<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 17, 1997)
$25,000,000
ARS LOGO
AMERICAN RESIDENTIAL SERVICES, INC.
CONVERTIBLE SENIOR SUBORDINATED NOTES, SERIES A
INTEREST PAYABLE APRIL 15 AND OCTOBER 15
---------------------
American Residential Services, Inc. ("ARS") may offer and issue its
Convertible Senior Subordinated Notes, Series A (the "Notes"), in business
combination transactions (each, an "Acquisition") involving its acquisition,
directly or indirectly, of businesses or other operating assets. It expects the
Acquisitions will consist principally of businesses that provide (i) residential
and commercial maintenance, repair and replacement services for heating,
ventilating and air conditioning, plumbing, electrical, indoor air quality and
other systems and (ii) new installation services of those systems in homes and
small commercial facilities under construction. ARS will determine the terms of
the Acquisitions through direct negotiations with the owners or controlling
persons of the businesses or assets to be acquired and expects the Notes issued
will be valued at prices reasonably related to their principal amount. It does
not expect to pay any underwriting discounts or commissions, but may pay
finder's fees from time to time with respect to specific Acquisitions. Any
person receiving any such fees may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"). ARS
will pay all expenses of this offering.
The Notes will be convertible in whole or in part into shares of common
stock, par value $.001 per share ("Common Stock"), of ARS at any time on or
after their respective Convertibility Commencement Dates and at or before
maturity, unless previously redeemed, at their respective Initial Conversion
Prices per share the applicable pricing supplement hereto (each, a "Pricing
Supplement") will specify, subject to adjustment in certain events, (i) at the
option of their Holders and (ii) if the average of the closing sale prices per
share of the Common Stock (determined as provided herein) for any 20 consecutive
trading days on the New York Stock Exchange (the "NYSE") occurring on and after
their respective Convertibility Commencement Dates equals or exceeds their
respective Initial Target Values (as defined herein), at the option of ARS. The
Common Stock trades on the NYSE under the symbol "ARS." On December 16, 1997 the
closing sale price of the Common Stock as reported on the NYSE was $14.1875 per
share.
The Notes will mature on April 15, 2004 and bear interest at the fixed
rates the applicable Pricing Supplement will specify. Interest on the Notes will
be payable semi-annually on April 15 and October 15 of each year, commencing
April 15, 1998. The Notes do not provide for a sinking fund. ARS, at its option,
may redeem the Notes on and after April 20, 2000, in whole or in part, at the
redemption prices the applicable Pricing Supplement will specify.
The Notes are unsecured obligations of ARS, are subordinate to all present
and future Senior Indebtedness (as defined in the Indenture described in the
accompanying Prospectus) of ARS and will be effectively subordinated to all
indebtedness and other liabilities of subsidiaries of ARS.
Persons receiving the Notes offered hereby may be contractually required to
hold some portions of those Notes for periods of up to two years. In addition,
pursuant to the provisions of Rule 145 under the Securities Act, the volume
limitations and certain other requirements of Rule 144 under the Securities Act
will apply to resales of those Notes by affiliates of the businesses the Company
acquires for a period of one year (or such shorter period as the Securities and
Exchange Commission may prescribe).
SEE "RISK FACTORS" ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BEFORE ACQUIRING
THE NOTES 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.
---------------------
The date of this Prospectus Supplement is December 18, 1997.
<PAGE> 2
DESCRIPTION OF THE NOTES
The following description of the principal terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Convertible Debt
Securities") supplements, and to the extent inconsistent therewith replaces, the
description set forth in the Prospectus under "Description of the Convertible
Debt Securities" (the "Prospectus Description"), to which reference is hereby
made, of the general terms and provisions of the Convertible Debt Securities.
Unless the applicable Pricing Supplement specifies otherwise, the Notes will
have the terms described in the Prospectus Description and below in this
Prospectus Supplement. Certain terms defined in the Indenture are capitalized
herein. The Initial Conversion Price of each Note will be subject to adjustment
as provided in the Indenture. See "Prospectus Description -- Conversion Rights."
GENERAL
The Notes will be issued as part of the purchase price the Company will pay
for businesses or other assets to be acquired in separate Acquisitions. The
Pricing Supplement relating to the Notes issued in connection with each
Acquisition will describe the following terms: (i) the aggregate principal
amount of those Notes; (ii) the date on which those Notes will be issued (the
"Original Issue Date"); (iii) the rate per annum at which those Notes will bear
interest; (iv) the Redemption Prices at which ARS, at its option, may redeem
those Notes; and (v) the Initial Conversion Price and Convertibility
Commencement Date of those Notes and the initial minimum price at or above which
those Notes must be traded (the "Initial Target Value") to become convertible at
the option of ARS.
The Notes (i) will be unsecured obligations of ARS, (ii) are currently
limited to $25,000,000 in aggregate principal amount and (iii) will mature on
April 15, 2004. The Notes will bear interest at a fixed rate per annum from
their Original Issue Date or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semiannually on April 15 and
October 15 of each year (each an Interest Payment Date) commencing April 15,
1998, to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the preceding April 1 or October 1 (each
a Regular Record Date), as the case may be (whether or not a business day).
Interest on the Notes will be paid on the basis of a 360-day year of twelve
30-day months.
Principal of, and interest on, the Notes will be payable at the office of
the Trustee in New York, New York, and the Notes may be surrendered for
registration of transfer, exchange or conversion at that office. ARS may, at its
option, pay interest on the Notes by check mailed to the address of the Person
entitled thereto as it appears in the Securities Register for the Notes on the
Regular Record Date for that interest payment.
The Notes will be issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiples thereof.
CONVERSION RIGHTS
The applicable Pricing Supplement will set forth the Convertibility
Commencement Date of the Notes to be issued in connection with each Acquisition
and, unless that Pricing Supplement provides otherwise, that date will be the
day (whether or not a business day) following the first anniversary of the date
that Acquisition closes.
The Notes will be convertible in whole or in part into shares of Common
Stock at any time on or after their respective Convertibility Commencement Dates
and at or before maturity, unless previously redeemed, at their respective
Initial Conversion Prices per share, subject to adjustment in certain events,
(i) at the option of their Holders and (ii) if the average of the closing sale
prices per share of the Common Stock (determined as provided below) for any 20
consecutive trading days on the NYSE occurring on and after their respective
Convertibility Commencement Dates equals or exceeds their respective Initial
Target Values, at the option of ARS.
The applicable Pricing Supplement will set forth the Initial Conversion
Price and the Initial Target Value for the Notes to be issued in connection with
each Acquisition, which will be determined as follows. The
S-2
<PAGE> 3
Initial Conversion Price of each Note issued in any Acquisition will be 100% of
the "Calculated Value" for that Acquisition plus a premium, while the Initial
Target Value for that Note will equal 150% of that Calculated Value, in each
case rounded to the highest whole cent. For any Acquisition, "Calculated Value"
will mean the average of the daily market prices of a share of Common Stock for
the 20 consecutive trading days on the NYSE immediately preceding the date that
is the 10th day (whether or not a business day) prior to the date on which that
Acquisition closes. If the Initial Conversion Price for any Note is adjusted
pursuant to the Indenture, then, effective as of the time of that adjustment,
the Initial Target Value for that Note will be adjusted appropriately to the
same extent. For purposes of determining any Calculated Value or whether any
Note has become convertible at the option of ARS, the market price of a share of
Common Stock for any trading day on the NYSE means, in each case as reported for
equity securities listed on the NYSE, the closing sale price, regular way, on
that day for a share of that stock or, if no sale of that stock takes place on
that day, the average of the closing bid and asked prices on that day for a
share of that stock. The Calculated Value used in connection with any
Acquisition may be higher or lower than the fair market value of a share of
Common Stock on the date on which that Acquisition closes.
If ARS becomes entitled to convert any Note into shares of Common Stock and
elects to do so, it will mail a notice of that conversion (an "ARS Conversion
Notice") to the Holder of that Note at its address appearing in the Securities
Register for the Notes, and that conversion will be deemed effective on that
mailing, whereupon: (i) that Holder will be treated for all purposes as the
record holder of the number of shares of Common Stock into which that Note has
been converted; and (ii) that Note will be deemed to represent only the right to
receive, on the surrender thereof (a) certificates representing that number of
shares of Common Stock, (b) cash in lieu of fractional shares, if any and, if
the Note has been converted only in part, (c) a new Note in the principal amount
not converted. The ARS Conversion Notice relating to any Note ARS converts will
specify (i) the date of that conversion, (ii) the then applicable conversion
price, (iii) the number or amount of any securities or property into which the
Note has been converted and (iv) the place or places where the Note may be
surrendered. ARS will not pay any interest on any converted Note (or converted
portion of a Note converted only in part) with respect to any Interest Payment
Date subsequent to the date of that conversion.
OPTIONAL REDEMPTION
ARS may, at its option, redeem the Notes, in whole or from time to time in
part, at any time on or after April 20, 2000, on not less than 15 nor more than
60 days' notice mailed to each Holder of Notes to be redeemed at its address
appearing in the Security Register for the Notes and prior to Maturity of the
Notes at the Redemption Prices the applicable Pricing Supplement will specify
plus accrued and unpaid interest to the Redemption Date (subject to the right of
Holders of record of the Notes on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
The Redemption Price for each Note will be 100% of the principal amount
thereof plus the premium, if any, specified applicable Pricing Supplement may
specify.
No sinking fund is provided for the Notes.
SUBORDINATION
The Notes will be subordinated to all Senior Indebtedness as provided in
the Indenture, and the Indenture's definition of Senior Indebtedness will apply
to the Notes. See "-- Subordination" in the Prospectus Description.
EVENTS OF DEFAULT
The Events of Default with respect to the Notes will be those described in
clauses (i) through (vii) of the first sentence under " -- Events of Default" in
the Prospectus Description.
S-3
<PAGE> 4
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT,
THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH THEY RELATE 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 SUPPLEMENT, THE APPLICABLE
PRICING SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Description of the Notes............ S-2
PROSPECTUS
Prospectus Summary.................. 2
Risk Factors........................ 3
Price Range of Common Stock......... 6
Dividend Policy..................... 6
Selected Financial Information...... 7
Description of the Convertible Debt
Securities........................ 9
Description of Capital Stock........ 18
Certain United States Federal Income
Tax Consequences.................. 22
Plan of Distribution................ 25
Experts............................. 25
Available Information............... 25
Incorporation of Certain Information
by Reference...................... 26
</TABLE>
======================================================
======================================================
ARS LOGO
AMERICAN RESIDENTIAL
SERVICES INC.
$25,000,000
CONVERTIBLE SENIOR SUBORDINATED
NOTES, SERIES A
---------------------------------
PROSPECTUS SUPPLEMENT
DECEMBER 18, 1997
--------------------------------
======================================================
<PAGE> 5
Filed pursuant to Rule 424(b)(2)
Registration No. 333-31815
PROSPECTUS
[AMERICAN RESIDENTIAL SERVICES, INC. LOGO]
AMERICAN RESIDENTIAL SERVICES, INC.
