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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9/A
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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AMERICAN RESIDENTIAL SERVICES, INC.
(Name of Subject Company)
AMERICAN RESIDENTIAL SERVICES, INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $.001 PER SHARE
and Associated Rights to Purchase Series A Junior Participating Preferred Stock
(Title of Class of Securities)
028911105
(CUSIP Number of Class of Securities)
John D. Held, Esq.
Senior Vice President, General Counsel and Secretary
American Residential Services, Inc.
Post Oak Tower
5051 Westheimer, Suite 725
Houston, Texas 77056-5604
(713) 599-0100
(Name, address and telephone number of person authorized to
receive notice and communications on behalf of person filing statement)
WITH COPY TO:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
(713) 651-5151
Attention: Charles L. Strauss
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is American Residential Services, Inc., a
Delaware corporation (the "Company" or "ARS"), and the address of the
principal executive offices of the Company is Post Oak Tower, 5051 Westheimer,
Suite 725, Houston, Texas 77056-5604. The title and the class of equity
securities to which this statement relates is the Company's common stock, par
value $.001 per share (the "Common Stock") (and the associated rights to
purchase Series A Junior Participating Preferred Stock pursuant to the Rights
Agreement, as defined below (the "Rights" and, together with the Common Stock,
the "Shares")).
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the cash tender offer (the "Offer") by SVM M9
Acquisition Corporation (the "Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of The ServiceMaster Company ("Parent" or
"ServiceMaster"), disclosed in a Schedule 14D-1, dated March 29, 1999 (the
"Schedule 14D-1"), filed with the Securities and Exchange Commission (the
"SEC") by ServiceMaster and Purchaser to purchase all outstanding Shares at a
price of $5.75 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in Purchaser's Offer to
Purchase and the related Letter of Transmittal (which together, as they may be
amended and supplemented from time to time, constitute the "Offer"). The
Schedule 14D-1 states that the principal executive offices of each of
ServiceMaster and Purchaser are located at One ServiceMaster Way, Downers
Grove, Illinois 60515.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of March 22, 1999 (the "Merger Agreement") among the Company, ServiceMaster
and Purchaser. A copy of the Merger Agreement is filed as Exhibit 3.1 to this
Schedule 14D-9 and is hereby incorporated herein by reference. The Merger
Agreement provides, among other things, that as soon as practicable after the
consummation of the Offer, and the satisfaction of the other conditions set
forth in the Merger Agreement and in accordance with the relevant provisions
of the General Corporation Law of the State of Delaware ("Delaware Law" or the
"DGCL"), Purchaser will be merged into the Company (the "Merger"). Following
consummation of the Merger, the Company will be a wholly-owned subsidiary of
ServiceMaster. At the effective time of the Merger (the "Effective Time"),
each Share then issued and outstanding immediately prior to the Effective Time
(other than Shares held by ARS or by any subsidiary of ARS, or owned by
ServiceMaster, Purchaser or any other subsidiary of ServiceMaster, or Shares
held by stockholders who shall have demanded and perfected appraisal rights in
accordance with the requirements of Delaware Law) will be canceled and
converted into the right to receive the price per Share paid pursuant to the
Offer in cash, without interest (the "Merger Consideration"). The Merger
Agreement is summarized in Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the entity filing
this statement, are set forth in Item 1 above. Certain information contained
in this Schedule 14D-9 or incorporated herein by reference concerning
ServiceMaster, Purchaser or their affiliates, or actions or events with
respect to any of them, was provided by ServiceMaster, and the Company takes
no responsibility for such information.
(b) Except as described herein, or in the Information Statement of the
Company attached to this Schedule 14D-9 as Annex B (which is hereby
incorporated by reference), to the knowledge of the Company, as of the date
hereof, there is no material contract, agreement, arrangement or
understanding, or any actual or potential conflict of interest, between the
Company or its affiliates and (i) the Company's executive officers, directors
or affiliates or (ii) ServiceMaster, Purchaser or their respective executive
officers, directors or affiliates.
In considering the recommendation of the Company Board set forth in Item 4
below, the Company's stockholders should be aware that certain members of the
Company's management and certain members of the Company's Board have interests
in the Offer and the Merger, which are described herein and in Annex B hereto
and which may present them with certain conflicts of interest. The Board of
Directors was aware of these potential conflicts and considered them along
with the other factors described in Item 4 below.
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THE MERGER AGREEMENT
Information with respect to the terms of the Merger Agreement and certain
related matters, including the Merger (as defined therein), is set forth under
the headings "Introduction", "Terms of the Offer", "Background of the Offer;
Purpose of the Offer and the Merger; The Merger Agreement and Certain Other
Agreements", "Conditions to the Offer" and "Certain Legal Matters" in the
Offer to Purchase, a copy of which is filed as Exhibit 3.3 hereto and is
hereby incorporated herein by reference.
INDEMNITY AND LIMITATION OF LIABILITY
The Company has entered into indemnification agreements with each of its
directors and executive officers by which the Company provides such persons
with the maximum indemnification allowed under applicable law, with regard to
all judgments, penalties, fines, amounts paid in settlement and expenses
(including attorneys' fees) whatsoever arising out of any event or occurrence
related to the fact that such person is or was a director or officer of the
Company, with certain limitations and exceptions. A copy of the form of such
indemnification agreement is filed as Exhibit 3.6 to this statement and is
hereby incorporated herein by reference. To the extent that the Company
maintains an insurance policy or policies providing liability insurance for
directors, officers, employees or agents of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise that such person serves at the request of the Company, the
indemnified person shall be covered by such policy or policies in accordance
with its or their terms to the maximum extent of the coverage available for
any such director, officer, employee or agent under such policy or policies.
The agreements are binding upon any successor to the Company. The agreements
continue in effect regardless of whether the indemnified person continues to
serve as a director or officer of the Company.
Subject to certain limitations, Article IV of the Amended and Restated
Bylaws of the Company also provides for indemnification of officers and
directors of the Company. A copy of the Amended and Restated Bylaws is filed
as Exhibit 3.5 to this statement and is hereby incorporated herein by
reference.
Delaware Law obligates the Company, as the Surviving Company in the Merger,
to fulfill and honor after the consummation of the Offer its current
obligations under the indemnification agreements and the bylaws.
In accordance with Delaware Law, Article Seventh of the Restated Certificate
of Incorporation of the Company eliminates the personal liability of a
director to the Company and its stockholders for monetary damages for breaches
of fiduciary duty as a director. Delaware Law prescribes certain limitations
on such exculpatory provisions. A copy of the Restated Certificate of
Incorporation is filed as Exhibit 3.4 to this statement and is hereby
incorporated herein by reference.
The Merger Agreement obligates ARS, as the surviving company, and
ServiceMaster to indemnify the present and former directors and officers of
ARS in respect of certain actions taken prior to the effective time of the
Merger for a period of not less than six years from such effective time.
LIABILITY INSURANCE
Each of the Company's directors and executive officers is insured against
liabilities incurred by them in connection with their service in such
capacities. The insurance policy provides aggregate coverage of $20,000,000
for claims made during the effective period of the policy.
The Merger Agreement obligates ServiceMaster (or ARS, as the surviving
corporation) to maintain in effect directors' and officers' liability
insurance with respect to actions that shall have been taken prior to the
effective time of the Merger on terms and conditions no less favorable to such
persons than those in effect under ARS's directors' and officers' liability
insurance as was in effect on March 22, 1999.
OTHER MATTERS
Certain other contracts and arrangements between the Company and certain of
its directors and executive officers are discussed in the Information
Statement attached as Annex B to this Schedule 14 D-9.
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OTHER MATERIAL 1998 TRANSACTIONS WITH ARS DIRECTORS AND EXECUTIVE OFFICERS
The standard compensation and stock option grant policies for ARS Board
members, and the 1998 compensation and option grants to certain executive
officers, are described in the Information Statement attached as Annex B to
this Schedule 14D-9.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS
THE ARS BOARD HAS UNANIMOUSLY APPROVED AND DECLARED ADVISABLE THE OFFER, THE
MERGER AND THE MERGER AGREEMENT AND DETERMINED THAT THE TERMS OF THE OFFER AND
THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE
COMPANY AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE
OFFER AND TENDER THEIR SHARES.
A letter to stockholders communicating the Board's recommendations is filed
as Exhibit 1.1 hereto and is hereby incorporated herein in its entirety by
reference.
(b) BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION
BACKGROUND OF THE OFFER
Pursuant to a request from Phillip B. Rooney, Vice Chairman of
ServiceMaster, to Howard Hoover, Chairman of ARS, Messrs. Rooney and Kenneth
N. Hooten, a ServiceMaster Vice President, met with Messrs. Hoover and Thomas
N. Amonett, President of ARS, in Houston, Texas on March 10 and March 11,
1998. In this introductory meeting, Mr. Rooney noted ServiceMaster's recent
acquisition of Rescue Rooter and told Messrs. Hoover and Amonett that
ServiceMaster was interested in expanding its plumbing operations to encompass
heating, ventilation and air conditioning installation and repair. The parties
also discussed a possible strategic alliance involving ServiceMaster's
American Home Shield operations and ARS's operations. The parties agreed that
an exchange of ideas would be beneficial.
On March 18, 1998, ServiceMaster and ARS executed a confidentiality
agreement in connection with the consideration of a possible alliance or other
transaction between ServiceMaster and ARS.
On May 11, 1998, Messrs. Hoover and Amonett met with Messrs. Rooney and
Hooten at ServiceMaster's offices in Downers Grove, Illinois to discuss in
general terms a possible combination of ServiceMaster's Rescue Rooter
operations and ARS's operations or a possible strategic alliance involving
ServiceMaster's American Home Shield operations and ARS's operations. On June
29, 1998, Messrs. Amonett and Elliot Sokolow, Senior Vice President, Director
of Residential Operations of ARS, met with Messrs. Hooten, Ernest J. Mrozek,
Group President of ServiceMaster Consumer Services, Paul A. Bert, Executive
Vice President, Marketing, of ServiceMaster Consumer Services, Scott J.
Cromie, President and Chief Operating Officer of American Home Shield, William
E. LeBaron, President of Rescue Rooter, Thomas Scherer, Executive Vice
President and Chief Financial Officer of ServiceMaster Consumer Services, and
Robert Zipperer, Associate of ServiceMaster Ventures, in Memphis, Tennessee,
regarding such possible combination or strategic alliance.
