPANT CONTRIBUTIONS. Participants will not be required to
make premium payments under the Plan, unless otherwise provided in the
Participant's certificate of participation in the Plan or in the Disability
policy.
ARTICLE IV
BENEFITS
4.1 ELIGIBILITY FOR BENEFITS. Benefits shall be paid to the Participant
during periods of Disability as provided in the Participant's Disability policy.
4.2 DETERMINATION OF BENEFITS. On or immediately following the
Effective Date, the Company shall purchase from an Insurer designated by the
Plan Administrator a Disability policy for each Participant that will provide a
Disability benefit equal to a percentage of the Participant's Monthly Base Pay
then in effect, as determined by the Board in its sole discretion. Thereafter,
effective with each Anniversary Date, the Company shall purchase Disability
policies for each new Participant and, in the discretion of the Plan
Administrator, for current Participants reflecting any increase in their Monthly
Base Pay since the date of the last purchase of a policy for such Participant.
The benefits payable to a Participant under the Plan shall be equal to the
percentage, designated in
3
one or more Disability policies issued to the Participant from time to time, of
the Participant's Monthly Base Pay in effect at the time of issuance of such
policies. Benefits shall be paid to the Participant during that period that the
Participant remains Disabled in accordance with the terms of each such policy.
4.3 TAXABILITY OF BENEFITS. It is the intention of the Company not to
report premium payments made on behalf of a Participant as income for Federal
income tax purposes. Accordingly, benefit payments made to a Participant by an
Insurer under a policy will constitute income to the Participant.
ARTICLE V
ADMINISTRATION
5.1 ADMINISTRATION. The Plan will be administered by the Plan
Administrator in accordance with the rules and procedures established under this
Plan.
5.2 POWERS OF THE PLAN ADMINISTRATOR. The Plan Administrator will be
empowered to perform the administrative duties required for proper
administration of the Plan, and will have all powers necessary to enable it to
properly carry out such duties. Without limiting the generality of the
foregoing, the Plan Administrator will have the power to construe and interpret
the Plan (including the right to remedy possible ambiguities, inconsistencies or
omissions); provided, however, that all such interpretations and decisions will
be applied in a uniform and nondiscriminatory manner to all Participants
similarly situated, will have the authority to hear and resolve claims relating
to the Plan, and will decide all questions and disputes arising under the Plan.
The Plan Administrator may adopt and enforce any bylaws and regulations as the
Plan Administrator may deem expedient or appropriate. Except as is otherwise
provided in the Plan, or in any Disability contracts issued under the Plan, the
Plan Administrator will determine the manner and time of payment of benefits
under the Plan. The Plan Administrator will be responsible for filing any
returns and reports required by governmental agencies and responding to any
inquiries by such agencies in connection with such required returns and reports.
The decisions of the Plan Administrator upon all matters within the scope of its
authority will be binding and conclusive upon all persons.
5.3 SCOPE OF RESPONSIBILITY. The Company and the Plan Administrator
will perform the duties respectively assigned to them under the Plan, and will
not be responsible for performing duties assigned to others under the terms and
provisions of the Plan or in any Disability contracts issued under the Plan. No
inference of approval or disapproval is to be made from the inaction of any
party described above or the employee or agent of any of them with regard to the
action of any other such party. If the Plan Administrator consists of more than
one individual, no member of the Plan Administrator may act, vote or otherwise
influence the Plan Administrator regarding his own eligibility, participation,
status or rights under the Plan. The Company will have authority to employ (on
its own behalf or on behalf of the Plan) advisors, legal counsel, accountants
and investment managers in connection with the administration of the Plan, and
may delegate to the Plan Administrator authority to employ such persons (on
their own behalf or on behalf of the Plan). To the extent permitted by
applicable law, the Company and the Plan Administrator will not be liable for
4
complying with the directions of any advisors, legal counsel, accountants and
investment managers appointed pursuant to this ARTICLE V. Persons, organizations
or corporations acting in a position of any responsibility with respect to the
Plan may serve in more than one capacity. The Company or the Plan Administrator
from time to time may delegate to any other persons or organizations any of the
rights, powers, duties and responsibilities of the Company or the Plan
Administrator, respectively, with respect to the operation and administration of
the Plan, and the Company may employ and authorize any person to whom any of its
responsibility has been delegated to employ persons to render advice with regard
to any responsibility held hereunder. Any such allocation and delegation will be
reviewed at least annually by the Company and will be terminable upon such
notice as the Company, in its sole discretion, deems reasonable and prudent
under the circumstances.
5.4 CLAIMS. Claims for benefits under Disability policies issued to a
Participant will be filed in accordance with the provisions of such policy. At
such time as the Participant believes he is eligible for benefits under a
policy, the Participant may file a claim with the Insurer that issued the policy
to process a claim for benefits under this Plan. Claims for benefits under this
Section 5.4 must be submitted to the Insurer in accordance with the terms of the
Disability policy.
If a Participant is dissatisfied with the determination of his benefits
under this Plan, such person may file a written statement setting forth the
basis of the claim with the Insurer in a manner prescribed by the Plan
Administrator. In connection with the determination of a claim, or in connection
with review of a denied claim, the claimant may examine this Plan and any other
pertinent documents generally available to Participants relating to the claim
and may submit comments in writing.
A written notice of the disposition of any such claim for benefits will
be furnished to the claimant within 30 days after the claim is filed with the
Insurer; however, if additional information is requested by the Insurer, such
written notice will be given within 90 days after the date the claim was filed.
Such notice will refer, if appropriate, to pertinent provisions of this Plan or
the Disability policy, will set forth in writing the reasons for denial of the
claim if the claim is denied (including references to any pertinent provisions
of this Plan or the Disability policy), and, where appropriate, will explain how
the claimant can perfect the claim.
If the claim is denied, in whole or in part, the claimant will also be
notified in writing that a review procedure is available. Thereafter, within 60
days after receiving the written notice of the Insurer's disposition of the
claim, the claimant may request in writing, and will be entitled to, a review
meeting with the Plan Administrator to present reasons why the claim should be
allowed. The claimant may submit a written statement of his claim and the
reasons for granting the claim. Such statement may be submitted in addition to,
or in lieu of, the review meeting with the Plan Administrator. The Plan
Administrator will have the right to request and receive from a claimant such
additional information, documents or other evidence as the Plan Administrator
may reasonably require. If the claimant does not request a review meeting within
60 days after receiving written notice of the Plan Administrator's disposition
of the claim, the claimant will be deemed to have accepted the Plan
Administrator's written disposition, unless the claimant is unable to request
review within the 60 day period because of physical or mental incapacity.
5
A decision on review will ordinarily be rendered in writing by the Plan
Administrator not later than 60 days after the claimant's request for review,
and a written copy of such decision will be delivered to the claimant. If
special circumstances require an extension of the ordinary period, the Plan
Administrator will so notify the claimant. In any event, if a claim is not
determined within 120 days after submission for review, it will be deemed to be
denied.
To the extent permitted by law, a decision on review by the Plan
Administrator will be binding and conclusive upon all parties involved. To the
extent permitted by law, completion of the claims procedures described in this
Section 5.4 will be a mandatory precondition to the commencement of a legal or
equitable action in connection with the Plan by a person claiming rights under
the Plan or by another person claiming rights through such a person. The Plan
Administrator may, in its sole discretion, waive these procedures as a mandatory
precondition to such an action.
5.5 PAYMENTS TO INCOMPETENTS. If an individual entitled to receive any
benefits hereunder is deemed by the Insurer or the Plan Administrator, or is
adjudged by a court of competent jurisdiction, to be legally incapable of giving
valid receipt and discharge for such benefits, such benefits will be paid to
such person, to his duly appointed guardian, or to his spouse or to another
person charged with the legal obligation of his support, to be expended for his
benefit, as the Insurer or the Plan Administrator shall designate in its sole
and absolute discretion. Such payment will, to the extent made, be deemed a
complete discharge of any liability for such payment under the Plan.
