COMFORT SYSTEMS USA INC, S-1, 1997-10-16

COMFORT SYSTEMS USA INC
S-1, 1997-10-16
ELECTRICAL WORK

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMFORT SYSTEMS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

1711
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

DELAWARE 76-0526487
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

FRED M. FERREIRA
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 200
HOUSTON, TEXAS 77056
(713) 830-9600

(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------

COPIES TO:

WILLIAM D. GUTERMUTH WILLIAM GEORGE
BRACEWELL & PATTERSON, L.L.P. COMFORT SYSTEMS USA, INC.
SOUTH TOWER PENNZOIL PLACE THREE RIVERWAY
711 LOUISIANA STREET, SUITE 2900 SUITE 200
HOUSTON, TEXAS 77002-2781 HOUSTON, TEXAS 77056

------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value
per share................................... 583,878 $18.8125 $10,984,205 $3,329
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================
<PAGE>
SUBJECT TO COMPLETION , 1997
583,878 SHARES

[LOGO]

COMFORT SYSTEMS USA, INC.

COMMON STOCK
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

All of the shares of Comfort Systems USA, Inc. (the "Company") Common
Stock, par value $.01 per share (the "Common Stock"), offered hereby are being
sold by the holders of the Common Stock named herein under "Selling
Stockholders" (the "Selling Stockholders"). The outstanding Common Stock of
the Company is listed on the New York Stock Exchange (the "NYSE") under the
symbol "FIX". On October 13, 1997, the last reported sale price of the Common
Stock on the NYSE was $18.6875 per share.

The Company will not receive any of the proceeds from the sale of the
Common Stock. Any or all of such Common Stock covered by this Prospectus may be
sold, from time to time, by means of ordinary brokerage transactions or
otherwise. See "Plan of Distribution."

The Selling Stockholders named herein, or any pledgees, donees, transferees
or other successors in interest, directly, through agents to be designated from
time to time, or through dealers or underwriters also to be designated, may sell
the Common Stock from time to time in one or more transactions on The New York
Stock Exchange or in the over-the-counter market and in negotiated transactions,
on terms to be determined at the time of sale. To the extent required, the
specific Common Stock to be sold, the names of the Selling Stockholders, the
respective purchase prices and public offering prices, the names of any such
agent, dealer or underwriter, and any applicable commissions or discounts with
respect to a particular offer will be set forth in any accompanying Prospectus
Supplement or, if appropriate, a post-effective amendment to the Registration
Statement of which this Prospectus is a part. See "Plan of Distribution." By
agreement, the Company will pay all the expenses of the registration of the
Common Stock by the Selling Stockholders other than underwriting discounts and
commissions and transfer taxes, if any. Such expenses to be borne by the Company
are estimated at $50,000.

The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Common
Stock may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any commissions received
by them and any profit on the resale of the Common Stock purchased by them may
be deemed underwriting commissions or discounts under the 1933 Act.

SEE "RISK FACTORS" ON PAGE 9 FOR A DISCUSSION OF CERTAIN RISK FACTORS
THAT SHOULD BE CONSIDERED BEFORE ACQUIRING THE COMMON STOCK OFFERED HEREBY.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.

------------------

THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
PROSPECTUS SUMMARY

IN CONNECTION WITH ITS INITIAL PUBLIC OFFERING ON JULY 2, 1997 (THE
"IPO"), COMFORT SYSTEMS USA, INC. ACQUIRED, IN SEPARATE MERGER OR SHARE
EXCHANGE TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH AND SHARES OF ITS
COMMON STOCK, 12 COMPANIES ENGAGED PRINCIPALLY IN THE HEATING, VENTILATION AND
AIR CONDITIONING ("HVAC") BUSINESS (EACH A "FOUNDING COMPANY" AND,
COLLECTIVELY, THE "FOUNDING COMPANIES"). UNLESS OTHERWISE INDICATED, ALL
REFERENCES TO THE "COMPANY" HEREIN INCLUDE THE COMPANY AND ALL OF ITS
SUBSIDIARIES, AND REFERENCES HEREIN TO "COMFORT SYSTEMS" MEAN COMFORT SYSTEMS
USA, INC. PRIOR TO THE CONSUMMATION OF THE MERGERS. THE FOUNDING COMPANIES AND
SUBSEQUENTLY ACQUIRED BUSINESSES ARE SOMETIMES COLLECTIVELY REFERRED TO HEREIN
AS THE ACQUIRED COMPANIES.

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED, PRO FORMA
COMBINED AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.

UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN TO COMMON STOCK INCLUDE
BOTH COMMON STOCK, $0.01 PAR VALUE, AND RESTRICTED VOTING COMMON STOCK, $0.01
PAR VALUE (THE "RESTRICTED COMMON STOCK") OF COMFORT SYSTEMS.(1)

THE COMPANY

Comfort Systems was founded in 1996 to become a leading national provider
of comprehensive HVAC installation services and maintenance, repair and
replacement of HVAC systems, focusing primarily on the commercial and industrial
markets. On July 2, 1997, the Company acquired in separate, concurrent
transactions twelve companies and since the IPO the Company has acquired
additional companies, all of which are engaged principally in the HVAC business.
See "Recent Developments." The Company's commercial and industrial applications
include office buildings, retail centers, apartment complexes, hotels,
manufacturing plants and government facilities. The Company also provides
specialized HVAC applications such as process cooling, control systems,
electronic monitoring and process piping. Approximately 90% of the Company's pro
forma combined 1996 revenues of $167.5 million was derived from commercial and
industrial customers, with approximately 53% of combined revenues attributable
to installation services and 47% attributable to maintenance, repair and
replacement services. Since the IPO, and through October 13, 1997, the Company
has acquired eleven additional mechanical contracting companies engaged
principally in the HVAC business.

The Company's commercial and industrial installation business targets
"design and build" projects where the Company is responsible for designing,
engineering and installing a cost-effective, energy-efficient system, customized
to meet the specific needs of the building owner. Management believes that the
"design and build" segment represents a faster growing and more profitable
segment of the HVAC business than traditional "plan and spec" installation,
which is generally awarded based on a bid process.

The Company also provides maintenance, repair and replacement of HVAC
systems. Growth in this segment is driven by a number of factors, particularly
(i) the aging of the installed base, (ii) the increasing energy efficiency,
sophistication and complexity of HVAC systems and (iii) the increasing
restrictions on

- ------------
(1) Affiliates of Notre Capital Ventures II, L.L.C. ("Notre"), hold in the
aggregate 2,742,912 shares of Restricted Common Stock, which are entitled
to elect one member of the Company's Board of Directors and to 0.55 of one
vote for each share held on all other matters on which they are entitled to
vote. Restricted Common Stock is convertible into one share of Common Stock
under certain circumstances. See "Description of Capital Stock -- Common
Stock and Restricted Common Stock."

3
<PAGE>
the use of refrigerants commonly used in older HVAC systems. The energy
efficiency and sophistication of new HVAC systems are encouraging building
owners to upgrade and reconfigure their current HVAC systems. Moreover, the
increasing sophistication and complexity of these HVAC systems are leading many
commercial and industrial building owners and property managers to outsource
maintenance and repair through service agreements with HVAC service providers.
Service agreements lead to better utilization of personnel, link the customer
with the Company should a major repair or replacement be needed and result in
recurring revenues. The Company believes there is also an opportunity to expand
its presence in the highly-fragmented residential maintenance, repair and
replacement market. The replacement segment of the residential HVAC market has
grown significantly in recent years as a result of the aging of the installed
base of residential HVAC systems, the introduction of more energy-efficient
systems and the upgrading of older homes with central air conditioning.

The Company plans to achieve its goal of becoming a leading national
provider of comprehensive HVAC services by improving operations, emphasizing
continued internal growth and expanding through acquisitions.

OPERATING STRATEGY. The Company believes there are significant
opportunities to increase its profitability and that of subsequently acquired
businesses. The key elements of the Company's operating strategy are:

FOCUS ON COMMERCIAL AND INDUSTRIAL MARKETS. The Company believes that
the commercial and industrial HVAC markets are attractive because of their
growth opportunities, diverse customer base, attractive margins and
potential for long-term relationships with building owners and managers,
general contractors and architects.

OPERATE ON DECENTRALIZED BASIS. The Company believes that, while
maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial spirit present in each
of the Founding Companies and will allow the Company to capitalize on the
considerable local and regional market knowledge and customer relationships
possessed by each Founding Company.

ACHIEVE OPERATING EFFICIENCIES. The Company intends to use its
increased purchasing power to gain volume discounts in areas such as HVAC
components, raw materials, service vehicles, advertising, bonding and
insurance. In addition, the Company will identify "best practices" that
can be successfully implemented throughout its operations.

ATTRACT AND RETAIN QUALITY EMPLOYEES. The Company intends to attract
and retain quality employees by providing them (i) an enhanced career path
from working for a larger public company, (ii) additional training,
education and apprenticeships to allow talented employees to advance to
higher-paying positions, (iii) the opportunity to realize a more stable
income and (iv) improved benefits packages.

INTERNAL GROWTH. A key component of the Company's strategy is to continue
the internal growth at the Founding Companies and subsequently acquired
businesses. The key elements of the Company's internal growth strategy are:

CAPITALIZE ON SPECIALIZED TECHNICAL AND MARKETING STRENGTHS. The
Company believes it will be able to expand the services it offers in its
local markets by leveraging the specialized technical and marketing
strengths of individual Founding Companies.

ESTABLISH NATIONAL MARKET COVERAGE. The Company believes that
significant demand exists from large national companies to utilize the
services of a single HVAC service provider and believes existing local and
regional relationships can be expanded as it develops a nationwide network.

4
<PAGE>
ACQUISITIONS. The Company believes that, due to the highly fragmented
nature of the HVAC industry, it has a significant opportunity to achieve its
acquisition strategy. The key elements of the Company's acquisition strategy
are:

ENTER NEW GEOGRAPHIC MARKETS. The Company will pursue acquisitions
that are located in new geographic markets, are financially stable, and
which will have the customer base, technical skills and infrastructure
necessary to be a core business into which other HVAC service operations
can be consolidated.

EXPAND WITHIN EXISTING MARKETS. Once the Company has entered a
market, it will seek to acquire other well-established HVAC businesses
operating within that region and will also pursue "tuck-in" acquisitions
of smaller companies, whose operations can be integrated into an existing
operation to leverage the Company's infrastructure.

ACQUIRE COMPLEMENTARY BUSINESSES. The Company will focus on the HVAC
industry and may also acquire companies providing complementary services to
the same customer base, such as commercial and industrial process piping
and plumbing and electrical companies.

5
<PAGE>
RECENT DEVELOPMENTS

During late 1996 and early 1997, members of the Company's management team
and certain consultants were assembled to pursue the consolidation of the
Founding Companies. Notre, a consolidator of highly-fragmented industries,
provided the Company with expertise regarding the consolidation process and
advanced the Company the funds needed to pay organizational and Offering
expenses. In connection therewith, during 1996 and January and February 1997,
Comfort Systems sold an aggregate of 1,269,935 shares of Common Stock to
management of and consultants to the Company at a price of $0.01 per share. As a
result, the Company recorded a non-recurring, non-cash compensation charge of
$11.6 million (the "Compensation Charge") in the first quarter of 1997,
representing the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale. This Compensation Charge
of $11.6 million is not included in pro forma combined net income.

On July 2, 1997, the Company consummated the IPO and the Mergers. In
connection therewith, the Company issued 7,015,000 shares of Common Stock at a
price of $13.00 per share (less underwriting discounts and commissions).

The aggregate consideration paid by Comfort Systems in the Mergers
consisted of $45.3 million in cash and 9,720,927 shares of Common Stock, plus
the assumption of $20.4 million of existing debt of the Founding Companies. The
consideration paid by Comfort Systems for each Founding Company was negotiated
by the parties and was based primarily upon the pro forma adjusted net income of
each Founding Company. For a more detailed description of these transactions,
see "Certain Transactions -- Organization of the Company."

Between January 1, 1997 and the date of the Mergers, each Founding Company
which was a C Corporation, except Atlas, distributed to its stockholders an
amount equal to its net income for the period from January 1, 1997 through the
date of the Mergers (the "Interim Earnings Distributions"). These aggregate
distributions were $1.5 million and were funded from the Founding Companies'
cash and from borrowings from existing sources available to the Founding
Companies.

Since the IPO, and through October 13, 1997, the Company has acquired
eleven additional mechanical contracting companies engaged principally in the
HVAC business. The Company paid approximately $1.6 million in cash and 2,250,449
shares of Common Stock as consideration for these companies. The Company will
account for seven of these acquisitions as pooling-of-interests transactions and
the remaining four acquisitions will be accounted for as purchase transactions.
Annualized revenues were approximately $70 million for these acquisitions.

Comfort Systems USA, Inc. was incorporated in 1996 in Delaware. The
Company's executive
offices are located at Three Riverway, Suite 200, Houston, Texas 77056, and its
telephone number is
(800) 723-8431.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors".

6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Comfort Systems acquired the Founding Companies in connection with the IPO.
For financial statement presentation purposes, Comfort Systems has been
identified as the "accounting acquirer." The following table presents
unaudited pro forma combined financial data for the Company, adjusted for (i)
the effects of the Mergers, (ii) the effects of certain pro forma adjustments to
the historical financial statements described below and (iii) the consummation
of the IPO and the application of the net proceeds therefrom. See "Selected
Financial Data," the Unaudited Pro Forma Combined Financial Statements and the
Notes thereto and the historical Financial Statements for Comfort Systems and
certain of the Founding Companies and the Notes thereto included elsewhere in
this Prospectus.

PRO FORMA COMBINED(1)
------------------------------------
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ---------------
INCOME STATEMENT DATA:
Revenues........................ $167,525 $86,900
Gross profit.................... 47,813 24,505
Selling, general and
administrative expenses(2)..... 27,814 15,397
Goodwill amortization(3)........ 3,495 1,748
Income from operations.......... 16,504 7,360
Interest and other income
(expense), net(4).............. (798) (530)
Income before income taxes...... 15,706 6,830
Net income(5)................... 8,026 3,621
Net income per share............ 0.44 0.20
Shares used in computing pro
forma net income per
share(6)....................... 18,252,311 18,252,311

JUNE 30, 1997
----------------------------
PRO FORMA AS
COMBINED ADJUSTED(8)
--------- -----------
BALANCE SHEET DATA:(7)
Working capital(4).............. $ (23,874)(9) $ 56,001
Total assets.................... 195,394 225,410
Long-term debt, net of current
maturities(4).................. 20,246 20,246
Stockholders' equity(4)......... 101,118 180,993

- ------------

(1) The pro forma combined income statement data assume that the Mergers and the
IPO were consummated on January 1, 1996 and are not necessarily indicative
of the results the Company would have obtained had these events actually
then occurred or of the Company's future results.

(2) The pro forma combined income statement data reflect an aggregate of $6.6
million for the twelve months ended December 31, 1996 and $2.5 million for
the six months ended June 30, 1997 in pro forma reductions in salaries,
bonuses and benefits to the owners of the Founding Companies to which they
have agreed prospectively (the "Compensation Differential") and does not
include the Compensation Charge of $11.6 million recorded in the first
quarter of 1997.

(3) Consists of amortization of goodwill to be recorded as a result of the
Mergers over a 40-year period and computed on the basis described in the
Notes to the Unaudited Pro Forma Combined Financial Statements.

(4) Several of the Founding Companies were S Corporations. In connection with
the Mergers, these Founding Companies made distributions to their
stockholders totalling $20.9 million, representing substantially all of
their previously taxed undistributed earnings through June 30, 1997 (the "S
Corporation Distributions"). In order to fund these distributions, the
Founding Companies borrowed $11.0 million from existing sources.
Accordingly, pro forma interest expense has been increased by $772,000 for
the twelve months ended December 31, 1996 and $386,000 for the six months
ended June 30, 1997, pro forma working capital has been reduced by $1.9
million, pro forma long-term debt has been increased by $11.0 million and
pro forma stockholders' equity has been reduced by $12.9 million.

(5) Assuming a corporate income tax rate of 40% and the non-deductibility of
goodwill.

(6) Includes (i) 2,969,912 shares issued to Notre, (ii) 1,269,935 shares issued
to management of and consultants to Comfort Systems, (iii) 9,720,927 shares
issued to owners of the Founding Companies and (iv) 4,291,537 of the
7,015,000 shares sold in the IPO necessary to pay the cash portion of the
Merger consideration and expenses of the IPO and excludes 915,000 shares of
common stock purchased by the underwriters pursuant to an overallotment
option.

(7) The pro forma combined balance sheet data assume that the Mergers were
consummated on June 30, 1997.

(8) Adjusted for the sale of the 7,015,000 shares of Common Stock offered in the
IPO and the application of the estimated net proceeds therefrom, which
includes 915,000 shares of common stock purchased by the underwriters
pursuant to an overallotment option.

(9) Includes a $45.3 million note payable to owners of the Founding Companies,
representing the cash portion of the Merger consideration paid from a
portion of the net proceeds of the IPO.

7
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)

The following table presents summary income statement data for the Founding
Companies for each of their three most recent fiscal years. Income from
operations has not been adjusted for the Compensation Differential or to take
into account increased costs associated with the Company's new corporate
management and with being a public company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Introduction."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED(1) JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
QUALITY:
Revenues........................... $ 24,434 $ 32,594 $ 29,597 $ 15,396 $ 16,747
Income from operations............. 2,154 4,953 4,490 2,391 3,014
ATLAS:
Revenues........................... 21,848 22,444 30,030 14,485 13,962
Income from operations............. 105 643 2,101 497 1,056
TRI-CITY:
Revenues........................... 16,883 25,030 24,237 11,199 17,016
Income from operations............. 393 2,539 1,773 800 1,142
LAWRENCE:
Revenues........................... 12,758 12,568 17,163 6,807 9,042
Income (loss) from operations...... 112 (51) 67 (197) (259)
ACCURATE:
Revenues........................... 9,763 12,171 16,806 7,416 6,204
Income (loss) from operations...... (122) 213 499 333 228
EASTERN:
Revenues........................... 7,348 6,067 7,944 4,047 3,465
Income from operations............. 274 117 431 249 209
CSI/BONNEVILLE:
Revenues........................... 6,502 6,361 7,842 3,509 3,828
Income from operations............. 881 448 981 432 428
TECH:
Revenues........................... 6,923 6,960 7,537 3,395 3,904
Income from operations............. 593 948 1,680 434 616
SEASONAIR:
Revenues........................... 5,168 5,942 6,737 3,203 3,767
Income (loss) from operations...... 189 451 134 147 184
WESTERN:
Revenues........................... 4,149 4,112 6,494 2,844 2,174
Income (loss) from operations...... 161 (151) 744 231 76
ALL OTHER FOUNDING COMPANIES(2):
Revenues........................... 8,934 12,264 13,138 6,437 6,791
Income from operations............. 266 321 531 225 381
</TABLE>
- ------------

(1) The fiscal years presented are as follows: Quality -- the fiscal years ended
March 31, 1995 and 1996 and the year ended December 31, 1996; Atlas and
Accurate -- the fiscal years ended June 30, 1994 and 1995 and the year ended
December 31, 1996; Lawrence -- the fiscal years ended October 31, 1994, 1995
and 1996; and Tri-City, Eastern, CSI/Bonneville, Tech, Seasonair and
Western -- the years ended December 31.

(2) The other Founding Companies are Standard and Freeway, and data presented
are for the years ended December 31, 1994, 1995 and 1996, in the case of
Standard, and the fiscal years ended March 31, 1995 and 1996 and the year
ended December 31, 1996, in the case of Freeway.

8
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.

ABSENCE OF COMBINED OPERATING HISTORY. Comfort Systems was founded in 1996
but conducted no operations and generated no revenues prior to the Mergers on
July 2, 1997. The Founding Companies operated as separate independent entities
prior to the IPO, and there can be no assurance that the Company will be able to
integrate the operations of these businesses successfully or to institute the
necessary systems and procedures, including accounting and financial reporting
systems, to manage the combined enterprise on a profitable basis. The Company's
management group has been assembled only recently, and there can be no assurance
that the management group will be able to effectively manage the combined entity
or successfully implement the Company's operating strategy, internal growth
strategy and acquisition program. The pro forma combined historical financial
results of the Founding Companies primarily cover periods when the Founding
Companies and Comfort Systems were not under common control or management and,
therefore, may not be indicative of the Company's future financial or operating
results. The inability of the Company to integrate the Founding Companies
successfully would have a material adverse effect on the Company's business,
financial condition and results of operations and would make it unlikely that
the Company's acquisition program will be successful. See
"Business -- Strategy" and "Management."

RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to continue to grow significantly through the acquisition of additional HVAC and
complementary businesses. The Company expects to face competition for
acquisition candidates, which may limit the number of acquisition opportunities
and may lead to higher acquisition prices. There can be no assurance that the
Company will be able to identify, acquire or manage profitably additional
businesses or to integrate successfully any acquired businesses into the Company
without substantial costs, delays or other operational or financial problems.
Further, acquisitions involve a number of special risks, including failure of
the acquired business to achieve expected results, diversion of management's
attention, failure to retain key personnel of the acquired business and risks
associated with unanticipated events or liabilities, some or all of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Customer dissatisfaction or performance problems at a
single acquired company could have an adverse effect on the reputation of the
Company generally and render ineffective the Company's national sales and
marketing initiatives. The Company may consider acquiring complementary
businesses in the electrical, process piping and plumbing industries, and there
can be no assurance that these complementary businesses can be successfully
integrated. In addition, there can be no assurance that the Founding Companies
or other businesses acquired in the future will achieve anticipated revenues and
earnings. See "Business -- Strategy."

RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company intends to continue to finance future
acquisitions by using shares of its Common Stock for all or a substantial
portion of the consideration to be paid. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. The Company has obtained a bank line of credit of $75.0
million from Bank One, Texas, NA ("Bank One") as agent, and a group of other
banks, for working capital and acquisitions. As of October 13, 1997, borrowings
under the line of credit were $18.9 million, which was used to repay existing

9
<PAGE>
indebtedness of the Founding Companies. The line of credit is subject to
customary financial covenants and drawing conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."

RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGY. Key elements of
the Company's strategy are to improve the profitability of the Founding
Companies and subsequently acquired businesses and to continue to expand the
revenues of the Founding Companies and any subsequently acquired businesses. The
Company intends to seek to improve the profitability of the Founding Companies
and any subsequently acquired businesses by various means, including increased
purchasing efficiencies and a reduction, in some cases, of duplicative operating
costs and overhead. The Company's ability to increase the revenues of the
Founding Companies and any subsequently acquired company will be affected by
various factors, including demand for new or replacement HVAC systems, the level
of new construction, the Company's ability to expand the range of services
offered to customers of individual Founding Companies and other acquired
businesses, the Company's ability to develop national accounts and other
marketing programs in order to attract new customers and the Company's ability
to attract and retain a sufficient number of qualified HVAC technicians and
other necessary personnel. Many of these factors are beyond the control of the
Company, and there can be no assurance that the Company's operating and internal
growth strategies will be successful or that it will be able to generate cash
flow adequate for its operation and to support internal growth. See
"Business -- Strategy."

COMPETITION. The HVAC industry is highly competitive and is served by
small, owner-operated private companies and several large companies. Certain of
these competitors may have lower overhead cost structures and may, therefore, be
able to provide their services at lower rates than the Company. The HVAC
industry is currently undergoing rapid consolidation on both a national and a
regional level by other companies which have acquisition objectives which are
the same as or similar to the Company's objectives. These companies and other
consolidators may have greater financial resources than the Company to finance
acquisition and internal growth opportunities and might be willing to pay higher
prices than the Company for the same acquisition opportunities. Additionally,
HVAC equipment manufacturers and certain public utilities are beginning to enter
the maintenance, repair and replacement segment of the HVAC industry. These
companies generally are better capitalized, have greater name recognition and
may be able to provide these services at a lower cost. Consequently, the Company
may encounter significant competition in its efforts to achieve both its
acquisition and internal growth objectives as well as its operating strategy to
increase the profitability of the Founding Companies and subsequently acquired
companies. See "Business -- Competition."

AVAILABILITY OF HVAC TECHNICIANS. The timely provision of high-quality
installation service and maintenance, repair and replacement of HVAC systems by
the Company requires an adequate supply of skilled HVAC technicians.
Accordingly, the Company's ability to increase its productivity and
profitability will be limited by its ability to employ, train and retain the
skilled technicians necessary to meet the Company's service requirements. From
time to time, there are shortages of qualified HVAC technicians, and there can
be no assurance that the Company will be able to maintain an adequate skilled
labor force necessary to operate efficiently, that the Company's labor expenses
will not increase as a result of a shortage in the supply of skilled technicians
or that the Company will not have to curtail its planned internal growth as a
result of labor shortages. See "Business -- Employees" and " -- Recruiting,
Training and Safety."

SEASONAL AND CYCLICAL NATURE OF THE HVAC INDUSTRY. The HVAC industry is
subject to seasonal variations. Specifically, the demand for new installations
is generally lower during the winter months due to reduced construction activity
during inclement weather and less use of air conditioning during colder months.
Demand for HVAC maintenance, repair and replacement services is generally higher
in the second and third calendar quarters due to the increased use of air
conditioning during warmer months. Accordingly, the Company expects its revenues
and operating results generally will be lower in the first and fourth quarters.
Historically, the construction industry has been highly cyclical. As a result,
the Company's volume

10
<PAGE>
of business may be adversely affected by declines in new installation projects
in various geographic regions of the United States.