During a telephone conversation in September or October 1998, Mr. Rooney
suggested to Mr. Hoover that, subject to receipt and review of more detailed
financial information, ServiceMaster and ARS consider a possible business
combination at a potential price ranging from $6.00 to $8.00 per share of ARS
common stock. Mr. Hoover agreed to continue discussions of such a possible
business combination, but indicated that ARS sought a higher price.
ARS engaged Jefferies & Company, Inc. ("Jefferies") in November 1998 to act
as financial advisor to ARS in connection with the evaluation of potential
options, including but not limited to a recapitalization, the repurchase of
ARS's convertible subordinated notes or other financial alternatives. The
engagement letter provided that ARS and Jefferies would enter into a separate
engagement letter if ARS undertook a private offering, a public offering, a
business combination or a similar transaction.
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Messrs. Rooney, Hooten, Mrozek, LeBaron and Stanley J. Zalik, Vice President
of Finance of Rescue Rooter, met with Messrs. Hoover, Amonett and Nolan
Lehmann, a director of ARS, in Houston on November 10 and 11, 1998 to discuss
ARS's business and a possible acquisition of ARS by ServiceMaster. No specific
conclusions or recommendations were reached as ServiceMaster desired to first
receive and review ARS third quarter 1998 results and revised projections for
fiscal year 1998 and 1999.
At a special meeting of the ARS Board of Directors held on December 1, 1998,
Mr. Amonett updated the Board on the status of discussions with ServiceMaster.
A dinner meeting was held in Houston on December 14, 1998 among Messrs.
Hoover, Amonett, Rooney, Mrozek, LeBaron, Zalik and David E. K. Frischkorn of
Jefferies. ARS provided an operational update, as well as some financial
information for the third quarter and October 1998. Expectations for the
fourth quarter 1998 and for 1999 were also discussed, although these
discussions were preliminary in nature and ARS was in the process of
developing the financial detail by location.
At a special meeting of the ARS Board of Directors held on December 17,
1998, Messrs. Hoover and Amonett updated the Board on the status of
discussions with ServiceMaster.
On January 14 and January 15, 1999, further discussion and negotiations
occurred in Houston. Messrs. Rooney, Mrozek, LeBaron, Zalik and Lawrence A.
Mariano, Vice President, Secretary and Controller of ServiceMaster Consumer
Services, met with Messrs. Hoover and Amonett and, from time to time, with
Messrs. Sokolow, Frank N. Menditch, Senior Vice President, Regional Vice
President--Northern Region of ARS, Harry O. Nicodemus, IV, Senior Vice
President, Treasurer, Chief Financial Officer and Chief Accounting Officer of
ARS, Ed Dunn, Senior Vice President, Director of Commercial Operations of ARS,
and Mr. Frischkorn. The ARS representatives shared updated financial estimates
for the fiscal year 1998, which were less favorable than had previously been
anticipated, as well as preliminary budget expectations for 1999. The ARS
representatives reviewed the historical and estimated results and other key
operating matters with the ServiceMaster representatives on a location by
location basis.
On January 22, 1999, ARS publicly announced that it would post a larger loss
in the quarter ended December 31, 1998 than analysts had expected and that ARS
expected the fourth quarter loss to result in a loss for the 1998 fiscal year.
Based on the results of these meetings and several follow-up telephone
conversations between the parties, on January 27, 1999, ServiceMaster
delivered to ARS a proposed letter of intent pursuant to which ServiceMaster
would pay $5.00 per share of ARS common stock in an all cash transaction. On
February 2, 1999, ServiceMaster delivered to ARS a revised proposed letter of
intent pursuant to which ServiceMaster would pay $5.00 per share of ARS common
stock in cash, ServiceMaster common stock or a combination of cash and stock.
Neither letter of intent was executed.
During February and March 1999, numerous meetings and telephone
conversations took place between representatives of ServiceMaster and
ServiceMaster's legal advisors, on the one hand, and representatives of ARS,
representatives of Jefferies and ARS's legal advisors, on the other hand, to
conduct due diligence and to negotiate the terms of a merger agreement
pursuant to which ARS shareholders would receive cash, ServiceMaster common
stock or a combination of cash and stock. During such time period,
representatives of ServiceMaster and representatives of ARS discussed prices
ranging from $5.00 to $7.50 per share of ARS common stock. In addition,
extensive negotiations of termination events, termination fees and financial
covenants occurred in this time period.
At a special meeting of the ARS Board of Directors held on February 3, 1999,
Messrs. Amonett and Hoover updated the Board on the status of discussions with
ServiceMaster. Messrs. Frischkorn and Robert M. Werle presented Jefferies'
financial review of ARS and an overview of Jefferies' valuation methodologies
and analysis
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for ARS. Charles L. Strauss of Fulbright & Jaworski L.L.P., outside legal
counsel to ARS, discussed legal duties of the Board in connection with the
discussions with ServiceMaster.
On February 11, 1999, counsel for ServiceMaster delivered the initial draft
of a proposed merger agreement to ARS and its counsel. Subsequent drafts of a
proposed merger agreement were delivered to ARS and its counsel during
February and March that reflected business and legal negotiations.
On February 12, 1999, ServiceMaster increased its offer to $5.50 per share
of ARS common stock payable in cash, ServiceMaster common stock or a
combination of cash and stock.
At a special meeting of the ARS Board of Directors held on February 15,
1999, Messrs. Amonett, Frischkorn and Werle updated the Board on the status of
discussions with ServiceMaster and summarized for the Board certain of the
issues associated with the negotiations with ServiceMaster.
At a special meeting of the ARS Board of Directors held on February 18,
1999, Messrs. Amonett and Hoover updated the Board on the status of
discussions with ServiceMaster. Mr. Werle reviewed Jefferies' analysis and
methodology for a valuation of ARS.
At a special meeting of the ARS Board of Directors held on February 19,
1999, the Board reviewed and discussed the status of the ServiceMaster
negotiations.
On February 20, 1999, Messrs. Hoover and Rooney tentatively agreed to
recommend to their respective boards of directors to continue negotiations of
the terms of a merger agreement pursuant to which ARS stockholders would
received cash, ServiceMaster common stock or a combination of cash and stock,
based upon a price of between $5.75 and $6.00 per share of ARS common stock
(depending upon the average price of ServiceMaster shares determined over a
20-day pricing period). A collar proposal previously suggested by Mr. Rooney
to Mr. Hoover that would protect ServiceMaster at a ServiceMaster common stock
per share price below $16.50, but could cause the price to be paid per share
of ARS common stock to be less than $5.75, was rejected by ARS.
At a special meeting of the ARS Board of Directors held on February 22,
1999, the Board reviewed and discussed the status of the ServiceMaster
negotiations. John D. Held, Senior Vice President and General Counsel of ARS,
and Mr. Strauss reviewed certain specific provisions set forth in the draft
merger agreement and discussed the legal duties of the Board in connection
therewith.
Between February 23 and February 26, 1999, business, financial and legal
representatives of the two parties convened in Houston to conduct further due
diligence and to negotiate a definitive merger agreement.
At a special meeting of the ARS Board of Directors held on March 2, 1999,
Mr. Amonett updated the Board on the status of discussions with ServiceMaster
and summarized for the Board certain of the issues associated with the
negotiations with ServiceMaster.
ServiceMaster representatives returned to Houston for the period March 5
through March 8, 1999 to conduct additional due diligence investigation with
particular focus on the financial data for 1998 and the first month of 1999.
On March 16, 1999, Messrs. Rooney and Mrozek met with Messrs. Hoover,
Amonett, Frischkorn, Werle and Douglas A. Claman of Jefferies to review the
price and structure for the acquisition. At this meeting, the ServiceMaster
representatives and the ARS representatives discussed the preliminary ARS
financial figures for 1998 and the first two months of 1999 and other
financial matters. The ServiceMaster representatives indicated that, based on
such figures, they believed that a lower purchase price would be appropriate.
The ServiceMaster representatives proposed a flat cash price of $5.25 per
share, but the ARS representatives stated that such price was not acceptable.
The ServiceMaster representatives and ARS representatives also discussed
various other terms of the proposed transaction. At the conclusion of this
meeting, the representatives of the parties agreed to recommend to their
respective boards of directors to fix the price at $5.75 per ARS share and to
restructure the acquisition as a cash tender offer by ServiceMaster or a
ServiceMaster acquisition subsidiary for all outstanding
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shares of ARS common stock. The parties also discussed specific due diligence
procedures and related termination rights. Counsel for ServiceMaster and ARS
were instructed to immediately revise the merger agreement to reflect the new
arrangements. Concurrently with this meeting, Messrs. Zalik, Mariano, Brian
Stevenson, an analyst for ServiceMaster, and John Deegan, Director, Financial
Planning of ServiceMaster, continued with due diligence inquiries, with
particular focus on the financial results of ARS for 1998 and January 1999.
On March 19, 1999, the ServiceMaster Board of Directors approved the merger
agreement.
At a special meeting of the ARS Board of Directors held on March 20, 1999,
Mr. Hoover updated the Board on the status of discussions with ServiceMaster.
Mr. Strauss summarized the terms of the proposed merger agreement. Messrs.
Werle, Frischkorn and Claman reviewed Jefferies' analysis and methodology for
a valuation of ARS. The Board and Messrs. Held and Strauss discussed various
factors to be considered in analyzing a business combination with
ServiceMaster and the legal issues surrounding the approval thereof. Jefferies
presented its oral opinion, subsequently confirmed in writing, that the
consideration to be received by the holders of ARS common stock pursuant to
the Offer and the Merger is fair, from a financial point of view, to such
holders. The Board approved the Offer, the Merger and the Merger Agreement and
the transactions contemplated thereby and recommended acceptance of the tender
offer by ARS's stockholders. The Board also approved the engagement letter
between ARS and Jefferies related to the potential sale of ARS or any of its
material assets.
The merger agreement was executed during the evening of March 22, 1999.
ServiceMaster and ARS publicly announced the agreement on March 23, 1999.