COMMON STOCK
CONVERTIBLE SUBORDINATED DEBT SECURITIES
------------------
American Residential Services, Inc. ("ARS" and, collectively with its
subsidiaries, the "Company") may offer and issue the 10,143,923 shares of its
common stock, $.001 par value per share (the "Common Stock"), and $100,000,000
aggregate principal amount of convertible subordinated debt securities (the
"Convertible Debt Securities") covered by this Prospectus in business
combination transactions (each, an "Acquisition") involving its acquisition,
directly or indirectly, of businesses or other operating assets. It anticipates
these Acquisitions will consist principally of businesses that provide (i)
maintenance, repair and replacement services for heating, ventilating and air
conditioning, plumbing, electrical, indoor air quality and other systems in
homes and commercial buildings and (ii) new installation services of those
systems in homes and small commercial facilities under construction. ARS expects
that (i) the terms of these Acquisitions will be determined by direct
negotiations with the owners or controlling persons of the businesses or assets
to be acquired, (ii) the shares of Common Stock issued will be valued at prices
reasonably related to market prices prevailing either at the time an acquisition
agreement is executed or at or about the time of delivery of the shares and
(iii) the Convertible Debt Securities issued will be valued at prices reasonably
related to their principal amount. It does not expect to pay any underwriting
discounts or commissions, but may pay finder's fees from time to time with
respect to specific Acquisitions. Any person receiving any such fees may be
deemed to be an underwriter within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). ARS will pay all expenses of this offering.
The Convertible Debt Securities will be convertible into Common Stock at
any time on or after their Convertibility Commencement Date (as defined herein)
and at or before maturity, unless previously redeemed, at their Initial
Conversion Price (as defined herein) as the applicable prospectus supplement or
supplements (each, a "Prospectus Supplement") and pricing supplement or
supplements (each, a "Pricing Supplement") hereto will specify, subject to
adjustment in certain events.
The Convertible Debt Securities will be (i) unsecured obligations of ARS,
(ii) subordinate to all present and future Senior Indebtedness (as defined in
the Indenture described herein or any applicable supplement to that Indenture or
Prospectus Supplement relating to one or more series of Convertible Debt
Securities) of ARS and (iii) effectively subordinated to all indebtedness and
other liabilities of subsidiaries of ARS.
As of December 16, 1997, 15,321,322 shares of Common Stock were issued and
outstanding. The Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "ARS." On December 16, 1997, the last reported sales
price of the Common Stock on the NYSE was $14.1875 per share.
Persons receiving shares of the Common Stock or any Convertible Debt
Securities offered hereby may be contractually required to hold some portions of
those shares or Convertible Debt Securities for periods of up to two years. In
addition, pursuant to the provisions of Rule 145 under the Securities Act, the
volume limitations and certain other requirements of Rule 144 under the
Securities Act will apply to resales of those shares or Convertible Debt
Securities by affiliates of the businesses the Company acquires for a period of
one year from the date of acquisition of shares of Common Stock or the
Convertible Debt Securities, as applicable (or such shorter period as the
Securities and Exchange Commission (the "SEC") may prescribe).
SEE "RISK FACTORS" ON PAGE 4 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
RISK FACTORS THAT SHOULD BE CONSIDERED BEFORE ACQUIRING THE SECURITIES 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.
------------------
The date of this Prospectus is December 17, 1997.
<PAGE> 6
PROSPECTUS SUMMARY
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE ON REQUEST FROM JOHN
D. HELD, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY OF ARS, POST OAK
TOWER, SUITE 725, 5051 WESTHEIMER ROAD, HOUSTON, TEXAS 77056-5604; TELEPHONE:
(713) 599-0100. SEE "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
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"), plumbing, electrical, indoor air
quality and other systems and major home appliances in homes and small
commercial buildings (collectively, "residential maintenance services") and (ii)
new installations of those systems in homes and small commercial facilities
under construction ("new residential installation services" and, together with
residential maintenance services, "residential services"). ARS also intends,
through its subsidiary, American Mechanical Services, to become a leading
national provider of comprehensive maintenance, repair, replacement,
reconfiguration and monitoring services for HVAC, plumbing and electrical
systems and controls in existing large commercial, industrial and institutional
facilities such as office buildings, health care facilities, educational
facilities and retail centers (collectively, "commercial maintenance services").
To achieve these goals, the Company is conducting an aggressive acquisition
program and has implemented a national operating strategy designed to increase
internal growth and capitalize on cost efficiencies. As of the date of this
Prospectus, the Company is the largest publicly held company in the United
States engaged principally in providing residential services and has acquired a
number of businesses providing commercial maintenance services.
The principal executive offices of ARS are located at Post Oak Tower, Suite
725, 5051 Westheimer Road, Houston, Texas 77056-5604, and its phone number at
that address is (713) 599-0100.
RECENT DEVELOPMENTS
Since September 30, 1997 and through December 5, 1997, the Company has
acquired eight additional businesses for aggregate consideration of $5.7 million
in cash and 115,553 shares of ARS Common Stock, bringing the total number of
businesses acquired by the Company since September 30, 1996 to 80. The
businesses acquired since September 30, 1997 will be recorded as purchase
transactions and had aggregate unaudited annualized revenues of $19.5 million in
1996.
Effective November 1, 1997, the ARS Board of Directors appointed Thomas N.
Amonett as President and Chief Executive Officer of ARS. He succeeded C.
Clifford Wright, Jr., who resigned. Mr. Amonett, 54, recently completed service
as the interim President and Chief Executive Officer of Weatherford Enterra,
Inc., and continues to serve as a director of that Houston-based company with a
tenure of more than 23 years. Previously, Mr. Amonett was Chairman, President
and Chief Executive Officer of Houston-based Reunion Resources Company and
continues to serve as a director of its successor, Reunion Industries, Inc.,
based in Stamford, Connecticut. In addition to his other business activities,
Mr. Amonett was previously a partner of the Houston law firm of Fulbright &
Jaworski and is a graduate of Vanderbilt University and Vanderbilt University
School of Law.
3
<PAGE> 7
RISK FACTORS
Prospective investors in the securities offered hereby 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.
LIMITED COMBINED OPERATING HISTORY
ARS, incorporated in Delaware in October 1995, conducted no operations
prior to the closing on September 27, 1996 of its initial public offering of
Common Stock (the "IPO") and its acquisition of seven residential services
businesses (together with the common parent of two of those businesses, the
"Founding Companies"). Since then and through December 5, 1997, the Company has
acquired an additional 80 businesses (collectively with the Founding Companies,
the "Acquired Businesses"). The Acquired Businesses operated as separate,
independent businesses prior to their acquisition by the Company. The success of
the Company will depend, in part, on the extent to which the Company is able to
centralize its accounting and other administrative functions, eliminate the
unnecessary duplication of other functions and otherwise integrate the Acquired
Businesses and such additional businesses as it may acquire in the future into a
cohesive, efficient enterprise. No assurance can be given the Company's
management will be able to manage the combined entity effectively or implement
fully the Company's acquisition or national operating strategies.
RISKS RELATED TO ACQUISITION STRATEGY
The Company's acquisition strategy presents risks that include the
possibility of the adverse effect on existing operations of the Company from the
diversion of management's attention and resources to acquisitions, the possible
loss of acquired customer bases and key personnel, including service personnel,
and the contingent and latent risks associated with the past operations of 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 or that the
Company's business and financial performance will not be materially adversely
affected thereby. In this connection, competition for acquisition candidates
could cause the cost of acquiring businesses to increase materially.
Acquisitions accounted for as purchases may result in substantial annual noncash
charges for goodwill and other intangible assets in the Company's statements of
operations, while material acquisitions accounted for as pooling-of-interests
transactions will require restatements of the Company's historical financial
statements to include the results of the acquired businesses, which could
negatively or positively impact those financial statements.
FACTORS AFFECTING INTERNAL GROWTH
The factors affecting the Company's ability to generate internal growth
include the extent to which it is able to expand the range of services it
offers, grow 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
Company to expand services include the extent to which it is able to attract and
retain qualified operational management and service and installation personnel
in new areas of operation and leverage its relationships with existing customers
to provide them services they currently obtain from others.
COMPETITION
The markets for residential services and commercial maintenance services
are highly competitive and are served principally by small, owner-operated
private companies, some of which may have lower overhead cost structures, and
may be able to provide their services at lower rates, than the Company. The
Company believes (i) the residential services and commercial maintenance
services sectors of its industry are subject to rapid consolidation, (ii)
currently only a few other public companies are focused on providing residential
services in some of the service lines provided by the Company and (iii) only a
small number of public companies are
4
<PAGE> 8
engaged primarily in commercial maintenance services in the service lines on
which the Company intends to focus. Certain HVAC original equipment
manufacturers provide commercial maintenance services as a complement to their
manufacturing and distribution businesses, and other companies, including
unregulated affiliates of electric and gas public utilities, are entering the
industry. Certain of the Company's competitors may have greater financial
resources than the Company to finance acquisition and internal growth
opportunities and may 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.
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
The Company's residential services operations are subject to different
seasonal variations in the different lines of service. Except for certain areas
of the southern United States, the demand for new residential installations is
lower in the winter months because new construction activity is lower as a
result of colder weather (although the Company expects that such reduction in
demand may be partially offset by increases in the demand for commercial
replacement services generally experienced in the winter months). Demand for
residential HVAC services is generally higher in the second and third quarters.
Accordingly, the Company expects its revenues and operating results generally
will be lower in its first and fourth quarters. In addition to the effects of
seasonality, the Company's quarterly results may fluctuate as a result of a
number of other factors, including the timing of acquisitions and the cyclical
nature of the homebuilding industry, which will influence the levels of housing
starts from time to time in the markets in which the Company engages in new
residential installation services and affect the Company's ability to maintain
or increase revenues from those services. Accordingly, quarterly comparisons of
the Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year.
DEPENDENCE ON KEY PERSONNEL
The Company's operations depend on the efforts of its executive officers
and the senior management of its principal operating subsidiaries, 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 and current operations will depend on the extent to which the Company
is able to retain, recruit and train qualified service and installation
personnel who meet the Company's standards of conduct and service to its
customers.
SUBORDINATION OF CONVERTIBLE DEBT SECURITIES; HOLDING COMPANY STRUCTURE
The Convertible Debt Securities are subordinate in right of payment to all
current and future Senior Indebtedness of ARS. Unless a Prospectus Supplement
provides otherwise for one or more series of Convertible Debt Securities, Senior
Indebtedness includes all secured indebtedness of ARS for money borrowed. As of
September 30, 1997, the aggregate amount of Senior Indebtedness to which the
Convertible Debt Securities would have been subordinated was approximately $59.0
million, and the estimated aggregate amount of indebtedness and other balance
sheet liabilities of ARS's subsidiaries to which the Convertible Debt Securities
would have been effectively subordinated was approximately $45.0 million. The
Indenture under which ARS will issue the Convertible Debt Securities (the
"Indenture") will not, unless provided otherwise by a supplement thereto
relating to one or more series of Convertible Debt Securities, limit the amount
of additional indebtedness, including Senior Indebtedness, which ARS can create,
incur, assume or guarantee. By reason of the subordination of the Convertible
Debt Securities, if any insolvency, bankruptcy, liquidation, reorganization,
dissolution or winding up of the business of ARS occurs, the assets of ARS will
be available to pay the amounts due on the Convertible Debt Securities only
after all Senior Indebtedness has been paid in full.