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 PLAN AMENDMENT AND TERMINATION IN GENERAL. The Company will have
the right at any time, by an instrument in writing, to modify, alter or amend or
terminate this Plan, in whole or in part, prospectively or retroactively.
6.2 TERMINATION OF THE PLAN. Notwithstanding the foregoing, no
amendment, suspension or termination of the Plan may be made that would diminish
any accrued benefits arising from incurred but unpaid Participant claims for
benefits existing prior to the effective date of the amendment, suspension or
termination.
ARTICLE VII
MISCELLANEOUS
7.1 LIMITATIONS ON PARTICIPANTS' RIGHTS AND NATURE OF BENEFITS. The
Plan will not be deemed to constitute a contract between the Company and any
Participant or to be in consideration for or an inducement for the employment of
any Participant by the Company. Participation in the Plan will not give any
Participant the right to be retained in the Company's employ. The Company
reserves the right to dismiss any Participant without any liability for any
claim against the Company. No provision of the Plan or benefits paid hereunder
will be taken into account in determining any other type of compensation or
benefit payment to a Participant.
6
7.2 HEIRS AND SUCCESSORS. The provisions of this Plan will be binding
upon all persons who will be entitled to any benefits hereunder, and their heirs
and legal representatives.
7.3 NO ASSIGNMENT PERMITTED. No Participant or creditor of a
Participant will have any right to assign, pledge, hypothecate, anticipate or in
any way create a lien upon amounts payable pursuant to the terms of this Plan,
except as provided in this Section 7.3. All payments to be made to Participants
will be made only upon their personal receipt or endorsement, and no interest in
the Plan or a Disability policy will be subject to assignment or transfer or
otherwise be alienable, either by voluntary or involuntary act or by operation
of law, or subject to attachment, execution, garnishment, sequestration or other
seizure under any legal, equitable or other process, or be liable in any way for
the debts or defaults of Participants, except as provided in this Section 7.3.
This Section 7.3 shall not preclude:
(a) Arrangements for the recovery of benefit overpayments; or
(b) Arrangements for direct deposit of benefit payments to an
account in a bank, savings and loan association or credit union
(provided that such arrangement is not part of an arrangement
constituting an assignment or alienation).
IN WITNESS WHEREOF, American Residential Services, Inc., has caused the
Plan to be executed and its corporate seal affixed by its duly authorized
officer as of this ___ day of _________, 1996.
AMERICAN RESIDENTIAL SERVICES, INC.
By: ____________________________
C. Clifford Wright, Jr.
Chief Executive Officer
ATTEST:
___________________
Exhibit 10.17
EXECUTIVE SUPPLEMENTAL LIFE INSURANCE PLAN
OF
AMERICAN RESIDENTIAL SERVICES, INC.
EFFECTIVE SEPTEMBER 1, 1996
viii
Executive Supplemental Life Insurance Plan
Of
American Residential Services, Inc.
TABLE OF CONTENTS
PAGE
PREAMBLE ......................................................................1
ARTICLE I
DEFINITIONS AND CONSTRUCTION..........................................1
1.1 Definitions..................................................1
1.2 Construction.................................................2
ARTICLE II
ELIGIBILITY AND PARTICIPATION.........................................2
2.1 Eligibility..................................................2
2.2 Policy Issuance..............................................2
2.3 Termination of Participation.................................2
ARTICLE III
FUNDING...............................................................3
3.1 Funding of the Plan..........................................3
3.2 Company Contributions........................................3
3.3 Participant Contributions....................................3
3.4 Income Tax Treatment.........................................3
ARTICLE IV
BENEFITS..............................................................3
4.1 Eligibility for Benefits.....................................3
4.2 Amount of Coverage...........................................3
4.3 Life Insurance Policies......................................3
ARTICLE V
ADMINISTRATION........................................................4
5.1 Administration...............................................4
5.2 Powers of the Plan Administrator.............................4
5.3 Scope of Responsibility......................................4
i
5.4 Claims.......................................................5
5.5 Payments to Incompetents.....................................6
ARTICLE VI
AMENDMENT AND TERMINATION.............................................6
6.1 Plan Amendment and Termination in General....................6
6.2 Termination of the Plan......................................6
ARTICLE VII
MISCELLANEOUS.........................................................6
7.1 Limitations on Participants' Rights and Nature of Benefits...6
7.2 Heirs and Successors.........................................6
7.3 No Assignment Permitted......................................7
ii
EXECUTIVE SUPPLEMENTAL LIFE INSURANCE PLAN
OF
AMERICAN RESIDENTIAL SERVICES, INC
EFFECTIVE SEPTEMBER 1, 1996
PREAMBLE
Effective September 1, 1996, American Residential Services, Inc., a
Delaware corporation (the "Company"), hereby establishes the Executive
Supplemental Life Insurance Plan (the "Plan") to provide supplemental life
insurance coverage for specified employees.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. When a word or phrase appears in the Plan with the
initial letter capitalized, the word or phrase will generally be a term defined
in this Section 1.1. The following words or phrases have the meanings set forth
in this Section 1.1, unless a clearly different meaning is required by the
context in which the word or phrase is used.
(a) "ACT" means the Employee Retirement Income Security Act of 1974, as
amended, and any regulations or rulings issued thereunder.
(b) "ANNIVERSARY DATE" means each September 1 after the Effective Date.
(c) "BASE PAY" means the Participant's regular monthly rate of
compensation and shall not include bonuses, incentive compensation, stock
options, commissions, or any ancillary or fringe benefits provided by the
Company.
(d) "BENEFICIARY" means the person or persons designated to receive the
applicable life insurance proceeds payable following the Participant's death. If
a Beneficiary has not been designated, the Beneficiary shall be the
Participant's surviving spouse or, if the Participant does not have a spouse,
his estate.
(e) "BOARD" means the Board of Directors of the Company.
(f) "COMPANY" means American Residential Services, Inc., a Delaware
corporation.
(g) "CODE" means the Internal Revenue Code of 1986, as amended, and any
regulations or rulings issued thereunder.
(h) ""EFFECTIVE DATE" means September 1, 1996.
1
(i) "EMPLOYEE" means each person who is entitled to remuneration for
services rendered to the Company in the legal relationship of employer and
employee and not in the relationship of an independent contractor.
(j) "PARTICIPANT" means any person who is an active Employee and who is
designated by the Board or its delegate as a Participant in the Plan.
(k) "PLAN" means the Executive Supplemental Life Insurance Plan of
American Residential Services, Inc., as set forth in this document and as may be
amended from time to time.
(l) "PLAN ADMINISTRATOR" means the Company's Human Resource Director,
or such other individual or entity appointed by the Board, pursuant to ARTICLE
V, to administer the Plan.
(m) "PLAN YEAR" means the 12-month period beginning each September 1
and ending the following August 31.
1.2 CONSTRUCTION. Masculine gender, where appearing in this Plan will
include the feminine gender, and vice versa, and the singular may include the
plural, unless the context clearly indicates the contrary. Delivery to, or
filing with the Plan Administrator, as used in this Plan, will include delivery
to a person or persons designated by the Plan Administrator for the disbursement
and receipt of administrative forms. This will be deemed to have occurred only
when the form or other communication is actually received. Headings and
subheadings are for reference only and will not be considered in the
construction of the Plan. If any provision of this Plan is determined to be for
any reason invalid or unenforceable, the remaining provisions will continue in
full force and effect. All of the provisions of this Plan will be construed and
enforced according to the laws of the State of Texas and will be administered
according to the laws of the State, except as otherwise required by the Act, the
Code or other federal law.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY. Each Employee who is initially designated as a
Participant will commence participation in the Plan on the Effective Date,
subject to the requirements of Section 2.2. An Employee who is designated as a
Participant after the Effective Date shall commence participation on the next
following Anniversary Date.
2.2 POLICY ISSUANCE. An Employee who is designated a Participant shall
not become entitled to benefits under the Plan until and unless a life insurance
policy has been issued on his life.