REASONS FOR THE RECOMMENDATION
In reaching its determination described in Item 4(a) above, the Board took
into consideration a number of factors including (among others) the following:
(i) information concerning ARS's business and operations, future prospects,
past, current and anticipated future financial performance, financial
condition and competitive position;
(ii) potential financial operating results and challenges in 1999 and
beyond, and the assumptions, variables and risks affecting such potential
financial results and challenges;
(iii) current and anticipated developments in the industry in which the
Company operates;
(iv) the historical trading prices for the Common Stock;
(v) the extensive activities conducted by management and Jefferies
soliciting proposals from numerous other companies concerning a merger or
other strategic transactions and the results of those activities;
(vi) the extensive negotiations between the Company and ServiceMaster and
their respective financial advisors, leading to the Board's belief that $5.75
per Share represented the highest price per Share that could be negotiated
with ServiceMaster;
(vii) the fact that the Merger Agreement provides for a prompt cash tender
offer for all Shares, to be followed by a merger for the same consideration,
thereby enabling all of the Company's stockholders to obtain the benefits of
the transaction at the earliest possible time;
(viii) the terms of the Merger Agreement, including termination rights,
termination fees, operating, financial and other covenants, representations
made and to be made by ARS, the fact that the Offer and the Merger are
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not conditioned on financing, the provisions permitting the Company to
consider other takeover proposals and to terminate the Merger Agreement after
notice of a superior proposal (and payment of a termination fee), and the
views of ARS's legal and financial advisors regarding certain of such terms;
(ix) alternatives to the Offer and the Merger, including remaining
independent, strategic alliances and a sale to or merger with a company other
than ServiceMaster, including the advantages and disadvantages of each and the
likelihood of achieving transactions with other companies in a timely manner
and at consideration in excess of that offered by ServiceMaster;
(x) the information presented to the Board by the Company's financial
advisor, Jefferies, which involved discussions of various valuation analyses,
the terms of the Offer and the Merger and other alternatives;
(xi) the oral opinion of Jefferies delivered to the Board at its special
meeting held on March 20, 1999 that the consideration to be received by the
holders of Common Stock pursuant to the Offer and the Merger is fair, from a
financial point of view, to such holders. Jefferies' advice to the Board was
confirmed in an opinion letter dated March 22, 1999, a copy of which is
attached as Annex A and is hereby incorporated herein in its entirety by
reference. Such opinion sets forth the scope of the investigation made, the
procedures followed and assumptions made by Jefferies in rendering its
opinion. Stockholders are urged to carefully read such opinion in its
entirety;
(xii) the effects of the announcement of the Offer and the Merger on ARS
employees, dealers and customers, and the potential resulting effects on
stockholder value;
(xiii) the likelihood of the successful completion of the Offer and the
Merger and the risks of non-completion;
(xiv) current market conditions and the relationship between the
consideration to be received by ARS stockholders in connection with the Offer
and the Merger and the historical and recent market prices of the Shares, and
the fact that the $5.75 per Share Offer price represents an approximately 31%
premium over the closing price of $4.375 per Share on the New York Stock
Exchange on March 22, 1999, the last trading day before the public
announcement of the Merger Agreement;
(xv) (a) the right of the Company under the Merger Agreement, prior to the
consummation of the Offer, to provide non-public information to, and seek to
negotiate a business combination transaction or sale of all or a material
portion of the Company's assets or capital stock (an "Acquisition
Transaction") with, a person other than ServiceMaster or any of its
subsidiaries, provided that such third party makes a bona fide unsolicited
written proposal to make an Acquisition Transaction for all the capital stock
or assets on terms more favorable than the offer price to the ARS stockholders
(as determined in good faith by the ARS Board) and (b) the right of the ARS
Board to withdraw or modify its recommendation that the ARS stockholders
accept the Offer and tender their shares of Common Stock if, after having
consulted with outside counsel, the ARS Board determines that the refusal to
do so would constitute a breach by the ARS Board of its fiduciary duties under
applicable laws; and
(xvi) the availability of appraisal rights under Delaware law.
The ARS Board did not attach specific weight to any of the foregoing factors
in reaching its conclusion that the terms of the Offer and the Merger are fair
to, and in the best interests of, the stockholders of the Company.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to a letter agreement dated November 25, 1998, the Company retained
Jefferies to act as financial advisor to ARS in connection with the evaluation
of potential options, including but not limited to a recapitalization, the
repurchase of ARS' convertible subordinated notes or other financial
alternatives. Pursuant
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to such letter agreement, the Company paid Jefferies $100,000 and agreed to
reimburse Jefferies for its out-of-pocket expenses, including the reasonable
fees and expenses of its legal counsel. Such letter agreement provided that
ARS and Jefferies would enter into a separate engagement letter if ARS
undertook a private offering, a public offering, a business combination or a
similar transaction.
Pursuant to a letter agreement dated March 20, 1999, the Company retained
Jefferies to provide financial advisory services in connection with a possible
sale of the Company or any of its material assets. Pursuant to such letter
agreement, the Company, as compensation for such services, agreed to pay
Jefferies $300,000 upon delivery of its fairness opinion to the ARS Board and
a transaction fee payable upon the consummation of the Offer equal to 0.75% of
the transaction value (equity plus debt assumed), net of fees previously paid
to Jefferies by ARS pursuant to the November 25, 1998 and March 20, 1999
letter agreements. The Company also has agreed to reimburse Jefferies for its
out-of-pocket expenses, including the reasonable fees and expenses of its
legal counsel. The Company also has agreed to indemnify Jefferies and its
directors, officers, agents, employees and controlling persons for certain
costs, expenses and liabilities, including certain liabilities under the
federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on
its behalf with respect to the Offer, except that such solicitations or
recommendations may be made by directors, officers or employees of the
Company, for which services no additional compensation will be paid.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Based upon the Company's records and upon information provided to the
Company by its directors, executive officers and affiliates, neither the
Company nor any of its affiliates nor, to the best of the Company's knowledge,
any of the directors or executive officers of the Company or any of its
subsidiaries has effected any transactions in the Shares during the 60 days
prior to the date hereof.
(b) To the Company's knowledge based upon information provided to the
Company by its directors and executive officers, all of the Company's
executive officers and directors who own Shares currently intend to tender all
of their Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer that relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization
involving the Company or any subsidiary thereof; (ii) a purchase, sale of
transfer of a material amount of assets by the Company or any subsidiary
thereof, (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that
relates to or would result in one or more of the events referred to in Item
7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached as Annex B hereto is being furnished in
connection with the intended designation by ServiceMaster, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company following the consummation of the Offer other than at a meeting
of the Company's stockholders.
Antitrust. Under the HSR Act, and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied. The acquisition of Shares pursuant to the Offer is subject to
such requirements.
9
<PAGE>
Under the provisions of the HSR Act applicable to the Offer, the purchase of
Shares under the Offer may be consummated following the expiration of a 15
calendar day waiting period following the filing by ARS of a Pre-Merger
Notification and Report Form with respect to the Offer, unless ARS receives a
request for additional information or documentary material, or the Antitrust
Division and the FTC terminate the waiting period prior thereto. ARS has filed
a Pre-Merger Notification and Report Form with respect to the Offer. If,
within the initial 15 day period, either the Antitrust Division of the FTC
requests additional information or material from ARS concerning the Offer, the
waiting period will be extended and would expire at 11:59 p.m., New York City
time, on the tenth calendar day after the date of substantial compliance by
ARS with such request. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the HSR Act. Thereafter,
such waiting period may be extended only by court order or with the consent of
ARS. In practice, complying with a request for additional information or
material can take a significant amount of time. In addition, if the Antitrust
Division or the FTC raises substantive issues in connection with a proposed
transaction, the parties may engage in negotiations with the relevant
governmental agency concerning possible means of addressing those issues and
may agree to delay consummation of the transaction while such negotiations
continue. Expiration or termination of applicable waiting periods under the
HSR Act is a condition to Purchaser's obligation to accept for payment and pay
for Shares tendered pursuant to the Offer.
The FTC and the Antitrust Divisions frequently scrutinize the legality under
the antitrust laws of transactions such as Purchaser's proposed acquisition of
Shares pursuant to the Offer and shares of Common Stock pursuant to the
Merger. At any time before or after Purchaser's acquisition of Shares, the
Antitrust Division or the FTC could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking
to enjoin the acquisition of Shares pursuant to the Offer or the consummation
of the Merger or seeking divestiture of Shares acquired by Purchaser or
divestiture of substantial assets of ARS or its subsidiaries or the Company or
its subsidiaries. Private parties and state attorneys general may also bring
action under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the Offer or the Merger on antitrust grounds
will not be made or, if such a challenge is made, of the result thereof.
State Takeover Laws. The Company is incorporated under the laws of the State
of Delaware. Section 203 of the DGCL limits the ability of a Delaware
corporation to engage in business combinations with "interested stockholders"
(generally defined as any beneficial owner of 15% or more of the outstanding
voting stock of the corporation) unless, among other things, the corporation's
board of directors has given its prior approval to either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder. As indicated in Item 4, the Company, pursuant to a
resolution of the Board of Directors approving the Offer and the Merger, has
rendered Section 203 of the DGCL inapplicable to the Offer and the Merger. A
number of other states throughout the United States have enacted takeover
statutes that purport, in varying degrees, to be applicable to attempts to
acquire securities of corporations that are incorporated or have assets,
stockholders, executive offices or places of business in such states. In Edgar
v. MITE Corp., the Supreme Court of the United States held that the Illinois
Business Takeover Act, which involved state securities laws that made the
takeover of certain corporations more difficult, imposed a substantial burden
on interstate commerce and therefore was unconstitutional. In CTS Corp. v.
Dynamics Corp. of America, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were
applicable only under certain conditions.
The Company and certain of its subsidiaries conduct business in a number of
other states throughout the United States, some of which have enacted takeover
laws and regulations. Neither Purchaser, ServiceMaster nor ARS knows whether
any or all of these takeover laws and regulations will by their terms apply to
the Offer, and, except with respect to the DGCL, neither Purchaser,
ServiceMaster nor ARS has currently complied with any other state takeover
statute or regulation. Purchaser has reserved the right to challenge the
applicability or validity of any state law purportedly applicable to the
Offer. If it is asserted that any state takeover statute is applicable to the
Offer and an appropriate court does not determine that it is inapplicable or
invalid as applied to the Offer, Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state
10
<PAGE>
authorities, and purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer, or may be delayed in consummating the
Offer. In such case, Purchaser may not be obligated to accept for payment or
pay for any Shares tendered pursuant to the Offer.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<C> <S>
1.1(A) Letter to Stockholders dated March 29, 1999 from Thomas N. Amonett,
President and Chief Executive Officer of the Company.*
1.2(B) Opinion of Jefferies & Company, Inc. dated March 22, 1999.*
3.1(C) Agreement and Plan of Merger, dated as of March 22, 1999, by and among
ARS, ServiceMaster and Purchaser.