ARS, as a holding company whose principal assets are the shares of capital
stock of its subsidiaries, does not generate any operating revenues of its own.
Consequently, it depends on dividends, advances and payments from its
subsidiaries to fund its activities and meet its cash needs, including its debt
service requirements. The
5
<PAGE> 9
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Convertible Debt
Securities or to make funds available therefor. Their ability to pay dividends
or make other payments or advances to ARS will depend on their operating results
and will be subject to various business considerations and to applicable state
laws. In addition, holders of the Convertible Debt Securities are effectively
subordinated to the claims of creditors of ARS's subsidiaries to the extent of
the assets of those subsidiaries. If any insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any subsidiary of
ARS occurs, creditors of that subsidiary generally will have the right to be
paid in full before any distribution is made to ARS or the holders of the
Convertible Debt Securities. See "Description of the Convertible Debt
Securities."
Substantially all the subsidiaries of ARS have guaranteed the payment of
its obligations under the Company's $100 million revolving credit facility (the
"Credit Facility"), and the stock of those subsidiaries has been pledged by ARS
or their immediate parent corporations as collateral securing those obligations.
LIMITATIONS ON REPURCHASE OF CONVERTIBLE DEBT SECURITIES IF A REPURCHASE EVENT
OCCURS
If a Repurchase Event, which consists of either a Change in Control or a
Termination of Trading (each as defined herein), occurs, each holder of
Convertible Debt Securities and each holder of the $55.0 million aggregate
principal amount of 7 1/4% Convertible Subordinated Notes due 2004 of ARS (the
"7 1/4% Notes") presently outstanding will have the right, at his option, to
require ARS to repurchase all or a portion of his Convertible Debt Securities or
7 1/4% Notes, as the case may be, at a purchase price equal to 100% of the
principal amount thereof plus accrued interest to the repurchase date. ARS's
ability to repurchase Convertible Debt Securities and 7 1/4% Notes following a
Repurchase Event (i) may be limited by the terms of the Senior Indebtedness and
the subordination provisions of the Indenture and any applicable supplement to
the Indenture and (ii) will depend on the availability of sufficient funds and
compliance with applicable securities laws. Accordingly, no assurance can be
given ARS will repurchase any Convertible Debt Securities following a Repurchase
Event. The term "Repurchase Event" is limited to certain specified transactions
and may not include other events, such as a highly leveraged business
combination or reorganization not involving a Repurchase Event, that might
adversely affect the financial condition of ARS or result in a downgrade of the
credit rating (if any) of the Convertible Debt Securities. See "Description of
the Convertible Debt Securities."
LIMITED MARKET FOR THE CONVERTIBLE DEBT SECURITIES
No market currently exists for any series of the Convertible Debt
Securities, and no assurance can be given (i) a market will develop for any
series of the Convertible Debt Securities, (ii) as to the liquidity or
sustainability of any market that may develop or (iii) as to the ability of
holders to sell their Convertible Debt Securities at any price. Future trading
prices of the Convertible Debt Securities will depend on many factors,
including, among others, prevailing interest rates, the Company's operating
results, the price of the Common Stock and the market for similar securities.
POSSIBLE VOLATILITY OF COMMON STOCK PRICE
The market price of the Common Stock 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.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK ON COMMON STOCK
The Restated Certificate of Incorporation of ARS (the "Charter") authorizes
ARS to issue, without stockholder approval, one or more classes or series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting
6
<PAGE> 10
dividends and distributions) as the Board of Directors of ARS (the "Board of
Directors") may determine. See "Description of Capital Stock."
POTENTIAL ANTI-TAKEOVER EFFECTS
ARS has a stockholder rights plan in effect. This plan and provisions of
the Charter and Bylaws of ARS and the Delaware General Corporation Law (the
"DGCL") (under which ARS is organized) may delay, discourage, inhibit, prevent
or render 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 authorization of "blank check" preferred stock,
classification of the Board of Directors, a prohibition of stockholder action by
written consent and DGCL restrictions on business combinations with certain
interested parties. In addition, a "Change of Control" (as defined in the Credit
Facility) constitutes an event of default under the Credit Facility. If a Change
in Control (as defined in both the Indenture and the 7 1/4% Notes indenture)
occurs, each holder of Convertible Debt Securities or 7 1/4% Notes will have the
right, at the holder's option, to require ARS to repurchase all or a portion of
such holder's Convertible Debt Securities or 7 1/4% Notes, as applicable, at a
purchase price equal to 100% of the principal amount thereof plus accrued
interest to the repurchase date. These provisions of the Credit Facility, the
Indenture and the 7 1/4% Notes indenture could impede or prevent a change of
control or depress the price of the Common Stock. See "Description of Capital
Stock."
PRICE RANGE OF COMMON STOCK
The Common Stock trades on the NYSE under the symbol "ARS." The following
table sets forth the high and low sale prices for the Common Stock (based on the
NYSE Composite Transactions Reporting System) for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1996:
Third quarter (September 25 to September 30).............. $19.6250 $16.5000
Fourth quarter............................................ 27.1250 16.6250
1997:
First quarter............................................. 28.5000 19.1250
Second quarter............................................ 24.5000 17.5000
Third quarter............................................. 25.3750 15.3750
Fourth quarter (through December 16)...................... 18.8125 12.0000
</TABLE>
The closing price of the Common Stock on the NYSE (as reported on the
Composite Transactions Reporting System) on December 16, 1997 was $14.1875. As
of December 16, 1997, there were approximately 220 holders of record of Common
Stock, as shown on the records of the transfer agent and registrar for the
Common Stock. The number of record holders does not bear any relationship to the
number of beneficial owners of the Common Stock.
DIVIDEND POLICY
ARS has not paid or declared any dividends since the completion of the IPO
and currently intends 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 and performance, cash needs and expansion
plans, the income tax laws then in effect, the requirements of Delaware law and
the restrictions the Credit Facility imposes and the Company's future credit
facilities or debt instruments may impose. The Credit Facility prohibits the
payment of dividends (except for dividends payable in Common Stock and certain
preferred stock).
7
<PAGE> 11
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
For financial reporting purposes, Atlas Services, Inc. ("Atlas"), one of
the Founding Companies, is presented as the acquiror in all the acquisitions by
ARS through September 30, 1996, the effective date of the acquisition by ARS of
the Founding Companies. During the twelve months ended September 30, 1997, the
Company acquired 72 businesses, 23 of which were accounted for under the
pooling-of-interests method of accounting (the "Pooled Businesses"). In the
fourth quarter of 1997 (through December 5), the Company acquired eight
additional businesses. The Company's historical financial statements
incorporated by reference in this Prospectus for periods ended on or before
September 30, 1996 are the consolidated historical financial statements of Atlas
retroactively restated for 15 of the Pooled Businesses (the "Restated
Businesses"). The eight remaining Pooled Businesses are not significant to prior
historical periods, and their results and the results of the other 49 businesses
acquired through September 30, 1997 have been included in the consolidated
results of the Company beginning on their respective dates of acquisition. As
used in this discussion, the "Company" means (i) Atlas plus the Restated
Businesses prior to September 30, 1996 and (ii) ARS and its consolidated
subsidiaries on that date and thereafter. The summary financial information
below should be read in conjunction with the consolidated financial statements
and notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION(1):
HISTORICAL:
Revenues...................................... $51,268 $55,525 $81,125 $97,686 $150,330 $85,145 $272,781
Gross profit.................................. 13,542 13,811 19,938 25,304 41,270 23,362 78,269
Selling, general and administrative
expenses(2)................................. 12,440 12,236 16,992 19,914 37,632 22,173 56,051
Income from operations........................ 1,101 1,574 2,946 5,390 3,638 1,189 22,218
Interest income and other, net................ 203 316 611 209 609 291 823
Interest expense(2)........................... (381) (353) (355) (356) (5,479) (4,572) (4,955)
Net income (loss)............................. $ 689 $ 1,226 $ 1,916 $ 3,155 $ (3,035) $(4,349) $ 10,248
======= ======= ======= ======= ======== ======= ========
Net income (loss) per share................... $ .17 $ .30 $ .47 $ .77 $ (.48) $ (1.06) $ .71
======= ======= ======= ======= ======== ======= ========
Shares used in computing net income (loss) per
share....................................... 4,085 4,085 4,085 4,085 6,277 4,085 14,457
======= ======= ======= ======= ======== ======= ========
Ratio of earnings to fixed charges(3)......... 2.93x 4.31x 6.82x 9.56x -- -- 4.54x
======= ======= ======= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
PRO FORMA COMBINED, AS ADJUSTED(4)(5):
Revenues.................................................. $461,164 $352,498
Gross profit.............................................. 146,628 107,041
Selling, general and administrative expenses(6)........... 105,858 77,248
Goodwill amortization(7).................................. 4,600 815
Income from operations.................................... 36,170 28,978
Interest income and other expenses, net................... 1,313 1,007
Interest expense.......................................... (8,957) (6,759)
Net income................................................ $ 16,258 $ 13,087
======== ========
Net income per share...................................... $ 1.07 $ .83
======== ========
Shares used in computing pro forma net income per
share(8)................................................ 15,133 15,709
======== ========
Ratio of earnings to fixed charges(3)..................... 3.73x 4.25x
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30, 1997
------------------------------------------------ ---------------------------
1992 1993 1994 1995 1996 HISTORICAL AS ADJUSTED(5)
------- ------- ------- ------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION(9):
Working capital..................... $ 1,362 $ 1,864 $ 2,249 $ 1,284 $ 19,175 $ 35,502 $ 36,920
Total assets........................ 14,475 16,682 21,854 25,243 211,624 317,388 328,075
Total debt, including current
portion........................... 4,528 4,823 4,882 4,557 56,063 116,533 122,268
Stockholders' equity................ 3,379 3,346 4,029 5,479 116,251 147,664 149,865
</TABLE>
(Footnotes on following page)
8
<PAGE> 12
- ---------------
(1) The selected historical statement of operations information presented for
each year in the three-year period ended December 31, 1996 has been derived
from the audited consolidated financial statements of the Company
incorporated by reference in this Prospectus. The remaining selected
historical statement of operations information presented has been derived
from unaudited financial statements of the Company, which have been prepared
on the same basis as the audited financial statements and, in the opinion of
the Company, reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of that information.
(2) For the year ended December 31, 1996 and the nine months ended September 30,
1996, includes non-recurring compensation expense of $3,356 (included in
selling, general and administrative expenses) and financing fees of $4,818
(included in interest expense) related to the purchase of the common parent
of two Founding Companies.