2.3 TERMINATION OF PARTICIPATION. A Participant's participation in the
Plan will terminate on the date of his termination of employment with the
Company, except in the case of his retirement or as otherwise provided in a
written separation agreement with the Company. Upon a Participant's retirement
from the Company, unless otherwise determined by the Plan Administrator, the
Company
2
will continue making any required premium payments on the policy or policies on
the Participant's life.
ARTICLE III
FUNDING
3.1 FUNDING OF THE PLAN. Benefits payable pursuant to the terms of this
Plan will be provided through the purchase of individual life insurance
contracts from a legal reserve life insurance company qualified to do business
in the State of Texas.
3.2 COMPANY CONTRIBUTIONS. Unless otherwise provided in the
Participant's certificate of participation in the Plan, all premium payments
required on the insurance contracts on the life of a Participant shall be made
by the Company. If a Participant is rated by the issuer of any life policy, for
health or other reasons, so that the premium costs are higher than standard
rates, at the Participant's election either a reduced amount of insurance will
be provided or the Participant can agree to pay the premium equal to the
difference between the standard rate and the amount payable to provide the
coverage specified pursuant to the Plan.
3.3 PARTICIPANT CONTRIBUTIONS. Participants will not be required to
make premium payments under the Plan, unless otherwise provided in the
Participant's certificate of participation in the Plan.
3.4 INCOME TAX TREATMENT. In accordance with the requirements of law,
the Company will report annually the term cost of the insurance maintained on
the life of a Participant and shall withhold appropriate amounts from his
compensation for taxes.
ARTICLE IV
BENEFITS
4.1 ELIGIBILITY FOR BENEFITS. Benefits shall be paid to the
Participant's Beneficiary following the Participant's death, in accordance with
the terms of the life insurance policy or policies on the Participant's life.
4.2 AMOUNT OF COVERAGE. Except as otherwise provided in a written
agreement between the Company and a Participant, the benefits provided to a
Participant under the Plan shall be equal to the multiple, designated in the
certificate of participation delivered to the Participant, of the Participant's
Base Pay in effect from time to time. The amount of such benefits shall not
subsequently be reduced due to a reduction in a Participant's Base Pay.
4.3 LIFE INSURANCE POLICIES. All policies issued on the life of a
Participant shall be owned by the Company, which shall retain all incidents of
ownership in such policies. To the extent provided in a Participant's
certificate of participation, or in any other contract or agreement entered into
3
between the Company and a Participant, upon the Participant's death the death
benefits payable from any life insurance contract on the life of the Participant
shall be divided between the Company and the Participant's Beneficiary.
ARTICLE V
ADMINISTRATION
5.1 ADMINISTRATION. The Plan will be administered by the Plan
Administrator in accordance with the rules and procedures established under this
Plan.
5.2 POWERS OF THE PLAN ADMINISTRATOR. The Plan Administrator will be
empowered to perform the administrative duties required for proper
administration of the Plan, and will have all powers necessary to enable it to
properly carry out such duties. Without limiting the generality of the
foregoing, the Plan Administrator will have the power to construe and interpret
the Plan (including the right to remedy possible ambiguities, inconsistencies or
omissions); provided, however, that all such interpretations and decisions will
be applied in a uniform and nondiscriminatory manner to all Participants
similarly situated, will have the authority to hear and resolve claims relating
to the Plan, and will decide all questions and disputes arising under the Plan.
The Plan Administrator may adopt and enforce any bylaws and regulations as the
Plan Administrator may deem expedient or appropriate. Except as is otherwise
provided in the Plan or in any insurance contracts issued under the Plan, the
Plan Administrator will determine the manner and time of payment of benefits
under the Plan. The Plan Administrator will be responsible for filing any
returns and reports required by governmental agencies and responding to any
inquiries by such agencies in connection with such required returns and reports.
The decisions of the Plan Administrator upon all matters within the scope of its
authority will be binding and conclusive upon all persons.
5.3 SCOPE OF RESPONSIBILITY. The Company and the Plan Administrator
will perform the duties respectively assigned to them under the Plan, and will
not be responsible for performing duties assigned to others under the terms and
provisions of the Plan or in any insurance contracts issued under the Plan. No
inference of approval or disapproval is to be made from the inaction of any
party described above or the employee or agent of any of them with regard to the
action of any other such party. If the Plan Administrator consists of more than
one individual, no member of the Plan Administrator may act, vote or otherwise
influence the Plan Administrator regarding his own eligibility, participation,
status or rights under the Plan. The Company will have authority to employ (on
its own behalf or on behalf of the Plan) advisors, legal counsel, accountants
and investment managers in connection with the administration of the Plan, and
may delegate to the Plan Administrator authority to employ such persons (on
their own behalf or on behalf of the Plan). To the extent permitted by
applicable law, the Company and the Plan Administrator will not be liable for
complying with the directions of any advisors, legal counsel, accountants and
investment managers appointed pursuant to this ARTICLE V. Persons, organizations
or corporations acting in a position of any responsibility with respect to the
Plan may serve in more than one capacity. The Company or the Plan Administrator
from time to time may delegate to any other persons or organizations any of the
rights, powers, duties and responsibilities of the Company or the Plan
Administrator, respectively,
4
with respect to the operation and administration of the Plan, and the Company
may employ and authorize any person to whom any of its responsibility has been
delegated to employ persons to render advice with regard to any responsibility
held hereunder. Any such allocation and delegation will be reviewed at least
annually by the Company and will be terminable upon such notice as the Company,
in its sole discretion, deems reasonable and prudent under the circumstances.
5.4 CLAIMS. It is expected that death benefit payments will be made to
a Participant's Beneficiary by the life insurance company promptly after its
receipt of proof of death. If a Beneficiary or other person claiming benefits
under the Plan is not satisfied by any such payment, he or she may file a claim
with the insurance company that issued the policy on the Participant's life (the
"Insurer") for benefits under this Plan. Claims for benefits under this Section
5.4 must be submitted to the Insurer not later than 60 days after the payment
of, or failure to pay, any death benefit hereunder.
If a claimant is dissatisfied with the determination of his benefits
under this Plan, such person may file a written statement setting forth the
basis of the claim with the Insurer in a manner prescribed by the Plan
Administrator. In connection with the determination of a claim, or in connection
with review of a denied claim, the claimant may examine this Plan and any other
pertinent documents generally available to Participants relating to the claim
and may submit comments in writing.
A written notice of the disposition of any such claim for benefits will
be furnished to the claimant within 30 days after the claim is filed with the
Insurer; however, if additional information is requested by the Insurer, such
written notice will be given within 90 days after the date the claim was filed.
Such notice will refer, if appropriate, to pertinent provisions of this Plan or
the insurance contract, will set forth in writing the reasons for denial of the
claim if the claim is denied (including references to any pertinent provisions
of this Plan or the insurance contract), and, where appropriate, will explain
how the claimant can perfect the claim.
If the claim is denied, in whole or in part, the claimant will also be
notified in writing that a review procedure is available. Thereafter, within 60
days after receiving the written notice of the Insurer's disposition of the
claim, the claimant may request in writing, and will be entitled to, a review
meeting with the Plan Administrator to present reasons why the claim should be
allowed. The claimant may submit a written statement of his claim and the
reasons for granting the claim. Such statement may be submitted in addition to,
or in lieu of, the review meeting with the Plan Administrator. The Plan
Administrator will have the right to request and receive from a claimant such
additional information, documents or other evidence as the Plan Administrator
may reasonably require. If the claimant does not request a review meeting within
60 days after receiving written notice of the Plan Administrator's disposition
of the claim, the claimant will be deemed to have accepted the Plan
Administrator's written disposition, unless the claimant is unable to request
review within the 60 day period because of physical or mental incapacity.
A decision on review will ordinarily be rendered in writing by the Plan
Administrator not later than 60 days after the claimant's request for review,
and a written copy of such decision will be delivered to the claimant. If
special circumstances require an extension of the ordinary period, the Plan
Administrator will so notify the claimant. In any event, if a claim is not
determined within 120 days after submission for review, it will be deemed to be
denied.