REGULATION. HVAC systems are subject to various environmental statutes and
regulations, including the Clean Air Act and those regulating the production,
servicing and disposal of certain ozone depleting refrigerants used in HVAC
systems. There can be no assurance that the regulatory environment in which the
Company operates will not change significantly in the future. Various local,
state and federal laws and regulations impose licensing standards on technicians
who install and service HVAC systems. The Company's failure to comply with these
laws and regulations could subject it to substantial fines and the loss of its
licenses. See "Business -- Governmental Regulation and Environmental Matters."

RELIANCE ON KEY PERSONNEL. The Company will be highly dependent on the
continuing efforts of its executive officers and the senior management of the
Founding Companies, and the Company likely will depend on the senior management
of any significant business it acquires in the future. The business or prospects
of the Company could be affected adversely if any of these persons does not
continue in his management role until the Company is able to attract and retain
qualified replacements. See "Management."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The Company's executive
officers and directors, former stockholders of the Founding Companies and
entities affiliated with them beneficially own approximately 59.6% of the
outstanding shares of Common Stock. These persons, if acting in concert, would
be able to exercise control over the Company's affairs, to elect the entire
Board of Directors and to control the outcome of any matter submitted to a vote
of stockholders. See "Principal Stockholders."

SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of the IPO, $45.3 million, or approximately
53.4%, were paid as the cash portion of the purchase price for the Founding
Companies. Some of the recipients of these funds are directors of the Company or
holders of more than 5% of the Common Stock.

BENEFITS TO NOTRE AND MANAGEMENT. Notre, management and certain
consultants to the Company own in the aggregate 4,239,847 shares of Common
Stock. These stockholders acquired their Common Stock at a price of $0.01 per
share. These parties own, in the aggregate, approximately 20% of the outstanding
Common Stock. Of these shares of Common Stock, 2,742,912 shares are Restricted
Common Stock, which are entitled to elect one member of the Company's Board of
Directors and to 0.55 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors and control in the
aggregate 8.8% of the votes of all shares of Common Stock. See "Principal
Stockholders."

NO PRIOR PUBLIC MARKET. The Company went public on July 2, 1997 and the
market price of the Common Stock may be subject to significant fluctuations in
response to numerous factors, including the timing of any acquisitions by the
Company, variations in the Company's annual or quarterly financial results or
those of its competitors, changes by financial research analysts in their
estimates of the future earnings of the Company, conditions in the economy in
general or in the Company's industry in particular, unfavorable publicity or
changes in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the HVAC, process piping and
plumbing and electrical services industries. From time to time, the stock market
experiences significant price and volume volatility, which may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. As of October 13, 1997 there were 23,226,223 shares of Common Stock
outstanding. The 7,015,000 shares sold in the IPO, 34,496 shares issued in
acquisitions and 583,878 shares registered hereunder (other than shares that may
have been or that may subsequently be purchased by affiliates of the Company)
are freely tradable. The remaining outstanding shares may be resold publicly
only following their registration under the Securities Act of 1933, as amended
(the "Securities Act"), or pursuant to an available exemption from
registration (such as provided by Rule 144 following a one year holding period
for previously unregistered shares), or upon the expiration of contractual
restrictions. Certain of the holders of these remaining shares have certain

11
<PAGE>
rights to have their shares registered in the future under the Securities Act,
but may not exercise such registration rights, and have agreed with the Company
that they will not sell, transfer or otherwise dispose of any of their shares
prior to July 2, 1998. See "Shares Eligible for Future Sale." In addition,
1,452,833 shares issued in acquisitions since the IPO will become tradeable on
the first anniversaries of such acquisitions late in the third quarter and early
in the fourth quarter of 1998, and 179,242 of such shares will become tradeable
during the same period in 1999. The Company also has outstanding options to
purchase up to a total of 2,258,653 shares of Common Stock. In addition, up to
7,807,374 shares issuable pursuant to a shelf registration statement for use in
connection with acquisitions may be freely traded after their issuance by
persons not affiliated with the Company unless the Company contractually
restricts their resale. The market price of the Common Stock might be adversely
affected by the sale, or availability for sale, of substantial amounts of the
Common Stock in the public market as described above.

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. Comfort
Systems' Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), authorizes the Board of Directors to issue, without
stockholder approval, one or more series of preferred stock having such
preferences, powers and relative, participating, optional and other rights
(including preferences over the Common Stock respecting dividends and
distributions and voting rights) as the Board of Directors may determine. The
issuance of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise. In addition, the Certificate of
Incorporation provides for a classified Board of Directors, which may also have
the effect of inhibiting or delaying a change in control of the Company. Certain
provisions of the Delaware General Corporation Law may also discourage takeover
attempts that have not been approved by the Board of Directors. See
"Description of Capital Stock."

DILUTION. Purchasers of Common Stock will experience immediate,
substantial dilution in the net tangible book value of their stock.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has traded on the New York Stock Exchange since
June 27, 1997. On October 13, 1997, the last sale price of the Common Stock was
$18.6875 per share, as published in THE WALL STREET JOURNAL on October 14, 1997.
At October 13, 1997 there were approximately 127 stockholders of record of the
Company's Common Stock. The following table sets forth the range of high and low
sale prices for the Common Stock for the period from June 27, 1997, the date of
the IPO, through June 30, 1997, from July 1, 1997, through September 30, 1997,
and from October 1, 1997 through October 13, 1997.

HIGH LOW
---------- ---------
June 27-30, 1997..................... $ 16.125 $ 13.00
July 1-September 30, 1997............ $ 21.5625 $ 15.50
October 1-13, 1997................... $ 20.0625 $ 18.375

12
<PAGE>
THE COMPANY

Comfort Systems was founded in 1996 to become a leading national provider
of comprehensive HVAC installation services and maintenance, repair and
replacement of HVAC systems, focusing primarily on the commercial and industrial
markets. In furtherance of this goal, Comfort Systems acquired the twelve
Founding Companies on July 2, 1997, and since the IPO the Company has acquired
eleven additional companies, all of which are principally engaged in the
commercial HVAC business.

USE OF PROCEEDS

The Company will not receive any of the proceeds of the Common Stock
offered hereunder by the Selling Stockholders.

SELLING STOCKHOLDERS

The Selling Stockholders have acquired the 583,878 shares of Common Stock
offered hereby from the Company pursuant, in each case, to an agreement (the
"Acquisition Agreements") by and among the Company, a wholly-owned subsidiary of
the Company, and a company formerly wholly or partially owned by such Selling
Stockholders. The Company may from time to time supplement or amend this
Prospectus, as required, to provide other information with respect to the
Selling Stockholders.

None of the Selling Stockholders holds any position or office with, has
been employed by, or otherwise has a material relationship with the Company, or
any of its predecessors or affiliates, other than as officers, stockholders
and/or creditors of their respective companies.

The following table sets forth certain information regarding ownership of
the Company's Common Stock by the Selling Stockholders. Except as otherwise
indicated, none of the Selling Stockholders owns more than 1% of the Common
Stock. No estimate can be given as to the amount of the Common Stock that will
be held by Selling Stockholders upon termination of this offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES PERCENT OF
SELLING SECURITYHOLDER BENEFICIALLY OWNED OFFERED HEREBY* OUTSTANDING
- ------------------------------------- ------------------- ------------------- -----------
<S> <C> <C> <C>
Grover Lee Walker, III............... 421,274 105,319 1.8%
John P. Walker, Jr. ................. 421,274 105,319 1.8%
Paul G. Morey........................ 344,516 103,355 1.5%
James J. Scruggs..................... 179,745 53,924 *
Randall Troost....................... 136,622 40,987 *
Bernard P. Malewitz.................. 92,478 23,120 *
Robert A. Dood....................... 92,478 23,120 *
Mark R. Alder........................ 88,889 22,222 *
Craig W. Salmon...................... 88,889 22,222 *
Grover Lee Walker, Jr. .............. 43,207 10,802 *
John P. Walker, Sr. ................. 43,207 10,802 *
John L. Kuempel, Jr. ................ 30,399 9,120 *
John W. Lowe......................... 30,399 9,120 *
Alder Enterprises Trust.............. 22,223 22,223 *
Salmon Enterprises Trust............. 22,223 22,223 *
------------------- -------------------
2,057,823 583,878 8.9%
</TABLE>
- ------------

* Less than 1%.

13
<PAGE>
PLAN OF DISTRIBUTION

The Company will not receive any of the proceeds from the sale by the
Selling Stockholders of the Common Stock offered hereby. Any or all of the
shares of Common Stock may be sold from time to time (i) to or through
underwriters or dealers, (ii) directly to one or more other purchasers, (iii)
through agents on a best-efforts basis, or (iv) through a combination of any
such methods of sale.

The shares of the Common Stock offered hereby (the "Shares") may be sold
from time to time by the Selling Stockholders, or by pledgees, donees,
transferees or other successors in interest. Such sales may be made on one or
more exchanges or in the over-the-counter market, or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The Shares may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) an exchange distribution in accordance with the rules of
such exchange; and (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In effecting sales, brokers or dealers engaged
by the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated prior to the sale.

The Selling Stockholders and any such underwriters, dealers or agents that
participate in the distribution of the Common Stock may be deemed to be
underwriters within the meaning of the Securities Act, and any profit on the
sale of the Common Stock by them and any discounts, commissions or concessions
received by them may be deemed to be underwriting discounts and commissions
under the Securities Act. The Common Stock may be sold from time to time in one
or more transactions at a fixed offering price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices. Such
prices will be determined by the Selling Stockholders or by an agreement between
the Selling Stockholders and underwriters or dealers. Brokers or dealers acting
in connection with the sale of Common Stock contemplated by this Prospectus may
receive fees or commissions in connection therewith.

At the time a particular offer of Common Stock is made, to the extent
required, a supplement to this Prospectus will be distributed which will
identify and set forth the aggregate number of shares of Common Stock being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
Common Stock purchased from the Selling Stockholders, any discounts, commissions
and other items constituting compensation from the Selling Stockholders and/or
the Company and any discounts, commissions or concessions allowed or reallowed
or paid to dealers, including the proposed selling price to the public. Such
supplement to this Prospectus and, if necessary, a post-effective amendment to
the Registration Statement of which this Prospectus is a part, will be filed
with the Commission to reflect the disclosure of additional information with
respect to the distribution of the Common Stock.

Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Common Stock may not simultaneously engage in
market making activities with respect to the Common Stock for a period of nine
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, the Selling Stockholders and any person
participating in the distribution of the Common Stock will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation rules 10b-6 and 10b-7, which provisions
may limit the timing of purchases and sales of the Common Stock by the Selling
Stockholders or any such other person.

In order to comply with certain states' securities laws, if applicable, the
Common Stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Common Stock may not be sold
unless it has been registered or qualified for sale in such state, or unless an
exemption from registration or qualification is available.

14
<PAGE>
DIVIDEND POLICY

The Company intends to retain all of its future earnings, if any, to
finance the expansion of its business and for general corporate purposes,
including future acquisitions, and does not anticipate paying any cash dividends
on its Common Stock for the foreseeable future. In addition, the Company's
credit facility includes restrictions on the ability of the Company to pay
dividends without the consent of the lender.

15
<PAGE>
CAPITALIZATION

The following table sets forth the current maturities of long-term
obligations and capitalization at June 30, 1997 (i) of the Founding Companies
combined; (ii) of Comfort Systems on a pro forma combined basis to give effect
to the issuance of 1,269,935 shares of Common Stock to management of and
consultants to Comfort Systems, the Mergers and the S Corporation Distributions;
and (iii) of Comfort Systems, pro forma combined, as adjusted to give effect to
the Mergers, the S Corporation Distributions, the IPO and the application of a
portion of the net proceeds therefrom. This table should be read in conjunction
with the Unaudited Pro Forma Combined Financial Statements of the Company and
the Notes thereto included elsewhere in this Prospectus.

JUNE 30, 1997
----------------------------------------
PRO FORMA
COMBINED COMBINED AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
Current maturities of long-term debt
obligations(1)..................... $ 165 $ 45,468(2) $ 165
======== ========= ===========
Long-term obligations, less current
maturities(1)...................... $20,246 $ 20,246 $ 20,246
Stockholders' equity:
Preferred Stock: $0.01 par
value, 5,000,000 shares
authorized; none issued or
outstanding................... -- -- --
Common Stock: $0.01 par value,
52,969,912 shares authorized;
14,875,774 shares issued and
outstanding pro forma
combined; and 20,975,774
shares issued and outstanding,
as adjusted(3)................ 433 140 210
Additional paid-in capital...... 11,731 100,978 180,783
Retained earnings (deficit)..... (3,781) -- --
Treasury stock.................. (1,201) -- --
-------- --------- -----------
Total stockholders'
equity.................. 7,182 101,118 180,993
-------- --------- -----------
Total
capitalization..... $27,428 $ 121,364 $ 201,239
======== ========= ===========

- ------------

(1) For a description of the Company's debt, see the Notes to Unaudited Pro
Forma Combined Financial Statements and Notes to the Founding Companies'
Financial Statements.

(2) Includes a $45.3 million note payable to owners of the Founding Companies,
representing the cash portion of the Merger consideration that was paid from
a portion of the net proceeds of the IPO.

(3) Excludes 2,174,954 shares of Common Stock subject to options to be granted
upon consummation of the IPO at an exercise price equal to the initial
public offering price. See "Management -- 1997 Long-Term Incentive Plan"
and "-- 1997 Non-Employee Directors' Stock Plan."

16
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Comfort Systems acquired the Founding Companies in connection with the
consummation of the IPO. For financial statement presentation purposes, Comfort
Systems has been identified as the "accounting acquirer." The following
selected financial data for Comfort Systems as of December 31, 1996 has been
derived from audited financial statements of Comfort Systems. The selected
historical financial data as of June 30, 1997 and the six months ended June 30,
1997 have been derived from unaudited financial statements of Comfort Systems,
which have been prepared on the same basis as the audited financial statements
and, in the opinion of Comfort Systems, reflect all adjustments consisting of
normal recurring adjustments, necessary for a fair presentation of such data.
The selected unaudited pro forma combined financial data present data for the
Company, adjusted for (i) the effects of the Mergers, (ii) the effects of
certain pro forma adjustments to the historical financial statements described
below and (iii) the consummation of the IPO and the application of the net
proceeds therefrom. See the Unaudited Pro Forma Combined Financial Statements
and the Notes thereto and the historical Financial Statements of Comfort Systems
and certain of the Founding Companies and the Notes thereto included elsewhere
in this Prospectus.

TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ------------
INCOME STATEMENT DATA:
COMFORT SYSTEMS
Revenues......................... $ -- $ --
Gross profit..................... -- --
Selling, general and
administrative
expenses(1).................... -- 11,556
------------- ------------
Loss from operations............. -- (11,556)
Interest and other income
(expense), net.................. -- --
------------- ------------
Net loss......................... $ -- $ (11,556)
============= ============
PRO FORMA COMBINED(2)
Revenues......................... $ 167,525 $ 86,900
Gross profit..................... 47,813 24,505
Selling, general and
administrative expenses(3)...... 27,814 15,397
Goodwill amortization(4)......... 3,495 1,748
Income from operations........... 16,504 7,360
Interest and other income
(expense), net(5)............... (798) (530)
Income before income taxes....... 15,706 6,830
Net income(6).................... 8,026 3,621
Net income per share............. 0.44 0.20
Shares used in computing pro
forma net income per share(7)... 18,252,311 18,252,311
<TABLE>
<CAPTION>
COMFORT SYSTEMS COMBINED COMPANIES
------------------------ ------------------------------
JUNE 30, 1997
DECEMBER 31, JUNE 30, ------------------------------
------------ -------- PRO FORMA
1996 1997 COMBINED(8) AS ADJUSTED(9)
------------ -------- ----------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(5)............... $ 1 $ 42 $ (23,874)(10) $ 56,001
Total assets..................... 178 4,598 195,394 225,410
Long-term debt, net of current
maturities(5).................. -- -- 20,246 20,426
Stockholders' equity(5).......... 1 42 101,118 180,993
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)

17
<PAGE>
- ------------

(1) Represents the non-recurring, non-cash Compensation Charge of $11.6
million.

(2) The pro forma combined income statement data assume that the Mergers and
the IPO were consummated on January 1, 1996 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.

(3) The pro forma combined income statement data reflect the Compensation
Differential of $6.6 million for the twelve months ended December 31, 1996
and $2.5 million for the six months ended June 30, 1997 and does not
include the Compensation Charge of $11.6 million recorded in the first
quarter of 1997.

(4) Consists of amortization of goodwill to be recorded as a result of the
Mergers over a 40-year period and computed on the basis described in the
Notes to the Unaudited Pro Forma Combined Financial Statements.

(5) Several of the Founding Companies were S Corporations. In connection with
the Mergers, these Founding Companies made S Corporation Distributions
totalling $20.9 million through June 30, 1997. In order to fund these
distributions, the Founding Companies borrowed $11.0 million from existing
sources. Accordingly, pro forma interest expense has been increased by
$772,000 for the twelve months ended December 31, 1996 and $386,000 for the
six months ended June 30, 1997, pro forma working capital has been reduced
by $1.9 million, pro forma long-term debt has been increased by $11.0
million and pro forma stockholders' equity has been reduced by $12.9
million.

(6) Assuming a corporate income tax rate of 40% and the non-deductibility of
goodwill.

(7) Includes (i) 2,969,912 shares issued to Notre, (ii) 1,269,935 shares issued
to management of and consultants to Comfort Systems, (iii) 9,720,927 shares
issued to owners of the Founding Companies and (iv) 4,291,537 of the
7,015,000 shares sold in the Offering necessary to pay the cash portion of
the Merger consideration and expenses of the IPO and excludes 915,000
shares of common stock purchased by the underwriters pursuant to an
overallotment option.

(8) The pro forma combined balance sheet data assume that the Mergers were
consummated on June 30, 1997.

(9) Adjusted for the sale of the 7,015,000 shares of Common Stock offered in
the IPO and the application of the estimated net proceeds therefrom.

(10) Includes a $45.3 million note payable to owners of the Founding Companies,
representing the cash portion of the Merger consideration paid from a
portion of the net proceeds of the IPO.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.

This discussion contains statements regarding future financial performance
and results. The realization of outcomes consistent with these forward-looking
statements is subject to numerous risks and uncertainties to the Company
including, but not limited to, the availability of attractive acquisition
opportunities, the successful integration and profitable management of acquired
businesses, improvement of operating efficiencies, the availability of working
capital and financing for future acquisitions, the Company's ability to grow
internally through expansion of services and customer bases and reduction of
overhead, seasonality and other risk factors discussed in the Registration
Statement.

INTRODUCTION

The Company's revenues are derived from providing comprehensive HVAC
installation services and maintenance, repair and replacement of HVAC systems
primarily for commercial and industrial customers. The Company's commercial and
industrial applications include office buildings, retail centers, apartment
complexes, hotels, manufacturing plants and government facilities. The Company
also provides specialized HVAC applications such as process cooling, control
systems, electronic monitoring and process piping. Approximately 90% of the
Company's pro forma combined 1996 revenues of $167.5 million was derived from
commercial and industrial customers, with approximately 53% of total revenues
attributable to installation services and 47% attributable to maintenance,
repair and replacement services.

Revenues related to commercial and industrial installation are of two
types: "design and build" and "plan and spec." Approximately 80% of the
commercial and industrial installation revenues for 1996 were generated from
"design and build" projects, which generally yield higher margins than "plan
and spec" projects because the Company is responsible for designing,
engineering and installing a cost-effective, energy-efficient system that is
customized to the specific needs of the building owner. This enables the Company
to control the customer's cost and reduce overall design and installation time.
Additionally, the costs and other terms of "design and build" projects are
normally established through relationship-based negotiation with the building
owner or its representative rather than through a competitive bid process.
"Plan and spec" installation projects typically yield lower margins than
"design and build" projects because the building's architect or consulting
engineer designs the HVAC system and the installation project is put out for
bid.

Most installation and reconfiguration projects are completed within one
year. Generally, these contracts are accounted for under the
percentage-of-completion method of accounting. Revenues are recorded based on
the percentage of costs incurred during a particular period, in proportion to
total estimated costs for each contract. Maintenance, repair and replacement
service revenues are recorded as services are performed. Costs of services
consist primarily of HVAC components, parts and materials related to new
installation, equipment maintenance and rental, salaries and benefits payable to
service and repair technicians, as well as supervisory and subcontract labor.
Selling, general and administrative expenses consist primarily of compensation
and benefits to owners as well as to sales and administrative employees, fees
for professional services, depreciation of equipment and other general office
expenses. Selling, general and administrative expenses also include incentive
and discretionary bonuses paid to owners, significant portions of which were
paid in lieu of S Corporation distributions to enable stockholders to meet their
income tax obligations.

The Founding Companies have operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
varying tax structures (S Corporations or C Corporations) which have influenced
the historical level of owners' compensation. Gross profit margins and selling,
general and administrative expenses as a percentage of revenues may not be
comparable among the individual Founding Companies. The owners of the Founding
Companies have agreed to certain reductions in their compensation and benefits
in connection with the organization of the Company. The Compensation

19
<PAGE>
Differential for 1996 of $6.6 million and $2.5 million for the six months ended
June 30, 1997 has been reflected as a pro forma adjustment in the Unaudited Pro
Forma Combined Statements of Operations.

The Company anticipates that following the Mergers it will realize savings
from (i) greater volume discounts from suppliers of HVAC components, parts and
raw materials; (ii) consolidation of insurance and bonding programs; (iii) other
general and administrative areas such as training and advertising; and (iv) the
Company's ability to borrow at lower interest rates than most of the Founding
Companies. It is anticipated that these savings will be offset by costs related
to the Company's new corporate management and by the costs associated with being
a public company. The Company believes that neither these savings nor the costs
associated therewith can be quantified because the Mergers have not occurred,
and there have been no combined operating results upon which to base any
assumptions. As a result, they have not been included in the pro forma financial
information included herein.

During January and February 1997, Comfort Systems sold an aggregate of
1,269,935 shares of Common Stock to management and consultants. As a result, the
Company recorded a non-recurring, non-cash Compensation Charge of $11.6 million
in the first quarter of 1997, representing the difference between the amount
paid for the shares and the estimated fair value of the shares on the date of
sale. This Compensation Charge of $11.6 million is not included in pro forma
financial information or Combined Results of Operations.

In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the purchase method of acquisition
accounting. Under the purchase method, one of the companies must be designated
as the accounting acquirer. For the remaining companies, $139.3 million,
representing the excess of the fair value of the Merger consideration received
over the fair value of the net assets to be acquired, will be recorded as
"goodwill" on the Company's balance sheet. Goodwill will be amortized as a
non-cash charge to the income statement over a 40-year period. The pro forma
impact of this amortization expense, which is non-deductible for tax purposes,
is $3.5 million per year on an after-tax basis. Prior to the issuance of SAB 97,
goodwill and related amortization expense were not required to be recorded for
most business combinations similar to the Mergers. See "Certain
Transactions -- Organization of the Company."

COMBINED RESULTS OF OPERATIONS

The combined results of operations of the Founding Companies for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, cost of services and selling, general and
administrative expenses of the individual Founding Companies on a historical
basis. The combined results also exclude the effect of pro forma adjustments and
may not be comparable to, and may not be indicative of, the Company's
post-combination results of operations because (i) the Founding Companies were
not under common control or management during the periods presented; (ii) the
Founding Companies used different tax structures (S Corporations or C
Corporations) during the periods presented; (iii) the Company will incur
incremental costs related to its new corporate management and the costs of being
a public company; (iv) the Company will use the purchase method to record the
Mergers, resulting in the recording of goodwill which will be amortized over 40
years; and (v) the combined data do not reflect the Compensation Differential
and potential benefits and cost savings the Company expects to realize when
operating as a combined entity.

20
<PAGE>
The following table sets forth the combined results of operations of the
Founding Companies on a historical basis and such results as a percentage of
revenues.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED(1) JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995(2) 1996(2) 1996
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 124,710 100.0% $ 146,512 100.0% $ 167,525 100.0% $ 78,738 100.0%
Cost of services..................... 92,318 74.0 105,043 71.7 119,712 71.5 56,859 72.2
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 32,392 26.0 41,469 28.3 47,813 28.5 21,879 27.8
Selling, general and
administrative expenses............ 27,386 22.0 31,038 21.2 34,382 20.5 16,336 20.7
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 5,006 4.0 10,431 7.1 13,431 8.0 5,543 7.1
</TABLE>
1997
--------------------

Revenues............................. $ 86,900 100.0%
Cost of services..................... 62,395 71.8
--------- ---------
Gross profit......................... 24,505 28.2
Selling, general and
administrative expenses............ 17,430 20.1
--------- ---------
Income from operations............... 7,075 8.1

- ------------

(2) The financial data for 1995 and 1996 both include Quality's results for the
three months ended March 31, 1996 which were as follows: revenues of $6.3
million, cost of services of $4.3 million, and selling, general and
administrative expenses of $1.6 million.