3.2(D) The Company's Information Statement pursuant to Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder.*
3.3(A) Offer to Purchase dated March 29, 1999.
3.4(E) Restated Certificate of Incorporation of the Company.
3.5(F) Amended and Restated Bylaws of the Company.
3.6(E) Form of Indemnification Agreement.
3.7(G) Rights Agreement, dated as of August 1, 1996, between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
3.8(C) Amendment No. 1 dated March 22, 1999, to Rights Agreement, dated as of
August 1, 1996, between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent.
3.9(C) Press release of the Company dated March 23, 1999.
3.10 Correction of page B-11 of Annex B to Schedule 14D-9.*
</TABLE>
- --------
* Included in copies mailed to stockholders of the Company.
(A) Previously filed with the Company's Schedule 14D9 dated March 29, 1999.
(B) Attached hereto as Annex A.
(C) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 24, 1999, Exhibits 2.1, 4.1 and 99.1.
(D) Attached hereto as Annex B.
(E) Incorporated by reference to exhibits the Company's Registration
Statement on Form S-1, Reg. No. 333-06195, Exhibits 3.1 and 10.17).
(F) Incorporated by reference to the Company's Current Report on Form 8-K/A
dated February 8, 1999, Exhibit 3.1.
(G) Incorporated by reference to the Company's Registration Statement on
Form S-8, Reg. No. 333-13299, Exhibit 4.4.
11
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: March 30, 1999 AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ THOMAS N. AMONETT
__________________________________
Thomas N. Amonett
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
12
<PAGE>
ANNEX A
March 22, 1999
The Board of Directors
AMERICAN RESIDENTIAL SERVICES, INC.
5051 Westheimer, Suite 725
Houston, TX 77056-5604
To the Members of the Board of Directors:
We understand that American Residential Services, Inc. a Delaware
corporation ("ARS"), The ServiceMaster Company, a Delaware corporation
("SVM"), and SVM-M9 Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of SVM ("Purchaser"), propose to enter into an
Agreement and Plan of Merger dated as of March 22, 1999 (the "Merger
Agreement"). The Merger Agreement provides, among other things, for (i) the
commencement by Purchaser of a tender offer for all of the outstanding shares
of ARS common stock, par value $0.001 per share ("ARS Common Stock"), for
$5.75 per share net to the seller in cash, and (ii) the subsequent merger of
Purchaser with and into ARS (the "Merger") pursuant to which each share of ARS
Common Stock outstanding immediately prior to the effective time of the Merger
will be converted into the right to receive $5.75 in cash (the consideration
to be received in the tender offer and the Merger are collectively referred to
as the "Acquisition Consideration" and the tender offer and the Merger are
collectively referred to as the "Transaction"). You have requested Jefferies &
Company's ("Jefferies") opinion as investment bankers as to whether the
Acquisition Consideration is fair, from a financial point of view, to the
holders of ARS Common Stock.
In our review and analysis and in rendering this opinion, we have with your
permission assumed and relied upon the accuracy and completeness of all
information provided to us by ARS's management, as well as publicly available
information, and have not verified such information. We have not conducted a
physical inspection of any of the properties or facilities of ARS or SVM, nor
have we made, been provided with or considered any independent evaluation or
appraisals of any of such properties or facilities. The Acquisition
Consideration was based on negotiations between ARS and SVM during which
Jefferies provided investment banking services to the Board of Directors of
ARS.
In conducting our analysis and rendering our opinion as expressed herein, we
have reviewed and considered such financial and other factors as we have
deemed appropriate under the circumstances including, among others, the
following (i) the Merger Agreement; (ii) the historical financial condition
and results of operations of ARS, including (a) the Annual Reports on Form 10-
K of ARS for the years ended December 31, 1996 and 1997, and recent drafts of
the Annual Report on Form 10-K for the year ended December 31, 1998, and (b)
the Quarterly Report on Form 10-Q of ARS for the quarter ended September 30,
1998; (iii) certain internal financial and non-financial information prepared
by the management of ARS, which data was made available to us in our role as
financial advisor to ARS; (iv) published information regarding the financial
performance and operating characteristics of a selected group of companies
which we deemed comparable; (v) business prospects of ARS as projected by the
management of ARS; (vi) the historical and current market prices for ARS
Common Stock and for the equity securities of certain other companies with
businesses that we consider relevant to our inquiry; (vii) publicly available
information, including research reports on companies we considered relevant to
our inquiry; and (viii) the nature and terms of other recent acquisition
transactions in the facilities services industry. We have met with certain
officers and employees of ARS and SVM to discuss the foregoing as well as
other matters we believed relevant to our opinion. We have also taken into
account general economic, monetary, political, market and other conditions as
well as our experience in connection with similar transactions and securities
valuation generally. Our opinion is based upon all of such conditions as they
exist currently and can be evaluated on the date hereof. Existing conditions
are subject to rapid and unpredictable changes and such changes could impact
our opinion. Our opinion does not constitute a recommendation of the
Transaction over
A-1
<PAGE>
any alternative transactions which may be available to ARS and does not
address ARS's underlying business decision to effect the Transaction.
For purposes of rendering this opinion and based on your direction and with
your consent, Jefferies has assumed that, in all respects material to its
analysis, the representations and warranties of ARS and SVM contained in the
Merger Agreement are true and correct, ARS and SVM will each perform all of
the covenants and agreements to be performed by it under the Merger Agreement,
and all conditions to the obligations of each of ARS and SVM to consummate the
Transaction will be satisfied without any waiver thereof. In addition, we have
also been advised by the management of ARS that the financial statements to be
included in the Annual Report on Form 10-K for the year ended December 31,
1998 will not vary materially from the recent drafts of the Annual Report on
Form 10-K for the year ended December 31, 1998 that we reviewed in connection
with this opinion.
Jefferies is a registered broker-dealer. Jefferies has acted as financial
advisor to the Board of Directors of ARS in connection with the Transaction
and will receive (i) a cash fee upon rendering of the opinion and (ii) a cash
fee at the closing of the Transaction. Jefferies maintains a market in ARS
Common Stock and regularly publishes research reports regarding the property
services industry and the businesses and securities of ARS and other publicly
owned companies in such industry. In the ordinary course of business,
Jefferies and its affiliates may actively trade or hold the securities of both
ARS and SVM for their own account and the accounts of customers and,
accordingly, may at any time hold a long or short position in securities of
ARS and SVM.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that the Acquisition Consideration to be received by the holders of
ARS Common Stock pursuant to the Transaction is fair, from a financial point
of view, to such holders.
It is understood and agreed that this opinion is provided for the use and
benefit of the Board of Directors of ARS as one element in the Board's
consideration of the Transaction. Without limiting the foregoing, this opinion
does not constitute a recommendation to any shareholder of ARS as to whether
to tender such holder's ARS Common Stock or as to how such person should vote
with respect to the proposed Merger.
Sincerely,
/s/ Jefferies & Company, Inc.
Jefferies & Company, Inc.
A-2
<PAGE>
ANNEX B
AMERICAN RESIDENTIAL SERVICES, INC.
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about March 29, 1999 as a
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of American Residential Services, Inc. (the "Company" or
"ARS") to the holders of record of shares of Common Stock, par value $.001 per
share, of the Company (the "Shares"). You are receiving this Information
Statement in connection with the possible appointment of persons designated by
the Purchaser (as defined below) to all of the seats on the Board of Directors
of the Company.
On March 22, 1999 the Company, The ServiceMaster Corporation, a Delaware
corporation ("ServiceMaster"), and SVM M9 Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of ServiceMaster (the "Purchaser"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") in
accordance with the terms and subject to the conditions of which (i)
ServiceMaster will cause the Purchaser to commence a tender offer (the
"Offer") for all outstanding Shares at a price of $5.75 per Share, and (ii)
the Purchaser will be merged into the Company (the "Merger"). As a result of
the Offer and the Merger, the Company will become a wholly-owned subsidiary of
ServiceMaster. The Merger Agreement requires the Company to cause the
directors designated by ServiceMaster to be elected to the Board of Directors
under the circumstances described therein.
Certain information contained in this Information Statement concerning
ServiceMaster, Purchaser or their affiliates, or actions or events with
respect to any of them, was furnished to the Company by ServiceMaster and
Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You
are not, however, required to take any action at this time. Capitalized terms
used herein and not otherwise defined herein shall have the meaning set forth
in the Schedule 14D-9.
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of March 22, 1999, there were
15,887,704 Shares outstanding. The Company's Board of Directors currently
consists of nine directors. The Company's Board of Directors is divided into
three classes. The term of one of the three classes expires each year. The
term of the Class I Directors expires in 2000 and each third year thereafter,
the term of the Class II Directors expires in 2001 and each third year
thereafter, and the term of the Class III Directors expires in 1999 and each
third year thereafter.
The Merger Agreement provides that, upon the acceptance for payment of, and
payment for, Shares by Purchaser pursuant to the Offer, ARS shall cause the
directors of ARS and its Subsidiaries as ServiceMaster may request to resign
their positions as such upon consummation of the Offer and/or shall arrange
for the election or appointment as directors of ARS upon consummation of the
Offer of the persons designated by ServiceMaster. Subject to applicable law,
ARS shall take all action requested by Purchaser necessary to effect any such
requested election, including mailing to its stockholders the Information
Statement containing the information required by Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder, and ARS makes such mailing with the
mailing of the Schedule 14D-9.
Purchaser has informed the Company that it designates Phillip B. Rooney,
Ernest J. Mrozek and Vernon T. Squires (subject to certain exceptions) to be
elected as directors of ARS. Purchaser has informed the Company that each has
consented to act as a director. Biographical information concerning each is
presented below. Such biographical information has been furnished by
Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
B-1
<PAGE>
Phillip B. Rooney, age 54, Vice Chairman of the Board of Directors of The
ServiceMaster Company. From June 5, 1996 to February 17, 1997, he was
President and Chief Executive Officer of WMX Technologies, Inc., Oak Brook,
Illinois ("WMX") and from November 1984 to May 1996 he was President and Chief
Operating Officer of WMX. Mr. Rooney is a director of Van Kampen American
Capital, Oak Brook, Illinois, an investment management company; Illinois Tool
Works, Inc., Glenview, Illinois a diversified manufacturing company; and Urban
Shopping Centers, Inc., Chicago, Illinois, a retail real estate management
company.