5
To the extent permitted by law, a decision on review by the Plan
Administrator will be binding and conclusive upon all parties involved. To the
extent permitted by law, completion of the claims procedures described in this
Section 5.4 will be a mandatory precondition to the commencement of a legal or
equitable action in connection with the Plan by a person claiming rights under
the Plan or by another person claiming rights through such a person. The Plan
Administrator may, in its sole discretion, waive these procedures as a mandatory
precondition to such an action.
5.5 PAYMENTS TO INCOMPETENTS. It an individual entitled to receive any
benefits hereunder is deemed by the Insurer or the Plan Administrator, or is
adjudged by a court of competent jurisdiction, to be legally incapable of giving
valid receipt and discharge for such benefits, such benefits will be paid to
such person, to his duly appointed guardian, or to his spouse or to another
person charged with the legal obligation of his support, to be expended for his
benefit, as the Insurer or the Plan Administrator will designate in its sole and
absolute discretion. Such payment will, to the extent made, be deemed a complete
discharge of any liability for such payment under the Plan.
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 PLAN AMENDMENT AND TERMINATION IN GENERAL. The Company will have
the right at any time, by an instrument in writing, to modify, alter or amend or
terminate this Plan, in whole or in part, prospectively or retroactively.
6.2 TERMINATION OF THE PLAN. Notwithstanding the foregoing, no
amendment, suspension or termination of the Plan may be made that would diminish
any accrued benefits arising from incurred but unpaid claims for benefits
existing prior to the effective date of the amendment, suspension or
termination.
ARTICLE VII
MISCELLANEOUS
7.1 LIMITATIONS ON PARTICIPANTS' RIGHTS AND NATURE OF BENEFITS. The
Plan will not be deemed to constitute a contract between the Company and any
Participant or to be in consideration for or an inducement for the employment of
any Participant by the Company. Participation in the Plan will not give any
Participant the right to be retained in the Company's employ. The Company
reserves the right to dismiss any Participant without any liability for any
claim against the Company. No provision of the Plan or benefits paid hereunder
will be taken into account in determining any other type of compensation or
benefit payment to a Participant.
7.2 HEIRS AND SUCCESSORS. The provisions of this Plan will be binding
upon all persons who will be entitled to any benefits hereunder, and their heirs
and legal representatives.
6
7.3 NO ASSIGNMENT PERMITTED. No Participant or Beneficiary or creditor
of a Participant or Beneficiary will have any right to assign, pledge,
hypothecate, anticipate or in any way create a lien upon amounts payable
pursuant to the terms of this Plan, except as provided in this Section 7.3. All
payments to be made to Beneficiaries will be made only upon their personal
receipt or endorsement, and no interest in the Plan will be subject to
assignment or transfer or otherwise be alienable, either by voluntary or
involuntary act or by operation of law, or subject to attachment, execution,
garnishment, sequestration or other seizure under any legal, equitable or other
process, or be liable in any way for the debts or defaults of Participants,
except as provided in this Section 7.3. This Section 7.3 shall not preclude:
(a) Arrangements for the recovery of benefit overpayments; or
(b) Arrangements for direct deposit of benefit payments to an
account in a bank, savings and loan association or credit union
(provided that such arrangement is not part of an arrangement
constituting an assignment or alienation).
IN WITNESS WHEREOF, American Residential Services, Inc., has caused the
Plan to be executed by its duly authorized officer as of this ___ day of
_________, 1996.
AMERICAN RESIDENTIAL SERVICES, INC.
By: _____________________________
C. Clifford Wright, Jr.
Chief Executive Officer
ATTEST:
_____________________________
Exhibit 10.18
AMERICAN RESIDENTIAL SERVICES, INC.
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE I
PREAMBLE..............................................................1
ARTICLE II
DEFINITIONS AND CONSTRUCTION..........................................1
2.1 Definitions..................................................1
2.2 Construction.................................................4
ARTICLE III
PARTICIPATION AND VESTING.............................................4
3.1 Eligibility and Participation................................4
3.2 Vesting......................................................4
ARTICLE IV
DEFERRAL AND ACCOUNTING...............................................5
4.1 Deferral.....................................................5
4.2 Additional Deferrals.........................................5
4.3 Account for Deferred Compensation............................5
4.4 Computation of Earnings Credited.............................6
ARTICLE V
DISTRIBUTION OF BENEFITS..............................................7
5.1 Certain Distributions........................................7
5.2 Retirement or Disability.....................................7
5.3 Financial Necessity Distributions............................7
5.4 Elective Distributions.......................................8
5.5 Death of a Participant.......................................8
5.6 Method of Payment............................................8
5.7 Withholding..................................................9
ARTICLE VI
PAYMENT LIMITATIONS...................................................9
6.1 Legal Disability.............................................9
6.2 Assignment...................................................9
6.3 Change in Control...........................................10
ii
ARTICLE VII
FUNDING..............................................................10
7.1 Funding.....................................................10
7.2 Creditor Status.............................................10
ARTICLE VIII
ADMINISTRATION.......................................................10
8.1 Plan Administrator..........................................10
8.2 Claims for Benefits.........................................11
8.3 Arbitration.................................................12
8.4 Receipt and Release of Necessary Information................13
8.5 Overpayment and Underpayment of Benefits....................13
ARTICLE IX
OTHER BENEFIT PLANS OF THE COMPANY...................................13
Other Plans.................................................13
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN................................14
10.1 Amendment...................................................14
10.2 Termination.................................................14
10.3 Continuation................................................14
ARTICLE XI
MISCELLANEOUS........................................................14
11.1 No Reduction of Employer Rights.............................14
11.2 Provisions Binding..........................................14
iii
AMERICAN RESIDENTIAL SERVICES, INC.
DEFERRED COMPENSATION PLAN
ARTICLE I
PREAMBLE
American Residential Services, Inc. (the "Company") hereby adopts the
American Residential Services, Inc. Deferred Compensation Plan (the "Plan")
effective as of September 1, 1996. The objective and purpose of this Plan is to
attract and retain competent officers and key executives by offering flexible
compensation opportunities to officers and key executives of the Company and to
offer them an opportunity to build an estate or supplement income for use after
retirement. In addition to this Plan, the Company sponsors certain broad-based
employee benefit plans covering its employees.
Through this Plan, the Company intends to permit the deferral of
compensation and to provide additional benefits to a select group of management
or highly compensated employees of the Company. Accordingly, it is intended that
this Pan shall not constitute a "qualified plan" subject to the limitations of
section 401(a) of the Internal Revenue code of 1986, as amended, nor shall it
constitute a "funded plan", for purposes of such requirements. It is also
intended that this Plan shall be exempt from the participation and vesting
requirements of Part 2 of Title I of the Employee Retirement Income Security Act
of 1974, as amended, the funding requirements of Part 3 of Title I of the Act,
and the fiduciary requirements of Part 4 of Title I of the Act by reason of the
exclusions afforded plans that are unfunded and maintained by an employer
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. When a word or phrase appears in this Plan
with the initial letter capitalized, and the word or phrase does not begin a
sentence, the word or phrase shall generally be a term defined in this Section
2.1. The following words and phrases shall have the meanings set forth in this
Section 2.1, unless a different meaning is required by the context in which the
word or phrase is used.
(a) "ACT" - The Employee Retirement Income Security
Act of 1974, as amended from time to time.
(b) "AFFILIATE" - A corporation that is a member of a
controlled group of corporations (as defined in section 414(b) of the
Code) which includes the Company or any
1
trades or business (whether or not incorporated) which are under common
control (as defined in section 414(c) of the Code) with the Company.
(c) "BENEFICIARY" - The person designated by the
Participant to receive payment upon the death of the Participant.
(d) "BOARD" - The Board of Directors of the Company.