COMBINED RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996

REVENUES. Pro forma combined revenues increased $8.2 million, or 10.4%
million from $78.7 million for the six months ended June 30, 1996, to $86.9
million for the six months ended June 30, 1997. This resulted primarily from
increases in revenues at Tri-City, Lawrence and Quality, net of a decline at
Accurate. Revenues at Tri-City increased $5.8 million primarily due to two
design/build installation projects. One of these projects is for a large
nationally-known healthcare organization and involves the first major facility
on what is expected to be a medical campus covering more than 100 acres. The
second project is at a new fabrication facility for a major semiconductor
manufacturer. Revenues at Lawrence increased $2.2 million over the same six
month period as a result of a "design and build" installation project at a
manufacturing facility in North Carolina and a "design and build" installation
project for a nationally known consumer products company. Quality's revenues
increased $1.4 million over 1996 due to broad-based growth in its design/build
activity and its maintenance, repair and replacement service. These increases
were partially offset by a decline of $1.2 million at Accurate due to inclement
and unseasonably cool weather in Houston, its primary market, during the first
six months of 1997.

GROSS PROFIT. Combined gross profit as a percentage of revenues for the
six months of increases at Atlas, Lawrence, Quality and Eastern, net of a
decline at Tri-City. Atlas' gross margin increased as a result of its ability to
be more selective in accepting projects in design/build installation for
multi-unit facilities. Lawrence's gross margin was up as a result of its ability
to earn better margins on design/build work from a growing client base.
Quality's gross margin improved due to increasing demand for its services in its
market and because its gross margin during the first half of 1996 was somewhat
lower due to narrower margins on a large automotive industry project it
completed in the second quarter of 1996. These increases were partially offset
by a decrease in gross margin at Tri-City where the medical facility project
referred to above included a significant amount of revenue related to
subcontract work and procured equipment, both of which typically carry lower
margins. In addition, Accurate also contributed to the increase in six-month
gross margin through the use of less subcontracting.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined SG&A expenses
increased $1.1 million, or 6.7%, from $16.3 million for the six months ended
June 30, 1996, to $17.4 million for the six months ended June 30, 1997. This
increase was principally due to additions to personnel and infrastucture at
Quality, Atlas, Lawrence and Tri-City to support growth in their commercial and
industrial "design and build" installation activity. As a percentage of
revenues, SG&A decreased from 20.7% for the first half of 1996 to 20.1% for the
first half of 1997.

COMBINED RESULTS FOR 1996 COMPARED TO 1995

REVENUES. Combined revenues increased approximately $21.0 million, or
14.3%, from $146.5 million in 1995 to $167.5 million in 1996. The increase in
combined revenues occurred primarily at Atlas,

21
<PAGE>
Accurate and Lawrence. This increase in combined revenues was primarily
attributable to an increase in commercial and industrial "design and build"
revenues of approximately 15% and an increase in maintenance, repair and
replacement revenues of approximately 30%. Revenues for Atlas increased $7.6
million from 1995 to 1996 due to increasing demand by several large national
customers for HVAC "design and build" installation services provided by Atlas
for multi-unit facilities. Revenues for Accurate increased $4.6 million from
1995 to 1996 reflecting the success of an increased marketing effort along with
the addition of sales personnel and project managers. Revenues at Lawrence
increased by $4.6 million from 1995 to 1996 due to a management decision in 1995
to expand the number of general contractors for which Lawrence provides
industrial installation services and due to a large "design and build"
installation contract obtained in 1996 for a food processing facility. Seven of
the other Founding Companies reported an increase in revenues from 1995 and
1996, partially offset by a decline in revenues at Quality and Tri-City.

GROSS PROFIT. Combined gross profit increased $6.3 million, or 15.3%, from
$41.5 million in 1995 to $47.8 million in 1996, due principally to increases in
gross profit of $2.2 million at Atlas, $1.5 million at Lawrence and $1.1 million
at Western. As a percentage of revenues, combined gross profit increased from
28.3% in 1995 to 28.5% in 1996. Gross profit as a percentage of revenues at
Atlas increased from 12.5% of revenues in 1995 to 16.5% of revenues in 1996 as
increasing demand for Atlas' specialized installation services enabled Atlas to
earn higher margins. Gross profit as a percentage of revenues at Accurate
decreased from 26.1% of revenues in 1995 to 21.0% of revenues in 1996 as a
result of an increase in overtime and subcontract labor necessary to support the
increased number of "design and build" projects. Gross profit as a percentage
of revenues at Western increased from 17.1% to 28.2% from 1995 to 1996, which
resulted in part from Western's participation in an incentive program sponsored
by the Public Service Company of Colorado during 1996. Western does not intend
to participate in this program during 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $3.4 million, or 10.8%, from $31.0 million
in 1995 to $34.4 million in 1996. Selling, general and administrative expenses
increased $1.4 million at Lawrence, approximately one-half of which was related
to increases in salary and incentive compensation paid to the owners, and the
other half of which was related to increases in incentive compensation and
discretionary profit sharing contributions for employees. Selling, general and
administrative expenses increased $0.7 million at Tri-City as a result of a $1.1
million increase in compensation to the owners in lieu of S Corporation
distributions, offset by $0.4 million of reductions in other overhead expenses.
As a percentage of combined revenues, selling, general and administrative
expenses decreased from 21.2% in 1995 to 20.5% in 1996.

COMBINED RESULTS FOR 1995 COMPARED TO 1994

REVENUES. Combined revenues increased approximately $21.8 million, or
17.5%, from $124.7 million in 1994 to $146.5 million in 1995, primarily due to
an increase in commercial and industrial "design and build" revenues of
approximately 40% and an increase of approximately 10% in maintenance, repair
and replacement revenues. Revenues at Quality increased $8.2 million from 1994
to 1995 as a result of management's focus on obtaining more "design and build"
projects and related service work. Revenues at Tri-City increased $8.1 million
from 1994 to 1995 as a result of a strategy implemented in late 1994 to focus on
larger "design and build" projects and the related service relationships. To
accomplish its strategy, Tri-City increased the size of its sales and project
management staff.

GROSS PROFIT. Combined gross profit increased $9.1 million, or 28.0%, from
$32.4 million in 1994 to $41.5 million in 1995. Gross profit increased $3.1
million at Tri-City and $2.9 million at Quality. As a percentage of revenues,
combined gross profit increased from 26.0% in 1994 to 28.3% in 1995. Gross
profit as a percentage of revenues at Tri-City increased from 15.5% in 1994 to
22.9% in 1995 as a result of an increase in the number of higher-margin "design
and build" installation projects. Gross profit as a percentage of revenues at
Lawrence increased from 23.2% in fiscal 1994 to 27.3% in fiscal 1995 as
management emphasized higher-margin "design and build" projects and
successfully implemented an incentive program for project managers to control
project costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $3.6 million, or 13.3%, from $27.4 million
in 1994 to $31.0 million in 1995. Selling, general and

22
<PAGE>
administrative expenses increased $1.0 million at Tri-City from 1994 to 1995
primarily due to a $0.8 million increase in compensation to its owners. Selling,
general and administrative expenses at Lawrence increased $0.6 million primarily
due to an increase in salary and incentive compensation to its owners. As a
percentage of combined revenues, combined selling, general and administrative
expenses decreased from 22.0% in 1994 to 21.2% in 1995.

COMBINED LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 1997, net cash provided by operating
activities was $4.8 million, capital expenditures were $1.1 million and net
borrowings of debt amounted to $11.8 million. Additionally, payments for S
Corporation Distributions were $20.6 million. At June 30, 1997, the combined
Founding Companies had working capital of $21.4 million and total debt of $20.5
million, including $1.9 million of debt to stockholders.

In connection with and prior to the Mergers, certain Founding Companies
made S Corporation Distributions to their owners of substantially all of their
previously-taxed undistributed earnings. The pro forma combined financial
statements as of March 31, 1997 and for the three months then ended, included
elsewhere in this Prospectus, reflect pro forma adjustments for the estimated
amount of these S Corporation Distributions and additional debt needed to fund
these distributions had they occurred in their entirety as of March 31, 1997.
These pro forma adjustments reflect $16.8 million of S Corporation Distributions
and $11.0 million of additional debt.

On a combined basis, the Founding Companies generated $9.0 million of net
cash from operating activities during fiscal 1996, primarily at Quality,
Tri-City and CSI/Bonneville. Net cash used in investing activities was $3.0
million on a combined basis, primarily for equipment purchases. Net cash used in
financing activities was $7.3 million on a combined basis, consisting of net
reductions in long-term debt of $1.6 million and distributions to stockholders
of $5.7 million. At December 31, 1996, the combined Founding Companies had
working capital of $18.9 million and total debt of $8.6 million, including debt
to stockholders.

The Company intends to pursue acquisition opportunities. The Company
expects to fund future acquisitions through the issuance of additional Common
Stock, borrowings, including use of amounts available under its credit facility
executed in connection with the IPO and cash flow from operations. The Company
anticipates that its cash flow from operations will provide cash in excess of
the Company's normal working capital needs, debt service requirements and
planned capital expenditures for equipment. On a combined basis, the Founding
Companies made capital expenditures of $2.3 million in fiscal 1996.

The Company has obtained a revolving line of credit of $75.0 million from
Bank One. The facility will be used for acquisitions, capital expenditures,
refinancing of debt not paid out of the proceeds of the IPO and for general
corporate purposes. The credit facility requires the Company to comply with
various loan covenants including (i) maintenance of certain financial ratios,
(ii) restrictions on additional indebtedness, and (iii) restrictions on liens,
guarantees, advances and dividends. As of October 13, 1997, borrowings under the
line of credit were $18.9 million, which was used to repay existing indebtedness
of the Founding Companies.

QUALITY RESULTS OF OPERATIONS

Quality, headquartered in Grand Rapids, Michigan, was founded in 1968 and
operates primarily throughout western Michigan. Quality focuses on providing
"design and build" installation services and maintenance, repair and
replacement of HVAC systems, primarily for medium and large commercial
facilities.

23
<PAGE>
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31,
------------------------------------------ -------------------- --------------------
1995 1996(1) 1996(1) 1995
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 24,434 100.0% $ 32,594 100.0% $ 29,597 100.0% $ 26,279 100.0%
Cost of services..................... 15,634 64.0 20,850 64.0 18,467 62.4 16,559 63.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 8,800 36.0 11,744 36.0 11,130 37.6 9,720 37.0
Selling, general and administrative
expenses........................... 6,646 27.2 6,791 20.8 6,640 22.4 5,183 19.7
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 2,154 8.8 4,953 15.2 4,490 15.2 4,537 17.3
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------

<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 23,282 100.0% $ 15,396 100.0% $ 16,747 100.0%
Cost of services..................... 14,176 60.9 9,819 63.8 9,854 58.8
--------- --------- --------- --------- --------- ---------
Gross profit......................... 9,106 39.1 5,577 36.2 6,893 41.2
Selling, general and administrative
expenses........................... 5,032 21.6 3,186 20.7 3,879 23.2
--------- --------- --------- --------- --------- ---------
Income from operations............... 4,074 17.5 2,391 15.5 3,014 18.0
</TABLE>
- ------------

(1) The financial data for the year ended December 31, 1996 and the year ended
March 31, 1996 both include results for the three months ended March 31,
1996, which were as follows: revenues of $6.3 million, cost of services of
$4.3 million and selling, general and administrative expenses of $1.6
million.

QUALITY RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996

REVENUES. Revenues increased $1.4 million, or 8.8%, from $15.4 million for
the six months ended June 30, 1996 to $16.7 million for the six months ended
June 30, 1997 due to broad based growth in its commercial "design and build"
installation activity and maintenance, repair and replacement revenues.

GROSS PROFIT. Gross profit increased $1.3 million, or 23.6%, from $5.6
million for the six months ended June 30, 1996 to $6.9 million for the six
months ended June 30, 1997. As a percentage of revenues, gross profit increased
from 36.2% to 41.2%. Quality's gross margin improved due to increasing demand
for its services in its market and because its gross margin during the first
half of 1996 was somewhat lower due to narrower margins on a large automotive
"design and build" installation it completed in the second quarter of 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 21.8%, from $3.2 million for
the six months ended June 30, 1996 to $3.9 million for the six months ended June
30, 1997. The increase in selling, general and administrative expenses was
primarily attributable to additions in personnel and infrastructure to support
the growth in commercial "design and build" installation activity. As a
percentage of revenues, selling, general and administrative expenses increased
from 20.7% to 23.2%.

QUALITY RESULTS FOR NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS
ENDED DECEMBER 31, 1995

REVENUES. Revenues decreased $3.0 million, or 11.4%, from $26.3 million
for the nine months ended December 31, 1995 to $23.3 million for the nine months
ended December 31, 1996 due to a decrease in Quality's volume of commercial
"design and build" installation projects. Quality's decline in revenues from
1995 to 1996 resulted from management's decision to be more selective in
accepting installation projects. Management continues to emphasize project
selectivity and expansion of capacity through the addition of technical staff
and management rather than through subcontract labor and employee overtime.

GROSS PROFIT. Gross profit decreased $0.6 million, or 6.3%, from $9.7
million for the nine months ended December 31, 1995 to $9.1 million for the nine
months ended December 31, 1996. As a percentage of revenues, gross profit
increased from 37.0% to 39.1% due to management's emphasis on project selection
and a decrease in the use of subcontract labor, employee overtime and outside
services.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million, or 2.9%, from $5.2 million for
the nine months ended December 31, 1995 to $5.0 million for the nine months
ended December 31, 1996. As a percentage of revenues, these expenses increased
from 19.7% to 21.6% due to the decline in revenues.

QUALITY RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED MARCH
31, 1996

REVENUES. Revenues decreased $3.0 million, or 9.2%, from $32.6 million for
the year ended March 31, 1996 to $29.6 million for the year ended December 31,
1996, for the reasons described above.

24
<PAGE>
GROSS PROFIT. Gross profit decreased $0.6 million, or 5.2%, from $11.7
million for the year ended March 31, 1996 to $11.1 million for the year ended
December 31, 1996. As a percentage of revenues, gross profit increased from
36.0% to 37.6% due to management's emphasis on project selection and a decrease
in the use of subcontract labor, employee overtime and outside services.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million, or 2.2%, from $6.8 million for
the year ended March 31, 1996 to $6.6 million for the year ended December 31,
1996. As a percentage of revenues, selling, general and administrative expenses
increased from 20.8% to 22.4% due to the decline in revenues.

QUALITY RESULTS FOR YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31,
1995

REVENUES. Revenues increased $8.2 million, or 33.4%, from $24.4 million
for the fiscal year ended March 31, 1995 to $32.6 for the fiscal year ended
March 31, 1996. This increase in revenues was primarily attributable to
management's emphasis on obtaining more "design and build" installation
projects and the related service work.

GROSS PROFIT. Gross profit increased $2.9 million, or 33.5%, from $8.8
million for the fiscal year ended March 31, 1995 to $11.7 million for the fiscal
year ended March 31, 1996. As a percentage of revenues, gross profit remained
unchanged at 36.0% as the benefits associated with higher revenues were offset
by an increase in subcontract labor, employee overtime and outside services.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 2.2%, from $6.6 million for
the fiscal year ended March 31, 1995 to $6.8 million for the fiscal year ended
March 31, 1996. As a percentage of revenues, selling, general and administrative
expenses decreased from 27.2% to 20.8% as the Company successfully leveraged its
infrastructure to support the significant increase in volume.

QUALITY LIQUIDITY AND CAPITAL RESOURCES

Quality generated $1.9 million in net cash from operating activities for
the six months ended June 30, 1997. Net cash used in investing activities was
approximately $0.2 million, principally from purchases of equipment. Net cash
used in financing activities was $3.8 million, representing borrowings of
long-term debt of $6.1 million and distributions to shareholders of $9.9
million.

At June 30, 1997, Quality had working capital of $6.2 million and $7.4
million of total debt outstanding.

Quality generated $4.5 million in net cash from operating activities for
the twelve months ended December 31, 1996. Net cash used in investing activities
was approximately $0.4 million, principally for equipment purchases. Net cash
used in financing activities was $4.4 million, of which $3.5 million was
distributed to shareholders and $0.9 million was used to repay long-term debt.

At December 31, 1996, Quality had working capital of $4.9 million and $1.3
million of total debt outstanding.

ATLAS RESULTS OF OPERATIONS

Atlas, headquartered in Houston, Texas, was founded in 1947 and operates
primarily in the southwest, northeast and mid-Atlantic regions of the United
States. Atlas is a leading provider of HVAC installation services for apartment
complexes, condominiums, hotels and elder care facilities in the United States
and also provides maintenance, repair and replacement of HVAC systems.

25
<PAGE>
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------------------------- --------------------
1994 1995 1996 1995
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 21,848 100.0% $ 22,444 100.0% $ 29,174 100.0% $ 14,689 100.0%
Cost of services..................... 19,657 90.0 19,635 87.5 25,449 87.2 12,886 87.7
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,191 10.0 2,809 12.5 3,725 12.8 1,803 12.3
Selling, general and administrative
expenses........................... 2,086 9.5 2,166 9.6 2,843 9.8 1,417 9.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 105 0.5 643 2.9 882 3.0 386 2.7
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------

<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 15,545 100.0% $ 14,485 100.0% $ 13,962 100.0%
Cost of services..................... 12,508 80.5 12,562 86.7 11,166 80.0
--------- --------- --------- --------- --------- ---------
Gross profit......................... 3,037 19.5 1,923 13.3 2,796 20.0
Selling, general and administrative
expenses........................... 1,432 9.2 1,426 9.8 1,740 12.5
--------- --------- --------- --------- --------- ---------
Income from operations............... 1,605 10.3 497 3.5 1,056 7.5
</TABLE>
ATLAS RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996

REVENUES. Revenues decreased $0.5 million, or 3.6%, from $14.5 million for
the six months ended June 30, 1996 to $14.0 million for the six months ended
June 30, 1997.

GROSS PROFIT. Gross profit increased $0.9 million, or 45.4%, from $1.9
million for the six months ended June 30, 1996 to $2.8 million for the six
months ended June 30, 1997. As a percentage of revenues, gross profit increased
from 13.3% to 20.0%. Atlas' gross margin increased as a result of its ability to
be more selective in accepting "design and build" projects for multi-unit
facilities.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 22.0%, from $1.4 million for
the six months ended June 30, 1996 to $1.7 million for the six months ended June
30, 1997. This increase was principally due to addition to personnel and
infrastructure. As a percentage of revenues, selling, general and administrative
expenses increased from 9.8% to 12.5%.

ATLAS RESULTS FOR SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1995

REVENUES. Revenues increased $0.8 million, or 5.8%, from $14.7 million for
the six months ended December 31, 1995 to $15.5 million for the six months ended
December 31, 1996. This increase was primarily attributable to an increase in
demand for Atlas' specialized services for multi-unit facilities.

GROSS PROFIT. Gross profit increased $1.2 million, or 68.4%, from $1.8
million for the six months ended December 31, 1995 to $3.0 million for the six
months ended December 31, 1996. As a percentage of revenues, gross profit
increased from 12.3% to 19.5% due to an increase in the proportion of "design
and build" projects and management's ability to be more selective in accepting
projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained unchanged at $1.4 million for the six months
ended December 31, 1995 and the six months ended December 31, 1996. As a
percentage of revenues, selling, general and administrative expenses decreased
from 9.6% to 9.2% as Atlas was able to increase revenues without a commensurate
increase in overhead expenses.

ATLAS RESULTS FOR YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995

REVENUES. Revenues increased $6.8 million, or 30.0%, from $22.4 million
for the year ended June 30, 1995 to $29.2 million for the year ended June 30,
1996 due to an increase in demand for Atlas' specialized services for multi-unit
facilities.

GROSS PROFIT. Gross profit increased $0.9 million, or 32.6%, from $2.8
million for the year ended June 30, 1995 to $3.7 million for the year ended June
30, 1996. As a percentage of revenues, gross profit increased from 12.5% to
12.8%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 31.3%, from $2.2 million for
the year ended June 30, 1995 to $2.8 million for the year ended June 30, 1996,
as Atlas increased its infrastructure to support higher volume. As a percentage
of revenues, selling, general and administrative expenses increased from 9.6% to
9.8%.

26
<PAGE>
ATLAS RESULTS FOR JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994

REVENUES. Revenues increased $0.6 million, or 2.7%, from $21.8 million for
the year ended June 30, 1994 to $22.4 million for the year ended June 30, 1995.

GROSS PROFIT. Gross profit increased $0.6 million, or 28.2%, from $2.2
million for the year ended June 30, 1994 to $2.8 million for the year ended June
30, 1995. As a percentage of revenues, gross profit increased from 10.0% to
12.5%. The increase in the gross profit percentage from 1994 to 1995 was
primarily related to higher demand for Atlas' specialized installation services
for multi-unit facilities and a decrease in lower-margin "plan and spec"
projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 3.8%, from $2.1 million for
the twelve months ended June 30, 1994 to $2.2 million for the twelve months
ended June 30, 1995. As a percentage of revenues, selling, general and
administrative expenses increased from 9.5% to 9.6%.

ATLAS LIQUIDITY AND CAPITAL RESOURCES

Atlas generated $0.3 million in net cash from operating activities for the
six months ended June 30, 1997. Net cash used in financing activities was $0.1
million, representing repayments on notes payable, to affiliates.

At June 30, 1997, Atlas had working capital of $3.5 million and total debt
of $1.6 million.

Atlas used $0.3 million in net cash from operating activities for the
twelve months ended June 30, 1996 primarily due to an increase in accounts
receivable which were collected in subsequent periods. Net cash used in
investing activities was approximately $0.1 million for equipment purchases. Net
cash provided by financing activities was $0.3 million for the twelve months
ended June 30, 1996, principally as a result of a net increase in long-term debt
and notes payable.

At December 31, 1996, Atlas had working capital of $2.7 million and total
debt of $1.8 million.

TRI-CITY RESULTS OF OPERATIONS

Tri-City, headquartered in Tempe, Arizona, was founded in 1962 and operates
in Arizona, California and Nevada. Tri-City focuses on providing "design and
build" installation services and maintenance, repair and replacement of HVAC
systems primarily for large commercial and industrial facilities, as well as
process piping for industrial facilities.

The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 16,883 100.0% $ 25,030 100.0% $ 24,237 100.0% $ 11,199 100.0%
Cost of services..................... 14,271 84.5 19,298 77.1 18,561 76.6 8,417 75.2
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,612 15.5 5,732 22.9 5,676 23.4 2,782 24.8
Selling, general and administrative
expenses........................... 2,219 13.2 3,193 12.8 3,903 16.1 1,982 17.7
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 393 2.3 2,539 10.1 1,773 7.3 800 7.1
</TABLE>
1997
--------------------

Revenues............................. $ 17,016 100.0%
Cost of services..................... 14,528 85.4
--------- ---------
Gross profit......................... 2,488 14.6
Selling, general and administrative
expenses........................... 1,346 7.9
--------- ---------
Income from operations............... 1,142 6.7

TRI-CITY RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996

REVENUES. Revenues increased $5.8 million, or 51.9%, from $11.2 million
for the six months ended June 30, 1996 to $17.0 million for the six months ended
June 30, 1997 due primarily to two "design and build" installation projects.
One of these projects is for a nationally-known healthcare organization, and
represents the first major facility on what is expected to be a medical campus
covering more than 100 acres. Tri-City pursued this project to expand its
presence in its regional healthcare HVAC market. Tri-City was

27
<PAGE>
selected as the lead mechanical contractor on this project. Installation of the
HVAC and process piping systems on this project began in October 1996 and
accounted for approximately 48% of the revenues in the six months ended June 30,
1997.The second project is at a new fabrication facility for a major
semiconductor manufacturer.

GROSS PROFIT. Gross profit decreased $0.3 million, or 10.6%, from $2.8
million for the six months ended June 30, 1996 to $2.5 million for the six
months ended June 30, 1997. As a percentage of revenues, gross profit decreased
from 24.8% to 14.6%. In its role as lead mechanical contractor on this major
healthcare project Tri-City is responsible for arranging a significant amount of
subcontract work as well as for procuring most of the HVAC equipment on this
project. Margins on subcontract work and procured equipment are typically lower
than margins on work performed directly by Tri-City.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.6 million, or 32.1%, from $2.0 million for
the six months ended June 30, 1996 to $1.3 million for the six months ended June
30, 1997 due to a decrease in owners' compensation. This decrease was partially
offset by an increase in personnel and infrastructure to support growth in their
commercial "design and build" installation activity. As a percentage of
revenues, selling, general and administrative expenses decreased from 17.7% to
7.9% due to the decrease in owners' compensation.

TRI-CITY RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995

REVENUES. Revenues decreased $0.8 million, or 3.2%, from $25.0 million in
1995 to $24.2 million in 1996, primarily due to a decrease in "plan and spec"
revenues from 1995 to 1996 of approximately $2.0 million, partially offset by an
increase of approximately $1.2 million in commercial HVAC maintenance, repair
and replacement service revenues.

GROSS PROFIT. Gross profit remained constant at $5.7 million for 1995 and
1996. As a percentage of revenues, gross profit increased from 22.9% to 23.4%,
due to a decrease in lower margin "plan and spec" projects in 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 22.2%, from $3.2 million in
1995 to $3.9 million in 1996 due to a $1.1 million increase in compensation to
owners in lieu of S Corporation distributions, offset by a $0.4 million
reduction in other overhead expenses. As a percentage of revenues, selling,
general and administrative expenses increased from 12.8% in 1995 to 16.1% in
1996, primarily as a result of the increase in owners' compensation.

TRI-CITY RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994

REVENUES. Revenues increased $8.1 million, or 48.2%, from $16.9 million in
1994 to $25.0 million in 1995 as a result of a strategy implemented in 1994 to
emphasize "design and build" projects. To implement its strategy, Tri-City
increased its sales and project management staff.