(3) For purposes of calculating this ratio, "earnings" consist of earnings
before fixed charges and income tax, while "fixed charges" consist of
interest expense and one-third of rental expense, which the Company
estimates to be representative of the interest factor therein. As a result
of the operating losses for the year ended December 31, 1996 and for the
nine months ended September 30, 1996, earnings did not cover fixed charges
for those periods by $4,280 and $1,669, respectively.
(4) The selected unaudited pro forma combined statement of operations
information presented gives effect to the acquisitions of all Acquired
Businesses through December 5, 1997, the IPO and the issuance and sale of
the 7 1/4% Notes by ARS and the application of the proceeds from that sale
by ARS, in each case as if those transactions had occurred on January 1 of
each period presented.
(5) The pro forma combined financial statement information presented (i) is not
necessarily indicative of the results the Company would have obtained had
certain events actually occurred when assumed or of the Company's future
results, (ii) is based (in the case of certain purchases) on preliminary
estimates of fair value, available information and certain assumptions
management deems appropriate and (iii) should be read in conjunction with
the other financial statements and notes thereto incorporated by reference
herein.
(6) Gives effect to reductions in salary and benefits to former owners of
certain Acquired Businesses, the distribution of certain assets to and the
costs of certain leases assumed by former owners of certain Acquired
Businesses and the effects of certain other non-recurring expenses.
(7) Reflects amortization of the goodwill recorded as a result of the
acquisitions of the Acquired Businesses over a 40-year period.
(8) Assumes all shares issued for the acquisitions of Acquired Businesses had
been outstanding throughout the periods presented.
(9) The selected historical balance sheet information presented has been derived
from (i) for September 30, 1997, the unaudited consolidated financial
statements of the Company incorporated by reference in this Prospectus, (ii)
for December 31, 1995 and 1996, the audited consolidated financial
statements of the Company incorporated by reference in this Prospectus and
(iii) for December 31, 1992, 1993 and 1994, the unaudited financial
statements of the Company, which have been prepared on the same basis as the
audited financial statements and, in the opinion of the Company, reflect all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of that information. The selected as adjusted balance
sheet information presented reflects information derived from the unaudited
consolidated financial statements of the Company as of September 30, 1997,
incorporated by reference in this Prospectus, as adjusted, on a pro forma
combined basis, to give effect to the acquisitions of all Acquired
Businesses acquired during the fourth quarter of 1997 (through December 5).
9
<PAGE> 13
DESCRIPTION OF THE CONVERTIBLE DEBT SECURITIES
The Convertible Debt Securities offered hereby (the "Convertible
Securities") will be issued under an Indenture dated as of July 31, 1997 (the
"Indenture") between ARS and U.S. Trust Company of Texas, N.A., as trustee (the
"Trustee"). The following description of the Convertible Securities summarizes
certain general terms and provisions of the Convertible Securities to which any
Prospectus Supplement (including any Pricing Supplement) may relate (the
"Offered Convertible Securities"). The particular terms of the Offered
Convertible Securities and the extent to which the general terms and provisions
of the Indenture will apply will be described in a Prospectus Supplement
relating to the Offered Convertible Securities. The terms of the Offered
Convertible Securities also will include those made a part of the Indenture by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
statements under this caption relating to the Convertible Securities and the
Indenture are summaries only, do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms, and the Trust
Indenture Act. Certain terms defined in the Indenture are capitalized herein.
The Indenture is an exhibit to the registration statement on Form S-4, as
amended, of which this Prospectus is a part (the "Acquisition Shelf Registration
Statement") and is incorporated herein by this reference.
GENERAL
The Indenture will provide that Convertible Securities may be issued from
time to time thereunder in one or more series, each in such aggregate principal
amount as ARS may authorize from time to time. All Convertible Securities of one
series need not be issued at the same time and, unless otherwise provided in a
Prospectus Supplement with respect to any series, that series may be reopened,
without the consent of the Holders of the Convertible Securities of that series,
for issuance of additional Convertible Securities of that series. The Indenture
will not limit either (i) the aggregate principal amount of Convertible
Securities which can be issued thereunder or (ii) the amount of other
indebtedness or liabilities, secured or unsecured, which ARS or its subsidiaries
may incur.
Unless otherwise indicated in a Prospectus Supplement with respect to one
or more series, the Convertible Securities will not benefit from any covenant or
other provision that would provide protection to Holders of the Convertible
Securities against any sudden and dramatic decline in credit quality of the
Company resulting from any takeover or highly leveraged transaction, including a
recapitalization or similar restructuring, except as described below under
"-- Certain Rights To Require Repurchase of Convertible Securities."
The Convertible Securities are unsecured obligations of ARS.
Unless otherwise indicated in a Prospectus Supplement with respect to one
or more series, principal of, and any premium or interest on, the Convertible
Securities will be payable at the office of the Trustee in New York, New York,
and the Convertible Securities may be surrendered for registration of transfer,
exchange or conversion at that office. ARS may, at its option, pay any interest
on the Convertible Securities by check mailed to the address of each person
entitled thereto as it appears in the applicable Securities Register for the
Convertible Securities on the Regular Record Date for that interest payment.
No service charge will be made for any registration of transfer or exchange
of the Convertible Securities, but ARS may require payment of a sum sufficient
to cover any tax or other governmental charge and any other expenses (including
the fees and expenses of the Trustee) payable in connection therewith. If a
Prospectus Supplement provides for the redemption of a series of Convertible
Securities, ARS will not be required (i) to issue, register the transfer of or
exchange any of those Convertible Securities during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption and ending at the close of business on the day of that mailing or
(ii) to register the transfer of or exchange any of those Convertible Securities
selected for redemption in whole or in part, except the unredeemed portion of
those Convertible Securities being redeemed in part.
10
<PAGE> 14
All monies paid by ARS to the Trustee or any Paying Agent, or held by ARS,
in trust for the payment of principal of and any premium and interest on any
Convertible Security which remain unclaimed for two years after that principal,
premium or interest becomes due and payable may be repaid to ARS or released
from trust, as the case may be. Thereafter, the Holder of that Convertible
Security may, as an unsecured general creditor, look only to ARS for payment
thereof.
Reference is made to the Prospectus Supplement for the following terms of
the Offered Convertible Securities: (i) the title and aggregate principal amount
of the Offered Convertible Securities; (ii) the date or dates, or the method for
determining the date or dates, the Offered Convertible Securities will be issued
(each an "Original Issue Date") and the date or dates on which the Offered
Convertible Securities will mature; (iii) the rate or rates (which may be fixed
or variable) per annum, if any, at which the Offered Convertible Securities will
bear interest or the method of determining such rate or rates; (iv) the date or
dates from which that interest, if any, will accrue and the date or dates on
which that interest, if any, will be payable; (v) the terms for redemption or
early payment, if any, including any mandatory or optional sinking fund or
analogous provision; (vi) the date or dates (each, a Convertibility Commencement
Date) on which the Offered Convertible Securities first become convertible into
Common Stock and their Initial Conversion Price; (vii) whether the Offered
Convertible Securities will be issued in fully registered form or bearer form or
any combination thereof; (viii) whether the Offered Convertible Securities will
be issued in the form of one or more global securities and whether those global
securities are to be issuable in temporary global form or permanent global form;
(ix) if other than U.S. dollars, the currency, currencies or currency unit or
units in which the Offered Convertible Securities will be denominated and in
which the principal of, and premium and interest, if any, on, the Offered
Convertible Securities will be payable; (x) whether the Senior Indebtedness to
which the Offered Convertible Securities will be subordinated by the Indenture
will be as defined in the Indenture or as defined in the Prospectus Supplement;
(xi) whether, and the terms and conditions on which, ARS or a Holder may elect
that, or the other circumstances under which, payment of principal of, or
premium or interest, if any, on the Offered Convertible Securities is to be made
in a currency or currencies or currency unit or units other than that in which
the Offered Convertible Securities are denominated; and (xii) any other specific
terms of the Offered Convertible Securities. Reference is also made to the
Prospectus Supplement for information with respect to any additional covenants
that may be included in the terms of the Offered Convertible Securities.
The Convertible Securities may be issued as Original Issue Discount
Securities. An Original Issue Discount Security is a Security issued at a price
lower than the amount payable on the Stated Maturity thereof and which provides
that on redemption or acceleration of the maturity thereof an amount less than
the amount payable on the Stated Maturity thereof and determined in accordance
with the terms of the Convertible Security will become due and payable.
CONVERSION RIGHTS
Each Convertible Security will be convertible into Common Stock, at the
option of its Holder, at any time on or after its Convertibility Commencement
Date and prior to its redemption (if redeemable) or final maturity, initially at
its Initial Conversion Price per share, subject to adjustment as described
below. The right to convert Convertible Securities that the applicable
Prospectus Supplement provides are subject to redemption will, with respect to
those Convertible Securities that have been called for redemption, terminate at
the close of business on the second business day preceding the Redemption Date
therefor unless ARS defaults in making the payment due on that redemption.
The applicable Prospectus Supplement will set forth, or describe the method
for determining, the first date on which a Convertible Security may be converted
into Common Stock (the "Convertibility Commencement Date"). In the case of
Convertible Securities to be issued as purchase consideration in any acquisition
for which installment-sale treatment is sought for federal income tax purposes,
their Convertibility Commencement Date will be the first day following the first
anniversary of the closing of the acquisition, unless the Prospectus Supplement
provides otherwise. The applicable Prospectus Supplement also will set forth, or
describe the method for determining, the initial conversion price of each
Convertible Security on the
11
<PAGE> 15
assumption that the Convertible Security is convertible at any time following
its Original Issue Date (or the Original Issue Date of its earliest Predecessor
Security) (the "Initial Conversion Price").
The conversion price of each Convertible Security will be subject to
adjustment as and when any of the following events occurs after its Original
Issue Date (or the Original Issue Date of any of its Predecessor Securities):
(i) the subdivision, combination or reclassification of outstanding shares of
Common Stock; (ii) the payment of a dividend or distribution on the Common Stock
exclusively in Common Stock or any other class of capital stock of ARS which
includes Common Stock; (iii) the issuance of rights or warrants to all holders
of Common Stock entitling them to acquire shares of Common Stock (or securities
convertible into Common Stock) at a price per share less than the then Current
Market Price; (iv) the distribution to all holders of Common Stock of shares of
capital stock of ARS other than Common Stock, evidences of indebtedness of ARS,
cash or assets (including securities, but excluding (a) dividends or
distributions paid exclusively in cash, (b) dividends or distributions provided
for in clause (ii) above and (c) rights and warrants provided for in clause
(iii) above); (v) a distribution consisting exclusively of cash (excluding any
cash distributions referred to in clause (iv) above) to all holders of Common
Stock in an aggregate amount that, together with (a) all other cash
distributions (excluding any cash distributions referred to in clause (iv)
above) made within the 12 months preceding the record date for that distribution
and (b) any cash and the fair market value of other consideration paid in
respect of any tender offer subject to the provisions of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), made by ARS or a subsidiary of ARS
for Common Stock consummated within the 12 months preceding that distribution,
exceeds the greater of (1) 12.5% of ARS's market capitalization (being at any
time the product of the then Current Market Price times the number of shares of
Common Stock then outstanding) on that record date and (2) the Company's
consolidated retained earnings on that record date (determined without giving
effect to that distribution); and (vi) the consummation of a tender offer made
by ARS or any subsidiary of ARS for Common Stock which involves an aggregate
consideration that, together with (a) any cash and other consideration payable
in respect of any tender offer made by ARS or a subsidiary of ARS for Common
Stock consummated within the 12 months preceding the last time on which tenders
of Common Stock may be made pursuant to the current tender offer (the
"Expiration Time") and (b) the aggregate amount of all cash distributions
(excluding any cash distributions referred to in clause (iv) above) to all
holders of Common Stock within the 12 months preceding the consummation of that
tender offer, exceeds the greater of (1) 12.5% of ARS's market capitalization
immediately prior to that Expiration Time (determined using all then tendered
shares) and (2) the Company's consolidated retained earnings at the Expiration
Time (determined without giving effect to the purchase of tendered shares). No
adjustment of any conversion price will be required to be made until cumulative
adjustments amount to at least 1.0% of that conversion price, as last adjusted.