(e) "CHANGE IN CONTROL" - Any of the following
events:
(i) The dissolution of the Company or
any Significant Affiliate;
(ii) A liquidation of more than 50
percent in value of the Company or
any Significant Affiliate;
(iii) A sale of assets involving 50
percent or more of the value of the
assets of the Company or any
Significant Affiliate prior to such
sale;
(iv) Any merger or reorganization or
consolidation of the Company in
which the Company is not the
surviving entity;
(v) Any merger or reorganization or
consolidation of any Significant
Affiliate in which the Significant
Affiliate is not the surviving
entity (other than a merger or
reorganization or consolidation
with the Company or any entity
controlled by the Company);
(vi) Any sale or the disposition of more
than 50 percent of the combined
voting securities of any
Significant Affiliate; or
(vii) Any transaction pursuant to which
the stockholders, as a group, of
all the securities of the Company
outstanding prior to the
transaction hold, as a group, less
than 50 percent of the combined
voting power of the Company or any
successor company outstanding after
the transaction.
(f) "CODE" - The Internal Revenue Code of 1986, as
amended from time to time.
(g) "COMPANY" - American Residential Services, Inc.,
a Delaware corporation.
2
(h) "COMPENSATION" - All wages, salaries, cash
bonuses and other amounts of cash compensation payable to a Participant
during the Plan Year, excluding any compensation consisting of awards
under any stock option or stock award plan of the Company or an
Affiliate, and the exercise of any grant, option or right thereunder,
and excluding any additional compensation paid pursuant to an
employment agreement or contract between the Participant and the
Company providing for such additional compensation following a Change
in Control. Compensation shall exclude any contributions or any
benefits under any "employee benefit plan", as defined in the Act,
sponsored by the Company or an Affiliate.
(i) "DEFERRED COMPENSATION AGREEMENT" - The written
agreement between the Company or an Affiliate and a Participant
pursuant to which the Participant consents to participation and the
deferral of Compensation hereunder.
(j) "DISABILITY" - A physical or mental disability as
defined under the terms of the Company's long-term disability plan.
(k) "EFFECTIVE DATE" - September 1, 1996.
(l) "EMPLOYEE" - Each salaried person receiving
remuneration, or who is entitled to remuneration, for services rendered
to the Company or to an Affiliate of the Company participating in this
Plan, in the legal relationship of employer and employee.
(m) "PARTICIPANT" - Each Employee who has been
designated for participation in this Plan and whose participation in
this Plan has not terminated.
(n) "PLAN" - The American Residential Services, Inc.
Deferred Compensation Plan, as described in this document, and as it
may hereafter be amended.
(o) "PLAN ADMINISTRATOR" - The individual or
committee appointed as such pursuant to Section 8.1
(p) "PLAN YEAR" - The fiscal year of this Plan, which
shall commence on January 1 and end on December 31 in each year.
(q) "SIGNIFICANT AFFILIATE" - Any Affiliate or
Affiliates which collectively account for 50 percent or greater of (i)
the total assets of the Company and all Affiliates or (ii) the total
sales of the Company and all Affiliates.
(r) "UNFORESEEABLE EMERGENCY" - A severe financial
hardship to the Participant resulting from (i) a sudden and unexpected
illness or accident of the Participant or one of the Participant's
dependents (as defined under section 152(a) of the Code; (ii) loss of
the Participant's property due to casualty; or (iii) such other similar
extraordinary and
3
unforeseeable circumstance arising as a result of events beyond the
control of the Participant, as determined by the Plan Administrator in
its sole and absolute discretion.
2.2 CONSTRUCTION. If any provision of this Plan is determined
to be for any reason invalid or unenforceable, the remaining provisions of this
Plan shall continue in full force and effect. All provisions of this Plan shall
be construed and enforced in accordance with the laws of the State of Texas and
shall be administered according to the laws of such state, except as otherwise
required by the Act, the Code or other applicable federal law. The masculine
gender, where appearing in this Plan, shall include the feminine gender, and
vice versa. The term "delivered to the Plan Administrator," as used in this
Plan, shall include delivery to a person or persons designated by the Plan
Administrator for the disbursement and the receipt of administrative forms.
Delivery shall be deemed to have occurred only when the form or other
communication is actually received. Headings and subheadings are for the purpose
of reference only and are not to be considered in the construction of this Plan.
ARTICLE III
PARTICIPATION AND VESTING
3.1 ELIGIBILITY AND PARTICIPATION. Prior to each Plan Year, the Board
or its delegate shall designate Employees eligible to participate in the Plan
for such Plan Year. Designation as a Participant for any Plan Year shall not
entitle the Employee to continue as an active Participant for any subsequent
Plan Year. It is intended that eligibility to participate in the Plan shall be
limited to a select group of management or highly compensated employees, as
determined by the Board or its delegate, in their sole and absolute discretion.
An eligible Employee shall become a Participant by making a deferral election
pursuant to Section 4.1. Eligible Employees will be contacted and informed that
they may elect to defer portions of their Compensation and shall be provided
with a Compensation Deferral Agreement, Beneficiary Designation Form and
Investment Election Form.
A Participant under this Plan who separates from employment will
continue as an inactive Participant under this Plan until the Participant has
received payment of all amounts payable to him under this Plan. In the event
that a Participant shall cease active participation in the Plan because he is no
longer described as a Participant pursuant to this Section 3.1, or because he
shall cease making deferrals of Compensation, he shall continue as an inactive
Participant under this Plan until he has received payment of all amounts payable
to him under this Plan.
3.2 VESTING. Except as provided in Section 5.4, a Participant shall at
all times have a nonforfeitable right to amounts credited to his account
pursuant to Section 4.3, subject to the distribution provisions of Article V.
4
ARTICLE IV
DEFERRAL AND ACCOUNTING
4.1 DEFERRAL. An Employee eligible to participate in the Plan may
become a Participant by electing to defer Compensation pursuant to a Deferred
Compensation Agreement. Such Deferred Compensation Agreement shall be entered
into prior to the first day of the Plan Year for which the Deferred Compensation
Agreement is effective, except that a Participant may enter into a Deferred
Compensation Agreement within 30 days after the Effective Date that provides for
the deferral of Compensation earned after the date of such agreement and prior
to the beginning of the 1997 Plan Year. A deferral election shall be effective
with respect to a single Plan Year and elections for each subsequent Plan Year
of participation shall be made pursuant to new Deferred Compensation Agreements.
Subject to the right of the Plan Administrator to specify the maximum amount of
Compensation, or maximum percentage of Compensation, that may be deferred by a
Participant for a Plan Year (which amount may vary from Plan Year to Plan Year,
in the sole discretion of the Plan Administrator), as well as a minimum amount
or percentage of Compensation that may be deferred, each eligible Employee may
elect to defer a stated dollar amount, or designated full percentage of base
salary Compensation. Each Employee eligible to participate in the Plan may
elect, in addition to or in lieu of such base salary Compensation deferrals, to
defer a designated dollar amount, or designated full percentage, of bonus
Compensation. Except as otherwise provided in Article V, all amounts so deferred
shall be payable to the Participant following his separation from employment
with the Company or an Affiliate in accordance with the terms and provisions of
this Plan. A Participant's Deferred Compensation Agreement shall be irrevocable
for the duration of the Plan Year.
4.2 ADDITIONAL DEFERRALS. To the extent that a Participant who has
elected to make the maximum elective deferral required under the American
Residential Services, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan") for a
Plan Year in order to obtain the maximum Company matching contribution under the
401(k) Plan for the Plan Year is prevented from making the maximum elective
contribution to the Plan by reason of any limitation provisions of the Code (the
"Limitation Provisions"), the Plan Administrator shall credit to the account of
such Participant for the Plan Year the amount that would have been contributed
to the 401(k) Plan on the Participant's behalf but for the Limitation
Provisions. If elected by the Participant in the Deferred Compensation Agreement
in effect for the Plan Year, an additional deferral shall be made from the
Participant's Compensation equal to the amount that the Participant would have
contributed to the 401(k) Plan in accordance with his deferral election in
effect for the Plan Year, but for the Limitation Provisions. The Company, in the
sole discretion of the Board, may also determine to credit an additional amount
for the benefit of some or all Participants in a Plan Year. Any such allocation
need not be uniform for all Participants and the Board shall determine the
individuals affected and the amount or amounts of any such allocations. All such
amounts shall also be credited to Participants' accounts in accordance with
Section 4.3.