GROSS PROFIT. Gross profit increased $3.1 million, or 119.4%, from $2.6
million in 1994 to $5.7 million in 1995. As a percentage of revenues, gross
profit increased from 15.5% in 1994 to 22.9% in 1995 as a result of an increase
in the proportion of "design and build" installation projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.0 million, or 43.9%, from $2.2 million in
1994 to $3.2 million in 1995. The increase in selling, general and
administrative expenses in 1995 was primarily attributable to a $0.8 million
increase in compensation to owners in lieu of S Corporation distributions and an
increase in the number of the sales personnel and project managers. As a
percentage of revenues, selling, general and administrative expenses decreased
from 13.2% in 1994 to 12.8% in 1995 as Tri-City was able to substantially
increase its volume without a commensurate increase in overhead expenses.

TRI-CITY LIQUIDITY AND CAPITAL RESOURCES

Tri-City generated $1.8 million in net cash from operating activities for
the six months ended June 30, 1997. Net cash provided by investing activities
was $0.5 million from the sale of investments. Net cash used in financing
activities was $3.7 million of which $3.1 was borrowed on the line of credit to
fund distributions to shareholders of $6.8 million.

28
<PAGE>
At June 30, 1997, working capital was $3.0 million and there was $3.5
million of debt outstanding.

Tri-City generated $1.4 million in net cash from operating activities in
1996. Net cash used in investing activities was approximately $0.7 million, of
which $0.5 million was used for investments in U.S. Treasury obligations and
$0.2 million for equipment purchases. Net cash used in financing activities was
$1.2 million, primarily for distributions to shareholders.

At December 31, 1996, working capital was $5.5 million and there was no
debt outstanding.

LAWRENCE RESULTS OF OPERATIONS

Lawrence, headquartered in Jackson, Tennessee, was founded in 1917 and
operates primarily in Tennessee and the surrounding states. Lawrence focuses on
providing "design and build" installation services and process piping
primarily for industrial facilities and maintenance, repair and replacement of
commercial and industrial HVAC systems.

The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>

EIGHT MONTHS ENDED
YEAR ENDED OCTOBER 31, JUNE 30
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 12,758 100.0% $ 12,568 100.0% $ 17,163 100.0% $ 9,775 100.0%
Cost of services..................... 9,797 76.8 9,142 72.7 12,211 71.1 7,200 73.7
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,961 23.2 3,426 27.3 4,952 28.9 2,575 26.3
Selling, general and administrative
expenses........................... 2,849 22.3 3,477 27.7 4,885 28.5 2,890 29.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ 112 0.9 (51) (0.4) 67 0.4 (315) (3.3)
</TABLE>
1997
--------------------

Revenues............................. $ 11,575 100.0%
Cost of services..................... 8,156 70.5
--------- ---------
Gross profit......................... 3,419 29.5
Selling, general and administrative
expenses........................... 3,460 30.0
--------- ---------
Income (loss) from operations........ (41) (0.5)

LAWRENCE RESULTS FOR EIGHT MONTHS ENDED JUNE 30, 1997 COMPARED TO EIGHT MONTHS
ENDED JUNE 30, 1996

REVENUES. Revenues increased $1.8 million, or 18.4%, from $9.8 million for
the eight months ended June 30, 1996 to $11.6 million for the eight months ended
June 30, 1997 primarily due to both an increase in "design and build"
installation revenues primarily related to a manufacturing facility in North
Carolina and a "design and build" installation project for a nationally known
consumer products company.

GROSS PROFIT. Gross profit increased $0.8 million, or 32.8%, from $2.6
million for the eight months ended June 30, 1996 to $3.4 million for the eight
months ended June 30, 1997. As a percentage of revenues, gross profit increased
from 26.3% to 29.5% as a result of its ability to earn better margins on
"design and build" projects from a growing client base.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 19.7%, from $2.9 million for
the eight months ended June 30, 1996 to $3.5 million for the eight months ended
June 30, 1997 primarily due to an increase in discretionary bonuses to the
owners and, to a lesser extent, additions to personnel and infrastructure to
support growth in their commercial and industrial "design and build"
installation activity. As a percentage of revenues, selling, general and
administrative expenses increased from 29.6% to 30.0% due to the increase in
owners' compensation.

LAWRENCE RESULTS FOR YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER
31, 1995

REVENUES. Revenues increased $4.6 million, or 36.6%, from $12.6 million
for the year ended October 31, 1995 to $17.2 million for the fiscal year ended
October 31, 1996 due to a management decision in 1995 to expand the number of
general contractors for which Lawrence provides industrial installation services
and due to a large "design and build" installation contract obtained in 1996 for
a food processing facility in Tennessee.

GROSS PROFIT. Gross profit increased $1.5 million, or 44.5%, from $3.5
million for the fiscal year ended October 31, 1995 to $5.0 million for the
fiscal year ended October 31, 1996. As a percentage of

29
<PAGE>
revenues, gross profit increased from 27.3% to 28.9%, primarily as a result of
an increase in the volume of "design and build" installation projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.4 million, or 40.5%, from $3.5 million for
the fiscal year ended October 31, 1995 to $4.9 million for the fiscal year ended
October 31, 1996. The increase in selling, general and administrative expenses
in fiscal 1996 was primarily attributable to a $0.6 million increase in salary
and incentive compensation paid to the owners and a $0.7 million increase in
incentive compensation to employees and discretionary profit sharing
contributions. As a percentage of revenues, selling, general and administrative
expenses increased from 27.7% in fiscal 1995 to 28.5% in fiscal 1996.

LAWRENCE RESULTS FOR FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR
ENDED OCTOBER 31, 1994

REVENUES. Revenues decreased $0.2 million, or 1.5%, from $12.8 million the
fiscal year ended October 31, 1994 to $12.6 million for the fiscal year ended
October 31, 1995.

GROSS PROFIT. Gross profit increased $0.4 million, or 15.7%, from $3.0
million for the fiscal year ended October 31, 1994 to $3.4 million for the
fiscal year ended October 31, 1995. As a percentage of revenues, gross profit
increased from 23.2% to 27.3% as management emphasized higher-margin "design
and build" projects and successfully implemented an incentive program for
project managers designed to control project costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 22.0%, from $2.8 million in
fiscal 1994 to $3.5 million in fiscal 1995 primarily due to an increase in
salary and incentive compensation paid to the owners. As a percentage of
revenues, selling, general and administrative expenses increased from 22.3% in
fiscal 1994 to 27.7% in fiscal 1995 and, as a result, Lawrence incurred an
operating loss in fiscal 1995.

LAWRENCE LIQUIDITY AND CAPITAL RESOURCES

Lawrence used $0.3 million in net cash from operating activities for the
eight months ended June 30, 1997 primarily due to a decrease in accounts payable
and accrued expenses. Net cash used in investing activities was approximately
$0.1 million, principally for equipment purchases. Net cash provided by
financing activities was $0.2 million from borrowings from shareholders.

Working capital as of June 30, 1997 was $1.5 million and there was $0.3
million of debt outstanding as of that date.

Lawrence generated $0.1 million in net cash from operating activities for
the fiscal year ended October 31, 1996. Net cash used in investing activities
was approximately $0.4 million, principally for equipment purchases and
leasehold improvements.

Working capital as of October 31, 1996 was $1.4 million and there was no
debt outstanding as of that date.

ACCURATE RESULTS OF OPERATIONS

Accurate, headquartered in Houston, Texas, was founded in 1980 and operates
primarily in Texas and Oklahoma. Accurate focuses on providing "design and
build" installation services and maintenance, repair and replacement of HVAC
systems for commercial facilities.

30
<PAGE>
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
------------------------------------------ DECEMBER 31, --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 9,763 100.0% $ 12,171 100.0% $ 16,806 100.0% $ 7,416 100.0%
Cost of services..................... 7,204 73.8 8,998 73.9 13,270 79.0 5,707 77.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,559 26.2 3,173 26.1 3,536 21.0 1,709 23.0
Selling, general and administrative
expenses........................... 2,681 27.5 2,960 24.3 3,037 18.0 1,376 18.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ (122) (1.3) 213 1.8 499 3.0 333 4.4
</TABLE>
1997
--------------------

Revenues............................. $ 6,204 100.0%
Cost of services..................... 4,776 77.0
--------- ---------
Gross profit......................... 1,428 23.8
Selling, general and administrative
expenses........................... 1,200 19.3
--------- ---------
Income (loss) from operations........ 228 4.5

ACCURATE RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996

REVENUES. Revenues decreased $1.2 million, or 16.3%, from $7.4 million for
the six months ended June 30, 1996 to $6.2 million for the six months ended June
30, 1997 due to a decrease in commercial installation services. This decrease
resulted from a decrease in commercial installation services due to the
inclement and unseasonably cool weather in Houston, its primary market.

GROSS PROFIT. Gross profit decreased $0.3 million, or 16.4%, from $1.7
million for the six months ended June 30, 1996 to $1.4 million for the six
months ended June 30, 1997. As a percentage of revenues, gross profit increased
from 23.0% to 23.8% due to the use of less subcontracting.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2, or 12.8% from $1.4 million for the six
months ended June 30, 1996 to $1.2 million for the six months ended June 30,
1997 primarily due to a decrease in owners' compensation. As a percentage of
revenues, selling, general and administrative expenses increased from 18.6% to
19.3%.

ACCURATE RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED JUNE
30, 1995

REVENUES. Revenues increased $4.6 million, or 38.1%, from $12.2 million
for the year ended June 30, 1995 to $16.8 million for the year ended December
31, 1996, reflecting the success of an increased marketing effort along with the
addition of project management personnel who also have sales responsibility.
These efforts resulted in an increase in commercial "design and build"
installation revenues and an increase in replacement services.

GROSS PROFIT. Gross profit increased $0.3 million, or 11.4%, from $3.2
million for the year ended June 30, 1995 to $3.5 million for the year ended
December 31, 1996. As a percentage of revenues, gross profit decreased from
26.1% to 21.0%, primarily as a result of an increase in subcontract labor and
employee overtime necessary to support the increased number of "design and
build" projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained constant at $3.0 million for the fiscal year
ended June 30, 1995 and the year ended December 31, 1996. As a percentage of
revenues, selling, general and administrative expenses decreased from 24.3% to
18.0% as Accurate was able to increase revenues without a commensurate increase
in overhead expenses.

ACCURATE RESULTS FOR YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30,
1994

REVENUES. Revenues increased $2.4 million, or 24.7%, from $9.8 million for
the year ended June 30, 1994 to $12.2 million for the fiscal year ended June 30,
1995. This increase was primarily attributable to a new project for an existing
customer to design and build an HVAC system for a correctional facility and an
increase in maintenance and replacement services.

GROSS PROFIT. Gross profit increased $0.6 million, or 24.0%, from $2.6
million for the fiscal year ended June 30, 1994 to $3.2 million for the fiscal
year ended June 30, 1995. As a percentage of revenues, gross profit remained
stable over these periods.

31
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 10.4%, from $2.7 million in
fiscal 1994 to $3.0 million in fiscal 1995. As a percentage of revenues,
selling, general and administrative expenses decreased from 27.5% to 24.3% as
Accurate was able to increase revenues without a commensurate increase in
overhead expenses.

ACCURATE LIQUIDITY AND CAPITAL RESOURCES

Accurate provided $0.2 million of net cash for operating activities for the
six months ended June 30, 1997. Net cash used in investing activities was $0.1
million from the sale of property and equipment. Net cash used in financing
activities of $0.1 million resulted from an increase in long-term debt used to
fund working capital needs.

Working capital at June 30, 1997 was $1.6 million and total debt
outstanding was $1.0.

Accurate generated $0.2 million in net cash from operating activities for
the year ended December 31, 1996. Net cash used in investing activities was
approximately $0.1 million for equipment purchases.

Working capital at December 31, 1996 was $0.2 million and total debt
outstanding was $1.3 million, of which $0.6 million was owed to a shareholder.

CSI/BONNEVILLE RESULTS OF OPERATIONS

CSI/Bonneville, headquartered in Salt Lake City, Utah, was founded in 1969
and operates primarily in Utah. CSI/Bonneville focuses on providing maintenance,
repair and replacement of HVAC systems for commercial and residential
facilities.

The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 6,502 100.0% $ 6,361 100.0% $ 7,842 100.0% $ 3,509 100.0%
Cost of services..................... 4,393 67.6 4,413 69.4 5,201 66.3 2,354 67.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,109 32.4 1,948 30.6 2,641 33.7 1,155 32.9
Selling, general and administrative
expenses........................... 1,228 18.9 1,500 23.6 1,660 21.2 723 20.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 881 13.5 448 7.0 981 12.5 432 12.3
</TABLE>
1997
--------------------
Revenues............................. $ 3,828 100.0%
Cost of services..................... 2,535 66.2
--------- ---------
Gross profit......................... 1,293 33.8
Selling, general and administrative
expenses........................... 865 22.6
--------- ---------
Income from operations............... 428 11.2

CSI/BONNEVILLE RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996

REVENUES. Revenues increased $0.3 million, or 9.1%, from $3.5 million for
the six months ended June 30, 1996 to $3.8 million for the six months ended June
30, 1997 primarily due to an increase in commercial and residential maintenance,
repair and replacement services.

GROSS PROFIT. Gross profit increased $0.1 million, or 12.0%, from $1.2
million for the six months ended June 30, 1996 to $1.3 million for the six
months ended June 30, 1997. As a percentage of revenues, gross profit increased
from 32.9% to 33.8%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 19.6%, from $0.7 million for
the six months ended June 30, 1996 to $0.9 million for the six months ended June
30, 1997 as a result of an increase in administrative personnel. As a percentage
of revenues, selling, general and administrative expenses increased from 20.6%
to 22.6%.

CSI/BONNEVILLE RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995

REVENUES. Revenues increased $1.4 million, or 23.3%, from $6.4 million in
1995 to $7.8 million in 1996, primarily as a result of an increase in both
commercial and residential maintenance, repair and replacement services due to
an increase in the number of sales and marketing personnel in 1995 and 1996.
Revenues declined in 1995 due to the deployment of operating personnel to a move
to a new facility in that year.

32
<PAGE>
GROSS PROFIT. Gross profit increased $0.7 million, or 35.6%, from $1.9
million for 1995 to $2.6 million in 1996. As a percentage of revenues, gross
profit increased from 30.6% in 1995 to 33.7% in 1996. The lower gross profit in
1995 was due to the deployment of operating personnel to a move to a new
facility.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 10.7%, from $1.5 million in
1995 to $1.7 million in 1996. As a percentage of revenues, selling, general and
administrative expenses decreased from 23.6% in 1995 to 21.2% in 1996.

CSI/BONNEVILLE RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994

REVENUES. Revenues decreased from $6.5 million in 1994 to $6.4 million in
1995 as a result of CSI/Bonneville's move into a new facility during 1995.

GROSS PROFIT. Gross profit decreased $0.2 million, or 7.6%, from $2.1
million in 1994 to $1.9 million in 1995. As a percentage of revenues, gross
profit declined from 32.4% in 1994 to 30.6% in 1995 as a result of
CSI/Bonneville's move into a new facility during 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 22.1%, from $1.2 million in
1994 to $1.5 million in 1995. As a percentage of revenues, selling, general and
administrative expenses increased from 18.9% in 1994 to 23.6% in 1995. This
percentage increase was primarily attributable to rent, depreciation and related
costs associated with the new facility occupied in 1995.

CSI/BONNEVILLE LIQUIDITY AND CAPITAL RESOURCES

CSI/Bonneville's operating activities generated $0.4 million for the six
months ended June 30, 1997. Net cash used in investing activities was $0.1
million, principally for equipment purchases. Net cash used in financing
activities was $0.2 million. Distributions to shareholders of $1.1 million was
funded with borrowings of long-term debt of $0.9 million.

Working capital at June 30, 1997 was $0.7 million and total debt
outstanding was $1.4 million, all of which was owed to shareholders.

CSI/Bonneville generated $1.1 million in net cash from operating activities
in 1996. Net cash used in investing activities was $0.2 million, principally for
equipment purchases. Net cash used in financing activities was $0.8 million,
primarily for distributions to shareholders.

Working capital at December 31, 1996 was $0.5 million and total debt
outstanding was $0.5 million, all of which was owed to shareholders.

TECH RESULTS OF OPERATIONS

Tech, headquartered in Solon, Ohio, was founded in 1979 and operates
primarily in the greater Cleveland, Ohio area. Tech focuses on providing
"design and build" installation services and maintenance, repair and
replacement of HVAC systems for commercial and industrial facilities.

The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 6,960 100.0% $ 7,537 100.0% $ 3,395 100.0% $ 3,904 100.0%
Cost of services..................... 4,212 60.5 3,996 53.0 2,004 59.0 2,229 57.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,748 39.5 3,541 47.0 1,391 41.0 1,675 42.9
Selling, general and administrative
expenses........................... 1,800 25.9 1,861 24.7 957 28.2 1,059 27.1
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 948 13.6 1,680 22.3 434 12.8 616 15.5
</TABLE>
33
<PAGE>
TECH RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996

REVENUES. Revenues increased $0.5 million, or 15.0%, from $3.4 million for
the six months ended June 30, 1996 to $3.9 million for the six months ended June
30, 1997 due primarily to an increase in commercial installation services
because there were fewer days of inclement weather in the first three months of
1997 as compared to the prior comparable period.

GROSS PROFIT. Gross profit increased $0.3 million, or 20.4%, from $1.4
million for the six months ended June 30, 1996 to $1.7 million for the six
months ended June 30, 1997. As a percentage of revenues, gross profit increased
from 41.0% to 42.9%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 10.7%, from $1.0 million for
the six months ended June 30, 1996 to $1.1 million for the six months ended June
30, 1997 due to an increased marketing effort, including an increase in
marketing personnel. As a percentage of revenues, selling, general and
administrative expenses declined from 28.2% to 27.1% as Tech was able to
substantially increase its volume without a commensurate increase in overhead
expenses.

TECH RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995

REVENUES. Revenues increased $0.5 million, or 8.3%, from $7.0 million in
1995 to $7.5 million in 1996. This increase was primarily attributable to an
increase in commercial "design and build" installation projects and related
service work.

GROSS PROFIT. Gross profit increased $0.8 million, or 28.9%, from $2.7
million in 1995 to $3.5 million in 1996. As a percentage of revenues, gross
profit increased from 39.5% to 47.0%, primarily due to an increase in "design
and build" versus "plan and spec" installation projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained relatively unchanged from 1995 to 1996. As a
percentage of revenues, selling, general and administrative expenses decreased
from 25.9% in 1995 to 24.7% in 1996 as Tech successfully leveraged its
infrastructure to achieve revenue growth.

TECH LIQUIDITY AND CAPITAL RESOURCES

Tech generated $0.7 million in net cash from operating activities for the
six months ended June 30, 1997. Net cash used in financing activities was $1.0
million, principally for distributions to shareholders of $2.6 million offset by
borrowings of long-term debt of $1.6 million.

Working capital at June 30, 1997 was $1.6 million and total debt
outstanding at June 30, 1997 was $1.9 million.

Tech generated $0.9 million in net cash from operating activities in 1996.
Net cash used in investing activities was $0.3 million for equipment purchases.
Net cash used in financing activities was $0.4 million, principally for
distributions to shareholders.

Working capital at December 31, 1996 was $1.6 million and total debt
outstanding was $0.3 million.

WESTERN RESULTS OF OPERATIONS

Western, headquartered in Denver, Colorado, was founded in 1980 and
operates primarily in Colorado. Western focuses on providing "design and
build" installation services and maintenance, repair and replacement of HVAC
systems for commercial facilities.

34
<PAGE>
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
-------------------- -------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 4,112 100.0% $ 6,494 100.0% $ 2,844 100.0% $ 2,174 100.0%
Cost of services..................... 3,408 82.9 4,662 71.8 2,038 71.7 1,641 75.5
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 704 17.1 1,832 28.2 806 28.3 533 24.5
Selling, general and administrative
expenses........................... 855 20.8 1,088 16.7 575 20.2 457 21.0
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ (151) (3.7) 744 11.5 231 8.1 76 3.5
</TABLE>
WESTERN RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996

REVENUES. Revenues decreased $0.7 million, or 23.6%, from $2.8 million for
the six months ended June 30, 1996 to $2.2 million for the six months ended June
30, 1997. This decrease was primarily attributable to a decrease in commercial
replacement revenues of $0.6 million related to the Demand Side Management
("DSM") incentive program developed by the Public Service Company of Colorado
("PSC"). This program provided incentives for commercial PSC customers to
replace existing HVAC systems with more energy-efficient systems and ended in
November 1996. Western does not intend to participate in this program during
1997.

GROSS PROFIT. Gross profit decreased $0.3 million, or 33.9%, from $0.8
million for the six months ended June 30, 1996 to $0.5 million for the six
months ended June 30, 1997 primarily due to the decrease in DSM revenues. As a
percentage of revenues, gross profit decreased from 28.3% to 24.5% due primarily
to the decline in revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.1 million from the six months ended June
30, 1996 to the six months ended June 30, 1997. As a percentage of revenues,
selling, general and administrative expenses increased from 20.2% to 21.0% due
to the decline in revenues.

WESTERN RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995

REVENUES. Revenues increased $2.4 million, or 57.9%, from $4.1 million in
1995 to $6.5 million in 1996. This increase was primarily attributable to an
increase in commercial replacement revenues of $1.5 million related to the DSM
incentive program discussed above.

GROSS PROFIT. Gross profit increased $1.1 million, or 160.2%, from $0.7
million in 1995 to $1.8 million in 1996. As a percentage of revenues, gross
profit increased from 17.1% in 1995 to 28.2% in 1996, primarily due to an
increase in maintenance, repair and replacement revenues, including revenues
generated under the DSM program.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million in 1995, or 27.3%, from $0.9
million in 1995 to $1.1 million in 1996. As a percentage of revenues, selling,
general and administrative expenses decreased from 20.8% to 16.7% as a result of
the substantial revenue increase without a commensurate increase in overhead
expenses.

WESTERN LIQUIDITY AND CAPITAL RESOURCES

Western used $0.1 million in net cash from operating activities in the six
months ended June 30, 1997 primarily due to an increase in costs on uncompleted
contracts.

Working capital at June 30, 1997 was $0.5 million and total long-term debt
outstanding was $0.8 million.

Western generated $0.6 million in net cash from operating activities in
1996. Net cash used in investing activities was approximately $0.1 million,
principally for equipment purchases. Net cash used in

35
<PAGE>
financing activities was $0.4 million, as a result of distributions to
shareholders and net repayments of long-term debt.

Working capital at December 31, 1996 was $0.4 million and total long-term
debt outstanding was $0.3 million.

SEASONAIR RESULTS OF OPERATIONS

Seasonair, headquartered in Rockville, Maryland, was founded in 1966 and
operates primarily in Maryland, the District of Columbia and Virginia. Seasonair
focuses on providing installation services and maintenance, repair and
replacement of HVAC systems for light commercial facilities.

REVENUES. Revenues increased $0.6 million, or 17.6%, from $3.2 million for
the six months ended June 30, 1996 to $3.8 million for the six months ended June
30, 1997 due to an increase in maintenance, repair and replacement services
resulting from management's decision to expand the business more rapidly.

GROSS PROFIT. Gross profit remained flat at $1.4 million for the six
months ended June 30, 1996 and the six months ended June 30, 1997. As a
percentage of revenues, gross profit decreased from 43.7% to 37.9%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained flat at $1.2 million for the six months ended
June 30, 1996 and the six months ended June 30, 1997. As a percentage of
revenues, selling, general and administrative expenses decreased from 39.1% to
33.0% due to management's ability to increase revenues without a commensurate
increase in overhead expenses.

SEASONAIR LIQUIDITY AND CAPITAL RESOURCES

Seasonair's operating activities were breakeven on a cash flow basis for
the six months ended June 30, 1997.

Working capital at June 30, 1997 was $0.7 million and total debt
outstanding was $0.2 million.

Seasonair used $0.2 million in net cash from operating activities in 1996
primarily due to an increase in prepaid expenses and other current assets. Net
cash provided by investing activities was $0.1 million from proceeds on sale of
equipment. Net cash used in financing activities was $0.1 million to repay long-
term debt.

Working capital at December 31, 1996 was $0.5 million and total debt
outstanding was $0.1 million.

EASTERN RESULTS OF OPERATIONS

Eastern, headquartered in Albany, New York, was founded in 1945 and
operates primarily within a 75 mile radius of Albany, New York. Eastern focuses
on providing "design and build" installation and maintenance, repair and
replacement of HVAC systems for commercial and industrial facilities. Eastern
also offers continuous monitoring and control services for commercial
facilities.

The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:

36
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 7,944 100.0% $ 4,047 100.0% $ 3,465 100.0%
Cost of services........................ 5,276 66.4 2,714 67.1 2,112 61.0
--------- --------- --------- --------- --------- ---------
Gross profit............................ 2,668 33.6 1,333 32.9 1,353 39.0
Selling, general and administrative
expenses.............................. 2,237 28.2 1,084 26.8 1,144 33.0
--------- --------- --------- --------- --------- ---------
Income from operations.................. 431 5.4 249 6.1 209 6.0
</TABLE>
EASTERN RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996

REVENUES. Revenues decreased $0.5 million, or 14.4% from $4.0 million for
the six months ended June 30, 1996 to $3.5 million for the six months ended June
30, 1997 due primarily to a decrease in maintenance, repair and replacement
services. As a result of a mild winter season in the first three months of 1997
in the Albany, New York area, the need for service work on heating equipment
decreased.