Any adjustment that would otherwise be required to be made will be carried
forward and taken into account in any subsequent adjustment.
ARS will be permitted to reduce the conversion price of any Convertible
Security as it considers to be advisable in order that any event treated for
federal income tax purposes as a dividend of stock or stock rights will not be
taxable to the holders of Common Stock or, if that is not possible, to diminish
any income taxes that are otherwise payable because of that event. In the case
of any consolidation or merger of ARS with or into any other corporation (other
than one in which no change is made in the outstanding Common Stock), or the
sale or transfer of all or substantially all the properties and assets of ARS,
the Holder of any Convertible Security then Outstanding will, with certain
exceptions, have the right thereafter to convert that Convertible Security only
into the kind and amount of securities, cash and other property receivable on
that consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock into which that Convertible Security might have been converted
immediately prior to that consolidation, merger, sale or transfer; and
adjustments will be provided for events subsequent thereto which are as nearly
equivalent as practical to the conversion price adjustments described above.
ARS will not issue fractional shares of Common Stock on conversion of any
Convertible Security, but, in lieu thereof, will pay a cash adjustment based on
the Closing Price at the close of business on the day of conversion. If any
Convertible Security is surrendered for conversion during the period from the
close of business on any Regular Record Date therefor through and including the
next succeeding Interest Payment
12
<PAGE> 16
Date therefor (except any such Convertible Security called for redemption on a
Redemption Date, or repurchasable on a Repurchase Date occurring within such
period), that Convertible Security when surrendered for conversion must be
accompanied by payment in New York Clearing House funds, or other funds
acceptable to ARS, of an amount equal to the interest thereon which the
registered Holder on that Regular Record Date is to receive. Except as described
in the preceding sentence, ARS will not pay any interest on converted
Convertible Securities with respect to any Interest Payment Date subsequent to
the date of conversion. No other payment or adjustment for interest or dividends
will be made on conversion of any Convertible Security.
SUBORDINATION
The payment of the principal of and any premium or interest on the
Convertible Securities and any other payment obligations of ARS in respect of
the Convertible Securities (including any obligation to repurchase the
Convertible Securities) are, to the extent set forth in the Indenture,
subordinated in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness, whether outstanding on the date of the
Indenture or thereafter incurred. If there is a payment or distribution of
assets to creditors on any liquidation, dissolution, winding up, receivership,
reorganization, assignment for the benefit of creditors, marshaling of assets
and liabilities or any bankruptcy, insolvency or similar case or proceeding of
ARS, the holders of all Senior Indebtedness will be entitled to receive payment
in full in cash or cash equivalents of all Obligations due or to become due in
respect of that Senior Indebtedness (including interest after the commencement
of any such case or proceeding, notwithstanding that ARS may be excused as a
result of such case or proceeding from the obligation to pay all or any part of
the interest otherwise payable in respect of any Senior Indebtedness) before the
Holders of the Convertible Securities will be entitled to receive any payment in
respect of the principal of or any premium or interest on the Convertible
Securities, and until all Obligations with respect to the Senior Indebtedness
are paid in full in cash or cash equivalents, any distribution to which the
Holders of the Convertible Securities would be entitled must be made to the
holders of the Senior Indebtedness. ARS also may not make any payment (whether
by redemption, purchase, retirement, defeasance or otherwise) on or in respect
of the Convertible Securities if (i) a default in the payment of the principal
of or any premium or interest on any Designated Senior Indebtedness (a "Payment
Default") occurs or (ii) any other default occurs and is continuing with respect
to any Designated Senior Indebtedness which permits holders of Designated Senior
Indebtedness as to which that default relates to accelerate its maturity (a
"Nonpayment Default") and the Trustee receives notice of that default (a
"Payment Blockage Notice") from (a) if that Nonpayment Default shall have
occurred under the Credit Facility or any other secured debt facility with banks
or other lenders which provides revolving credit loans, term loans, receivables
financing (including through the sale of receivables) or letters of credit (each
an "Other Debt Facility"), the representative of the Credit Facility or that
Other Debt Facility, as the case may be, or (b) if that Nonpayment Default shall
have occurred with respect to any other issue of Designated Senior Indebtedness,
the holders, or a representative of the holders, of at least 20% of that
Designated Senior Indebtedness. The payments on or in respect of the Convertible
Securities shall be resumed (i) in the case of a Payment Default respecting
Designated Senior Indebtedness, on the date on which that default is cured or
waived, and (ii) in the case of a Nonpayment Default respecting Designated
Senior Indebtedness, the earliest of (a) the date on which that Nonpayment
Default is cured or waived, (b) the date the applicable Payment Blockage Notice
is retracted by written notice to the Trustee from a representative of the
holders of the Designated Senior Indebtedness which have given that Payment
Blockage Notice and (c) 179 days after the date on which the applicable Payment
Blockage Notice is received by the Trustee, unless any Payment Default has
occurred and is continuing or an Event of Default of the type referred to in
clause (vii) of the first sentence under "-- Events of Default" has occurred. No
new period of payment blockage may be commenced unless and until 360 days have
elapsed since the date of commencement of the payment blockage period resulting
from the immediately prior Payment Blockage Notice, and no Nonpayment Default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
If the Maturity of any Convertible Securities is accelerated because of an
Event of Default with respect thereto, (i) the Indenture requires ARS to
promptly notify holders of Designated Senior Indebtedness of that
13
<PAGE> 17
event and (ii) the Holders of those Convertible Securities will, to the extent
permitted by law, be prohibited for a period of 180 days thereafter from making
any bankruptcy filing with respect to ARS or, to the extent permitted by law,
from filing suit to enforce their rights under the Indenture.
Unless a Prospectus Supplement provides otherwise for one or more series of
Convertible Securities, the Indenture's definition of "Senior Indebtedness" will
apply to the Convertible Securities. The Indenture will define "Senior
Indebtedness" as the principal of and premium, if any, and interest on and other
Obligations in respect of (i) all secured indebtedness of ARS for money borrowed
(including any secured indebtedness under the Credit Facility and any successor
thereto and any secured indebtedness under all Other Debt Facilities), whether
outstanding on the date of execution of the Indenture or thereafter created,
incurred or assumed, and (ii) any amendments, renewals, extensions,
modifications, refinancings and refundings of any of the foregoing. For purposes
of this definition, "indebtedness for money borrowed" when used with respect to
ARS means (i) any obligation of, or any obligation guaranteed by, ARS for the
repayment of borrowed money (including fees, penalties and other obligations in
respect thereof), whether or not evidenced by bonds, debentures, notes or other
written instruments, (ii) any deferred payment obligation of, or any such
obligation guaranteed by, ARS for the payment of the purchase price of property
or assets evidenced by a note or similar instrument and (iii) any obligation of,
or any such obligation guaranteed by, ARS for the payment of rent or other
amounts under a lease of property or assets, which obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of ARS
under generally accepted accounting principles. As used in the Indenture: (i)
"Obligations" in respect of the Senior Indebtedness include any principal,
interest, premiums, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any such indebtedness; and
(ii) "Designated Senior Indebtedness" means (a) Obligations under the Credit
Facility and all secured Other Debt Facilities and (b) any other Senior
Indebtedness the principal amount of which is $25.0 million or more and that has
been designated by ARS as "Designated Senior Indebtedness." The Prospectus
Supplement relating to any series of Convertible Securities may provide that the
"Senior Indebtedness" to which the Convertible Securities of that series will be
subordinated by the Indenture will include all indebtedness of ARS for money
borrowed, whether secured or unsecured, except any such indebtedness that, by
the terms of the instrument or instruments by which it was created or incurred,
expressly provides that it (i) is junior in right of payment to those
Convertible Securities or (ii) ranks pari passu in right of payment with those
Convertible Securities.
The Convertible Securities will be obligations exclusively of ARS. ARS
currently conducts its operations through its subsidiaries, which are separate
and distinct legal entities and have no obligation, contingent or otherwise, to
pay any amounts due in respect of the Convertible Securities or to make any
funds available therefor, whether by dividends, loans or other payments. The
ability of any subsidiary of ARS to loan or advance funds or pay dividends to
ARS (i) may be subject to contractual or statutory restrictions, (ii) will be
contingent on the subsidiary's earnings and cash flows and (iii) will be subject
to various business considerations.
The Convertible Securities will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of subsidiaries of ARS. Any right of ARS to receive assets of
any of its subsidiaries on the liquidation or reorganization of that subsidiary
(and any consequent right of the Holders of the Convertible Securities to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors, except to the extent that ARS is itself recognized
as a creditor of that subsidiary, in which case the claims of ARS would still be
subordinated to any security in the assets of that subsidiary and any
indebtedness of that subsidiary senior to that held by ARS.