Ernest J. Mrozek, age 45, Group President, ServiceMaster Consumer Services.
He served as President and Chief Operating Officer, ServiceMaster Consumer
Services from January 1, 1997 to October 2, 1998; Senior Vice President and
Chief Financial Officer of The ServiceMaster Company from January 1, 1995 to
December 31, 1996; Vice President and Chief Financial Officer of The
ServiceMaster Company from May 1994 to December 1994; and as Vice President,
Treasurer and Chief Financial Officer of The ServiceMaster Company from
November 1, 1992 to April 30, 1994.
Vernon T. Squires, age 64, Senior Vice President and General Counsel of The
ServiceMaster Company since January 1, 1988. He has served as Secretary since
December 7, 1998.
Messrs. Rooney, Mrozek, and Squires are citizens of the United States. None
(i) is currently a director of, or holds any position with, the Company, (ii)
has a familial relationship with any of the directors or executive officers of
the Company or (iii) to Purchaser's knowledge, beneficially owns any
securities (or rights to acquire any securities) of the Company. The Company
has been advised by Purchaser that, to Purchaser's knowledge, none has been
involved in any transaction with the Company or any of its directors,
executive officers or affiliates which is required to be disclosed pursuant to
the rules and regulations of the Commission, except transactions between
ServiceMaster and/or Purchaser and the Company disclosed in the Schedule 14D-
9.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
Directors
Class I--Terms Expiring at the 2000 Annual Meeting
Elliot Sokolow, age 56, has been a Senior Vice President of the Company and
Director of Operations of the Company's residential operations since January
1998 and a director of the Company since September 1996. Mr. Sokolow served as
Assistant to the Chairman of the Company from June 1997 to January 1998 and as
Director of the Company's southeast operations from November 1996 to June
1997. He was a founder of Florida Heating & Air Conditioning, Inc., a
subsidiary of the Company, in 1970 and served as its President from 1977 until
June 1997. Mr. Sokolow served as national president of ACCA in 1992 and 1993.
Thomas N. Amonett, age 55, has been President and Chief Executive Officer of
the Company since October 1997 and a director of the Company since September
1996. Mr. Amonett served as President and Chief Executive Officer of
Weatherford Enterra, Inc., a diversified international energy service and
manufacturing company, from July 1996 until May 1997. From 1992 to 1996, he
served as Chairman of the Board and President of Reunion Industries, Inc., a
company engaged in plastics manufacturing and other activities. Prior thereto,
he was Of Counsel with the law firm of Fulbright & Jaworski LLP from 1986 to
1992. He was President and a director of Houston Oil Fields Company from 1982
to 1986. Mr. Amonett also currently serves as a director of ITEQ, Inc.,
HomeUSA, Inc., PetroCorp Incorporated, Reunion Industries, Inc., and Pool
Energy Services, Inc.
Class II--Terms Expiring at the 2001 Annual Meeting
Howard S. Hoover, Jr., age 60, has been Chairman of the Board since November
1995. From 1970 until 1991, Mr. Hoover was employed by Browning-Ferris
Industries, Inc. ("BFI"), a waste services company, and served during his
tenure as a director and in various management capacities as a member of the
Senior Management Committee, Senior Vice President, General Counsel and
Secretary. From 1992 until 1995, Mr. Hoover was engaged in various business
development and consulting activities.
B-2
<PAGE>
Frank N. Menditch, age 47, has been a Senior Vice President of the Company
since September 1997, and Regional Vice President--Northern Region since
September 1998. In addition, Mr. Menditch was Director of Operations of the
Company's commercial operations from January 1998 through September 1998. He
has also served as a director of the Company since September 1996. Mr.
Menditch served as Regional Vice President--Northeast of the Company from June
1997 to January 1998 and Director of the Company's northeast operations from
November 1996 to June 1997. He was President of General Heating & Air
Conditioning Company, Inc., a subsidiary of the Company, from 1983 to 1997.
Mr. Menditch is a past president of the National Capitol Chapter of the Air
Conditioning Contractors of America ("ACCA") and of the Metro Washington Heat
Pump Association. Mr. Menditch is the brother of Howard C. Menditch.
Robert J. Cruikshank, age 68, has been a director of the Company since
September 1996. He is primarily engaged in managing his personal investments
in Houston. Prior to his retirement in 1993, he was a Senior Partner in the
accounting firm of Deloitte & Touche LLP. Mr. Cruikshank currently serves as a
director of Reliant Energy, formerly known as Houston Industries Incorporated
("Reliant"), MAXXAM Inc., Kaisier Aluminum Corporation, Compass Bank-Houston,
Texas Biotechnology Corporation and Weingarten Realty Investors.
Randall B. Hale, age 36, has been a director of the Company since September
1996. He has been a Vice President of Equus Capital Management Corporation
("ECMC") and Equus II since 1992 and a director of ECMC since February 1996.
ECMC is the investment advisor for Equus II, a closed-end investment fund. See
"Security Ownership of Certain Beneficial Owners and Management." Mr. Hale
currently serves as an officer or director of several private businesses and
is a director and Chairman of the Board of Brazos Sportswear, Inc. From 1985
to 1992, he was employed by the accounting firm of Arthur Andersen LLP. Mr.
Hale is a Certified Public Accountant.
Class III--Terms Expiring at the 1999 Annual Meeting
Nolan Lehmann, age 54, has been a director of the Company since September
1996. He has been the President and a director of ECMC since its formation in
1983 and of Equus II since its formation in 1991 (see "Security Ownership of
Certain Beneficial Owners and Management"). Prior thereto, Mr. Lehmann was
employed by Service Corporation International, where he held various
positions, including Vice President--Regional Manager and Vice President--
Corporate Development. Mr. Lehmann currently serves as a director of a number
of public and private companies, including Allied Waste Industries, Inc.,
Brazos Sportswear, Inc., Drypers Corporation and Paracesus Healthcare Corp.
Don Jordan, age 66, has been a director of the Company since September,
1998. Mr. Jordan has been a director of Reliant, since 1977 and of its
subsidiary, Houston Lighting & Power ("HL&P") since 1974. Mr. Jordan is
Chairman and Chief Executive Officer of Reliant and Chairman and Chief
Executive Officer of HL&P. Mr. Jordan also serves as an advisory director of
Texas Commerce Bank National Association and a director of BJ Services
Company, Inc.
Bobby Shackouls, age 48, has been a director of the Company since June,
1998. Mr. Shackouls has been the President and Chief Executive Officer of
Burlington Resources Inc. ("BRI") from December 1995 through July 1997. Since
October 1994, Mr. Shackouls has been President and Chief Executive Officer of
Burlington Resources Oil & Gas Company (formerly known as Meridian Oil Inc.),
a wholly owned subsidiary of BRI. From June 1993 to October 1994, Mr.
Shackouls was Executive Vice President and Chief Operating Officer of Meridian
Oil Inc. From July 1991 to May 1993, Mr. Shackouls was President and Chief
Operating Officer of Torch Energy Advisors, Inc. Mr. Shackouls has been a
director of BRI since 1995.
Board Organization and Meetings
During 1998, the Board of Directors held eight meetings and acted one time
by unanimous written consent. Each member of the Board of Directors attended
at least 75% of all meetings of the Board of Directors and its committees of
which he was a member.
B-3
<PAGE>
The Board of Directors has five standing committees:
Audit Committee. The Audit Committee recommends the independent public
accountants to be selected by the Board of Directors for stockholder
approval each year and acts on behalf of the Board of Directors in
reviewing with the independent public accountants, the chief financial and
chief accounting officer and other corporate officers various matters
relating to the adequacy of the Company's accounting policies and
procedures and financial controls and the scope of the annual audits by the
independent public accountants. The Audit Committee consists of Mr.
Cruikshank, who serves as Chairman, and Mr. Hale. During 1998, the Audit
Committee held four meetings.
Compensation Committee. The Compensation Committee is authorized to
establish the general compensation policy for the officers and directors of
the Company and annually reviews and establishes officers' salaries and
participation in benefit plans, prepares reports required by the Securities
and Exchange Commission (the "SEC") and approves the directors'
compensation. The Compensation Committee consists of Mr. Lehmann, who
serves as Chairman, and Mr. Shackouls. During 1998, the Compensation
Committee held five meetings and acted two times by unanimous written
consent.
Executive Committee. The Executive Committee may exercise all powers of
the Board of Directors and exists primarily to deal with issues and
transactions that require approval between regular meetings of the entire
Board. The Executive Committee consists of Mr. Amonett, who serves as
Chairman, and Messrs. Hoover and Lehmann. During 1998, the Executive
Committee held two meetings and acted two times by unanimous written
consent.
Nominating Committee. The Nominating Committee reviews the size and
composition of the Board of Directors, designates new directors by classes
and makes recommendations with respect to nominations for the election of
directors. The Nominating Committee consists of Mr. Amonett, who serves as
Chairman and Messrs. Hoover and Cruikshank. The Nominating Committee did
not meet in 1998, but acted once by unanimous written consent. The
Nominating Committee will consider nominees proposed by stockholders, if
such proposals are submitted in writing in accordance with the Bylaws of
the Company to the Corporate Secretary at the address of the Company's
corporate address.
Industry Relations Committee. The Industry Relations Committee acts on
behalf of the Company in developing and overseeing the Company's role in
industry affairs and consists of Mr. Sokolow, who serves as Chairman, and
Messrs. Hoover and Menditch. During 1998, the Industry Relations Committee
held one meeting.
Directors' Remuneration
The Company currently pays each director who is not a Company employee (a
"Nonemployee Director") a fee of $1,500 for each Board meeting attended and
$1,000 for each Board committee meeting attended (except for committee
meetings held on the same day as Board meetings). It does not pay any
additional compensation to its employees for serving as directors, but will
reimburse all directors for out-of-pocket expenses they incur in connection
with attending meetings of the Board or Board committees or otherwise in their
capacity as directors.