GROSS PROFIT. Gross profit remained flat at $1.3 million for the six
months ended June 30, 1996 and the six months ended June 30, 1997. As a
percentage of revenues, gross profit increased from 32.9% to 39.0%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained flat at $1.1 million for the six months ended
June 30, 1996 and the six months ended June 30, 1997. As a percentage of
revenues, selling, general and administrative expenses increased from 26.8% to
33.0% due to the higher expenses and the decrease in revenues.

EASTERN LIQUIDITY AND CAPITAL RESOURCES

Eastern generated $0.4 million in net cash from operating activities
primarily from increases in accounts payable and accrued expenses of $0.7
million. Cash flows provided by financing activities were $0.1 million for
distributions to shareholders of $0.6 million for repayment of long-term debt.
Net cash used in investing activities was $0.1 million for purchases of
equipment.

As of June 30, 1997, Eastern had working capital of $0.9 million and total
debt outstanding of $1.6 million.

Eastern generated $0.5 million in net cash from operating activities in
1996 primarily due to $0.4 million in net income. Net cash used in investing
activities was $0.2 million for the purchase of property and equipment. Net cash
used in financing activities in 1996 was $0.3 million for distributions to
shareholders.

Working capital at December 31, 1996 was $0.1 million and total debt
outstanding was $0.9 million of which $0.3 million is payable to the former
owner.

SEASONAL AND CYCLICAL NATURE OF THE HVAC INDUSTRY

The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installations is generally lower during the winter months due to
reduced construction activities during inclement weather and less use of air
conditioning during the colder months. Demand for HVAC services is generally
higher in the second and third quarters due to the increased use of air
conditioning during the warmer months. Accordingly, the Company expects its
revenues and operating results generally will be lower in the first and fourth
quarters. Historically, the construction industry has been highly cyclical. As a
result, the Company's volume of business may be adversely affected by declines
in new installation projects in various geographic regions of the United States.

INFLATION

Inflation did not have a significant effect on the results of operations of
the combined Founding Companies for 1994, 1995 or 1996 or the six months ended
June 30, 1997.

37
<PAGE>
BUSINESS

Comfort Systems was founded in 1996 to become a leading national provider
of comprehensive HVAC installation services and maintenance, repair and
replacement of HVAC systems, focusing primarily on the commercial and industrial
markets. The Company's commercial and industrial applications include office
buildings, retail centers, apartment complexes, hotels, manufacturing plants and
government facilities. The Company also provides specialized HVAC applications
such as process cooling, control systems, electronic monitoring and process
piping. Approximately 90% of the Company's pro forma combined 1996 revenues of
$167.5 million was derived from commercial and industrial customers, with
approximately 53% of combined revenues attributable to installation services and
47% attributable to maintenance, repair and replacement services.

INDUSTRY OVERVIEW

Based on available industry data, the Company believes that the HVAC
industry is highly fragmented with over 40,000 companies, most of which are
small, owner-operated businesses with limited access to capital for
modernization and expansion. The overall HVAC industry, including the
commercial, industrial and residential markets, is estimated to generate annual
revenues in excess of $75 billion, over $35 billion of which is in the
commercial and industrial markets. HVAC systems have become a necessity in
virtually all commercial and industrial buildings as well as homes. Because most
commercial buildings are sealed, HVAC systems provide the primary method of
addressing air quality concerns and injecting fresh air. Older industrial
facilities often have poor air quality as well as inadequate air conditioning,
factors which are causing industrial facility owners to consider replacement
options. Operation of older HVAC systems represents a significant cost due to
their energy inefficiency. In many instances, the replacement of an aging system
with a modern, energy-efficient system will significantly reduce a building's
operating costs while also improving the effectiveness of the HVAC system and
air quality.

Growth in the HVAC industry is being positively affected by a number of
factors, particularly (i) the aging of the installed base, (ii) the increasing
efficiency, sophistication and complexity of HVAC systems and (iii) the
increasing restrictions on the use of refrigerants commonly used in older HVAC
systems. These factors are expected to increase demand for the reconfiguration
or replacement of existing HVAC systems. These factors also mitigate the effect
on the HVAC industry of the cyclicality inherent in the traditional construction
industry.

The HVAC industry can be broadly divided into the installation segment and
the maintenance, repair and replacement segment.

INSTALLATION SEGMENT. The installation segment consists of "design and
build" and "plan and spec" projects. In "design and build" projects, the
commercial HVAC firm is responsible for designing, engineering and installing a
cost-effective, energy-efficient system customized to meet the specific needs of
the building owner. Costs and other project terms are normally negotiated
between the building owner or its representative and the HVAC firm. Firms which
specialize in "design and build" projects generally have specially-trained
HVAC engineers, CAD/CAM design systems, in-house sheet metal and prefabrication
capabilities. These firms utilize a consultative approach with customers and
tend to develop long-term relationships with building owners and developers,
general contractors, architects and property managers. "Plan and spec"
installation refers to projects where an architect or a consulting engineer
designs the HVAC system and the installation project is put out for bid. The
Company believes that "plan and spec" projects usually take longer to complete
than "design and build" projects because the preparation of the system design
and the bid process often take months to complete. Furthermore, in "plan and
spec" projects, the HVAC firm is not responsible for project design and changes
must be approved by several parties, thereby increasing overall project time and
cost.

MAINTENANCE, REPAIR AND REPLACEMENT SEGMENT. This segment includes the
maintenance, repair, replacement, reconfiguration and monitoring of previously
installed HVAC systems and controls. Growth in this segment has been fueled by
the aging of the installed base of HVAC systems and the increasing demand for
more efficient, sophisticated and complex systems and controls. The increasing
sophistication

38
<PAGE>
and complexity of these HVAC systems is leading many commercial and industrial
building owners and property managers to outsource maintenance and repair, often
through service agreements with HVAC service providers. In addition, increasing
restrictions are being placed on the use of certain types of refrigerants used
in HVAC systems, which, along with air quality concerns, are expected to
increase demand for the reconfiguration and replacement of existing HVAC
systems. State-of-the-art control and monitoring systems feature electronic
sensors and microprocessors and require specialized training to install,
maintain and repair, which the typical building engineer does not have.
Increasingly, HVAC systems in commercial and industrial buildings are being
remotely monitored through PC-based communications systems to improve energy
efficiency and expedite problem diagnosis and correction.

The Company believes that the majority of business owners in the HVAC
industry have limited access to capital for expansion of their businesses and
that few have attractive liquidity options. In addition, the increasing
complexity of HVAC systems has led to a need for better trained technicians to
install, monitor and service these systems. The cost of recruiting, training and
retaining a sufficient number of qualified technicians makes it more difficult
for smaller HVAC companies to expand their businesses. The Company believes that
significant opportunities exist for a well-capitalized, national company
operating in the commercial, industrial and residential markets of the HVAC
industry and that the highly fragmented nature of this industry should allow it
to consolidate existing HVAC businesses.

STRATEGY

The Company plans to achieve its goal of becoming a leading national
provider of comprehensive HVAC services by implementing its operating strategy,
emphasizing continued internal growth and expanding through acquisitions.

OPERATING STRATEGY. The Company believes there are significant
opportunities to increase the profitability of the Founding Companies and
subsequently acquired businesses. The key elements of the Company's operating
strategy are:

FOCUS ON COMMERCIAL AND INDUSTRIAL MARKETS. The Company intends to
focus principally on the commercial and industrial markets with particular
emphasis on the "design and build" installation and the maintenance,
repair and replacement segments. The Company believes that the commercial
and industrial HVAC markets are attractive because of their growth
opportunities, diverse customer base, attractive margins and potential for
long-term relationships with building owners and managers, general
contractors and architects.

OPERATE ON DECENTRALIZED BASIS. The Company intends to manage the
Founding Companies on a decentralized basis, with local management assuming
responsibility for the day-to-day operations, profitability and growth of
the business. The Company believes that, while maintaining strong operating
and financial controls, a decentralized operating structure will retain the
entrepreneurial spirit present in each of the acquired companies and will
allow the Company to capitalize on the considerable local and regional
market knowledge and customer relationships possessed by each acquired
company.

ACHIEVE OPERATING EFFICIENCIES. The Company believes there are
significant opportunities to achieve operating efficiencies and cost
savings through purchasing economies and the adoption of "best practices"
operating programs. The Company intends to use its increased purchasing
power to gain volume discounts in areas such as HVAC components, raw
materials, service vehicles, advertising, bonding and insurance. Moreover,
the Company will review its operations and training programs at the local
and regional operating levels in order to identify those "best practices"
that can be successfully implemented throughout its operations.

39
<PAGE>
INTERNAL GROWTH. A key component of the Company's strategy is to continue
the internal growth at the Founding Companies and subsequently acquired
businesses. The key elements of the Companys internal growth strategy are:

CAPITALIZE ON SPECIALIZED TECHNICAL AND MARKETING STRENGTHS. The
Company believes it will be able to expand the services it offers in its
markets by leveraging the specialized technical and marketing strengths of
individual acquired companies. For example, one of the acquired companies
has developed significant industry recognition for its technical expertise
within apartment complexes, condominiums, hotels and elder care facilities
which may be transferable to other acquired companies. A number of acquired
companies currently focus primarily on installation and, therefore, have
only limited maintenance, repair and replacement operations. The Company
believes there are significant opportunities for these acquired companies
to provide maintenance, repair and replacement services, particularly by
offering those services to its "design and build" customers. Several of
the acquired companies have specific expertise in HVAC control and
monitoring systems, process cooling, replacement and other service
strengths, many of which can be shared with other acquired companies and
subsequently acquired businesses.

ESTABLISH NATIONAL MARKET COVERAGE. The Company believes that
significant demand exists from large national companies to utilize the
services of a single HVAC service company capable of providing
comprehensive commercial and industrial services on a regional or national
basis. Many of the acquired companies already provide local or regional
coverage to companies with nationwide locations, such as commercial real
estate developers and managers, retailers and manufacturers. The Company
believes these existing relationships can be expanded as it develops a
nationwide network since these customers often desire a single source for
all of their HVAC needs to promote consistency, improve control and reduce
cost.

ACQUISITIONS. The Company believes the HVAC industry is highly fragmented
with over 40,000 companies, most of which are small, owner-operated businesses
with limited access to adequate capital for modernization and expansion. The key
elements of the Company's acquisition strategy are:

ENTER NEW GEOGRAPHIC MARKETS. In new markets, the Company intends to
target one or more leading local or regional companies providing HVAC or
complementary services. The acquisition target will have the customer base,
technical skills and infrastructure necessary to be a core business into
which other HVAC service operations can be consolidated. The Company will
choose businesses that are located in attractive markets, are financially
stable, are experienced in the industry and have management willing to
participate in the future growth of the Company.

EXPAND WITHIN EXISTING MARKETS. Once the Company has entered a
market, it will seek to acquire other well-established HVAC businesses to
expand its market penetration and range of services offered. The Company
also will pursue "tuck-in" acquisitions of smaller companies, whose
operations can be integrated into an existing Company operation to leverage
the existing infrastructure.

ACQUIRE COMPLEMENTARY BUSINESSES. The Company will focus on its
traditional markets in the HVAC industry and may acquire companies
providing complementary services to the same customer base, such as
commercial and industrial process piping and plumbing as well as electrical
companies. This will enable the Company to offer, on a comprehensive basis
and from a single provider, HVAC, mechanical and electrical services in
certain markets.

ACQUISITION PROGRAM

The Company believes it will be regarded by acquisition candidates as an
attractive acquirer because of: (i) the Company's strategy for creating a
national, comprehensive and professionally managed HVAC service provider that
capitalizes on cross-marketing and business development opportunities; (ii) the
Company's decentralized operating strategy; (iii) the Company's increased
visibility and access to financial resources as a public company; (iv) the
potential for increased profitability due to certain centralized administrative
functions, enhanced systems capabilities and access to increased marketing
resources; and

40
<PAGE>
(v) the potential for the owners of the businesses being acquired to participate
in the Company's planned internal growth and growth through acquisitions, while
realizing liquidity.

As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis. The major factors in
establishing the purchase price for each acquisition will be historical
operating results, future prospects of the acquiree and the ability of that
business to complement the services offered by the Company. Management believes
that companies providing commercial and industrial HVAC services are larger than
those providing residential services, with commercial and industrial companies
generating annual revenues ranging from $5 million to $35 million, compared to
companies providing residential HVAC services which generally have annual
revenues ranging from $500,000 to $3 million.

OPERATIONS AND SERVICES PROVIDED

The Company provides a wide range of installation, maintenance, repair and
replacement services for HVAC systems in commercial, industrial and residential
properties. Daily operations are managed on a local basis by the management team
at each acquired company. In addition to senior management, the acquired
companies' personnel generally include design engineers, sales personnel,
customer service personnel, installation service technicians, sheet metal and
prefabrication technicians, estimators and administrative personnel. The Company
manages the acquired companies on a decentralized basis, with local management
being responsible for day-to-day operating decisions. The Company intends to
centralize certain administrative functions to enable the management of each
acquired company to focus on pursuing new business opportunities and to improve
operating efficiencies. Administrative functions which the Company expects to
centralize include Company-wide training and safety programs, accounting
programs, risk management programs, purchasing programs and employee benefits.

INSTALLATION SEGMENT. The Company's installation business comprised
approximately 53% of the Company's 1996 revenues. This segment consists of the
design, engineering, integration, installation and start-up of HVAC systems. The
commercial and industrial installation services performed by the Company consist
primarily of "design and build" systems for office buildings, retail centers,
apartment complexes, hotels, manufacturing plants and government facilities. In
a "design and build" project, the customer typically has an overall design for
the facility prepared by an architect or a consulting engineer who then enlists
the Company's sales and engineering personnel to prepare a specific design for
the HVAC system. The Company determines the needed capacity, energy efficiency
and type of controls that best suit the proposed facility. The Company's
engineer then estimates the amount of time, labor, materials and equipment
needed to build the specified system. Materials and equipment for a typical
commercial or industrial project include ductwork, compressors, blowers,
chillers, cooling towers, air handling equipment and the associated pumps and
piping necessary to complete the system. The Company utilizes CAD/CAM systems in
the design and engineering phases of the project to calculate the material and
labor costs of the project based on previously established Company standards and
to generate mechanical drawings for each project. The drawings are prepared in a
format appropriate for submission to local building inspectors. The final
design, terms, price and timing of the project are then negotiated with the
customer or its representatives, after which any necessary modifications are
made to the system.

Once an agreement has been reached, the Company orders the necessary
materials and equipment for delivery to meet the project schedule. In most
instances, the Company fabricates in its own facilities the ductwork and piping
and assembles certain components for the system based on the mechanical drawing

41
<PAGE>
specifications, thereby eliminating the need to subcontract ductwork or piping
fabrication. The Company's CAD/CAM systems are capable of automatically cutting
ductboard, sheet metal and piping, thereby reducing the amount of labor
necessary to produce the ductwork and piping for the system. Project specific
components are then fabricated at the Company's facilities in sections small
enough to be transported to the job site. This enables the Company to limit the
amount of field work required for installation, reduce the labor associated with
the actual installation process and meet the shorter time requirements
increasingly demanded by commercial and industrial customers. The Company
installs the system at the project site, working closely with the general
contractor. Most commercial and industrial installation projects last from two
weeks to one year and generate revenues from $25,000 to $2,000,000 per project.
These projects are generally billed periodically as costs are incurred
throughout the project, with a 10% retainage until completion and successful
start-up of the HVAC system.

The Company also performs selected "plan and spec" installation services
when a bidder prequalification process has been used by the customer to limit
the number of potential bidders for an attractive project. The Company may use
these projects when "design and build" projects are in lower demand and to
provide additional on-the-job training to apprentice or less-experienced
technicians.

The Company also installs process cooling systems, control and monitoring
systems and industrial process piping. Process cooling systems are utilized
primarily in industrial facilities to provide heating and/or cooling to precise
temperature and climate standards for products being manufactured and for the
manufacturing equipment. Control systems are used in HVAC and process cooling
systems in order to maintain pre-established temperature or climate standards
for commercial or industrial facilities. These systems use direct digital
technology integrated with computer terminals. HVAC control systems are capable
not only of controlling a facility's entire HVAC system, often on a room-by-room
basis, but can be programmed to integrate energy management, security, fire,
card key access, lighting and overall facility monitoring. Monitoring can be
performed on-site or remotely through a PC-based communications system. The
monitoring system will sound an alarm when the HVAC system is operating outside
pre-established parameters. Diagnosis of potential problems can be performed
from the computer terminal which often can remotely adjust the control system.
Industrial process piping is utilized in manufacturing facilities to convey
required raw materials, support utilities and finished products.

The Company's residential services consist of installing complete central
HVAC systems in new and existing homes, often through agreements with housing
developers. In 1996, residential installation comprised approximately 2% of the
Company's revenues.

The Company's subsidiaries generally warrant their labor for the first
year after installation on new HVAC systems and for 30 days after servicing of
existing HVAC systems. A reserve for warranty costs is recorded based on a
percentage of material costs.

MAINTENANCE, REPAIR AND REPLACEMENT SEGMENT. The Company's maintenance,
repair and replacement segment comprised approximately 47% of the Company's 1996
combined revenues and includes the maintenance, repair, replacement,
reconfiguration and monitoring of HVAC systems and industrial process piping.
Over one-half of the Company's maintenance, repair and replacement segment
revenues were derived from reconfiguring existing HVAC systems for commercial
and industrial customers. Reconfiguration often utilizes consultative expertise
similar to that provided in the "design and build" installation market. The
Company believes that the reconfiguration of an existing system results in a
more cost-effective, energy-efficient system that better meets the specific
needs of the building owner. The reconfiguration also enables the Company to
utilize its design and engineering personnel as well as its sheet metal and
pre-fabrication facilities.

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Maintenance and repair services are provided either in response to service
calls or pursuant to a service agreement. Service calls are coordinated by
customer service representatives or dispatchers that use computer and
communications technology to process orders, arrange service calls, communicate
with customers, dispatch technicians and invoice customers. Service technicians
work out of service vans equipped with commonly used parts, supplies and tools
to complete a variety of jobs.

Commercial and industrial service agreements usually have terms of one to
three years, with automatic annual renewals, and typically provide fees from
$3,000 to $20,000 per year. The Company also provides remote monitoring of
temperature, pressure, humidity and air flow for HVAC systems for commercial and
industrial customers. If the system is not operating within the specifications
set forth by the customer and cannot be remotely adjusted, a service crew is
dispatched to analyze and repair the system, as appropriate. Residential service
agreements generally have one year terms, automatic renewal provisions and
provide annual fees between $100 and $200 per system.

SOURCES OF SUPPLY

The raw materials and components used by the Company include HVAC system
components, ductwork, steel, sheet metal and copper tubing and piping. These raw
materials and components are generally available from a variety of domestic or
foreign suppliers at competitive prices. Delivery times are typically short for
most raw materials and standard components, but during periods of peak demand
may take a month or more to obtain. Chillers for large units typically have the
longest delivery time and generally have lead times of up to six months. The
major components of HVAC systems are compressors and chillers that are
manufactured primarily by York Heating and Air Conditioning Corporation
("York"), Carrier Corporation and Trane Air Conditioning Company. The major
suppliers of control systems are Honeywell Inc., Johnson Controls Inc., York and
Andover Control Corporation. The Company believes that it will be able to reduce
costs on raw materials and components through volume purchases. The Company does
not currently have any significant contracts for the supply of raw materials or
components.

SALES AND MARKETING

The Company has a diverse customer base, with no single customer accounting
for more than 4% of the Company's pro forma combined 1996 revenues. Management
and a dedicated sales force at the acquired companies have been responsible for
developing and maintaining successful long-term relationships with key
customers. Customers of the acquired companies generally include building owners
and developers and property managers, as well as general contractors, architects
and consulting engineers. The Company intends to continue its emphasis on
developing and maintaining long-term relationships with its customers by
providing superior, high-quality service in a professional manner. Moreover, the
dedicated sales force will receive additional technical and sales training to
enhance the comprehensive selling skills necessary to serve the HVAC needs of
its customers.

The Company also intends to capitalize on cross-marketing and business
development opportunities that management believes will be available to the
Company as a national provider of comprehensive commercial, industrial and
residential HVAC services. Management believes that it will be able to leverage
the diverse technical and marketing strengths of individual acquired companies
to expand the services offered in other local markets. Eventually, the Company
intends to offer comprehensive services from many of its regional locations.

EMPLOYEES

As of September 30, 1997 the Company had 2,156 employees, including 127
management personnel, 1,698 engineers and service and installation technicians,
89 sales personnel and 242 administrative personnel. The Company does not
anticipate any reductions in staff as a result of the recent consolidation of
the Founding Companies. Rather, as it implements its internal growth and
acquisition strategies, the Company expects that the number of employees will
increase. Certain of the Company's subsidiaries have collective bargaining
agreements which cover, in the aggregate, approximately 350 employees. Under
these agreements, these subsidiaries generally make payments to multi-employer
pension plans. The Company

43
<PAGE>
has not experienced any strikes or work stoppages and believes its relationship
with its employees and union representatives is satisfactory.

RECRUITING, TRAINING AND SAFETY

The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate qualified service technicians, field
supervisors and project managers. The Company believes that its success in
retaining qualified employees will be based on the quality of its recruiting,
training, compensation, employee benefits programs and opportunities for
advancement. The Company recruits at local technical schools and community
colleges where students focus on learning basic HVAC and related skills, and
provides on-the-job training, apprenticeship programs, improved benefit
packages, steady employment and opportunities for advancement.

The Company intends to establish "best practices" throughout its
operations to ensure that all technicians comply with safety standards
established by the Company, its insurance carriers and federal, state and local
laws and regulations. The Company's employment screening process seeks to
determine that prospective employees have the requisite skills, sufficient
background references and acceptable driving records, if applicable. The Company
believes that these employment criteria effectively identify potential employees
committed to safety and quality. Additionally, the Company intends to implement
a "best practices" safety program throughout its operations, which will
provide employees with incentives to improve safety performance and decrease
workplace accidents. The Company intends to implement job site safety meetings
and instruct personnel in proper lifting techniques and eye safety in an effort
to reduce the number of preventable accidents.

FACILITIES AND VEHICLES

All of the Company's facilities are leased. See "Certain
Transactions -- Leases of Real Property by Founding Companies." The Company
believes that its facilities are sufficient for its current needs. The Company
operates a fleet of more than 750 owned or leased service trucks, vans and
support vehicles. It believes these vehicles generally are well-maintained and
adequate for the Company's current operations. The Company leases its principal
executive and administrative offices in Houston, Texas.

RISK MANAGEMENT, INSURANCE AND LITIGATION

The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. The Company has obtained and intends
to maintain liability insurance for bodily injury and third party property
damage which it considers sufficient to insure against these risks, subject to
self-insured amounts.

The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. The Company is
not currently involved in any litigation, nor is the Company aware of any
threatened litigation, that the Company believes is likely to have a material
adverse effect on its financial condition or results of operations.

The Company generally offers one year warranties on labor it performs and
passes to the customer warranties on equipment purchased from manufacturers. The
Company does not expect warranty claims to have a material effect on its results
of operations or financial condition.

COMPETITION

The HVAC industry is highly competitive. The Company believes that
purchasing decisions in the commercial and industrial markets are based on (i)
long-term customer relationships, (ii) quality, timeliness and reliability of
services provided, (iii) competitive price, (iv) range of services provided, and
(v) scale of operation. The Company believes its strategy of becoming a leading
national provider of comprehensive HVAC installation services as well as
maintenance, repair and replacement of HVAC systems directly addresses these
factors. Specifically, the Company's strategy to focus on the highly
consultative "design and build" installation segment and the maintenance,
repair and replacement segment, as well as its strategy

44
<PAGE>
to operate on a decentralized basis, should promote the development and
strengthening of long-term customer relationships. In addition, the Company's
focus on attracting, training and retaining quality employees by utilizing
professionally managed recruiting, training and benefits programs should allow
it to offer high quality, comprehensive HVAC services at a competitive price.

Most of the Company's competitors are small, owner-operated companies that
typically operate in a limited geographic area. There are a few public companies
focused on providing HVAC services in some of the same services lines provided
by the Company. In addition, there are a number of private companies attempting
to consolidate HVAC companies on a regional or national basis. In the future,
competition may be encountered from new entrants, such as public utilities and
HVAC manufacturers. Certain of the Company's competitors and potential
competitors may have greater financial resources than the Company to finance
acquisition and development opportunities, to pay higher prices for the same
opportunities or to develop and support their own operations.

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

The Company's operations are subject to various federal, state and local
laws and regulations, including, (i) licensing requirements applicable to
service technicians, (ii) building and HVAC codes and zoning ordinances, (iii)
regulations relating to consumer protection, including those governing
residential service agreements and (iv) regulations relating to worker safety
and protection of the environment. The Company believes it has all required
licenses to conduct its operations and is in substantial compliance with
applicable regulatory requirements. Failure of the Company to comply with
applicable regulations could result in substantial fines or revocation of the
Company's operating licenses.

Many state and local regulations governing the HVAC services trades require
permits and licenses to be held by individuals. In some cases, a required permit
or license held by a single individual may be sufficient to authorize specified
activities for all the Company's service technicians who work in the state or
county that issued the permit or license. The Company intends to implement a
policy to ensure that, where possible, any such permits or licenses that may be
material to the Company's operations in a particular geographic region are held
by at least two Company employees within that region.