4.3 ACCOUNT FOR DEFERRED COMPENSATION. The Plan Administrator shall
maintain an individual account under the name of each Participant on whose
behalf Compensation has been
5
deferred under the Plan or an allocation has been made pursuant to Section 4.2.
Each such account shall be adjusted at least quarterly to reflect the
Compensation credited thereto, earnings and losses credited on such Compensation
pursuant to Section 4.4, and any payment or withdrawal of such Compensation
under this Plan. The amounts of Compensation deferred or other allocation shall
be credited to the account of the Participant at such times as such Compensation
would have been paid to the Participant had the Participant not elected to defer
such Compensation pursuant to the terms and provisions of the Plan or when such
amounts would have been credited to the Participant's account under the 401(k)
Plan. Each such account shall be credited with earnings and losses computed
pursuant to Section 4.4 in the manner specified by Section 4.4. In the sole
discretion of the Plan Administrator, more than one account may be established
for each Participant to facilitate recordkeeping convenience and accuracy. Each
such account shall be credited and adjusted as provided in this Plan.
Establishment and maintenance of a separate account or accounts for
each Participant shall not be construed as giving any person any interest in
assets of the Company or an Affiliate, or a right to payment other than as
provided hereunder. Such accounts shall be maintained until all amounts credited
to such account have been distributed in accordance with the terms and
provisions of this Plan.
4.4 COMPUTATION OF EARNINGS CREDITED. At the discretion of the Plan
Administrator, accounts will be credited with a uniform rate of interest as of
the last day of a Plan Year quarter. Such stated rate of interest shall be
determined by the Plan Administrator and communicated to Participants.
In addition to or in lieu of establishing such stated rate of interest,
the Plan Administrator may permit accounts to be credited with the rate of
return generated by one or more "investment options" established by the Plan
Administrator and available to all Participants. In the event that the Plan
Administrator elects to establish "investment options" under this Section 4.4,
the Plan Administrator shall establish separate funds for bookkeeping purposes
to measure a rate of return over a period designated by the Plan Administrator.
By way of illustration, but not by way of limitation, the Plan Administrator may
elect to establish a guaranteed return fund which guarantees a fixed or minimum
rate of return and an equity fund which tracks the performance of identified
equity securities or an identified pool or pools of equity securities. Such
"investment options" and "investment funds" shall be established for bookkeeping
purposes only and shall not require the establishment of actual corresponding
funds by the Plan Administrator or the Company. Any establishment of "investment
options" shall be in the sole and absolute discretion of the Plan Administrator
and the Plan Administrator may add additional "investment options" and delete
existing "investment options" as of the end of any Plan Year quarter.
In the event that the Plan Administrator establishes "investment
options," the Plan Administrator shall promulgate uniform procedures applicable
to all Participants for crediting amounts credited to individual accounts based
on the performances of the various "investment options," and shall promulgate
procedures for changing such allocation directions. In addition, the
6
Plan Administrator shall provide a written description of each "investment
option" and the direction and allocation rules pertaining to each such option to
each Participant in the Plan. Each Participant electing a specific "investment
option" agrees, on behalf of himself and his designated Beneficiary, to assume
all investment risk in connection with any decrease in amounts credited to his
account or accounts pursuant to his elected "investment options." The Company
and Plan Administrator do not guarantee the performance of any "investment
option."
ARTICLE V
DISTRIBUTION OF BENEFITS
5.1 CERTAIN DISTRIBUTIONS. At the election of a Participant as provided
in his Deferred Compensation Agreement, the Participant may make Compensation
deferrals pursuant to Section 4.1 for a stated period of time, rather than until
his separation from employment. The minimum required period for Compensation
deferrals under the Plan shall be at least five Plan Years following the Plan
Year for which a Compensation deferral election is effective. At the expiration
of the stated period of deferral, a percentage, up to 100 percent, or a
specified dollar amount, as elected in the Participant's Deferred Compensation
Agreement, of the principal amount of the Compensation deferred during the
deferral Plan Year shall be distributed to the Participant. Earnings
attributable to such amount shall remain in the Participant's account until
otherwise distributed pursuant to another provision of this Article V. In the
event that a Participant shall separate from employment prior to the date upon
which a Compensation deferral for a specific term is to be paid, the amount
deferred together with allocable earnings, shall be included in the
Participant's account balance and distributed to the Participant following such
separation from employment pursuant to Section 5.6.
In the event that a Participant shall separate from employment for any
reason other than retirement or Disability prior to becoming entitled to
distribution other than under Section 5.3 or Section 5.4, distribution of all
amounts credited to the Participant's account shall be made in a single lump sum
as soon as practicable following the Participant's termination from employment,
as provided in Section 5.6.
5.2 RETIREMENT OR DISABILITY. Except to the extent the account of a
Participant has been distributed pursuant to the provisions of Section 5.1,
Section 5.3, Section 5.4, Section 5.5, or Section 6.4, all amounts credited to
the account of a Participant shall be distributed pursuant to Section 5.6 at
such time as the Participant shall separate from employment due to retirement
following the attainment of age 60. In the event that a Participant shall become
subject to a Disability, the Participant shall cease active participation herein
pursuant to the terms and provisions of the Plan, but all amounts credited to
the Participant's account shall be distributed upon attainment of the age of 60
in accordance with Section 5.6, unless an earlier distribution has been made
pursuant to the provisions of Section 5.3, Section 5.4, Section 5.5 or Section
6.4
5.3 FINANCIAL NECESSITY DISTRIBUTIONS. Upon application by the
Participant, the Plan Administrator may direct payment of all or a portion of
the amounts credited to the account of a
7
Participant prior to his separation from employment in the event of an
Unforeseeable Emergency. Any such application shall set forth the circumstances
constituting such Unforeseeable Emergency. Notwithstanding the foregoing, the
Plan Administrator may not direct payment of any amount credited to the account
of a Participant to the extent that such emergency is or may be relieved (a) by
reimbursement or compensation by insurance or otherwise or (b) by cessation of
deferrals under this Plan. In the event that the Plan Administrator shall
determine that such Unforeseeable Emergency may be alleviated by such cessation
of deferrals under the Plan, the Plan Administrator, in its sole and absolute
discretion, may require the cancellation of the Participant's Compensation
deferral election for the Plan Year in which the Unforeseeable Emergency shall
occur. Any distribution from the Plan due to Unforeseeable Emergency shall be
permitted only to the extent necessary to satisfy such Unforeseeable Emergency,
in the sole discretion of the Plan Administrator, both with respect to the
determination as to whether an Unforeseeable Emergency exists and also with
respect to determination of the amount distributable. The Plan Administrator may
permit a financial necessity distribution under this Section 5.3 but as a result
may cancel the Compensation deferral election of the Participant in whole or in
part, for the Plan Year.
5.4 ELECTIVE DISTRIBUTIONS. During any Plan Year following a Change of
Control or in which the Participant or his Beneficiary is entitled to a
distribution pursuant to Section 5.2 or Section 5.5, the Participant or his
Beneficiary may withdraw 100 percent of the amounts credited to the
Participant's account as of the most recent Plan Year quarter, net of the
"forfeiture amount" described below, and net of any surrender charges, deposit
liquidation penalties, adjustments, investment losses or other costs incurred by
the Company or an Affiliate or other payor of benefits hereunder in liquidating
assets, if any, to pay such withdrawal. The "forfeiture amount" shall be equal
to 10 percent of the amount that may otherwise be withdrawn by the Participant
or Beneficiary (calculated prior to imposition of the forfeiture amount and the
charges described above). A Participant who elects to receive a withdrawal
pursuant to this Section 5.4 shall not be eligible to participate in the Plan
for one year following the date of such withdrawal. Distribution of withdrawals
pursuant to this Section 5.4 shall be made as soon as practicable after the
request for withdrawal is made to the Plan Administrator. The forfeiture amount
shall be deducted from the Participant's account and shall cease to be an
obligation under this Plan.