The Indenture does not limit or prohibit the incurrence of (i) Senior
Indebtedness or (ii) indebtedness, liabilities or other commitments by ARS or
its subsidiaries. As of September 30, 1997, the aggregate amount of Senior
Indebtedness to which the Convertible Securities would have been subordinated
was approximately $59.0 million, and the estimated aggregate amount of
indebtedness and other balance sheet liabilities of ARS's subsidiaries to which
the Convertible Securities would have been effectively subordinated was
approximately $45.0 million. Also at that date, ARS had outstanding $55.0
million aggregate principal amount of 7 1/4% Notes. By their terms, the 7 1/4%
Notes will be subordinated in right of payment to the Convertible Securities
except to the extent that a Prospectus Supplement otherwise provides in the case
of one
14
<PAGE> 18
or more series of Convertible Securities. ARS expects to incur Senior
Indebtedness from time to time in the future, including Senior Indebtedness
under the Credit Facility.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that ARS will not consolidate with or merge into any
other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person in one transaction or a series of
related transactions, or permit any single Person to consolidate with or merge
into ARS, unless (i) if applicable, the Person formed by such consolidation or
into which ARS is merged or the Person or corporation which acquires the
properties and assets of the Company substantially as an entirety is a
corporation, limited liability company, partnership or trust organized and
validly existing under the laws of the United States or any state thereof or the
District of Columbia and expressly assumes payment of the principal of and any
premium and interest on the Convertible Securities and the performance or
observance of each obligation of ARS under the Indenture, (ii) immediately after
giving effect to such transaction, no Event of Default will have occurred and be
continuing, (iii) such consolidation, merger, conveyance, transfer or lease does
not adversely affect the validity or enforceability of the Convertible
Securities and (iv) ARS has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease complies with the provisions of the Indenture.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF CONVERTIBLE SECURITIES
If any Repurchase Event (as defined below) occurs on or prior to Maturity
of any Affected Convertible Security (as defined below), each Holder of Affected
Convertible Securities will have the right, at the Holder's option, to require
ARS to repurchase all or any part of the Holder's Affected Convertible
Securities on the date (the "Repurchase Date") that is 30 days after the date
ARS gives notice of the Repurchase Event as described below at a price (the
"Repurchase Price") equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the Repurchase Date. On or prior to the
Repurchase Date, ARS is required to deposit with the Trustee or a Paying Agent
an amount of money sufficient to pay the Repurchase Price of the Affected
Convertible Securities to be repurchased on the Repurchase Date.
Failure by ARS (i) to provide timely notice of a Repurchase Event to
Holders of Affected Convertible Securities, as provided for below, or (ii) to
repurchase the Affected Convertible Securities when required will result in an
Event of Default under the Indenture whether or not that repurchase is permitted
by the subordination provisions of the Indenture.
On or before the 15th day after a Repurchase Event occurs, ARS will be
obligated to mail to the Holders of all Affected Convertible Securities a notice
of that occurrence which states the event constituting the Repurchase Event and
the date thereof, the Repurchase Date, the date by which the repurchase right
must be exercised, the Repurchase Price and the procedures the Holder must
follow to exercise its repurchase right. To exercise this right, a Holder must
deliver to ARS or its designated agent and to the Trustee, on or before the
close of business on the Repurchase Date, written notice of the Holder's
exercise of that right, together (in the case of written notice to the Trustee)
with the certificates evidencing the Affected Convertible Securities to be
repurchased, duly endorsed for transfer to ARS. Any such notice will be
irrevocable.
A "Repurchase Event" will be the occurrence of a Change in Control or a
Termination of Trading. A "Change in Control" will occur when: (i) all or
substantially all the assets of the Company or of the Company and its
subsidiaries, taken as a whole, are sold in one transaction or any series of
related transactions as an entirety to any Person or related group of Persons;
(ii) any consolidation or merger of ARS occurs (a) in which ARS is not the
continuing or surviving corporation (other than a consolidation or merger with a
wholly owned subsidiary of ARS in which all shares of Common Stock outstanding
immediately prior to the effectiveness thereof are changed into or exchanged for
the same consideration) or (b) pursuant to which the Common Stock would be
converted into cash, securities or other property, in each case other than a
consolidation or merger of ARS in which the holders of the Common Stock
immediately prior to the consolidation or merger have, directly or indirectly,
at least a majority of the total voting power of all classes of capital stock
entitled to vote generally in the election of directors of the continuing or
surviving corporation
15
<PAGE> 19
immediately after such consolidation or merger in substantially the same
proportion as their ownership of Common Stock immediately before such
transaction; (iii) any Person, or any Persons acting together that would
constitute a "group" for purposes of Section 13(d) of the Exchange Act, together
with any affiliates thereof, shall beneficially own (as defined in Exchange Act
Rule 13d-3) at least 50% of the total voting power of all classes of capital
stock of ARS entitled to vote generally in the election of directors of ARS;
(iv) at any time during any consecutive two-year period, individuals who at the
beginning of that period constituted the Board of Directors of ARS (the "Board")
(together with any new directors whose election by the Board or whose nomination
for election by the stockholders of ARS was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
that period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office; or (v) ARS is liquidated or dissolved or adopts a plan of liquidation or
dissolution.
A "Termination of Trading" will occur if the Common Stock (or other common
stock into which the Convertible Securities are then convertible) is neither
listed for trading on a national securities exchange in the United States nor
approved for trading on an established automated over-the-counter trading market
in the United States.
If a Repurchase Event occurs, the then Outstanding Convertible Securities
will be the "Affected Convertible Securities" whose Holders will have the
repurchase right described above.
The right of Holders to require ARS to repurchase Affected Convertible
Securities if a Repurchase Event occurs could create an Event of Default under
Senior Indebtedness, as a result of which any repurchase could, absent a waiver
of the repurchase right, be blocked by the subordination provisions of the
Indenture. See " -- Subordination." Failure by ARS to repurchase the Affected
Convertible Securities when required will result in an Event of Default with
respect to the Affected Convertible Securities whether or not the repurchase is
permitted by those subordination provisions. The ability of ARS to pay cash to
the Holders of Affected Convertible Securities on a repurchase may be limited by
certain financial covenants contained in Senior Indebtedness.
If a Repurchase Event occurs and Holders exercise their rights to require
ARS to repurchase Affected Convertible Securities, ARS intends to comply with
applicable tender offer rules under the Exchange Act, including Rules 13e-4 and
14e-1, as then in effect, with respect to any repurchase.
The foregoing provisions (i) may not afford Holders protection in the event
of highly leveraged or other transactions involving ARS which may adversely
affect Holders and (ii) may discourage open market purchases of the Common Stock
or a non-negotiated tender or exchange offer for such stock and, accordingly,
may limit a stockholder's ability to realize a premium over the market price of
the Common Stock in connection with any such transaction.
EVENTS OF DEFAULT
Unless otherwise provided by a Prospectus Supplement with respect to any
series of the Convertible Securities, the following are Events of Default under
the Indenture with respect to that series: (i) default in the payment of
principal of or any premium on any Convertible Security when due (even if that
payment is prohibited by the subordination provisions of the Indenture); (ii)
default in the payment of any interest on any Convertible Security of that
series when due, which default continues for 30 days (even if that payment is
prohibited by the subordination provisions of the Indenture); (iii) failure to
provide timely notice of a Repurchase Event to Holders of Affected Convertible
Securities of that series as required by the Indenture; (iv) default in the
payment of the Repurchase Price in respect of any Affected Convertible Security
of that series on the Repurchase Date therefor (even if that payment is
prohibited by the subordination provisions of the Indenture); (v) default in the
performance or breach of any other covenant or warranty of ARS in the Indenture
(other than a covenant included in the Indenture for one or more series of
Convertible Securities other than Convertible Securities of that series) which
continues for 60 days after written notice as provided in the Indenture; (vi)
default under one or more bonds, debentures, notes or other evidences of
indebtedness for money borrowed by ARS or any of its consolidated subsidiaries
or under one or more mortgages, indentures or instruments under which there may
be issued or by which there may be secured or evidenced any indebtedness
16
<PAGE> 20
for money borrowed by ARS or any of its consolidated subsidiaries, whether that
indebtedness now exists or is hereafter created, which default individually or
in the aggregate constitutes a failure to pay the principal of indebtedness in
excess of $10 million when due and payable after the expiration of any
applicable grace period with respect thereto or results in indebtedness in
excess of $10 million becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, without that
indebtedness having been discharged, or that acceleration having been rescinded
or annulled, within a period of 30 days after there shall have been given to ARS
by the Trustee or to ARS and the Trustee by Holders of at least 25% in aggregate
principal amount of the Outstanding Convertible Securities a written notice
specifying such default and requiring ARS to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled; (vii) certain
events in bankruptcy or reorganization of or similar events respecting ARS or
any of its Significant Subsidiaries; and (viii) any other Event of Default as
the applicable Prospectus Supplement may specify with respect to the Convertible
Securities of that series.
If an Event of Default with respect to any Outstanding series of
Convertible Securities occurs and is continuing, the Trustee or Holders of not
less than 25% in aggregate principal amount of the Outstanding Convertible
Securities of that series (if the Event of Default is one of the types described
in clause (i), (ii) or (viii) above) or at least 25% in aggregate principal
amount of all Outstanding Convertible Securities (if the Event of Default is of
any other type) may declare the principal of and any premium and interest on all
the Outstanding Convertible Securities of the applicable series (or of all
Outstanding Convertible Securities, as the case may be) to be due and payable
immediately, but if a majority in principal amount of Holders of Outstanding
Convertible Securities of the applicable series (or of all Outstanding
Convertible Securities, as the case may be) waive any past default (except the
nonpayment of any premium or interest on or principal of any Convertible
Security and subject to certain other limitations), then such default will cease
to exist and any Event of Default arising therefrom will be deemed cured for
every purpose of the Indenture; but no such waiver will extend to any subsequent
or other default. If an Event of Default occurs and is continuing as a result of
an event of bankruptcy or reorganization of ARS or any of its Significant
Subsidiaries, the principal of and any premium and accrued and unpaid interest
on all Outstanding Convertible Securities will automatically become due and
payable without any declaration or other act on the part of the Trustee or any
Holder of any Convertible Securities. ARS is required to furnish to the Trustee
annually a statement as to the performance by ARS of certain of its obligations
under the Indenture and as to any default in that performance. The Indenture
provides that the Trustee may withhold notice to Holders of the Convertible
Securities of any series of any continuing default (except in the case of a
default in payment of the principal of or any premium or interest on those
Convertible Securities), if the Trustee considers it in the interest of those
Holders to do so.
MODIFICATIONS AND AMENDMENTS
ARS and the Trustee may modify or amend the Indenture without the consent
of Holders to: (i) set forth the terms of the Convertible Securities of any
series, including for purposes of that series any change in the definition of
Senior Indebtedness; (ii) evidence the succession of another Person to ARS and
the assumption by any such successor of the covenants of ARS in the Indenture
and the Convertible Securities; (iii) for the benefit of the Holders of
Convertible Securities of any or all series, add to the covenants of ARS, add an
additional Event of Default or surrender any right or power conferred upon ARS;
(iv) secure the Convertible Securities; (v) make provision with respect to the
conversion rights of Holders in the event of a consolidation, merger or sale of
assets involving ARS, as required by the Indenture; (vi) evidence and provide
for the acceptance of appointment by a successor Trustee or successor Trustees
with respect to the Convertible Securities; or (vii) cure any ambiguity in or
omission from, or, correct or supplement any provision in, the Indenture or the
Convertible Securities which may be defective or inconsistent with any other
provision or make any other provisions with respect to matters or questions
arising under the Indenture which shall not be inconsistent with the provisions
of the Indenture; provided, however, that no such modification or amendment
described in this clause (vii) may adversely affect the interest of Holders of
Securities of any series in any material respect.