The Company's operations are subject to the federal Clean Air Act, as
amended (the "Clean Air Act"), which governs air emissions and imposes
specific requirements on the use and handling of chlorofluorocarbons ("CFCs")
and certain other refrigerants. Clean Air Act regulations require the
certification of service technicians involved in the service or repair of
equipment containing these refrigerants and also regulate the containment and
recycling of these refrigerants. These requirements have increased the Company's
training expenses and expenditures for containment and recycling equipment. The
Clean Air Act is intended ultimately to eliminate the use of CFCs in the United
States and to require alternative refrigerants to be used in replacement HVAC
systems. As a result, the number of conversions of existing HVAC systems which
use CFCs to systems using alternative refrigerants is expected to increase.

Prior to entering into the agreements relating to the Mergers, the Company
evaluated the properties owned or leased by the acquired companies and engaged
an independent environmental consulting firm to conduct or review assessments of
environmental conditions at these properties. No material environmental problems
were discovered in these reviews, and the Company is not aware of any material
environmental liabilities associated with these properties.

<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth information concerning the Company's
directors, executive officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ---------------------------------------------------------------
<S> <C>
Fred M. Ferreira........................ 54 Chairman of the Board, Chief Executive Officer and President
Michael Nothum, Jr...................... 43 Chief Operating Officer (acting), President of Tri-City,
Director
J. Gordon Beittenmiller................. 38 Senior Vice President, Chief Financial Officer and Director
Reagan S. Busbee........................ 33 Senior Vice President
William George, III..................... 32 Vice President, General Counsel and Secretary
Milburn E. Honeycutt.................... 34 Vice President and Controller
S. Craig Lemmon......................... 45 Vice President -- Acquisitions
Brian J. Vensel......................... 37 Vice President -- Acquisitions
Brian S. Atlas.......................... 45 Chief Executive Officer of Atlas, Director
Thomas J. Beaty......................... 43 President of Accurate, Director
Robert R. Cook.......................... 42 President of Tech, Director
Alfred J. Giardenelli, Jr............... 50 President of Eastern, Director
Charles W. Klapperich................... 50 President of Western, Director
Samuel M. Lawrence III.................. 45 Chief Executive Officer of Lawrence, Director
John C. Phillips........................ 55 President of CSI/Bonneville, Director
Robert J. Powers........................ 57 President of Quality, Director
Steven S. Harter........................ 35 Director
Larry Martin............................ 55 Director
John Mercadante, Jr..................... 52 Director
Robert Arbuckle......................... 47 President of Freeway
James C. Hardin, Sr..................... 35 Chief Executive Officer of Seasonair
Thomas B. Kime.......................... 50 President of Standard
</TABLE>
Fred M. Ferreira has served as Chairman of the Board, Chief Executive
Officer and President of Comfort Systems since January 1997. Mr. Ferreira was
responsible for introducing the consolidation opportunity in the commercial and
industrial HVAC industry to Notre and has been primarily responsible for the
organization of Comfort Systems, the acquisition of the Founding Companies and
this Offering. From 1995 through 1996, Mr. Ferreira was a private investor. He
served as Chief Operating Officer and a director of Allwaste, Inc., a
publicly-traded environmental services company ("Allwaste"), from 1994 to
1995, and was President of Allwaste Environmental Services, Inc., the largest
division of Allwaste, from 1991 to 1994. From 1989 to 1990, Mr. Ferreira served
as President of Allied Waste Industries, Inc., an environmental services
company. Prior to that time, Mr. Ferreira served as Vice President -- Southern
District and in various other positions with Waste Management, Inc., an
environmental services company.

Michael Nothum, Jr. is a director of the Company and its Chief Operating
Officer (acting). He has been employed by Tri-City since 1979, serving as
President since 1992. Mr. Nothum currently serves on the Education and Training
Committee of Associated Builders and Contractors and on the Legislative
Committee of the Air Conditioning Contractors Association. It is anticipated
that Mr. Nothum will return full-time to his duties at Tri-City when a permanent
Chief Operating Officer joins the Company.

J. Gordon Beittenmiller has served as Senior Vice President, Chief
Financial Officer and a director of Comfort Systems since February 1997. From
1994 to February 1997, Mr. Beittenmiller was Corporate Controller of Keystone
International, Inc. ("Keystone"), a publicly-traded manufacturer of industrial
valves and actuators, and served Keystone in other financial positions from 1991
to 1994. From 1987 to

46
<PAGE>
1991, he was Vice President -- Finance of Critical Industries, Inc., a
publicly-traded manufacturer and distributor of specialized safety equipment.
From 1982 to 1987, he held various positions with Arthur Andersen LLP. Mr.
Beittenmiller is a Certified Public Accountant.

Reagan S. Busbee has served as Senior Vice President of Comfort Systems
since January 1997. From 1992 through 1996, Mr. Busbee served as Vice President
of Chas. P. Young Co., a financial printer and a wholly-owned subsidiary of
Consolidated Graphics Inc., a publicly-traded company. From August 1986 to May
1992, he was a certified public accountant with Arthur Andersen LLP.

William George, III has served as Vice President, General Counsel and
Secretary of Comfort Systems since March 1997. From October 1995 to March 1997,
Mr. George was Vice President and General Counsel of American Medical Response,
Inc., a publicly-traded consolidator of the healthcare transportation industry.
From September 1992 to September 1995, Mr. George practiced corporate and
antitrust law at Ropes & Gray, a law firm.

Milburn E. Honeycutt has served as Vice President and Controller of Comfort
Systems since February 1997. From 1994 to January 1997, Mr. Honeycutt was
Financial Accounting Manager -- Corporate Controllers Group for Browning-Ferris
Industries, Inc., a publicly-traded waste services company. From 1986 to 1994,
he was a certified public accountant with Arthur Andersen LLP.

S. Craig Lemmon is Vice President -- Acquisitions. Mr. Lemmon has been a
consultant to Comfort Systems since its inception in December 1996. From 1993 to
1996, he served as Manager of Mergers and Acquisitions of Allwaste Environmental
Services, Inc. From 1992 to 1993, he served as Vice President -- Acquisitions
and Vice President -- Southern Region of United Waste Systems, Inc., an
environmental services company. Prior thereto, Mr. Lemmon held various positions
in the transportation and solid waste industries.

Brian J. Vensel has served as Vice President -- Acquisitions of the Company
since February 1997. From September 1996 through January 1997, Mr. Vensel served
as Projects Director of the Liquids Business Unit of NGC Corporation, a
publicly-traded gas marketer and processor. From April 1996 through August 1996,
Mr. Vensel served as Corporate Controller and an officer of Phoenix Energy
Products, Inc., a privately-owned, oilfield service company. From 1982 through
March 1996, Mr. Vensel held various positions, primarily with Price Waterhouse
LLP and Arthur Andersen LLP. Mr. Vensel is a Certified Public Accountant.

Brian S. Atlas is a director of the Company. He has been employed by Atlas
since 1974, serving as its Chief Executive Officer since 1983.

Thomas J. Beaty is a director of the Company. He founded and has served as
President of Accurate since 1980.

Robert R. Cook is a director of the Company. He founded and has served as
President of Tech since 1979.

Alfred J. Giardenelli, Jr. is a director of the Company. He has been the
President of Eastern since 1982.

Charles W. Klapperich is a director of the Company. He founded and has
served as President of Western since 1980.

Samuel M. Lawrence III is a director of the Company. He has been employed
by Lawrence since 1977, serving as its Chairman and Chief Executive Officer
since 1991.

John C. Phillips is a director of the Company. He co-founded CSI/Bonneville
in 1969, serving as President and General Manager since 1969. Mr. Phillips was
President of the Utah Heating and Air Conditioning Contractors Association from
1981 to 1982 and is currently a director of that association.

Robert J. Powers is a director of the Company. He has been employed by
Quality since 1977, serving as President since 1988.

Steven S. Harter has been a director of the Company since December 1996 and
is the director elected by the holders of the Restricted Common Stock. Mr.
Harter is President of Notre, a consolidator of highly-

47
<PAGE>
fragmented industries. Prior to becoming the President of Notre, Mr. Harter was
Senior Vice President of Notre Capital Ventures, Ltd. ("Notre I") from June
1993 through July 1995 and was the Notre I principal primarily responsible for
the initial public offerings of US Delivery Systems, Inc., a consolidator of the
local delivery industry, and Physicians Resource Group, Inc., a consolidator of
eye care physician management companies. From April 1989 to June 1993, Mr.
Harter was Director of Mergers and Acquisitions for Allwaste. From May 1984 to
April 1989, Mr. Harter was a certified public accountant with Arthur Andersen
LLP. Mr. Harter also serves as a director of Coach USA, Inc. ("Coach") and
Metals USA, Inc..

Larry Martin is a director of the Company. Mr. Martin, a co-founder of
Sanifill, Inc., an environmental services provider ("Sanifill"), served as its
Vice Chairman from March 1992 through August 1996. From July 1991 to February
1992, he was President of Sanifill, and from October 1989 to July 1991, he
served as its President and Co-Chief Executive Officer. Prior to that time, Mr.
Martin served in various positions in the environmental services and contracting
industries. Mr. Martin currently serves on the Board of Directors of USA Waste
Services, Inc., an environmental services company.

John Mercadante, Jr. is a director of the Company. Mr. Mercadante
co-founded Leisure Time Tours, Inc. in 1970 and was President of Cape Transit
Corp. both of which are motor coach companies that were acquired by Coach at the
time of Coach's initial public offering in May 1996. Mr. Mercadante has served
as President, Chief Operating Officer and a director of Coach since its initial
public offering.

Robert Arbuckle has been employed by Freeway since 1975, serving as its
President since 1987.

James C. Hardin, Sr. has been employed by Seasonair since 1986, serving
initially as a service technician, as field supervisor from 1988 to 1990, as
service manager from 1990 to 1993 and as Vice President of Operations from 1993
to March 1997. Mr. Hardin currently serves as Chief Executive Officer of
Seasonair

Thomas B. Kime has been employed by Standard since 1977, serving as its
President since 1996.

The Board of Directors is divided into three classes of four, five and five
directors, respectively, with directors serving staggered three-year terms,
expiring at the annual meeting of stockholders in 1998, 1999 and 2000,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of three years to succeed that class of
directors whose terms are expiring. All officers serve at the discretion of the
Board of Directors.

The Board of Directors has established an Audit Committee, a Compensation
Committee, an Acquisition Committee, a Small Acquisitions Committee and an
Executive Committee. The members of the Audit Committee and the Compensation
Committee are Messrs. Harter, Mercadante and Martin. The members of the
Acquisitions Committee are Messrs. Ferreira, Atlas, Beittenmiller, Harter and
Lawrence, and of the Small Acquisitions Committee are Messrs. Ferreira, Atlas
and Harter. The members of the Executive Committee are Messrs. Ferreira,
Beittenmiller, Powers, Mercadante and Nothum.

DIRECTORS' COMPENSATION

Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1997 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See " -- 1997 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.

48
<PAGE>
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE

The Company was incorporated in December 1996 and did not pay any of its
executive officers compensation during 1996. The Company anticipates that during
1997 its five most highly compensated executive officers will be Messrs.
Ferreira, Beittenmiller, George, Nothum and Powers.

Each of Messrs. Ferreira, Beittenmiller and George has entered into an
employment agreement with the Company providing for an annual base salary of
$150,000. Each employment agreement is for a term of three years, and unless
terminated or not renewed by the Company or not renewed by the employee, the
term will continue thereafter on a year-to-year basis on the same terms and
conditions existing at the time of renewal. Each of these agreements provides
that, in the event of a termination of employment by the Company without cause,
the employee will be entitled to receive from the Company an amount equal to one
year's salary, payable in one lump sum on the effective date of termination. In
the event of a change in control of the Company (as defined in the agreement)
during the initial three-year term, if the employee is not given at least five
days' notice of such change in control, the employee may elect to terminate his
employment and receive in one lump sum three times the amount he would receive
pursuant to a termination without cause during such initial term. The
non-competition provisions of the employment agreement do not apply to a
termination without such notice. In the event the employee is given at least
five days' notice of such change in control, the employee may elect to terminate
his employment and receive in one lump sum three times the amount he would
receive pursuant to a termination without cause during such initial term. In
such event, the non-competition provisions of the employment agreement would
apply for two years from the effective date of termination. Each employment
agreement contains a covenant not to compete with the Company for a period of
two years immediately following termination of employment or, in the case of a
termination by the Company without cause in the absence of a change in control,
for a period of one year following termination of employment.

Each of Messrs. Nothum and Powers has entered into an employment agreement
with their respective Founding Company providing for an annual base salary of
$150,000. Each employment agreement is for a term of five years, and unless
terminated or not renewed by the Founding Company or not renewed by the
employee, the term will continue thereafter on a year-to-year basis on the same
terms and conditions existing at the time of renewal. Each of these agreements
provides that, in the event of a termination of employment by the Founding
Company without cause during the first three years of the employment term (the
"Initial Term"), the employee will be entitled to receive from the Founding
Company an amount equal to his then current salary for the remainder of the
Initial Term or for one year, whichever is greater. In the event of a
termination of employment with cause during the final two years of the initial
five year term of the employment agreement, the employee will be entitled to
receive an amount equal to his then current salary for one year. In either case,
payment is due in one lump sum on the effective date of termination. In the
event of a change in control of the Company (as defined in the agreement) during
the Initial Term, if the employee is not given at least five days' notice of
such change in control, the employee may elect to terminate his employment and
receive in one lump sum three times the amount he would receive pursuant to a
termination without cause during the Initial Term. The non-competition
provisions of the employment agreement do not apply to a termination without
such notice. In the event the employee is given at least five days' notice of
such change in control, the employee may elect to terminate his employment
agreement and receive in one lump sum two times the amount he would receive
pursuant to a termination without cause during the Initial Term. In such event,
the non-competition provisions of the employment agreement would apply for two
years from the effective date of termination. Each employment agreement contains
a covenant not to compete with the Company for a period of two years immediately
following termination of employment or, in the case of a termination by the
Company without cause in the absence of a change in control, for a period of one
year following termination of employment.

At least one principal executive officer of each of the other Founding
Companies has entered into an employment agreement, containing substantially the
same provisions, including a covenant not to compete, as Messrs. Nothum's and
Power's employment agreements.

49
<PAGE>
1997 LONG-TERM INCENTIVE PLAN

No stock options were granted to, or exercised by or held by any executive
officer in 1996. In March 1997, the Board of Directors and the Company's
stockholders approved the Company's 1997 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options
("ISOs") or non-qualified stock options ("NQSOs"), (ii) stock appreciation
rights ("SARs"), (iii) restricted or deferred stock, (iv) dividend equivalents
and (v) other awards not otherwise provided for, the value of which is based in
whole or in part upon the value of the Common Stock.

The Compensation Committee will administer the Plan and select the
individuals who will receive awards and establish the terms and conditions of
those awards. The maximum number of shares of Common Stock that may be subject
to outstanding awards, determined immediately after the grant of any award, may
not exceed the greater of 2,500,000 shares or 13% of the aggregate number of
shares of Common Stock outstanding. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.

The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.

At the closing of the IPO, NQSOs to purchase a total of 675,000 shares of
Common Stock were granted as follows: 200,000 shares to Mr. Ferreira, 100,000
shares to Mr. Beittenmiller, 100,000 shares to Mr. Busbee, 100,000 shares to Mr.
Lemmon, 75,000 shares to Mr. George, 50,000 shares to Mr. Honeycutt and 50,000
shares to Mr. Vensel. In addition, options to purchase 1,583,653 shares have
been granted to certain employees of the Company. Each of the foregoing options
has an exercise price equal to the stock price on the date of grant. These
options will vest at the rate of 20% per year, commencing on the first
anniversary of the date of grant and will expire at the earlier of seven years
from the date of grant or three months following termination of employment.

1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN

The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in March 1997, provides for (i) the automatic grant to
each non-employee director serving at the consummation of the IPO of an option
to purchase 10,000 shares, (ii) the automatic grant to each non-employee
director of an option to purchase 10,000 shares upon such person's initial
election as a director and (iii) an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders thereafter at which such director is re-elected or remains a
director, unless such annual meeting is held within three months of such
person's initial election as a director. All options have an exercise price per
share equal to the fair market value of the Common Stock on the date of grant
and are immediately vested and expire on the earlier of ten years from the date
of grant or one year after termination of service as a director. The Directors'
Plan also permits non-employee directors to elect to receive, in lieu of cash
directors' fees, shares or credits representing "deferred shares" at future
settlement dates, as selected by the director. The number of shares or deferred
shares received will equal the number of shares of Common Stock which, at the
date the fees would otherwise be payable, will have an aggregate fair market
value equal to the amount of such fees.

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CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

In connection with the formation of Comfort Systems, Comfort Systems issued
to Notre a total of 2,969,912 shares of Common Stock for an aggregate cash
consideration of $29,699. Mr. Harter is the President of Notre and a director of
the Company. In March 1997, Notre exchanged 2,742,912 shares of Common Stock for
an equal number of shares of Restricted Common Stock. Notre advanced $1.4
million to provide funds necessary to effect the Mergers and the IPO. All of
Notre's advances were repaid from the net proceeds of the IPO.

In January and February 1997, the Company issued a total of 902,435 shares
of Common Stock at $.01 per share to various members of management, as follows:
Mr. Ferreira -- 479,435 shares, Mr. Beittenmiller -- 116,000 shares, Mr.
Busbee -- 116,000 shares, Mr. George -- 75,000 shares, Mr. Honeycutt -- 58,000
shares and Mr. Vensel -- 58,000 shares. The Company also issued 116,000 shares
to Mr. Lemmon and 251,500 shares of Common Stock to other consultants to the
Company at $0.01 per share. The Company also granted options to purchase 10,000
shares of Common Stock under the Directors' Plan, effective upon the
consummation of the IPO, to Mr. Harter, a Director of the Company, and to
Messrs. Mercadante and Martin, who became directors of the Company upon the
closing of the IPO.

In connection with the IPO, Comfort Systems acquired by merger or share
exchange all of the issued and outstanding stock of the Founding Companies, each
of which is now a wholly-owned subsidiary of the Company. The aggregate
consideration paid by Comfort Systems in the Mergers consisted of $45.3 million
in cash and 9,720,927 shares of Common Stock. In addition, prior to the Mergers,
Accurate distributed to Thomas J. Beaty real property having a net book value of
approximately $370,000.

The following table sets forth the consideration paid and total debt
assumed by Comfort Systems for each of the Founding Companies:

SHARES OF
COMMON
CASH STOCK TOTAL DEBT
--------- ----------- -----------
(DOLLARS IN THOUSANDS)
Quality.............................. $ 10,082 2,207,158 $ 7,389
Tri-City............................. 8,680 1,557,962 3,500
Atlas................................ 6,864 1,432,000 1,776
Lawrence............................. 4,500 1,197,796 300
Tech................................. 3,997 717,408 1,906
Accurate............................. 3,145 564,537 985
CSI/Bonneville....................... 1,813 493,672 1,385
Western.............................. 2,022 362,939 777
Freeway.............................. 1,039 319,698 203
Seasonair............................ 1,516 272,084 154
Standard............................. 947 291,457 433
Eastern.............................. 698 304,216 1,603
--------- ----------- -----------
Total...................... $ 45,303 9,720,927 $20,411
========= =========== ===========

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Additionally, prior to the Mergers, the Founding Companies which are C
Corporations, except Atlas, made Interim Earnings Distributions to their
stockholders in the amount of $1.5 million.

In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors, key employees and holders
of more than 5% of the outstanding shares of the Company, together with their
spouses and trusts for which they act as trustees, received cash and shares of
Common Stock of the Company as follows:

SHARES OF
COMMON
NAME CASH STOCK
- ------------------------------------- --------- -----------
(DOLLARS IN THOUSANDS)
Robert J. Powers..................... $ 8,143 1,461,496
Michael Nothum, Jr................... 4,236 760,287
Robert R. Cook....................... 3,997 717,408
Brian S. Atlas....................... 3,432 716,000
Thomas J. Beaty...................... 3,145 564,537
John C. Phillips..................... 1,310 403,305
Samuel M. Lawrence III............... 1,031 317,307
Alfred J. Giardenelli, Jr............ 698 304,216
Charles W. Klapperich................ 1,423 255,401

Pursuant to the agreements entered into in connection with the Mergers, the
stockholders of the Founding Companies have agreed not to compete with the
Company for five years, commencing on the date of consummation of the IPO.

LEASES OF REAL PROPERTY BY FOUNDING COMPANIES

Atlas leases its office space in Houston, Texas, as well as mobile homes
located in Austin, Texas; Phoenix, Arizona; and Antioch, Tennessee. These
properties are owned by M & B Interests, Inc. ("M & B"), a corporation
wholly-owned by Mr. Brian S. Atlas, who is a director of the Company, and his
brother, Mr. Michael Atlas. The lease for the real property in Houston expires
on September 30, 1997 and provides for an annual rental of $90,000. The three
single family residences are leased on a month-to-month basis, at an annual
aggregate rental of $36,780. The Company has also agreed with M & B to lease a
recently constructed office and warehouse facility constructed by M & B in
Houston for an annual rental of $204,000. This new office and warehouse facility
replaced Atlas' existing facility. The Company believes that the rent for these
properties does not exceed fair market value.

Tri-City leases its office space in Tempe, Arizona from Mr. Nothum, Jr. and
his father. Mr. Nothum, Jr. is a trustee of a family trust that is a
stockholder of Tri-City and will become a director of the Company upon
consummation of this Offering. The lease expires on June 30, 1998 and provides
for an annual rental of $120,000. Additionally, Tri-City provides liability
insurance on the property and is responsible for any increases in real property
taxes due to its improvement of the leased property. Tri-City has entered into
an agreement with a limited liability corporation owned by Mr. Nothum, Jr. and
his father to lease office, operations and warehouse facilities which are being
constructed, for a ten year term at annual rental of $530,100. The Company
believes that the rent for these properties does not and will not exceed fair
market value.

Lawrence leases its office space and fabrication facility in Jackson,
Tennessee from the father of Mr. Samuel M. Lawrence III, who is Lawrence's Chief
Executive Officer and a director of the Company. The lease expires on October
31, 1997 and provides for an annual rental of $110,400. Additionally, Lawrence
provides liability insurance on the property and pays its proportionate share of
ad valorem taxes, utilities and maintenance costs. The Company believes that the
rent for this property does not exceed fair market value.

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Accurate leases two parcels of real property in Houston, Texas owned by Mr.
Beaty, who is a director of the Company. One of the leased premises is used by
Accurate for office and warehouse space. The lease on one of these premises
expires on June 30, 2002 and provides for an annual rental of $38,000. The other
leased premise is used by Accurate as a sheet metal shop under a lease dated
July 1, 1997, that will expire on June 30, 2002 and will provide for an annual
rental of $46,700. The rental rate on these premises in subsequent years of the
lease term will be adjusted in accordance with the Consumer Price Index.
Additionally, Accurate will pay all utility, taxes and insurance costs on both
leased premises. Accurate has options to renew each lease for two additional
five-year terms. The Company believes that the rent for both properties does not
and will not exceed fair market value. Accurate previously owned the property it
uses for its sheet metal shop. Prior to the Mergers, Accurate distributed this
property having a net book value of approximately $370,000 to Mr. Beaty.

Eastern leases its office and warehouse space in Albany, New York from 60
Loudonville Road Associates ("Loudonville"), a partnership of Mr. Alfred J.
Giardenelli, Jr., who is a director of the Company, and his brother. The lease
provides for annual rental of $55,000 and payment by Eastern of taxes,
maintenance, repairs, utilities and insurance costs on the leased premises. The
Company believes that the rent for this property does not exceed the fair market
value. The lease expires on December 31, 1999. Prior to expiration, however,
Eastern intends to enter into a 10-year lease with Loudonville for a new
building and to terminate the existing lease. Eastern has agreed to install the
HVAC systems in the new building at a price which the Company believes to be at
a fair market value. The Company's annual rental in the new building will be at
fair market value, as determined by an appraisal.

CSI/Bonneville leases its office and warehouse space in Salt Lake Valley,
Utah from J & J Investments, a joint venture partly owned by Mr. Phillips, who
is a director of the Company. This lease expires on February 28, 2002 and
provides for an annual rental in 1997 of $120,720, increasing annually by 5%.
CSI/Bonneville is responsible for ad valorem taxes, maintenance, insurance and
third-party management costs related thereto. CSI/Bonneville has options to
renew the lease for two additional five-year terms at a fair market value, as
determined by an appraisal. The Company believes that the rent for this property
does not exceed fair market value.

Tech leases its office and warehouse space in Solon, Ohio from Mr. Cook,
who is a director of the Company. The lease expires on April 2, 2000, and
provides for an annual rental of $84,000. Tech is responsible for its utility
costs, 15% of common utility costs and 50% of the landlord's cost of servicing
and maintaining the premises and providing comprehensive liability insurance for
the leased premises. The Company believes that the rent for such property does
not exceed fair market value.

Quality leases its warehouse facility in Grand Rapids, Michigan from Mr.
Powers, who is a director of the Company. Construction of the warehouse facility
was financed with the proceeds of a public bond issue. The lease expires on
April 30, 2005, and provides for an annual rental of the greater of $216,000 or
Mr. Powers' costs for the leased warehouse, including bond debt service or
mortgage payments, utilities, insurance, ad valorem taxes, maintenance and
repairs. Quality has an option to renew the lease for one additional three-year
term on the same terms. The Company believes that the rent for such property
does not exceed fair market value. Quality has guaranteed the payment of two
series of public bonds issued in 1985 and 1990, respectively, by the Michigan
Strategic Fund on behalf of two real property development entities owned by Mr.
Powers, the proceeds of which were used to fund the construction of Quality's
leased warehouse facility and a second adjacent warehouse. After the IPO, these
bonds were repaid.