5.5 DEATH OF A PARTICIPANT. In the event of the death of a Participant
prior to distribution of all amounts otherwise payable to the Participant
hereunder, the Participant's Beneficiary or Beneficiaries shall be entitled to
distribution of all the benefits credited to the Participant's account, pursuant
to Section 5.6. Each Participant may designate a Beneficiary or Beneficiaries to
receive payment of his benefits under this Plan in the event of his death, in
accordance with such procedures as the Plan Administrator shall promulgate. In
the event that the Participant shall not designate a Beneficiary or
Beneficiaries pursuant to this Section 5.5, distribution shall be made to the
Participant's spouse, if the Participant's spouse is then living, and if the
Participant's spouse is not then living, to the Participant's estate.
5.6 METHOD OF PAYMENT. Payment to a Participant entitled to a benefit
pursuant to Article V shall commence as soon as possible following occurrence of
the event causing the
8
entitlement to distribution. Distributions pursuant to Section 5.1, Section 5.3
or Section 5.4 shall be made in a lump sum. Distributions pursuant to Section
5.2 and Section 5.5 shall be made in annual installments over a 15-year period;
provided that the balance of the Participant's account equals at least $25,000
at the time of payment of the initial installment. If the balance of the
Participant's account at such time is less than $25,000, a distribution to such
Participant or Beneficiary pursuant to Section 5.2 or Section 5.5 shall be made
in a lump sum. In the event of the Participant's death before receipt of all
installment payments pursuant to Section 5.2, payment of any remaining amount
credited to the Participant's account shall be made pursuant to Section 5.5.
With the consent of the Plan Administrator, in its sole and absolute
discretion, a Participant or Beneficiary who is in pay status and is receiving
annual installment distributions over a 15-year period, may elect during any
calendar year to accelerate the payment of the annual installment distributions
payable to him for the remaining calendar years in such 15-year period. If
approved by the Plan Administrator, payment of the accelerated installment
distributions shall be made in a lump sum to the Participant or Beneficiary not
earlier than the first day of the Plan Year following the Plan Year in which the
accelerated payment election is made.
5.7 WITHHOLDING. Any taxes required to be withheld from payments to
Participants or Beneficiaries hereunder shall be deducted and withheld by the
Company, benefit provider or funding agent.
ARTICLE VI
PAYMENT LIMITATIONS
6.1 LEGAL DISABILITY. If a person entitled to any payment hereunder
shall, in the sole judgment of the Plan Administrator, be under a legal
disability, or shall otherwise be unable to apply such payment to his own
interest and advantage, the Plan Administrator, in the exercise of its
discretion, may direct the Company or payor of the benefit to make any such
payment in any one or more of the following ways:
(a) Directly to such person;
(b) To his legal guardian or conservator; or
(c) To his spouse or to any person charged with the duty
of his support, to be expended for his benefit and/or
that of his dependents.
The decision of the Plan Administrator shall in each case be final and binding
upon all persons in interest, unless the Plan Administrator shall reverse its
decision due to changed circumstances.
6.2 ASSIGNMENT. No Participant or Beneficiary shall have any right to
assign, pledge, hypothecate, anticipate or any way create a lien on any amounts
payable hereunder. No amounts
9
payable hereunder shall be subject to assignment or transfer or otherwise be
alienable, either by voluntary or involuntary act, or by operation of law, or
subject to attachment, execution, garnishment, sequestration or other seizure
under any legal, equitable or other process, or be liable in any way for the
debts or defaults of Participants and their Beneficiaries.
6.3 CHANGE IN CONTROL. In the event of a Change of Control, the members
of the Board serving immediately prior to the first event constituting a part of
the Change in Control may, in their sole and absolute discretion, direct the
Plan Administrator to distribute all amount credited to the accounts of
Participants in a single lump-sum payment to each Participant, net of investment
charges, surrender charges, etc., following which the Plan shall terminate.
ARTICLE VII
FUNDING
7.1 FUNDING. Benefits under this Plan shall be paid solely by the
Company and its Affiliates. Benefits hereunder shall constitute an unfunded
general obligation of the Company, but the Company may create reserves, funds
and/or provide for amounts to be held in trust on the Company's behalf. Payment
of benefits may be made by the Company, such trust or through a service or
benefit provider to the Company or such trust. In the event of a Change in
Control, if distributions have not been made pursuant to Section 6.3, the
Company shall transfer to a trust an amount equal to the combined account
balances of Participants, less amounts attributable to such balances then held
by the trustee. Such transfer shall be made not later than 30 days after the
date of such Change in Control.
7.2 CREDITOR STATUS. A Participant and his Beneficiary or Beneficiaries
shall be general creditors of the Company or the Participant's employing
Affiliate with respect to the payment of any benefit under this Plan, unless
such benefits are provided under a contract of insurance or an annuity contact
that has been delivered to the Participant, in which case the Participant and
his Beneficiary or Beneficiaries shall look to the insurance carrier or annuity
provider for payment, and not to the Company or Affiliate. The Company's or
Affiliate's obligation for such benefit shall be discharged by the purchase and
delivery of such annuity or insurance contract.
ARTICLE VIII
ADMINISTRATION
8.1 PLAN ADMINISTRATOR. The Plan will be administered by an individual
or a committee appointed by the Board. No person serving as a Plan Administrator
may participate in any decision concerning his own benefits. In the event such
Plan Administrator shall resign (or any members of a committee comprising the
Plan Administrator shall resign) or if the Board shall seek to remove the Plan
Administrator (or any members of such committee), the Board may appoint such
successor or successors as it shall determine, in its sole discretion.
Notwithstanding the foregoing, during the
10
three-year period following a Change in Control, no change in the identity of
the Plan Administrator may be made without the written consent of a majority of
the then Plan Participants. If a committee serves as Plan Administrator, it
shall act by majority vote.
The Plan Administrator shall have the power and the duty to take all
actions necessary and proper to carry out the provisions of this Plan. In
carrying out the duties and responsibilities of the Plan Administrator, the Plan
Administrator shall act for the exclusive benefit of Plan Participants and shall
construe this Plan and perform its duties hereunder for the purpose of providing
the benefits promised under this Plan.
In administering this Plan, the Plan Administrator shall:
(a) Furnish copies of this Plan to all Participants;
(b) Inform Participants as to the manner of making
Compensation deferrals under this Plan and of the available modes of
payment under this Plan; and
(c) Take whatever action is necessary in fulfilling the
purposes and intent of this Plan.
The Plan Administrator is authorized and empowered to promulgate any rules,
regulations and schedules of general applicability, and to adopt such forms that
the Plan Administrator deems necessary in order to carry out the purposes of
this Plan and to interpret the terms and conditions of this Plan; provided,
however, that no rule, regulation or interpretation shall be contrary to the
clearly expressed provisions of the Plan.
The Plan Administrator may prescribe rules and procedures for the
allocation of fiduciary responsibilities among the agents appointed by the Plan
Administrator. The Plan Administrator may appoint a person or persons to act in
the day-to-day administration of this Plan, which persons may include
Participants hereunder; provided that no Participant may make any determination
regarding his own benefits while acting in such capacity. The reasonable
expenses of the Plan Administrator, including any out-of-pocket expenses and
charges of the Plan Administrator, shall be paid by the Company.