Each Nonemployee Director is also automatically granted options to purchase
up to 5,000 shares of Common Stock pursuant to the Company's 1996 Incentive
Plan (the "1996 Incentive Plan") on the first business day of the month
following the date of which each annual meeting of the Company's stockholders
is held (the "Annual Grant"). The 1996 Plan also provides that, if a
Nonemployee Director is elected after such date otherwise than by election at
an annual meeting of stockholders, such Nonemployee Director shall
automatically be granted on the date of his election to the Board, options to
purchase shares of Common Stock equal to the product of (i) 10,000 and (ii) a
fraction, the numerator of which is the number of days between the date of
election of such Nonemployee Director and the next scheduled award date for an
Annual Grant, and the denominator of which is 365 (the "Pro Rata Grant"). All
options in the Annual Grant and the Pro Rate Grant (i) have a ten-year term,
(ii) have an exercise price per share equal to the fair market value of a
share of Common Stock on the date of grant and (iii) become exercisable in 33
1/3% annual increments beginning on the first anniversary of the date of
grant.
B-4
<PAGE>
In connection with such grants to Nonemployee Directors, on July 1, 1998,
each Nonemployee Director, other than Mr. Jordan who joined the Board after
the 1998 annual grant date, was granted options to purchase 5,000 shares of
Common Stock with an exercise price of $10.81 per share. In 1998, two new
directors joined the Board and accordingly received option grants for their
respective portions of the Pro Rata Grant. Mr. Shackouls was granted options
to acquire 795 shares of Common Stock on June 2, 1998, the date of his
election to the Board, with an exercise price of $11.25 and Mr. Jordan was
granted options to acquire 7,124 shares of Common Stock on September 15, 1998,
the date of his election to the Board, with an exercise price of $5.44 per
share.
Executive Officers
The following table sets forth certain information as of March 29, 1999
concerning each of the executive officers and other officers of ARS:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Thomas N. Amonett................... 55 President and Chief Executive
Officer*
Harry O. Nicodemus, IV.............. 51 Senior Vice President, Treasurer,
Chief Financial Officer and Chief
Accounting Officer
John D. Held........................ 36 Senior Vice President, General
Counsel and Secretary
Frank N. Menditch................... 47 Senior Vice President, Regional
Vice President--Northern Region*
Elliot Sokolow...................... 56 Senior Vice President, Director of
Operations--Residential Services*
Ed Dunn............................. 39 Senior Vice President, Director of
Operations--Commercial Maintenance
Services
Elliott Ettlinger................... 48 Vice President--Plumbing Operations
Terri L. Hardt...................... 38 Vice President--Retail Sales and
Service
Howard C. Menditch.................. 46 Vice President--National Accounts
Jennifer L. Tweeton................. 37 Vice President--Investor Relations
</TABLE>
- --------
* Also serves as a director of the Company. See information set forth under
"Directors" above.
Harry O. Nicodemus, IV has served as Senior Vice President, Chief Financial
Officer and Chief Accounting Officer since September 1997 and as Treasurer
since December 1998. Prior thereto, he served as Vice President, Chief
Financial Officer and Chief Accounting Officer of the Company since January
1997. From December 1995 through December 1996, Mr. Nicodemus was Controller
of Drilex International, Inc., an oilfield services company. He was Vice
President, Controller and Chief Accounting Officer for American Ecology
Corporation ("American Ecology"), a waste services company, from February 1993
to December 1995 and a divisional vice president and an assistant controller
at Browning-Ferris, Industries, a waste services company, from January 1991 to
January 1993. Mr. Nicodemus is a Certified Public Accountant.
John D. Held has been Senior Vice President, General Counsel and Secretary
since March 1996. From October 1995 to March 1996, he was an associate at the
law firm of Liddell, Sapp, Zivley, Hill and LaBoon, L.L.P. Mr. Held was
Associate General Counsel of American Ecology from 1994 to 1995 and an
associate at the law firm of Baker & Botts, L.L.P., prior thereto.
Ed Dunn has been a Senior Vice President since December 1998 and Director of
Operations of the Company's commercial maintenance operations since September
1998. Prior thereto, he was a Regional Vice President-Eastern Region of the
Company's Commercial maintenance operations since January 1998. Prior thereto,
he was President of EMD Mechanical Specialists, one of the businesses acquired
by ARS.
Elliott Ettlinger has been Vice President--Plumbing Operations since March
1998 and has served as the President of Larry Teague & Sons Plumbing, Inc.,
one of the businesses acquired by ARS, since its formation in
B-5
<PAGE>
December 1993. Prior thereto, Mr. Ettlinger was Vice President of Indoor
Quality Technologies, a company providing HVAC, electrical and plumbing
services, from December 1992 to November 1993 and Vice President of The
Vitalizers, a residential real estate service company from March 1992 to
December 1992. From July 1986 to December 1991, he was a Regional Vice
President of Roto-Rooter Services Co. Inc. ("Roto-Rooter"), a national
plumbing company. Mr. Ettlinger also served on the board of directors of Roto-
Rooter in 1990.
Terri L. Hardt has been Vice President--Retail Sales and Service since June
1997. From May 1997 to June 1997, she was Director of Retail Services of the
Company. From May 1996 to May 1997, Ms. Hardt was a Division Manager C Heating
and Cooling Division with Warm Thoughts Communications, Inc., an advertising
and marketing firm for the home services industry. From August 1995 to May
1996, she served as a Small Business Consultant with Allison & Associates, a
communications consulting firm. From May 1994 to May 1996, Ms. Hardt served as
an independent consultant with Business Ventures Corporation, Inc., a
management facilitation and consulting firm specializing in HVAC businesses.
Prior thereto, she served in various management positions, including
President, with Automatic Controls Service, one of the businesses acquired by
ARS.
Howard C. Menditch has been Vice President--National Accounts since March
1998. From September 1997 to March 1998, Mr. Menditch was also responsible for
the Company's operations in the Washington, D.C. area and Virginia, Maryland
and Pennsylvania. He has also served as Executive Vice President of General
Heating since September 1996 and, prior thereto, as Senior Vice President of
General Heating from 1974 to September 1996. Mr. Menditch is the brother of
Frank N. Menditch.
Jennifer L. Tweeton has been Vice President--Investor Relations since June
1997. From July 1996 to June 1997, she was Director of Investor Relations for
the Company. Prior thereto, she was Vice President of Special Projects for
Infrastructure Services, Inc., an industrial contractor for highway
maintenance and repair, from March 1996 to July 1996 and Financial Planning
Manager for U.S. Delivery from 1994 to March 1996. From 1990 to 1994, Ms.
Tweeton was employed as Financial Planning Manager by Team, Inc., a service
provider to the petrochemical industry.
B-6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 29, 1999, the "beneficial
ownership" (as defined by the SEC) of the Common Stock of (i) each person
known to the Company to beneficially own more than 5% of its outstanding
shares of Common Stock, (ii) each of the Company's directors, (iii) the
executive officers of the Company named in the Summary Compensation Table, and
(iv) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially
Owned(1)
------------------------
Name Name Percent
---- ------------ -----------
<S> <C> <C>
Consolidation Experts, LP
Consolidation Experts, LLC
C. Clifford Wright, Jr.
William P. McCaughey
Ronald R. McCann
Wes Lewis
A. Jefferson Walker
Rosario P. Schembari
c/ Consolidated Experts, LP(2)
5051 Westheimer Road, Suite 1890
Houston, Texas 77056-5604............................. 1,450,797 8.8%
Equus II Incorporated(3)
2929 Allen Parkway, 25th Floor
Houston, Texas 77019.................................. 1,225,000 7.7%
Howard S. Hoover, Jr................................... 313,751 2.0%
Frank N. Menditch...................................... 259,860 1.6%
Elliot Sokolow......................................... 302,761 1.9%
Thomas N. Amonett...................................... 91,185 *
John D. Held........................................... 85,218 *
Harry O. Nicodemus, IV................................. 24,082 *
Nolan Lehmann.......................................... 12,334 *
Robert J. Cruikshank................................... 10,334 *
Randall B. Hale........................................ 9,334 *
Bobby Shackouls........................................ 0 *
Don Jordan............................................. 0 *
All executive officers and directors as a group (12
persons)(1)........................................... 1,576,347 9.7%
</TABLE>
- --------
* Less than 1%
(1) The shares beneficially owned include shares issuable upon exercise of
outstanding options that are exercisable within 60 days of April 1, 1999
as follows: Mr. Hoover--156,280 shares; Mr. Menditch--35,300; Mr.
Sokolow--33,740 shares; Mr. Held--79,560 shares; Mr. Amonett--89,009
shares; Mr. Nicodemus--22,800 shares; Mr. Lehmann--8,344 shares; Mr.
Cruikshank--8,344 shares; Mr. Hale--8,344 shares; Mr. Shackouls--0 shares;
Mr. Jordan--0 shares and all current executive officers and directors as a
group--442,891 shares. Shares held by executive officers through the
Company's 401(k) plan are reflected as of December 31, 1998, and
additional shares may have accumulated since that date.
(2) Based on a Schedule 13D dated January 14, 1999. The Schedule 13D indicates
that the reporting persons have, in the aggregate, sole voting power and
sole dispositive power as to 929,676 shares.
(3) Based on a Schedule 13D dated March 9, 1998. That Schedule 13D indicates
that the 1,225,000 shares reported as beneficially owned include 100,000
shares obtainable on exercise of a warrant exercisable at $15.00 per
share. The Schedule 13D indicates that the reporting person has sole
voting and sole dispositive power with respect to all 1,225,000 shares.
Nolan Lehmann, a director of the Company, is the President and a director
of Equus II and Randall B. Hale, a director of the Company, is a Vice
President of Equus II, and thus each may be deemed to be the beneficial
owner of the shares held by Equus II. Mr. Lehmann and Mr. Hale each
disclaim beneficial ownership of all of those shares.
Except as otherwise indicated, the address of each person listed in the
above table is c/o American Residential Services, Inc., Post Oak Tower, Suite
725, 5051 Westheimer Road, Houston, Texas 77056-5604. All persons listed have
sole voting and investment power with respect to their shares unless otherwise
indicated.