The Company has adopted a policy that, whenever possible, it will not own
any real estate. Accordingly, in connection with future acquisitions, the
Company may require the distribution of real property owned by acquired
companies to its stockholders and the leaseback of such property at fair market
value.

OTHER TRANSACTIONS

Prior to the IPO, Atlas owed $78,000 to Sid Atlas, the father of Brian and
Michael Atlas, payable in monthly installments of $5,500, including interest at
the rate of 10%, through March 1998. Atlas was also

53
<PAGE>
the obligor on two promissory notes payable to Brian S. Atlas and Michael Atlas
in the outstanding principal amount of $63,537 to each, providing for aggregate
monthly installments of $4,812, including interest at the rate of 10%, through
June 1999. Shortly after the IPO the Company paid and retired all such
indebtedness.

On October 31, 1996, Lawrence loaned $75,000 to Charles Lawrence at an
interest rate of 8%. This note was payable on demand or October 31, 2001, and
was repaid shortly following the IPO. Charles Lawrence is a brother of Samuel M.
Lawrence III, who is a director of the Company on consummation of this Offering.

On December 27, 1996, Accurate borrowed $630,000 from Mr. Beaty. Interest
was payable monthly at the rate of 9% on the outstanding balance. The note
matured on June 30, 1997 and was repaid at that time.

CSI/Bonneville owed Messrs. Phillips and another stockholder of
CSI/Bonneville $424,000 and $105,000, respectively. Two of the promissory notes,
payable to Mr. Phillips and the other stockholder, are in the principal amount
of $80,000 and $20,000, respectively, and are payable on demand. The remaining
eight promissory notes are each payable ten years from the date of the note, and
mature at various times from 2002 to 2006. All of the notes bear interest at
10%, with interest payable monthly and principal payable at maturity. In 1996,
CSI/Bonneville made interest payments to Mr. Phillips and the other stockholder
in the amount of $35,000 and $6,000, respectively. After the IPO the Company
paid and retired all such indebtedness.

During 1996, Mr. Klapperich, who is a director of the Company, received
advances from Western aggregating $173,500. On December 31, 1996, Western
credited against this amount a portion of a dividend payable in the amount of
$210,315, discharging the indebtedness of Mr. Klapperich to Western.

On January 2, 1996, Standard loaned Mr. Kime $480,000 under a promissory
note at an interest rate of 7.67%. Mr. Kime has repaid the balance of this note.
The note was formerly secured by a pledge of his shares of stock in Standard;
however, Standard released its security interest in such stock on March 6, 1997
in anticipation of consummation of the Mergers.

The Company has paid an aggregate of $150,000 of the legal fees of the
owners of the Founding Companies.

The Company has agreed to indemnify Notre for liabilities arising in
connection with actions taken by it in connection with its role as a promoter
prior to and during the IPO.

COMPANY POLICY

Any future transactions with directors, officers, employees or affiliates
of the Company or its subsidiaries are anticipated to be minimal and will be
approved in advance by a majority of disinterested members of the Board of
Directors.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of the Common Stock, after giving effect to the Mergers and the IPO,
by (i) each person known to own beneficially more than 5% of the outstanding
shares of Common Stock; (ii) each Company director and person who has consented
to be named as a director ("named directors"); (iii) each named executive
officer; and (iv) all executive officers, directors and named directors as a
group. All persons listed have an address c/o the Company's principal executive
offices and have sole voting and investment power with respect to their shares
unless otherwise indicated.

SHARES BENEFICIALLY
OWNED(1)
----------------------
NAME NUMBER PERCENT
- ------------------------------------- ---------- --------
Notre Capital Ventures II, L.L.C..... 2,969,912 12.8%
Steven S. Harter(2).................. 2,979,912 12.8
Robert J. Powers..................... 1,461,915 6.3
Michael Nothum, Jr.(3)............... 778,981 3.4
Robert R. Cook....................... 717,408 3.1
Brian S. Atlas....................... 716,000 3.1
Thomas J. Beaty...................... 564,537 2.4
Fred M. Ferreira..................... 479,535 2.1
John C. Phillips..................... 403,305 1.7
Samuel M. Lawrence III............... 317,307 1.4
Alfred J. Giardenelli, Jr............ 304,216 1.3
Charles W. Klapperich................ 255,401 1.1
J. Gordon Beittenmiller.............. 116,000 *
Reagan S. Busbee..................... 116,000 *
William George, III.................. 75,000 *
Larry Martin(4)(5)................... 27,692 *
John Mercadante, Jr.(4)(5)........... 27,692 *
All executive officers, directors and
named directors
as a group (16 persons)............ 9,340,901 40.2

- ------------

* Less than 1%.

(1) Shares shown do not include shares that could be acquired upon exercise of
options which do not vest within 60 days.

(2) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Directors' Plan and 2,969,912 shares of Common Stock
issued to Notre. Mr. Harter is the President of Notre.

(3) Includes an aggregate of 18,694 shares which are held in irrevocable trusts
for Mr. Nothum's minor children and of which he is trustee.

(4) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Directors' Plan.

(5) Includes 7,692 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 57,969,912 shares
of capital stock, consisting of 50,000,000 shares of Common Stock, 2,969,912
shares of Restricted Common Stock and 5,000,000 shares of Preferred Stock. The
Company has outstanding 23,226,223 shares of Common Stock, which includes
2,742,912 shares of Restricted Common Stock and no shares of Preferred Stock.
The following discussion is qualified in its entirety by reference to the
Restated Certificate of Incorporation of Comfort Systems, which is included as
an exhibit to the Registration Statement of which this Prospectus is a part.

COMMON STOCK AND RESTRICTED COMMON STOCK

The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.55 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes as
nearly equal in number as possible, with the term of each class expiring on a
staggered basis. The classification of the Board of Directors may make it more
difficult to change the composition of the Board of Directors and thereby may
discourage or make more difficult an attempt by a person or group to obtain
control of the Company. Cumulative voting for the election of directors is not
permitted. Any director, or the entire Board of Directors, may be removed at any
time, with cause, by of a majority of the aggregate number of votes which may be
cast by the holders of all of the outstanding shares of Common Stock and
Restricted Common Stock entitled to vote for the election of directors, except
that only the holder of the Restricted Common Stock may remove the director such
holder is entitled to elect.

Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are together entitled to
participate pro rata in such dividends as may be declared in the discretion of
the Board of Directors out of funds legally available therefor. Holders of
Common Stock and Restricted Common Stock together are entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. Holders of Common Stock and holders of Restricted Common Stock
have no preemptive rights to purchase shares of stock of the Company. Shares of
Common Stock are not subject to any redemption provisions and are not
convertible into any other securities of the Company. Shares of Restricted
Common Stock are not subject to any redemption provisions and are convertible
into Common Stock as described below. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to this Offering will be, upon payment therefor, fully paid and
non-assessable.

Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution by a
holder to its partners or beneficial owners, or a transfer to a related party of
such holders (as defined in Sections 267, 707, 318 and/or 4946 of the Internal
Revenue Code of 1986, as amended)), (ii) in the event any person acquires
beneficial ownership of 15% or more of the total number of outstanding shares of
Common Stock, or (iii) in the event any person offers to acquire 15% or more of
the total number of outstanding shares of Common Stock. After July 1, 1998, the
Board of Directors may elect to convert any remaining shares of Restricted
Common Stock into shares of Common Stock in the event 80% or more of the
originally outstanding shares of Restricted Common Stock have been previously
converted into shares of Common Stock.

The Common Stock is listed on The New York Stock Exchange under the symbol
"FIX." The Restricted Common Stock is not listed on any exchange.

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<PAGE>
PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS

Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.

Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in

57
<PAGE>
the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company,
and further permits the advancing of expenses incurred in defense of claims.

The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors, or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by affirmative vote of the holders of at least 66 2/3% of
the total votes eligible to be cast by holders of voting stock with respect to
such amendment or repeal.

The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.

Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York, 10005.

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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 23,226,223 shares of Common Stock. The
7,015,000 shares sold in the IPO, 34,496 shares issued in acquisitions and
583,878 shares registered hereunder will be freely tradeable without restriction
unless acquired by affiliates of the Company. The remaining outstanding shares
of Common Stock or Restricted Common Stock either have not been registered under
the Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder, or are otherwise subject to contractual
restrictions on transfer.

In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock or
(ii) the average weekly reported volume of trading of the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain requirements pertaining to the manner of such sales, notices
of such sales and the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing volume limitations and other requirements but
without regard to the one year holding period. Under Rule 144(k), if a period of
at least two years has elapsed between the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from an affiliate, a holder of such restricted securities who is not an
affiliate at the time of the sale and has not been an affiliate for a least
three months prior to the sale is entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.

The Company and its officers, directors and certain stockholders, who
beneficially own 4,239,947 shares in the aggregate, have agreed not to sell or
otherwise dispose of any shares of Common Stock or Restricted Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated, except that the Company may issue
Common Stock in connection with acquisitions, in connection with its 1997
Long-Term Incentive Plan and its 1997 Non-Employee Directors' Stock Plan (the
"Plans") or upon conversion of shares of the Restricted Common Stock. See
"Underwriting." In addition, all of the stockholders of the Founding
Companies, the Company's officers and directors and certain stockholders,
holding in the aggregate 13,960,874 shares of Common Stock, have agreed with the
Company that they will not sell any of their shares for a period of one year
after the closing of the IPO. These stockholders, however, have the right, in
the event the Company proposes to register under the Securities Act any Common
Stock for its own account or for the account of others, subject to certain
exceptions, to require the Company to include their shares in the registration,
subject to the right of the Company to exclude some or all of the shares in the
offering upon the advice of the managing underwriter. In addition, certain of
such stockholders have certain limited demand registration rights to require the
Company to register shares held by them following the first anniversary of the
closing of the IPO. In addition, 1,452,833 shares issued in acquisitions since
the IPO will become tradeable on the first anniversaries of such acquisitions
late in the third quarter and early in the fourth quarter of 1998, and 179,242
of such shares will become tradeable during the same period in 1999.

The Company registered 8,000,000 shares of its Common Stock under the
Securities Act for use by the Company in connection with future acquisitions.
After the effective date of such registration, any such shares that may be
issued will generally be freely tradeable, unless acquired by persons who become
affiliates of the Company. In some instances, however, the Company may
contractually restrict the sale of shares issued in connection with future
acquisitions. As of October 13, 1997, 7,807,374 shares remained available for
use in future acquisitions under such shelf. The piggyback registration rights
described above do not apply to the registration statement relating to these
8,000,000 shares or to this registration statement.

No prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price for the
Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.

59
<PAGE>
LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas.

EXPERTS

The audited financial statements included in this Prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information with respect to the Company, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected, without charge, at the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains a web
site that contains reports, proxy and information statements regarding
registrants that file electronically with the SEC. The address of this web site
is (http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.

The Common Stock is listed on the New York Stock Exchange. Proxy
statements, reports and other information concerning the Company that are filed
under the Exchange Act can be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.

<PAGE>
INDEX TO FINANCIAL STATEMENTS

PAGE
-----

COMFORT SYSTEMS USA, INC. (UNAUDITED)
PRO FORMA COMBINED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro
Forma Combined Financial
Statements..................... F-3
Unaudited Pro Forma Combined
Balance Sheet.................. F-4
Unaudited Pro Forma Combined
Statements of Operations....... F-5
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-7

COMFORT SYSTEMS USA, INC.
Report of Independent Public
Accountants.................... F-11
Balance Sheets.................. F-12
Statement of Operations......... F-13
Statement of Stockholders'
Equity......................... F-14
Statement of Cash Flows......... F-15
Notes to Financial Statements... F-16

FOUNDING COMPANIES
QUALITY AIR HEATING & COOLING, INC.
Report of Independent Public
Accountants.................... F-19
Balance Sheets.................. F-20
Statements of Operations........ F-21
Statements of Shareholders'
Equity......................... F-22
Statements of Cash Flows........ F-23
Notes to Financial Statements... F-24

ATLAS COMFORT SERVICES USA, INC.
AND SUBSIDIARY
Report of Independent Public
Accountants.................... F-29
Consolidated Balance Sheets..... F-30
Consolidated Statements of
Operations..................... F-31
Consolidated Statements of
Shareholders' Equity........... F-32
Consolidated Statements of Cash
Flows.......................... F-33
Notes to Consolidated Financial
Statements..................... F-34

TRI-CITY MECHANICAL, INC.
Report of Independent Public
Accountants.................... F-42
Balance Sheets.................. F-43
Statements of Operations........ F-44
Statements of Shareholders'
Equity......................... F-45
Statements of Cash Flows........ F-46
Notes to Financial Statements... F-47

S.M. LAWRENCE INC. AND RELATED
COMPANY
Report of Independent Public
Accountants.................... F-52
Combined Balance Sheets......... F-53
Combined Statements of
Operations..................... F-54
Combined Statements of
Shareholders' Equity........... F-55
Combined Statements of Cash
Flows.......................... F-56
Notes to Combined Financial
Statements..................... F-57

F-1
<PAGE>
PAGE
-----
ACCURATE AIR SYSTEMS, INC.
Report of Independent Public
Accountants.................... F-63
Balance Sheets.................. F-64
Statements of Operations........ F-65
Statements of Shareholder's
Equity......................... F-66
Statements of Cash Flows........ F-67
Notes to Financial Statements... F-68

EASTERN HEATING AND COOLING, INC.
Report of Independent Public
Accountants.................... F-75
Balance Sheets.................. F-76
Statements of Operations........ F-77
Statements of Shareholder's
Equity......................... F-78
Statements of Cash Flows........ F-79
Notes to Financial Statements... F-80

CONTRACT SERVICE, INC.
Report of Independent Public
Accountants.................... F-85
Balance Sheets.................. F-86
Statements of Operations........ F-87
Statements of Shareholders'
Equity......................... F-88
Statements of Cash Flows........ F-89
Notes to Financial Statements... F-90

TECH HEATING AND AIR CONDITIONING,
INC. AND RELATED COMPANY
Report of Independent Public
Accountants.................... F-95
Combined Balance Sheets......... F-96
Combined Statements of
Operations..................... F-97
Combined Statements of
Shareholders' Equity........... F-98
Combined Statements of Cash
Flows.......................... F-99
Notes to Combined Financial
Statements..................... F-100

SEASONAIR, INC.
Report of Independent Public
Accountants.................... F-105
Balance Sheets.................. F-106
Statements of Operations........ F-107
Statements of Shareholders'
Equity......................... F-108
Statements of Cash Flows........ F-109
Notes to Financial Statements... F-110

WESTERN BUILDING SERVICES, INC.
Report of Independent Public
Accountants.................... F-115
Balance Sheets.................. F-116
Statements of Operations........ F-117
Statements of Shareholders'
Equity......................... F-118
Statements of Cash Flows........ F-119
Notes to Financial Statements... F-120

F-2
<PAGE>
COMFORT SYSTEMS USA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following unaudited pro forma combined financial statements give effect
to the acquisitions by Comfort Systems USA, Inc. ("Comfort Systems") of the
outstanding capital stock of Quality, Atlas, Tri-City, Lawrence, Accurate,
Eastern, CSI/Bonneville, Seasonair, Tech, Western, Freeway and Standard
(together, the "Founding Companies"). These acquisitions (the "Mergers")
occurred concurrently with the closing of Comfort Systems' initial public
offering (the "IPO") and were accounted for using the purchase method of
accounting. Comfort Systems has been identified as the accounting acquirer for
financial statement presentation purposes.

The unaudited pro forma combined balance sheet gives effect to the Mergers
and the IPO as if they had occurred on June 30, 1997. The unaudited pro forma
combined statements of operations give effect to these transactions as if they
had occurred on January 1, 1996.

Comfort Systems has preliminarily analyzed the savings that it expects to
be realized from reductions in salaries and certain benefits to the owners. To
the extent the owners of the Founding Companies have agreed prospectively to
reductions in salary, bonuses and benefits, these reductions have been reflected
in the pro forma combined statements of operations. With respect to other
potential cost savings, Comfort Systems has not and cannot quantify these
savings until completion of the combination of the Founding Companies. It is
anticipated that these savings will be offset by costs related to Comfort
Systems' new corporate management and by the costs associated with being a
public company. However, because these costs cannot be accurately quantified at
this time, they have not been included in the pro forma financial information of
Comfort Systems.

The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what Comfort
Systems' financial position or results of operations would actually have been if
such transactions in fact had occurred on those dates and are not necessarily
representative of the Comfort Systems' financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. See "Risk
Factors" included elsewhere herein.

F-3
<PAGE>
COMFORT SYSTEMS USA, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CSI/
QUALITY ATLAS TRI-CITY LAWRENCE ACCURATE EASTERN BONNEVILLE TECH
------- ------ -------- -------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 550 $ 144 $ 497 $ 162 $ 208 $ 485 $ 264 $ 405
Restricted cash and investments...... -- -- -- -- -- -- -- --
Accounts receivable.................. 6,130 4,554 6,140 3,350 2,525 1,305 772 1,796
Less allowance...................... 80 100 30 -- 28 26 20 20
------- ------ -------- -------- -------- -------- ---------- ------
Accounts receivable, net............. 6,050 4,454 6,110 3,350 2,497 1,279 752 1,776
Other receivables.................... 6 67 88 -- 40 -- -- 58
Inventories.......................... 617 2,045 273 211 141 113 486 228
Prepaid expenses and other........... 43 184 2 157 0 100 4 22
Costs in excess of billings.......... 808 952 1,097 278 330 450 158 50
Other................................ 1,427 154 88 35 12 81 15 31
------- ------ -------- -------- -------- -------- ---------- ------
Total current assets.............. 9,501 8,000 8,155 4,193 3,228 2,508 1,679 2,570
-- -- -- -- -- --
Property and equipment, net.......... 670 654 627 743 497 638 676 323
Goodwill, net........................ -- 22 -- -- -- -- -- --
Other noncurrent assets.............. -- 88 -- 207 -- 132 23 --
------- ------ -------- -------- -------- -------- ---------- ------
Total assets......................... $10,171 $8,764 $8,782 $5,143 $3,725 $3,278 $2,378 $2,893
======= ====== ======== ======== ======== ======== ========== ======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term
debt................................ $ -- $ 140 $-- $-- $-- $-- $ 1 $ --
Accounts payable and accrued
expenses............................ 2,046 2,956 4,322 1,959 1,514 1,527 749 939
Payable to shareholder/affiliate..... 127 -- -- -- (8) -- -- --
Billings in excess of costs and
earnings............................ 732 281 830 724 150 98 235 --
Deferred income taxes................ -- 1,143 -- -- -- -- -- --
Other................................ 405 -- -- -- -- -- -- --
------- ------ -------- -------- -------- -------- ---------- ------
Total current liabilities......... 3,310 4,520 5,152 2,683 1,656 1,625 985 939
Deferred income taxes................ -- -- -- -- -- -- -- --
Long-term debt, net of current
maturities.......................... 7,389 1,636 3,112 300 993 1,138 855 1,906
Payable to shareholder/affiliate..... -- -- 388 -- -- 465 529 --
------- ------ -------- -------- -------- -------- ---------- ------
Total liabilities................. 10,699 6,156 8,652 2,983 2,649 3,228 2,369 2,845
Commitments and contingencies........ -- -- -- -- -- -- -- --

Stockholders' equity:
Common stock........................ 22 1 25 161 1 50 9 1
Additional paid-in-capital.......... 6 -- 105 -- -- -- -- --
Retained earnings................... 342 2,607 -- 2,014 1,075 -- -- 50
Treasury stock...................... (898) -- -- (15) -- -- -- (3)
------- ------ -------- -------- -------- -------- ---------- ------
Total stockholders' equity...... (528) 2,608 130 2,160 1,076 50 9 48
------- ------ -------- -------- -------- -------- ---------- ------
Total liabilities and stockholders'
equity.............................. $10,171 $8,764 $8,782 $5,143 $3,725 $3,278 $2,378 $2,893
======= ====== ======== ======== ======== ======== ========== ======
<CAPTION>
OTHER PRO POST
FOUNDING COMFORT PRO FORMA FORMA MERGER AS
SEASONAIR WESTERN COMPANIES SYSTEMS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
--------- ------- --------- -------- ----------- --------- ----------- --------
ASSETS
Cash and cash equivalents............ $ 125 $ 52 $ 116 $ 42 $ -- $ 3,050 $ 34,952 $38,002

Restricted cash and investments...... -- -- -- -- -- -- -- --

Accounts receivable.................. 1,040 783 1,715 -- -- 30,110 -- 30,110

Less allowance...................... -- -- 71 -- -- 375 -- 375
--------- ------- --------- -------- ----------- --------- ----------- --------

Accounts receivable, net............. 1,040 783 1,644 -- -- 29,735 -- 29,735

Other receivables.................... -- 5 12 -- -- 276 -- 276

Inventories.......................... 186 82 608 -- -- 4,990 -- 4,990

Prepaid expenses and other........... 72 14 42 -- -- 640 -- 640

Costs in excess of billings.......... 99 137 59 -- -- 4,418 -- 4,418

Other................................ 147 8 476 4,556 -- 7,030 (4,936) 2,094
--------- ------- --------- -------- ----------- --------- ----------- --------
Total current assets.............. 1,669 1,081 2,957 4,598 -- 50,139 30,016 80,155

-- -- -- -- -- -- -- --

Property and equipment, net.......... 56 183 234 -- -- 5,301 -- 5,301

Goodwill, net........................ -- -- -- -- 139,239 139,261 -- 139,261

Other noncurrent assets.............. 115 122 6 -- -- 693 -- 693
--------- ------- --------- -------- ----------- --------- ----------- --------
Total assets......................... $ 1,840 $1,386 $ 3,197 $ 4,598 $ 139,239 $195,394 $ 30,016 $225,410
========= ======= ========= ======== =========== ========= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current maturities of long-term
debt................................ $ -- $ -- $ -- $ -- $ -- $ 141 $ -- $ 141

Accounts payable and accrued
expenses............................ 725 514 1,471 4,556 -- 23,278 (4,556) 18,722

Payable to shareholder/affiliate..... -- -- 32 -- 45,303 45,454 (45,303) 151

Billings in excess of costs and
earnings............................ 122 21 6 -- -- 3,199 -- 3,199

Deferred income taxes................ 132 -- 107 -- -- 1,382 -- 1,382

Other................................ -- -- 154 -- -- 559 -- 559
--------- ------- --------- -------- ----------- --------- ----------- --------
Total current liabilities......... 979 535 1,770 4,556 45,303 74,013 (49,859) 24,154

Deferred income taxes................ 17 -- -- -- -- 17 -- 17

Long-term debt, net of current
maturities.......................... 86 460 604 -- -- 18,479 -- 18,479

Payable to shareholder/affiliate..... 68 317 -- -- -- 1,767 -- 1,767
--------- ------- --------- -------- ----------- --------- ----------- --------
Total liabilities................. 1,150 1,312 2,374 4,556 45,303 94,276 (49,859) 44,417

Commitments and contingencies........ -- -- -- -- -- -- -- --

Stockholders' equity:
Common stock........................ 78 1 42 42 (293) 140 70 210

Additional paid-in-capital.......... 1 62 1 11,556 89,247 100,978 79,805 180,783

Retained earnings................... 846 11 830 (11,556) 3,781 -- -- --

Treasury stock...................... (235) -- (50) -- 1,201 -- -- --
--------- ------- --------- -------- ----------- --------- ----------- --------
Total stockholders' equity...... 690 74 823 42 93,936 101,118 79,875 180,993
--------- ------- --------- -------- ----------- --------- ----------- --------
Total liabilities and stockholders'
equity.............................. $ 1,840 $1,386 $ 3,197 $ 4,598 $ 139,239 $195,394 $ 30,016 $225,410
========= ======= ========= ======== =========== ========= =========== ========
</TABLE>
F-4
<PAGE>
COMFORT SYSTEMS USA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
QUALITY ATLAS TRI-CITY LAWRENCE ACCURATE EASTERN CSI/BONNEVILLE
-------- --------- --------- --------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $29,597 $ 30,030 $24,237 $17,163 $16,806 $7,944 $ 7,842
COST OF SERVICES..................... 18,467 25,071 18,561 12,211 13,270 5,276 5,201
-------- --------- --------- --------- --------- ------- ---------------
Gross profit........................ 11,130 4,959 5,676 4,952 3,536 2,668 2,641
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 6,640 2,858 3,903 4,885 3,037 2,237 1,660
GOODWILL AMORTIZATION................ -- -- -- -- -- -- --
-------- --------- --------- --------- --------- ------- ---------------
INCOME FROM OPERATIONS............... 4,490 2,101 1,773 67 499 431 981
OTHER INCOME (EXPENSE):
Interest income..................... -- -- 152 47 -- -- --
Interest expense.................... (154 ) (292) -- -- (80) (87 ) (29)
Other............................... 97 65 89 8 14 40 51
-------- --------- --------- --------- --------- ------- ---------------
INCOME BEFORE INCOME TAXES........... 4,433 1,874 2,014 122 433 384 1,003
PROVISION FOR INCOME TAXES........... -- 750 -- 60 -- -- --
-------- --------- --------- --------- --------- ------- ---------------
NET INCOME........................... $ 4,433 $ 1,124 $ 2,014 $ 62 $ 433 $ 384 $ 1,003
======== ========= ========= ========= ========= ======= ===============
NET INCOME PER SHARE.................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).............
<CAPTION>
OTHER
FOUNDING COMFORT PRO FORMA PRO FORMA
TECH SEASONAIR WESTERN COMPANIES SYSTEMS ADJUSTMENTS COMBINED
--------- ---------- -------- ---------- -------- ------------ ----------

REVENUES............................. $ 7,537 $6,737 $6,494 $ 13,138 $-- $ -- $ 167,525

COST OF SERVICES..................... 3,996 4,006 4,662 8,991 -- -- 119,712

--------- ---------- -------- ---------- -------- ------------ ----------

Gross profit........................ 3,541 2,731 1,832 4,147 -- -- 47,813

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 1,861 2,597 1,088 3,616 -- (6,568) 27,814

GOODWILL AMORTIZATION................ -- -- -- -- -- 3,495 3,495
--------- ---------- -------- ---------- -------- ------------ ----------
INCOME FROM OPERATIONS............... 1,680 134 744 531 -- 3,073 16,504

OTHER INCOME (EXPENSE):
Interest income..................... -- -- -- 17 -- -- 216

Interest expense.................... (18) (21) (51) -- -- (772) (1,504 )

Other............................... 31 82 (21) 34 -- -- 490
--------- ---------- -------- ---------- -------- ------------ ----------
INCOME BEFORE INCOME TAXES........... 1,693 195 672 582 -- 2,301 15,706

PROVISION FOR INCOME TAXES........... -- 69 -- 49 -- 6,752 7,680
--------- ---------- -------- ---------- -------- ------------ ----------
NET INCOME........................... $ 1,693 $ 126 $ 672 $ 533 $-- $ (4,451) $ 8,026
========= ========== ======== ========== ======== ============ ==========
NET INCOME PER SHARE................. $ 0.44
==========

SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............. 18,252,311
==========
</TABLE>
(1) Includes (i) 2,969,912 shares issued to Notre, (ii) 1,269,935 shares
issued to management of and consultants to Comfort Systems, (iii)
9,720,927 shares issued to owners of the Founding Companies and (iv)
4,291,537 of the 7,015,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration and expenses of the IPO. The
2,723,463 shares excluded reflects 1,808,463 shares for the net cash
proceeds to Comfort Systems from the IPO, and 915,000 shares purchased
by the underwriters pursuant to an overallotment option.