17
<PAGE> 21
ARS and the Trustee may modify or amend the Indenture with the consent of
the Holders of a majority in principal amount of the Outstanding Convertible
Securities affected thereby; provided, that no such amendment or modification
may, without the consent of each Outstanding Convertible Security affected
thereby, (i) change the stated maturity date of the principal of, or any
installment of principal or interest on, any Convertible Security or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
on the redemption thereof, or change the coin or currency in which any
Convertible Security or any premium or interest thereon is payable, or impair
the right to institute suit for the enforcement of any payment on or with
respect to any Convertible Security, (ii) reduce the percentage in principal
amount of the Outstanding Convertible Securities the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of the applicable
Indenture or certain defaults thereunder and their consequences or (iii) modify
any of the provisions of the Indenture relating to the subordination of the
Outstanding Convertible Securities in a manner adverse to the Holders thereof.
SATISFACTION AND DISCHARGE
ARS may discharge its obligations under the Indenture while Convertible
Securities remain Outstanding, subject to certain conditions, if (i) all
Outstanding Convertible Securities have become due and payable or will become
due and payable at their scheduled maturity within one year or (ii) all
Outstanding Convertible Securities are scheduled for redemption within one year,
and in either case ARS has deposited with the Trustee an amount in cash
sufficient (without any consideration of any investment of that cash) to pay and
discharge all Outstanding Convertible Securities on the date of their scheduled
maturity or the scheduled date of redemption.
MEETINGS OF HOLDERS
The Indenture contains provisions for convening meetings of the Holders of
Convertible Securities of any series. A meeting may be called at any time by the
Trustee or, on request, by ARS or the holders of at least 10% in principal
amount of the Outstanding Convertible Securities of any series, in any such case
on notice given as provided in the Indenture. Except for any consent that must
be given by the Holder of each Outstanding Convertible Security affected
thereby, as described above under "-- Modifications and Amendments," any
resolution presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Convertible Securities of that series;
provided, however, that, except for any consent that must be given by the Holder
of each Outstanding Convertible Security affected thereby, as described above
under "-- Modifications and Amendments," any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the Holders of a specified
percentage, which is less than a majority in principal amount of the Outstanding
Convertible Securities of a series, may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such specified percentage in principal amount of the Outstanding
Convertible Securities of that series. Subject to the proviso set forth above,
any resolution passed or decision taken at any meeting of Holders of Convertible
Securities of that series duly held in accordance with the Indenture will be
binding on all Holders of Convertible Securities of that series. The quorum at
any meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Convertible Securities of a series.
FORM, DENOMINATION AND REGISTRATION
Unless the applicable Prospectus Supplement provides otherwise, the
Convertible Securities will be issued in fully registered form, without coupons,
in denominations of $1,000 and any integral multiples thereof.
GOVERNING LAW
The Indenture and the Convertible Securities will be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to that state's conflicts of laws principles.
18
<PAGE> 22
INFORMATION CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee, as
a creditor of the Company, to obtain payment of claims in certain cases and to
realize on certain property received with respect to any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions,
except that, if it acquires any conflicting interest (as defined), it must
eliminate that conflict or resign.
ARS and its subsidiaries may maintain deposit accounts and conduct other
banking transactions with the Trustee in the ordinary course of business. The
Trustee also acts as the trustee under the 7 1/4% Notes indenture.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of ARS 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 December 16, 1997, 15,321,322
shares of Common Stock were issued and outstanding and no shares of Preferred
Stock had been issued. The following summary is qualified in its entirety by
reference to the Charter, which is an exhibit to the Acquisition Shelf
Registration Statement.
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 so choose. The Common Stock carries no preemptive rights and
is not convertible, redeemable, assessable or entitled to the benefits of any
sinking fund. Holders of Common Stock are entitled to dividends in such amounts
and at such times as the Board may declare out of funds legally available
therefor.
PREFERRED STOCK
The Board may direct ARS to issue Preferred Stock from time to time.
Subject to certain Charter provisions and applicable law, it may, without any
action by holders of the Common Stock, (i) adopt resolutions to issue the shares
in one or more classes or series, (ii) fix the number of shares and change the
number of shares constituting any series and (iii) provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, including dividend rights and rates, redemption terms and prices,
repurchase obligations, conversion rights and liquidation preferences of the
shares constituting any class or series.
The Board could cause ARS to issue shares of, or rights to purchase,
Preferred Stock, the terms of which might (i) discourage an unsolicited proposal
to acquire the Company, (ii) facilitate a particular business combination
involving the Company or (iii) adversely affect the voting power of holders of
the Common Stock. Any such action could discourage a 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 its then market
price.
STOCKHOLDER RIGHTS PLAN
Each share of Common Stock offered hereby includes one right ("Right") to
purchase from ARS 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 ARS and a Rights Agent (the "Rights Agreement"), the form of which is an
exhibit to the Acquisition Shelf Registration Statement.
19
<PAGE> 23
The Rights currently are attached to all certificates representing shares
of Common Stock now outstanding or hereafter issued, including the shares of
Common Stock into which the Notes are convertible. No separate certificates for
the Rights ("Rights Certificates") have been or will be distributed, except as
described below. 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. 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 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
20
<PAGE> 24
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.
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. The matter, 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 anti-takeover 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 acquirors.
STATUTORY BUSINESS COMBINATION PROVISION
ARS 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
21
<PAGE> 25
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which such
person became an interested stockholder, the business combination was approved
by the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
OTHER MATTERS
Delaware law authorizes Delaware corporations to limit or eliminate the
personal liability of their directors to them 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 Charter limits the
liability of directors of ARS to ARS or its stockholders to the fullest extent
permitted by Delaware law. Specifically, no member of the Board will be
personally liable for monetary damages for breach of the member's fiduciary duty
as a director, except for liability (i) for any breach of the member's duty of
loyalty to ARS 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
member derived an improper personal benefit. This Charter provision could 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. The Bylaws of ARS (the
"Bylaws") provide indemnification to its officers and directors and certain
other persons with respect to certain matters, and ARS has entered into
agreements with each of its directors and executive officers providing for
indemnification with respect to certain matters.
The Charter 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 only the Chairman of the Board, the President or a majority of the Board
may call a special meeting of stockholders.
The Charter provides that the Board will consist of three classes of
directors serving for staggered terms. This Charter provision could prevent a
party who acquires control of a majority of the outstanding voting stock of ARS
from obtaining control of the Board until the second annual stockholders meeting
following the date that party obtains that control.
The Charter provides that the number of directors will be as determined by
the Board from time to time, but will 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 Charter provisions
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 Bylaws contain advance-notice and other procedural requirements that
apply to stockholder nominations of persons for election to the Board at any
annual or special meeting of stockholders and to
22
<PAGE> 26
stockholder proposals that any other action be taken at any annual meeting. In
the case of any annual meeting, a stockholder proposing to nominate a person for
election to the Board or proposing that any other action be taken must give the
Secretary of ARS written notice of the proposal not less than 90 days before the
anniversary date of the immediately preceding annual meeting (subject to certain
exceptions if the pending annual meeting date differs by more than specified
periods from that anniversary date). If a special meeting is called for the
election of directors, a stockholder proposing to nominate a person for that
election must give the Secretary of ARS written notice of the proposal no later
than the close of business on the 10th day following the first to occur of (i)
the day on which notice of the date of the special meeting was mailed to
stockholders or (ii) the day public disclosure of the date of the special
meeting was made. The Bylaws prescribe the specific information any advance
written stockholder notice must contain. The foregoing summary is qualified in
its entirety by reference to the Bylaws, which are an exhibit to the Acquisition
Shelf Registration Statement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discusses the material United States federal income tax
consequences under generally applicable current law of the acquisition,
ownership, conversion and disposition of Convertible Securities and Common Stock
acquired from ARS, in connection with the direct and indirect acquisition of
businesses, properties or securities in a business combination transaction (a
"Business Combination Transaction") and the acquisition, ownership, conversion
and disposition of Common Stock which was acquired on the conversion of one or
more Convertible Securities acquired from ARS in a Business Combination
Transaction by persons who hold those Convertible Securities and any such Common
Stock as capital assets. It does not, however, discuss the effect of (i) special
rules, such as those which apply to tax-exempt organizations, insurance
companies, financial institutions, persons who hold the Convertible Securities
or Common Stock in connection with a straddle or dealers, (ii) rules that may
permit (a) gain realized on the receipt of Convertible Securities in exchange
for property which is transferred to ARS in a Business Combination Transaction
to be reported on the installment method or (b) the receipt of Convertible
Securities or Common Stock in a Business Combination Transaction without the
recognition of gain or loss or (iii) any foreign, state or local tax law.
Accordingly, each person who is considering the acquisition of Convertible
Securities or Common Stock in a Business Combination Transaction pursuant to
this Prospectus is advised to consult his or her own tax advisor regarding the
matters discussed herein in light of his or her particular circumstances and the
application of state, local and foreign tax laws.
The following statements are based upon the Internal Revenue Code of 1986,
as amended (the "Code"), existing regulations thereunder and the current
judicial and administrative interpretations thereof.
OWNERSHIP BY U.S. PERSONS
The following applies to a person who is a citizen or resident of the
United States (a "U.S. Holder"), a corporation or partnership created or
organized in the United States or any state thereof or an estate or trust the
income of which is includible in income for United States federal income tax
purposes regardless of its source.
Interest on Convertible Securities. The portion of any stated interest on a
Convertible Security which is qualified stated interest will be taxable as
ordinary income at the time that interest is paid or accrued in accordance with
the U.S. Holder's method of accounting for United States federal income tax
purposes. The portion of the stated interest on a Convertible Security which is
not qualified stated interest and, in certain circumstances, a portion of the
stated principal on a Convertible Security will be classified as original issue
discount. Any such original issue discount will be included in income at times
which generally precede the payment of that original issue discount. The effect
of the foregoing principles on a particular Convertible Security will depend, in
part, on the terms of the Convertible Security. A person who is considering the
acquisition of a Convertible Security in a Business Combination Transaction
pursuant to this Prospectus
23
<PAGE> 27
should consult with his or her tax advisor regarding the amount of any such
original issue discount with respect to that Convertible Security and the effect
thereof on such person.
Conversion of Convertible Securities. A U.S. Holder who does not use the
installment method to report income on the receipt of a Convertible Security in
a Business Combination Transaction will generally not recognize gain or loss on
the conversion of that Convertible Security into Common Stock except that he or
she will recognize a capital gain or loss as a result of the receipt of cash in
lieu of a fractional share equal to the amount of cash reduced by the basis of
the portion of the Convertible Security in respect of which that cash was paid.
The basis of the Common Stock that is received on the conversion will be the
adjusted basis of the converted Convertible Security at the time of conversion
increased by any gain that is recognized, decreased by any loss that is
recognized and decreased by any cash that is received. The holding period of
that Common Stock will include the holding period of the converted Convertible
Security.
Rev. Rul. 72-264 provides that (i) a U.S. Holder who uses the installment
method to report income on the receipt of a Convertible Security (any such
Convertible Security is referred to herein as an "Installment Method Convertible
Security") in a Business Combination Transaction will recognize gain or loss on
the conversion of that Installment Method Convertible Security into Common Stock
and (ii) the amount of that gain or loss will be the amount of cash received in
lieu of a fractional share increased by the fair market value of the Common
Stock received reduced by the basis (as defined in Section 453B(b) of the Code)
of that Convertible Security. Any gain or loss which is so recognized will be
considered to result from the sale or exchange of the property in exchange for
which the Installment Method Convertible Security was received.