B-7
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Compensation
The following table sets forth information regarding aggregate cash
compensation, restricted stock and stock option awards and other compensation
earned by the Company's Chief Executive Officer, and its five other most
highly compensated executive officers for services rendered to the Company
during 1996, 1997 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
---------------------
Annual
Compensation Restricted Shares
Name and Principal -------------------- Stock Underlying All Other
Position Year Salary Bonus(1) Awards Options Compensation(2)
------------------ ---- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas N. Amonett(3).... 1998 $148,833 $ 0 -- 0 $ 1,053
President and Chief 1997 $ -- $ -- ---- 280,675 $ --
Executive Officer 1996 $ -- $ -- -- 0 $ --
Howard S. Hoover,
Jr.(4)................. 1998 $178,200 $ 0 -- 0 $ 806
Chairman of the Board 1997 $175,000 $ 78,904 -- 31,400 $ 1,116
1996 $160,000 $ 26,970 -- 150,000 $ 498
Frank N. Menditch....... 1998 $173,100 $ 0 -- 0 $ 1,558
Senior Vice President,
Regional 1997 $165,000 $ 0 -- 26,500 $ 2,273
Vice President-Northern
Region 1996 $ 39,425(5) $ 0 -- 50,000 $ 375
Elliot Sokolow.......... 1998 $173,100 $ 0 -- 0 $ 1,731
Senior Vice President,
Director of 1997 $156,522 $ 0 -- 18,700 $ 2,200
Residential Operations 1996 $ 24,518(6) $ 0 -- 50,000 $ 0
John D. Held............ 1998 $170,000 $ 0 -- 7,500 $ 1,673
Senior Vice President, 1997 $150,000 $ 58,679 -- 27,800 $ 1,661
General Counsel and
Secretary 1996 $ 99,230(7) $100,220 -- 75,000 $ 685
Harry O. Nicodemus, IV.. 1998 $170,000 $ 0 7,500 $ 1,677
Senior Vice President,
Treasurer, 1997 $ 12,981(9) $ 0 -- 71,500 $ 529
Chief Financial
Officer, and 1996 $ 0 $ 0 -- 0 $ 0
Chief Accounting
Officer
</TABLE>
- --------
(1) Except as stated in Note (8) below, represents aggregate cash bonus awards
relating to Company performance in 1996, which were paid in one quarterly
installment in 1996 and three quarterly installments in 1997. The Company
did not pay any bonuses to executive officers in 1997 or 1998 relating to
individual or Company performance for 1997 or 1998.
(2) Represents: (i) matching contributions by the Company under the Company's
401(k) plan during 1998 for the executive officers named in the above
table in the amounts of $673 for Mr. Amonett; $806 for Mr. Hoover; $1,558
for Mr. Menditch; $1,734 for Mr. Sokolow; $1,673 for Mr. Held; and $1,677
for Mr. Nicodemus, and (ii) $308 of premium cost for life insurance
coverage under an executive life insurance program provided to Mr.
Amonett. This executive life insurance program was terminated in 1998.
(3) On October 31, 1997, the Board of Directors appointed Mr. Amonett as
President and Chief Executive Officer. Mr. Amonett received options to
purchase up to 250,000 shares of Common Stock at an exercise price of
$14.75 per share, which become exercisable in annual increments of 20%
beginning one year from the grant date and expire on October 31, 2007. In
lieu of receipt of his base salary through May 31, 1998, Mr. Amonett
received additional options to purchase up to 30,675 shares of Common
Stock at an exercise price of $14.75 per share, which became exercisable
in full on June 1, 1998 and expire on October 31, 2002. The information
reflected in the table above does not include director's fees paid to Mr.
Amonett in 1996 and 1997, options to purchase up to 10,000 shares of
Common Stock granted on September 27, 1996, or
B-8
<PAGE>
options to purchase 5,000 shares of Common Stock, granted on July 1, 1997,
in each case while Mr. Amonett was a Nonemployee Director of the Company.
See "Directors Remuneration."
(4) Effective as of January 1, 1999, Mr. Hoover became a part-time non-officer
employee of the Company and serves as non-executive Chairman of the Board
of Directors of the Company. See "Employment Agreements."
(5) Salary earned in 1996 from the date of commencement of Mr. Menditch's
employment with the Company in September 1996.
(6) Salary earned in 1996 from date of commencement of Mr. Sokolow's
employment with the Company in September 1996.
(7) Salary earned in 1996 from the date of commencement of Mr. Held's
employment with the Company in March 1996.
(8) Of this amount, $80,000 represents 5,333 shares of Common Stock awarded to
Mr. Held under an incentive plan when the IPO closed, valued at the
initial IPO price to the public of $15 per share.
(9) Salary earned in 1997 from date of commencement of Mr. Nicodemus'
employment with the Company in January 1997.
Option Grants
The following table sets forth information regarding the options granted
during 1998 to the executive officers named in the Summary Compensation Table.
All of the options listed below were granted July 20, 1998, become exercisable
in annual increments of 20% of the total number of shares subject thereto
beginning July 20, 1999 and become fully exercisable on July 20, 2003.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Potential
Realizable Value
Percent at Assumed Annual
of Total Rate of Stock
Number of Options Price
Shares Granted Appreciation for
Underlying to Option Term(1)
Options Employees Exercise Expiration -----------------
Name Granted in 1998 Price Price 5% 10%
---- ---------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas Amonett.......... 0 N/A N/A N/A N/A N/A
Howard S. Hoover, Jr.... 0 N/A N/A N/A N/A N/A
Frank Menditch.......... 0 N/A N/A N/A N/A N/A
Elliot Sokolow.......... 0 N/A N/A N/A N/A N/A
John D. Held............ 7,500 .86% $9.59 07/20/08 $117,158 $186,555
Hank Nicodemus.......... 7,500 .86% $9.59 07/20/08 $117,158 $186,555
</TABLE>
- --------
(1) Calculated on the basis of the indicated rate of appreciation in the value
of the Common Stock, compounded annually from the fair market value on the
grant date, from the grant date to the end of the option term.
B-9
<PAGE>
Aggregate Option Exercises and Holdings and Year-End Values
The following table presents information regarding options exercised during
1998 and options outstanding at December 31, 1998 for each of the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options Held
Shares End at Fiscal Year-End(2)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas N. Amonett....... -- -- 89,009 206,666 $0 $0
Howard S. Hoover, Jr.... -- -- 156,280 25,120 $0 $0
Frank N. Menditch....... -- -- 35,300 41,200 $0 $0
Elliot Sokolow.......... -- -- 33,740 34,960 $0 $0
John D. Held............ -- -- 79,560 28,240 $0 $0
Hank Nicodemus.......... -- -- 15,800 63,200 $0 $0
</TABLE>
- --------
(1) Value is calculated on the basis of the market value of the Company's
Common Stock at the time of exercise, less the exercise price, multiplied
by the number of shares underlying the options exercised.
(2) The closing price for the Common Stock as listed on the New York Stock
Exchange on December 31, 1998 was $3.25. All of options outstanding held
by individuals in the above table had exercise prices greater than $3.25.
Employment Agreements
The Company has employment agreements with Messrs. Amonett, Sokolow,
Menditch, Held and Nicodemus. Each of these agreements (i) provides for an
annual minimum base salary, (ii) entitles the employee to participate in all
the Company's compensation plans (as defined) in which executive officers of
the Company participate and (iii) has a continuous three-year term subject to
the right of either party to terminate the employee's employment at any time.
If the employee's employment is terminated by the Company without cause (as
defined) or by the employee with good reason (as defined), the employee will
be entitled, during each of the years in the three-year period beginning on
the termination date, to (i) periodic payments equal to his average annual
cash compensation (as defined) from the Company, including bonuses, if any,
during the two years (or such shorter period of employment) preceding the
termination date and (ii) continued participation in all the Company's
compensation plans (other than the granting of new awards under the incentive
plan or any other performance-based plan). Except in the case of a termination
for cause, any stock options previously granted to the employee under the
incentive plan that have not been exercised and are outstanding as of the time
immediately prior to the date of his termination will remain outstanding (and
continue to become exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is earlier. If a change
of control (as defined) of the Company occurs, the employee may terminate his
employment at any time during the 365-day period following that event and
receive a lump sum payment equal to three times his highest annual base salary
under the agreement (plus such amounts as may be necessary to hold the
employee harmless from the consequences of any resulting excise or other
similar purpose tax relating to "parachute payments" under the Internal
Revenue Code of 1986, as amended). Each employment agreement contains a
covenant limiting competition with the Company for a period of one year
following termination of employment.
The Company also had an employment agreement with terms substantially the
same as those described above with Mr. Hoover through December 31, 1998. In
settlement of the Company's obligations to Mr. Hoover under that agreement,
effective as of January 1, 1999 Mr. Hoover became a part-time non-officer
employee of the Company and the Company will pay Mr. Hoover $180,000 per annum
until December 31, 2001. In addition, the Company will provide Mr. Hoover an
office, certain administrative services and other items to which he would
otherwise be entitled under his employment agreement until December 31, 2001.
The Company also has employment agreements with other executive officers of
the Company.
B-10
<PAGE>
PERFORMANCE GRAPH
The following graph compares the percentage change in the market value of
the Company's Common Stock to the cumulative total stockholder return (change
in stock price plus reinvested dividends) of the Standard & Poor's 500 Stock
Index ("S&P 500 Index"), the Company's Current MG Industry Group 059--
Plumbing, Heating and Air Conditioning index published by Medial General
Financial Services, Inc. (the "Current Industry Index") and the Company's
previous MG Industry Group 636--General Contractors index published by Medial
General Financial Services, Inc. (together with the Current Industry Index,
the "Industry Indexes") for the period from September 25, 1996, the date
immediately following the date of the IPO to December 31, 1998, assuming the
investment of $100 on September 25, 1996 and the reinvestment of all dividends
since that date to December 31, 1998.
[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>
9/25/96 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C>
ARS 100.00 150.69 86.61 18.06
MG Group 059 100.00 115.14 131.50 147.76
MG Group 636 100.00 107.39 86.07 60.87
S&P Composite 100.00 108.34 144.48 185.77
</TABLE>
Source: Media General Financial Services, Inc.
The performance of the Company's Common Stock reflected above is not
necessarily indicative of future performance of the Common Stock. The total
return on investment for the period shown for the Company, the S&P 500 Index,
and the Industry Indexes is based on the stock price or composite index at
September 25, 1996.