8.2 CLAIMS FOR BENEFITS. In the event that a Participant or his
Beneficiary claims to be eligible for benefits, or claims any rights hereunder,
he must complete and submit such claims forms and supporting documentation as
shall be required by the Plan Administrator in its sole discretion. All benefits
provided by this Plan will be paid as soon as practicable (following the receipt
of proof of entitlement, if requested.) Any Employee or other person claiming
benefits, eligibility, participation or any other right under the Plan must file
a written claim, setting forth the basis of the claim, with the Plan
Administrator. In connection with the determination of a claim, or in connection
with review of a denied claim, the claimant may examine this Plan and any other
pertinent documents generally available to Participants relating to the claim. A
written notice of the disposition of any
11
such claim shall be furnished to the claimant within 90 days after the claim is
filed with the Plan Administrator. Such notice shall refer, if appropriate, to
pertinent provisions of this Plan, shall set forth in writing the reasons for
denial of the claim if a claim is denied (including references to any pertinent
provisions of this Plan) and, where appropriate, shall explain how the claimant
can perfect the claim. If a the claim is denied, in whole or in part, the
claimant shall also be notified in writing that a review procedure is available.
Thereafter, within 90 days after receiving the written notice of the Plan
Administrator's disposition of the claim, the claimant may request in writing,
and shall be entitled to, one review meeting with the Plan Administrator to
present reasons why the claim should be allowed; provided, however, that if a
benefit claimed is explicitly excluded by the terms of the Plan, a review will
not be provided. The claimant may also submit a written statement of his claim
and the reasons for requesting a review of the claim. Such statement may be
submitted in addition to, or in lieu of, the review meeting with the Plan
Administrator. If the claimant does not request a review meeting within 90 days
after receiving written notice of the Plan Administrator's disposition of the
claim, the claimant shall be deemed to have accepted the Plan Administrator's
written disposition, unless the claimant shall have been physically or mentally
incapacitated so as to be unable to request review within the 90-day period.
A decision on review of the claim by the Plan Administrator shall be
made within 60 days after review, and a written copy of such decision shall be
delivered to the claimant. If special circumstances require an extension of the
ordinary period, the Plan Administrator shall so notify the claimant. In any
event, if a claim is not determined within 120 days after submission for review,
it shall be deemed to be denied. The Plan Administrator shall have the right to
request of and receive from a claimant such additional information, documents or
other evidence as the Plan Administrator may reasonably require. To the extent
permitted by law, a decision on review by the Plan Administrator shall be
binding and conclusive upon all interested persons. To the extent permitted by
law, completion of the claims procedures described in this Section 8.2 and of
the arbitration provisions set forth in Section 8.3 shall be a mandatory
precondition that must be complied with prior to the commencement of a legal or
equitable action by a person claiming rights under the Plan. The Plan
Administrator may, in its sole and absolute discretion, waive these claims and
arbitration procedures as a mandatory condition to such an action.
8.3 ARBITRATION. In the event the claims review procedure described in
Section 8.2 of the Plan does not result in an outcome thought by the claimant to
be in accordance with the Plan document or if the claimant feels unfairly
treated as a result of the administration of the Plan, he may appeal to a third
party neutral arbitrator. The claimant must appeal to an arbitrator before
bringing suit in court.
The arbitrator shall be mutually selected by the Participant and the
Company from a list of arbitrators provided by the American Arbitration
Association ("AAA"). If the parties are unable to agree on the selection of an
arbitrator within 10 days of receiving the list from the AAA, the AAA shall
appoint an arbitrator. The arbitrator's review shall be limited to
interpretation of the Plan document in the context of the particular facts
involved. The claimant and the Company agree to accept the award of the
arbitrator as binding, and all exercises of power by the arbitrator hereunder
12
shall be final, conclusive and binding on all interested parties, unless found
by a court of competent jurisdiction, in a final judgment that is no longer
subject to review or appeal, to be arbitrary and capricious. The costs of
arbitration shall be shared by the Company and the claimant; the costs of legal
representation for the claimant shall be borne by the claimant.
The arbitrator shall have no power to add to, subtract from, or modify
any of the terms of the Plan, or to change or add to any benefits provided by
the Plan, or to waive or fail to apply any requirements of eligibility for a
benefit under the Plan. Nonetheless, the arbitrator shall have absolute
discretion in the exercise of its power under this Plan. Arbitration decisions
will not establish binding precedent with respect to the administration or
operation of the Plan.
8.4 RECEIPT AND RELEASE OF NECESSARY INFORMATION. In implementing the
terms of this Plan, the Plan Administrator may, without the consent of or notice
to any person, release to or obtain from any insuring entity or other
organization or person any information, with respect to any person, that the
Plan Administrator deems to be necessary for such purposes. Any Participant or
Beneficiary claiming benefits under this Plan shall furnish to the Plan
Administrator such information as may be necessary to determine eligibility for
and the amount of benefit, as a condition of claiming and receiving such
benefit.
8.5 OVERPAYMENT AND UNDERPAYMENT OF BENEFITS. The Plan Administrator
may adopt, in its sole discretion, whatever rules, procedures and accounting
practices are appropriate in providing for the collection of any overpayment of
benefits. If a Participant or Beneficiary receives an underpayment of benefits,
the Plan Administrator shall direct that immediate payment be made to make up
for the underpayment. If an overpayment is made to a Participant or Beneficiary,
for whatever reason, the Plan Administrator may, in its sole discretion,
withhold payment of any further benefits under the Plan until the overpayment
has been collected or may require repayment of benefits paid under this Plan
without regard to further benefits to which the Participant or Beneficiary may
be entitled.
ARTICLE IX
OTHER BENEFIT PLANS OF THE COMPANY
OTHER PLANS. Nothing contained in this Plan shall prevent a
Participant prior to his death, or his spouse or other Beneficiary after his
death, from receiving, in addition to any payments provided for under this Plan,
any payments provided for under any other plan or benefit program of the Company
or an Affiliate, or which would otherwise be payable or distributable to him,
his surviving spouse or Beneficiary under any plan or policy of the Company or
otherwise. Nothing in this Plan shall be construed as preventing the Company or
any of its Affiliates from establishing any other or different plans providing
for current or deferred compensation for employees. Compensation deferrals made
under this Plan shall not constitute earnings or compensation for purposes of
determining contributions or benefits under any plan of the Company intended to
"qualify" under section 401 of the Code.
13
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
10.1 AMENDMENT. The Board may amend this Plan by duly authorized
written amendment; provided that no amendment or modification shall deprive a
Participant, or person claiming benefits under this Plan through a Participant,
of any benefit accrued under this Plan up to the date of amendment or
modification, except as may be required by applicable law. During the three-year
period following the occurrence of a Change in Control, no amendment may be made
without the written consent of a majority of the Participants, except for
amendments necessary to comply with applicable law.
10.2 TERMINATION. The Board may terminate or suspend this Plan in whole
or in part at any time, provided that no such termination or suspension shall
deprive a Participant, or person claiming benefits under this Plan through a
Participant, of any benefit accrued under this Plan up to the date of suspension
or termination except as required by applicable law. Upon the complete
termination of the Plan, the Board, in its sole and absolute discretion, may
direct the Plan Administrator to distribute each Participant's account to him or
his Beneficiary, as applicable, in a lump sum.
10.3 CONTINUATION. The Company intends to continue this Plan
indefinitely, but nevertheless assumes no contractual obligation beyond the
promise to pay the benefits described in and accrued under the Plan.
ARTICLE XI
MISCELLANEOUS
11.1 NO REDUCTION OF EMPLOYER RIGHTS. Nothing contained in this Plan
shall be construed as a contract of employment between the Company or an
Affiliate and an Employee, or as a right of any Employee to be continued in the
employment of the Company or an Affiliate, or as a limitation of the right of
the Company or an Affiliate to discharge any of its Employees, with or without
cause.
11.2 PROVISIONS BINDING. All of the provisions of this Plan shall be
binding upon all persons who shall be entitled to any benefit hereunder, their
heirs and personal representatives.
14
IN WITNESS WHEREOF, the Company has executed this American Residential
Services, Inc. Deferred Compensation Plan this ______ day of _____________,
1996.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ C. CLIFFORD WRIGHT, JR.
C. Clifford Wright, Jr.
Chief Executive Officer
15
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
July 24, 1996
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