Constructive Dividend. A distribution to holders of Common Stock may cause
a deemed distribution (which will be a dividend to the extent of the current or
accumulated earnings and profits of ARS) to the holders of Convertible
Securities if the conversion price or conversion ratio of the Convertible
Securities is adjusted to reflect that distribution.
Sale or Exchange of Convertible Securities or Common Stock. Gain or loss
will be recognized on the sale or exchange of Convertible Securities or of
Common Stock in an amount equal to the difference between (i) the amount of cash
and the fair market value of any other property received by the U.S. Holder
(excluding, in the case of Convertible Securities, any amount representing
accrued, but theretofore unrecognized, interest, which will be taxable as such)
and (ii) the Holder's adjusted basis in the property sold or exchanged. If the
Convertible Security is an Installment Method Convertible Security, then any
gain or loss that is recognized on the sale or exchange thereof will be
considered to result from the sale or exchange of the property in exchange for
which the Installment Method Convertible Security was received. If the
Convertible Security is not an Installment Method Convertible Security, then any
such gain (other than gain characterized as interest under the market discount
rules) or loss with respect to that Convertible Security will be a capital gain
or loss and will be a long-term capital gain or loss if the holding period of
that Convertible Security is more than one year. Gain or loss that is recognized
on the sale or exchange of Common Stock will be a capital gain or loss and will
be a long-term capital gain or loss if the holding period of the Common Stock is
more than one year.
Dividends on Common Stock. Distributions on the Common Stock will be
dividends to the extent of the current or accumulated earnings and profits of
ARS, then a nontaxable return of capital reducing the holder's adjusted basis in
the Common Stock until such adjusted basis is reduced to zero and finally an
amount received in exchange for the Common Stock. Dividends paid to domestic
corporations may qualify for the dividends received deduction subject to the
limiting provisions that apply thereto.
OWNERSHIP BY NON-U.S. HOLDERS
The following applies to a person who is not a U.S. Holder (a "Non-U.S.
Holder") and to the income received thereby, such as interest, dividends and
gain or loss on disposition, with respect to Convertible Securities and Common
Stock which is not effectively connected with the conduct by the Non-U.S. Holder
of a trade or business within the United States. Any such items of income
generally will be subject to the United States federal income tax that applies
to U.S. Holders generally, and, in the case of such a Non-U.S. Holder that is a
foreign corporation, those items also will be subject to the branch profits tax.
24
<PAGE> 28
Interest on Convertible Securities. Interest paid on Convertible Securities
to a Non-U.S. Holder will not be subject to United States federal income tax or
to withholding in respect thereof if: (i) the beneficial owner (or if certain
requirements are satisfied, a member of a class of financial institutions)
certifies, under penalties of perjury, that the beneficial owner is not a U.S.
Holder and provides the beneficial owner's name and address; (ii) the Non-U.S.
Holder does not own actually or constructively 10% or more of the total voting
power of all classes of stock of ARS entitled to vote (Common Stock into which a
Convertible Security can be converted is constructively owned for these
purposes); (iii) the Non-U.S. Holder is not a controlled foreign corporation
with respect to which ARS is a "related person" within the meaning of Section
864(d)(4) of the Code; and (iv) the Non-U.S. Holder is not a bank holding the
Convertible Securities as a result of an extension of credit made pursuant to a
loan agreement entered into in the ordinary course of its trade or business.
Accrued market discount on a Convertible Security is not treated for these
purposes as interest income.
If the foregoing conditions are not satisfied, then the interest generally
will be subject to United States federal income tax withholding at a rate of 30%
(or any lower rate provided by any applicable treaty).
Sale or Exchange of Convertible Securities or Common Stock; Conversion of
Convertible Securities. A Non-U.S. Holder generally will not be subject to
United States federal income tax on gain recognized on the sale or exchange of
Convertible Securities or Common Stock or on the conversion of a Convertible
Security unless (i) the Holder is an individual who is present in the United
States for 183 or more days in the taxable year and certain other conditions are
satisfied or (ii) ARS is (as is not expected) a "United States real property
holding corporation," as defined in Section 897 of the Code, and certain
exceptions do not apply. Notwithstanding the foregoing, if any Convertible
Security is received in exchange for property used in the conduct of a trade or
business within the United States and the gain that was realized on the receipt
of that Convertible Security was reported on the installment method, then any
gain that is realized on the collection, conversion, sale, exchange or other
disposition of that Convertible Security may be subject to United States income
tax as though the Non-U.S. Holder were a citizen or resident of the United
States.
Dividends on Common Stock. Any distribution on Common Stock to a Non-U.S.
Holder will be subject to United States federal income tax withholding at a rate
of 30% (or any lower rate provided by any applicable treaty).
Estate Tax. An individual Non-U.S. Holder of a Convertible Security will
not be required to include the value of that Convertible Security in his gross
estate for United States federal estate tax purposes, provided that the Holder
did not at the time of death actually or constructively own 10% or more of the
combined voting power of all classes of stock of ARS and, at the time of the
Holder's death, payments of interest on that Convertible Security would not have
been effectively connected with the conduct by the Holder of a trade or business
in the United States. An individual Non-U.S. Holder who is treated as the owner
of, or has made certain lifetime transfers of, an interest in the Common Stock
will be required to include the value thereof in his gross estate for United
States federal estate tax purposes (and may be subject to United States federal
estate tax with respect thereto), unless otherwise provided by an applicable
estate tax treaty.
BACKUP WITHHOLDING; INFORMATION REPORTING
A noncorporate U.S. Holder holding Convertible Securities or Common Stock
(and any Non-U.S. Holder failing to provide a certificate that it is not a U.S.
Holder) will be subject to backup withholding at the rate of 31% with respect to
interest paid on the Convertible Securities, dividends paid on Common Stock and
the proceeds of any sale, exchange or redemption thereof if the payee fails to
furnish a taxpayer identification number and in certain other circumstances. Any
amounts so withheld will be allowed as a refund or a credit against the Holder's
United States federal income tax liability, provided that certain information is
furnished to the Internal Revenue Service.
Information reporting will be required with respect to a payment of
proceeds from the sale or exchange of Convertible Securities or Common Stock
through a foreign office of a broker that is a United States person or of
certain foreign brokers unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder and the broker has no actual knowledge to
the contrary.
25
<PAGE> 29
The Internal Revenue Service has proposed regulations that, if issued as
final regulations, would require certain Non-U.S. Holders to provide additional
information in order to establish an exemption from, or reduce the rate of,
withholding tax or backup withholding tax and in particular would require that
foreign partnerships and partners of a foreign partnership provide certain
information and comply with certain certification requirements not required
under existing law. Such proposed regulations are proposed to be effective
generally for payments made after December 31, 1997. It is not possible to
predict whether, or in what form, the proposed regulations ultimately will be
adopted.
PLAN OF DISTRIBUTION
This Prospectus covers the offer and sale of up to 10,143,923 shares of
Common Stock and $100,000,000 aggregate principal amount of Convertible Debt
Securities which ARS may issue from time to time in connection with future
direct and indirect acquisitions of other businesses, properties or securities
in business combination transactions.
ARS expects that the (i) terms on which it may issue the shares of Common
Stock and Convertible Debt Securities covered hereby will be determined by
direct negotiations with the owners or controlling persons of the businesses or
assets to be acquired, (ii) the shares of Common Stock issued will be valued at
prices reasonably related to market prices prevailing either at the time an
acquisition agreement is executed or at or about the time of delivery of shares
and (iii) the Convertible Debt Securities issued will be valued at prices
reasonably related to their principal amount.
EXPERTS
The audited financial statements incorporated by reference in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
AVAILABLE INFORMATION
ARS is subject to the reporting requirements of the Exchange Act, and, in
accordance therewith, files reports, proxy statements and other information with
the SEC. These reports, proxy statements and other information, once filed, 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
these documents 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 such reports, proxy statements and other information regarding
issuers (including ARS) that file electronically with the SEC. The address of
that site is http://www.sec.gov.
ARS has filed the Acquisition Shelf Registration Statement on Form S-4
under the Securities Act with the SEC with respect to this offering. This
Prospectus, filed as a part of the Acquisition Shelf Registration Statement,
does not contain all the information set forth therein, or the exhibits and
schedules thereto, in accordance with the rules and regulations of the SEC, and
reference hereby is made to that omitted information. The statements made in
this Prospectus concerning documents filed or incorporated by reference as
exhibits to the Acquisition Shelf Registration Statement accurately describe the
material provisions of those documents and are qualified in their entirety by
reference to those exhibits for complete statements of their provisions. The
Acquisition Shelf Registration Statement and the exhibits and schedules thereto
may be inspected and copied at the principal office of the SEC in Washington,
D.C., as described above, and are also available at the SEC's Internet web site
described above.
26
<PAGE> 30
Proxy statements, reports and other information concerning the Company that
are filed under the Exchange Act also can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed by ARS with the SEC are hereby
incorporated by reference in this Prospectus (Exchange Act File No. 1-11849):
1. Annual Report on Form 10-K for the year ended December 31, 1996;
2. Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
1997, June 30, 1997 and September 30, 1997;
3. Current Report on Form 8-K dated March 4, 1997;
4. Current Report on Form 8-K dated December 8, 1997;
5. The description of the Common Stock contained in the Registration
Statement on Form 8-A filed June 19, 1996; and
6. The description of the Rights to Purchase Series A Junior Participating
Preferred Stock contained in the Registration Statement on Form 8-A
filed June 27, 1996.
All reports and documents subsequently filed pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act by ARS prior to the termination of the
offering contemplated hereby shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from their respective dates of
filing. Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes that statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
ARS hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus is delivered, on the written or oral request of that
person, a copy of any or all of the documents incorporated by reference herein,
other than exhibits to those documents (unless those exhibits are specifically
incorporated by reference into those documents). Requests should be directed to
John D. Held, Senior Vice President, General Counsel and Secretary, at the
principal executive offices of ARS located at Post Oak Tower, Suite 725, 5051
Westheimer Road, Houston, Texas 77056; telephone (713) 599-0100.
27
<PAGE> 31
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO 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. 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 4
Price Range of Common Stock........... 7
Dividend Policy....................... 7
Selected Financial Information........ 8
Description of the Convertible Debt
Securities.......................... 10
Description of Capital Stock.......... 19
Certain United States Federal Income
Tax Consequences.................... 23
Plan of Distribution.................. 26
Experts............................... 26
Available Information................. 26
Incorporation of Certain Information
by Reference........................ 27
</TABLE>
[AMERICAN RESIDENTIAL SERVICES, INC. LOGO]
AMERICAN RESIDENTIAL
SERVICES, INC.
COMMON STOCK
CONVERTIBLE SUBORDINATED
DEBT SECURITIES
---------------
PROSPECTUS
---------------
December 17, 1997
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