The performance graph appearing above shall not be deemed incorporated by
reference by any general statement incorporating this Proxy Statement by
reference into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or under the Security Exchange Act of 1934, as amended (the
"Exchange Act"), and shall not be deemed filed under either of such Acts
except to the extent that the Company specifically incorporates this
information by reference.
B-11
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee of the Board of Directors of ARS is responsible
for establishing a general compensation policy for officers and employees of
the Company, preparing any reports that may be required relating to officer
compensation and approving any increases in director's fees.
The Company's executive compensation program has been designed to assist the
Company in attracting, motivating and retaining the executive talent necessary
for the Company to maximize its return to stockholders. To this end, this
program provides competitive compensation levels and incentive pay levels that
vary based on corporate, business unit (for business unit positions) and
individual performance.
The Company's compensation program for executives consists of three key
elements:
a base salary,
a performance-based annual bonus, and
periodic grants of stock options.
The Compensation Committee believes that this three-part approach best
serves the interests of the Company and its stockholders. It enables the
Company to meet the requirements of the highly competitive environment in
which the Company operates while ensuring that executive officers are
compensated in a way that advances both the short-term and long-term interests
of stockholders. Under this approach, compensation for these officers involves
a high proportion of pay that is "at risk" through the annual bonus and stock
options.
Base Salary
Base salaries for the Company's executive officers, as well as changes in
such salaries, are based upon recommendations by the Company's Chief Executive
Officer, taking into account such factors as competitive industry salaries, a
subjective assessment of the nature of the position, and the contribution and
experience of the officer. Performance for base salary purposes is assessed on
a qualitative, rather than a quantitative, basis. No specific performance
formula or weighting of factors is used in determining base salary levels.
Annual Bonus
1998 Award Program. For the year ended December 31, 1998, the Compensation
Committee approved an award program under the 1996 Incentive Plan for certain
executive officers whose target awards were based on the Company's 1998
earnings per share. In 1998, the Company did not meet its 1998 earnings per
share target. As a result, no awards were paid under the 1998 award program.
1999 Award Program. As of the date of this report, the Compensation
Committee has not approved an award program for the year ending December 31,
1999.
Stock Options
In 1997, the Company adopted an incentive plan for employees other than
executive officers and directors (collectively with the 1996 Incentive Plan,
the "Incentive Plans"). The objectives of the Incentive Plans are to (i)
attract and retain the services of key employees, qualified independent
directors and qualified consultants and other independent contractors and (ii)
encourage the sense of proprietorship in and stimulate the active interest of
those persons in the development and financial success of the Company by
making awards designed to provide participants in the Incentive Plans with a
proprietary interest in the growth and performance of the Company.
Stock options align the interests of employees and stockholders by providing
value to the option holder through stock price appreciation only. In 1998, the
Company granted a total of 873,971 options under the
B-12
<PAGE>
Incentive Plans to officers and other employees of the Company. In all cases,
the exercise price of the options was equivalent to or greater than the fair
market value of the Common Stock at the time of those grants.
The Compensation Committee expects that it will make future stock option
awards periodically at its discretion based on recommendations of the Chief
Executive Officer. Stock option grant sizes, in general, will be evaluated by
regularly assessing competitive market practices and the overall performance
of the Company. This posture with regard to stock options is intended to focus
management's efforts on maximizing stockholder returns. However, the number of
options granted to a particular participant is also based on the Company's
historical financial success, its future business plans and the individual's
position and level of responsibility within the Company. These factors are
assessed subjectively and are not weighted.
1998 Chief Executive Officer Pay
As described above, the Compensation Committee considers several factors in
developing an executive compensation package. For the Chief Executive Officer,
these factors include competitive market pay practices, performance level,
experience, contributions toward achievement of strategic goals and the
overall financial and operations success of the Company. Specific actions
taken by the Compensation Committee regarding the Chief Executive Officer's
compensation in 1998 are summarized below.
Base Salary
Thomas Amonett was appointed by the Board of Directors as Chief Executive
Officer of the Company on October 31, 1997. Mr. Amonett's annual base salary
rate for 1997 was $250,000, the same annual base salary rate of the Company's
former Chief Executive Officer. For 1998 and for 1999, Mr. Amonett's base
salary remained unchanged. Pursuant to his employment agreement, Mr. Amonett
was entitled to an inflation-based cost of living increase to base salary on
November 1, 1998 but he voluntarily waived this increase.
Stock Options
Mr. Amonett was not awarded any Company stock options in 1998.
This report shall not be deemed incorporated by reference by any general
statement incorporating this Proxy Statement by reference into any filing
under the Securities Act or the Exchange Act and shall not be deemed filed
under either of such statutes except to the extent that the Company
specifically incorporates this information by reference.
This report is furnished by the Compensation Committee of the Board of
Directors.
Nolan Lehmann (Chairman)
Bobby Shackouls
Dated: March 25, 1999
B-13
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998, American Residential Services of South Carolina, Inc. ("ARS of
South Carolina"), a subsidiary of the Company, leased certain office and
warehouse space under three leases from a partnership in which Gorden H.
Timmons, a former officer and director of the Company during a portion of
1998, owns a 90% equity interest. The expiration dates of the three leases
range from month-to-month to 2006. Aggregate annual 1998 rentals under the
three leases totaled $254,200.
In March 1998, the Company sold an office and warehouse property owned by
ARS of South Carolina in Charleston, South Carolina to a company in which Mr.
Timmons owns a 50% equity interest. The sales price was $1,755,000, which was
paid in full at the closing. Immediately after the sale, ARS of South Carolina
leased the property from Mr. Timmons' company under a triple-net seven-year
lease, effective April 1, 1998. The aggregate annual rent to be paid by ARS of
South Carolina under that lease is $155,625 and is not subject to increase
during the seven-year term of the lease. The sale of the property and the
terms of the lease were reviewed and approved by the Company's Board of
Directors in March 1998 (with Mr. Timmons abstaining from voting). In making
its determination to approve the sale and lease transactions, the Board of
Directors reviewed the reports of an independent real estate appraisal firm
which showed that the sales price was slightly higher than the appraised fair
market value of the property, net of commissions, and the annual lease rental
amount was slightly lower than the fair market value of the property.
American Residential Services of Virginia, Inc., a subsidiary of the
Company, leases office and warehouse space under four leases from a limited
partnership owned by Frank N. Menditch, his brothers and trusts for the
benefit of their children. Aggregate annual 1998 rentals under the leases,
which expire in 2005, totaled $531,500 and will increase a minimum of 4% each
year during the terms of the leases.
American Residential Services of Florida, Inc. ("ARS of Florida"), a
subsidiary of the Company, leases its principal office and warehouse space
under two triple-net leases, one of which was entered into in 1998 from a
limited partnership in which Elliot Sokolow owns an 80% interest. The
aggregate annual rent paid by ARS of Florida in 1998 under the previously
existing lease was $271,400, which will increase 5% per year during the term
of the lease. In December 1998, ARS of Florida leased additional property
contiguous to its existing facility from Mr. Sokolow's partnership under a
second lease. Both leases will expire in May 2005. The annual rent to be paid
by ARS of Florida under the second lease is $124,900 and is subject to
increase 3% per year during the term of the lease. The terms of the new lease
were reviewed and approved by the Company's Board of Directors in December
1998 (with Mr. Sokolow abstaining from voting). In making its determination to
approve the lease transaction, the Board of Directors reviewed the report of
an independent real estate appraisal firm, which showed that the annual lease
rental amount was equal to the fair rental value of the property. The
aggregate annual 1998 rentals under both leases was $281,800.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons holding more than 10% of a registered class of
the Company's equity securities to file with the SEC and the New York Stock
Exchange initial reports of ownership, reports of changes in ownership and
annual reports of ownership of Common Stock and other equity securities of the
Company. Such directors, officers and stockholders are also required to
furnish the Company with copies of all such filed reports.
Based solely on review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
1998, the Company believes that all Section 16(a) reporting requirements
related to the Company's directors and executive officers were timely
fulfilled during 1998.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND MERGER
In considering the recommendation of the Board, stockholders of the Company
should be aware that certain officers and directors of the Company have
certain interests in the Offer and the Merger that present actual or potential
conflicts of interest in connection with the Offer and the Merger. The Board
was aware of these potential or actual conflicts of interest and considered
them along with other matters described under Item 4 of the Schedule 14D-9 to
which this Information Statement is attached.
B-14
<PAGE>
Exhibit 3.10
CORRECTION
The Schedule 14D-9 previously sent to the stockholders of ARS inadvertently
omitted the numerical chart presented below the performance graph. This page is
provided in substitution for the previous page B-11.
PERFORMANCE GRAPH
The following graph compares the percentage change in the market value of
the Company's Common Stock to the cumulative total stockholder return (change
in stock price plus reinvested dividends) of the Standard & Poor's 500 Stock
Index ("S&P 500 Index"), the Company's Current MG Industry Group 059--
Plumbing, Heating and Air Conditioning index published by Medial General
Financial Services, Inc. (the "Current Industry Index") and the Company's
previous MG Industry Group 636--General Contractors index published by Medial
General Financial Services, Inc. (together with the Current Industry Index,
the "Industry Indexes") for the period from September 25, 1996, the date
immediately following the date of the IPO to December 31, 1998, assuming the
investment of $100 on September 25, 1996 and the reinvestment of all dividends
since that date to December 31, 1998.
[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>
9/25/96 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C>
ARS 100.00 150.69 86.61 18.06
MG Group 059 100.00 115.14 131.50 147.76
MG Group 636 100.00 107.39 86.07 60.87
S&P Composite 100.00 108.34 144.48 185.77
</TABLE>
Source: Media General Financial Services, Inc.
The performance of the Company's Common Stock reflected above is not
necessarily indicative of future performance of the Common Stock. The total
return on investment for the period shown for the Company, the S&P 500 Index,
and the Industry Indexes is based on the stock price or composite index at
September 25, 1996.
The performance graph appearing above shall not be deemed incorporated by
reference by any general statement incorporating this Proxy Statement by
reference into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or under the Security Exchange Act of 1934, as amended (the
"Exchange Act"), and shall not be deemed filed under either of such Acts
except to the extent that the Company specifically incorporates this
information by reference.
B-11