F-5
<PAGE>
COMFORT SYSTEMS USA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
QUALITY ATLAS TRI-CITY LAWRENCE ACCURATE EASTERN CSI/BONNEVILLE
-------- --------- --------- --------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $16,747 $ 13,962 $17,016 $ 9,042 $ 6,204 $3,465 $ 3,828
COST OF SERVICES..................... 9,854 11,166 14,528 6,386 4,776 2,112 2,535
-------- --------- --------- --------- --------- ------- ---------------
Gross profit........................ 6,893 2,796 2,488 2,656 1,428 1,353 1,293
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 3,879 1,740 1,346 2,915 1,200 1,144 865
GOODWILL AMORTIZATION................ -- -- -- -- -- -- --
-------- --------- --------- --------- --------- ------- ---------------
INCOME FROM OPERATIONS............... 3,014 1,056 1,142 (259) 228 209 428
OTHER INCOME (EXPENSE):
Interest income..................... 59 14 70 2 -- 2 4
Interest expense.................... (72 ) (105) -- -- (65) (43 ) (43)
Other............................... (35 ) 53 3 128 7 32 12
-------- --------- --------- --------- --------- ------- ---------------
INCOME BEFORE INCOME TAXES........... 2,966 1,018 1,215 (129) 170 200 401
PROVISION FOR INCOME TAXES........... -- 402 -- 52 -- -- --
-------- --------- --------- --------- --------- ------- ---------------
NET INCOME (LOSS).................... $ 2,966 $ 616 $ 1,215 $ (181) $ 170 $ 200 $ 401
======== ========= ========= ========= ========= ======= ===============
NET INCOME PER SHARE.................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).............
<CAPTION>
OTHER
FOUNDING COMFORT PRO FORMA PRO FORMA
TECH SEASONAIR WESTERN COMPANIES SYSTEMS ADJUSTMENTS COMBINED
--------- ---------- -------- ---------- -------- ------------ ----------
REVENUES............................. $ 3,904 $3,767 $2,174 $ 6,791 $ -- $ -- $ 86,900

COST OF SERVICES..................... 2,229 2,339 1,641 4,829 -- -- 62,395
--------- ---------- -------- ---------- -------- ------------ ----------
Gross profit........................ 1,675 1,428 533 1,962 -- -- 24,505

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 1,059 1,244 457 1,581 11,556 (13,589) 15,397

GOODWILL AMORTIZATION................ -- -- -- -- -- 1,748 1,748
--------- ---------- -------- ---------- -------- ------------ ----------
INCOME FROM OPERATIONS............... 616 184 76 381 (11,556 ) 11,841 7,360

OTHER INCOME (EXPENSE):
Interest income..................... -- -- -- 16 -- -- 167

Interest expense.................... (29) (6) (22) (18) -- (386) (789 )

Other............................... (19) 30 (13) 29 -- (135) 92
--------- ---------- -------- ---------- -------- ------------ ----------
INCOME BEFORE INCOME TAXES........... 568 208 41 408 (11,556 ) 11,320 6,830

PROVISION FOR INCOME TAXES........... -- 83 -- -- -- 2,672 3,209
--------- ---------- -------- ---------- -------- ------------ ----------
NET INCOME (LOSS).................... $ 568 $ 125 $ 41 $ 408 $(11,556) $ 8,648 $ 3,621
========= ========== ======== ========== ======== ============ ==========
NET INCOME PER SHARE................. $ 0.20

==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............. 18,252,311
==========
</TABLE>
(1) Includes (i) 2,969,912 shares issued to Notre, (ii) 1,269,935 shares
issued to management of and consultants to Comfort Systems, (iii)
9,720,927 shares issued to owners of the Founding Companies and (iv)
4,291,537 of the 7,015,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration and expenses of the IPO. The
2,723,463 shares excluded reflects 1,808,463 shares for the net cash
proceeds to Comfort Systems from the IPO, and 915,000 shares purchased
by the underwriters pursuant to an overallotment option.

F-6
<PAGE>
COMFORT SYSTEMS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1. GENERAL:

Comfort Systems USA, Inc. ("Comfort Systems") was founded to become a
leading national provider of comprehensive heating, ventilation and air
conditioning ("HVAC") installation services as well as maintenance, repair and
replacement of HVAC systems, focusing primarily on commercial and industrial
markets. Comfort Systems conducted no operations prior to the IPO and acquired
the Founding Companies concurrently with and as a condition to the closing of
the Offering.

The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as of and for the six months ended June 30, 1997 and for the year ended December
31, 1996, with the exception of Lawrence for which the period is as of and for
the fiscal year ended October 31, 1996. The audited historical financial
statements included elsewhere herein have been included in accordance with
Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 80.

2. ACQUISITION OF FOUNDING COMPANIES:

Concurrently with and as a condition to the closing of the IPO, Comfort
Systems acquired all of the outstanding capital stock of the Founding Companies.
The acquisitions were accounted for using the purchase method of accounting with
Comfort Systems being treated as the accounting acquirer.

The following table sets forth the consideration paid (a) in cash and (b)
in shares of Common Stock to the common stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares was determined using an estimated fair value
of $10.40 per share (or $101.1 million), which represents a discount of twenty
percent from the initial public offering price of $13.00 due to restrictions on
the sale and transferability of the shares issued. The total estimated purchase
price of $146.4 million for the acquisitions is based upon preliminary estimates
and is subject to certain purchase price adjustments at and following closing.
The table does not reflect the distributions totaling $20.9 million as of June
30, 1997 constituting substantially all of the Founding Companies undistributed
earnings previously taxed to their stockholders ("S Corporation
Distributions").

SHARES
CASH OF COMMON STOCK
--------- ---------------
(DOLLARS IN THOUSANDS)
Quality.............................. $ 10,082 2,207,158
Atlas................................ 6,864 1,432,000
Tri-City............................. 8,680 1,557,962
Lawrence............................. 4,500 1,197,796
Accurate............................. 3,145 564,537
Eastern.............................. 698 304,216
CSI/Bonneville....................... 1,813 493,672
Tech................................. 3,997 717,408
Seasonair............................ 1,516 272,084
Western.............................. 2,022 362,939
Freeway.............................. 1,039 319,698
Standard............................. 947 291,457
--------- ---------------
Total........................... $ 45,303 9,720,927
========= ===============

F-7
<PAGE>
COMFORT SYSTEMS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:

(a) Records the liability for the cash portion of the consideration
paid to the stockholders of the Founding Companies in connection
with the Mergers.

(b) Records the purchase of the Founding Companies by Comfort System
consisting of $45.3 million in cash and 9,720,927 shares of Common
Stock valued at $10.40 per share (or $101.1 million) for a total
purchase price of $146.4 million resulting in excess purchase
price of $139.8 million over the net assets acquired of $6.6
million. See Note 2.

(c) Records the cash proceeds of $79.3 million from the issuance of
shares of Comfort Systems Common Stock net of offering costs of
$10.5 million (includes the payment of deferred offering costs of
$4.9 million). Offering costs primarily consist of underwriting
discounts and commissions, accounting fees, legal fees and
printing expenses.

(d) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the
Mergers.

(e) Records the cash proceeds of $11.9 million from the purchase of
915,000 shares of Comfort Systems Common Stock by the underwriters
pursuant to an overallotment option net of offering costs of $0.8
million. Offering costs primarily consist of underwriting
discounts and commissions.

The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):

ADJUSTMENT
-------------------- PRO FORMA
(A) (B) ADJUSTMENTS
--------- --------- -----------
ASSETS
Cash and cash equivalents............... $ -- $ -- $ --
--------- --------- -----------
Total current assets................ -- -- --
Goodwill, net........................... -- 139,239 139,239
--------- --------- -----------
Total assets............................ $ -- $ 139,239 $ 139,239
========= ========= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to shareholder/affiliate........ $ 45,303 $ -- $ 45,303
--------- --------- -----------
Total current liabilities........... 45,303 -- 45,303
--------- --------- -----------
Long-term debt, net of current
maturities............................ -- -- --
--------- --------- -----------
Total liabilities................... 45,303 -- 45,303
Stockholders' equity:
Common stock........................ -- (293) (293)
Additional paid-in capital.......... (45,303) 134,550 89,247
Retained earnings................... -- 3,781 3,781
Treasury stock...................... -- 1,201 1,201
--------- --------- -----------
Total stockholders' equity..... (45,303) 139,239 93,936
--------- --------- -----------
Total liabilities and stockholders'
equity................................ $ -- $ 139,239 $ 139,239
========= ========= ===========
<TABLE>
<CAPTION>
POST MERGER
(C) (D) (E) ADJUSTMENTS
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 69,193 $ (45,303) $ 11,062 $ 34,952
--------- --------- --------- -----------
Other............................... (4,936) -- -- (4,936)
Total current assets................ 64,257 (45,303) 11,062 30,016
--------- --------- --------- -----------
Total assets............................ $ 64,257 $ (45,303) $ 11,062 $ 30,016
========= ========= ========= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses... $ (4,556) $ -- $ -- $ (4,556)
Payable to shareholder/affiliate........ -- (45,303) -- (45,303)
--------- --------- --------- -----------
Total current liabilities........... (4,556) (45,303) -- (49,859)
--------- --------- --------- -----------
Total liabilities................... (4,556) (45,303) -- (49,859)
Stockholders' equity:
Common stock........................ 61 -- 9 70
Additional paid-in capital.......... 68,752 -- 11,053 79,805
Retained earnings................... -- -- -- --
Treasury stock...................... -- -- -- --
--------- --------- --------- -----------
Total stockholders' equity..... 68,813 -- 11,062 79,875
--------- --------- --------- -----------
Total liabilities and stockholders'
equity................................ $ 64,257 $ (45,303) $ 11,062 $ 30,016
========= ========= ========= ===========
</TABLE>
F-8
<PAGE>
COMFORT SYSTEMS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:

YEAR ENDED DECEMBER 31, 1996

(a) Reflects the reduction in salaries, bonuses and benefits from an
aggregate total of $9.0 million to $2.4 million to the owners of
the Founding Companies to which they have agreed prospectively.
These reductions in salaries, bonuses and benefits are in
accordance with the terms of the employment agreements. Such
employment agreements are primarily for 5 years, contain
restrictions related to competition and provide severance for
termination of employment in certain circumstances.

(b) Reflects the amortization of goodwill to be recorded as a result
of these Mergers over a 40-year estimated life.

(d) Reflects the incremental provision for federal and state income
taxes relating to the other statements of operations adjustments
and for income taxes on S Corporation income.

The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
------------------------------------------ PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... $ (6,568) $ -- $ -- $ -- $(6,568)
GOODWILL AMORTIZATION................ -- 3,495 -- -- 3,495
--------- --------- --------- --------- -----------
INCOME (LOSS) FROM OPERATIONS........ 6,568 (3,495) -- -- 3,073
OTHER INCOME (EXPENSE):
Interest expense................ -- -- (772) -- (772)
--------- --------- --------- --------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 6,568 (3,495) (772) -- 2,301
PROVISION FOR INCOME TAXES........... -- -- -- 6,752 6,752
--------- --------- --------- --------- -----------
NET INCOME (LOSS).................... $ 6,568 $ (3,495) $ (772) $ (6,752) $(4,451)
========= ========= ========= ========= ===========
</TABLE>
F-9
<PAGE>
COMFORT SYSTEMS USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

SIX MONTHS ENDED JUNE 30, 1997

(a) Reflects the reduction in salaries, bonuses and benefits to the
owners of the Founding Companies to which they have agreed
prospectively. These reductions in salaries, bonuses and benefits
are in accordance with the terms of the employment agreements.
Such employment agreements are primarily for 5 years, contain
restrictions related to competition and provide severance for
termination of employment in certain circumstances.

(b) Reflects the amortization of goodwill to be recorded as a result
of these Mergers over a 40-year estimated life.

(d) Reflects the incremental provision for federal and state income
taxes relating to the other statements of operations adjustments
and for income taxes on S Corporation income.

(e) Reflects the reduction in compensation expense related to the
non-recurring, non-cash compensation charge of $11.6 million
recorded by Comfort in the first quarter of 1997 related to Common
Stock issued to management of and consultants to the Company
offset by the increase in compensation expense related to the
on-going salaries of the management of Comfort Systems of $0.4
million in the first six months of 1997. The issuances of Common
Stock were made in contemplation of the Mergers and the IPO, and
no future issuances of this nature are anticipated.

(f) Reflects the reversal of gains from sales of fixed assets.

The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
----------------------------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... $ (2,463) $ -- $ -- $ -- $ (11,126) $ -- $ (13,589)
GOODWILL AMORTIZATION................ -- 1,748 -- -- -- -- 1,748
--------- --------- --------- --------- ---------- --------- -----------
INCOME (LOSS) FROM OPERATIONS........ 2,463 (1,748) -- -- 11,126 -- 11,841
OTHER INCOME (EXPENSE):
Interest expense................ -- -- (386) -- -- -- (386)
Other........................... -- -- -- -- -- (135) (135)
--------- --------- --------- --------- ---------- --------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 2,463 (1,748) (386) -- 11,126 (135) 11,320
PROVISION FOR INCOME TAXES........... -- -- -- 2,672 -- -- 2,672
--------- --------- --------- --------- ---------- --------- -----------
NET INCOME (LOSS).................... $ 2,463 $ (1,748) $ (386) $ (2,672) $ 11,126 $ (135) $ 8,648
========= ========= ========= ========= ========== ========= ===========
</TABLE>
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Comfort Systems USA, Inc.:

We have audited the accompanying balance sheet of Comfort Systems USA, Inc.
as of December 31, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Comfort Systems USA, Inc. as
of December 31, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 25, 1997

F-11
<PAGE>
COMFORT SYSTEMS USA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)

ASSETS

CASH AND CASH EQUIVALENTS............... $ 1 $ 42
DEFERRED OFFERING COSTS................. 177 4,556
------------ -----------
Total assets.................. $ 178 $ 4,598
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY

ACCRUED LIABILITIES AND AMOUNTS DUE TO
STOCKHOLDER........................... $ 177 $ 4,556
STOCKHOLDER'S EQUITY:
Preferred stock, $.01 par,
5,000,000 authorized, none issued
and outstanding.................. -- --
Common stock, $.01 par, 52,969,912
shares authorized, 121,139 and
4,239,847 shares issued and
outstanding, respectively........ 1 42
Additional paid in capital......... -- 11,556
Retained deficit................... -- (11,556)
------------ -----------
Total stockholder's equity.... 1 42
------------ -----------
Total liabilities and
stockholder's equity....... $ 178 $ 4,598
============ ===========

Reflects a 121.1387-for-one stock split effective on March 19, 1997.
The accompanying notes are an integral part of these financial statements.

F-12
<PAGE>
COMFORT SYSTEMS USA, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)

REVENUES............................. $ --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................. 11,556
----------
LOSS BEFORE INCOME TAXES............. (11,556)
INCOME TAX BENEFIT................... --
----------
NET LOSS............................. $ (11,556)
==========

The accompanying notes are an integral part of these financial statements.

F-13
<PAGE>
COMFORT SYSTEMS USA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 12, 1996)
THROUGH JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ------ ---------- -------- --------------
<S> <C> <C> <C> <C> <C>
Initial Capitalization............... 121,139 $ 1 $ -- $ -- $ 1
----------- ------ ---------- -------- --------------
BALANCE, December 31, 1996........... 121,139 1 -- -- 1
Issuance of Management Shares
(unaudited)..................... 4,118,708 41 11,556 -- 11,597
Net loss (unaudited)............ -- -- -- (11,556) (11,556)
----------- ------ ---------- -------- --------------
BALANCE, June 30, 1997 (unaudited)... 4,239,847 $ 42 $ 11,556 $(11,556) $ 42
=========== ====== ========== ======== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-14
<PAGE>
COMFORT SYSTEMS USA, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss............................. $ (11,556)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities --
Compensation expense related to
issuance of management shares... 11,556
Changes in assets and
liabilities --
Increase in deferred offering
costs........................ (4,556)
Increase in accrued
liabilities and amounts due
to stockholder............... 4,556
----------
Net cash provided by
operating activities...... --
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock.................. 41
----------
Net cash provided by
financing activities...... 41
----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 41
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 1
----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 42
==========

The accompanying notes are an integral part of these financial statements.

F-15
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Comfort Systems USA, Inc., a Delaware corporation, ("Comfort Systems" or
the "Company") was founded in December 1996 to become a national provider of
comprehensive HVAC installation services and maintenance, repair and replacement
of HVAC systems, focusing primarily on the commercial and industrial markets.
Comfort intends to acquire 12 U.S. businesses (the "Mergers"), complete an
initial public offering (the "Offering") of its common stock and, subsequent
to the Offering, continue to acquire through merger or purchase, similar
companies to expand its national operations.

Comfort Systems has not conducted any operations, and all activities to
date have related to the Offering and the Mergers. The Company's cash balances
were generated from the initial capitalization of the Company (see Note 3). All
other expenditures to date have been funded by the primary stockholder, Notre
Capital Ventures II, L.L.C. ("Notre"), on behalf of the Company. Since there
were no revenues, expenses or cash flows from Inception (December 12, 1996)
through December 31, 1996, statements of operations and cash flows have been
omitted for this period. Notre has committed to fund the organization expenses
and offering costs. As of December 31, 1996 and June 30, 1997, costs of
approximately $177,000 and $4,936,000 (unaudited), respectively have been
incurred by Notre in connection with the Offering. Comfort Systems has treated
these costs as deferred offering costs.

2. INTERIM FINANCIAL INFORMATION:

The interim financial statements as of June 30, 1997, and for the six
months then ended are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim period is not necessarily indicative
of the results for the entire fiscal year.

3. STOCKHOLDER'S EQUITY:

COMMON STOCK AND PREFERRED STOCK

Comfort Systems effected a 121.1387-for-one stock split on March 19, 1997
for each share of common stock of the Company ("Common Stock") then
outstanding. In addition, the Company increased the number of authorized shares
of Common Stock to 52,969,912 and authorized 5,000,000 shares of $.01 par value
preferred stock. The effects of the Common Stock split and the increase in the
shares of authorized Common Stock have been retroactively reflected on the
balance sheet and in the accompanying notes.

In connection with the organization and initial capitalization of Comfort
Systems, the Company issued 121,139 shares of common stock at $.01 per share to
Notre. In January 1997, the Company issued 2,848,773 additional shares to Notre
for $.01 per share.

In January and February 1997, the Company issued a total of 1,269,935
shares of Common Stock to management and consultants to the Company at a price
of $.01 per share. As a result, the Company recorded a non-recurring, non-cash
compensation charge of $11.6 million (unaudited) in the first quarter of 1997,
representing the difference between the amount paid for the shares and an
estimated fair value of the shares on the date of sale.

RESTRICTED COMMON STOCK

In March 1997, the primary stockholder exchanged its 2,742,912 shares of
Common Stock for an equal number of shares of restricted voting common stock
("Restricted Common Stock"). The holder of Restricted Common Stock is entitled
to elect one member of the Company's Board of Directors and to 0.55

F-16
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

of one vote for each share on all other matters on which they are entitled to
vote. Holders of Restricted Common Stock are not entitled to vote on the
election of any other directors.

Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holders (as defined in Sections 267, 707,
318 and/or 4946 of the Internal Revenue of 1986, as amended)), (ii) in the event
any person acquires beneficial ownership of 15% or more of the total number of
outstanding shares of Common Stock of the Company, or (iii) in the event any
person offers to acquire 15% or more of the total number of outstanding shares
of Common Stock of the Company. After July 1, 1998, the Board of Directors may
elect to convert any remaining shares of Restricted Common Stock into shares of
Common Stock in the event 80% or more of the originally outstanding shares of
Restricted Common Stock have been previously converted into shares of Common
Stock.

LONG-TERM INCENTIVE PLAN

In March 1997, the Company's stockholders approved the Company's 1997
Long-Term Incentive Plan (the "Plan"), which provides for the granting or
awarding of incentive or non-qualified stock options, stock appreciation rights,
restricted or deferred stock, dividend equivalents and other incentive awards to
directors, officers, key employees and consultants to the Company. The number of
shares authorized and reserved for issuance under the Plan is the greater of
2,500,000 shares or 13% of the aggregate number of shares of Common Stock
outstanding. The terms of the option awards will be established by the
Compensation Committee of the Company's Board of Directors. The Company intends
to file a registration statement on Form S-8 under the Securities Act
registering the issuance of shares upon exercise of options granted under this
Plan. The Company expects to grant non-qualified stock options to purchase a
total of 675,000 shares of Common Stock to key employees of the Company at the
initial public offering price upon consummation of the Offering. In addition,
the Company expects to grant options to purchase a total of 1,271,953 shares of
Common Stock to certain employees of the Founding Companies at the initial
public offering price per share. These options will vest at the rate of 20% per
year, commencing on the first anniversary of the IPO and will expire seven years
from the date of grant or three months following termination of employment.

NON-EMPLOYEE DIRECTORS STOCK PLAN

In March 1997, the Company's stockholders approved the 1997 Non-Employee
Directors' Stock Plan (the "Directors' Plan"), which provides for the granting
or awarding of stock options and stock appreciation rights to nonemployees. The
number of shares authorized and reserved for issuance under the Stock Plan is
250,000 shares. The Directors' Plan provides for the automatic grant of options
to purchase 10,000 shares to each non-employee director serving at the
commencement of the Offering.

Each non-employee director will be granted options to purchase an
additional 10,000 shares at the time of the initial election. In addition, each
director will be automatically granted options to purchase 5,000 shares at each
annual meeting of the stockholders occurring more than two months after the date
of the director's initial election. All options will be exercised at the fair
market value at the date of grant and are immediately vested upon grant.

Options will be granted to each of two future and one current member of the
board of directors to purchase 10,000 shares of Common Stock at the initial
Offering price per share effective upon the consummation of this Offering. These
options will expire the earlier of 10 years from the date of grant or one year
after termination of service as a director.

F-17
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Directors' Plan allows non-employee directors to receive shares
("deferred shares") at future settlement dates in lieu of cash. The number of
deferred shares will have an aggregate fair market value equal to the fees
payable to the directors.

4. STOCK BASED COMPENSATION:

Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," allows entities to choose between a
new fair value based method of accounting for employee stock options or similar
equity instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.

5. EVENTS SUBSEQUENT TO THE DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

Wholly-owned subsidiaries of Comfort Systems have acquired by merger or
share exchange 12 companies ("Founding Companies"). The companies are Accurate
Air Systems, Inc., Atlas Comfort Services USA, Inc. and Subsidiary, Contract
Service, Inc., Eastern Heating and Cooling, Inc., Freeway Heating and Air
Conditioning, Inc., Quality Air Heating & Cooling, Inc., Seasonair, Inc., S.M.
Lawrence Inc. and Related Company, Standard Heating and Air Conditioning
Company, Tech Heating and Air Conditioning, Inc. and Related Company, Tri-City
Mechanical, Inc. and Western Building Services, Inc. The aggregate consideration
paid by Comfort Systems to acquire the Founding Companies was approximately
$45.3 million in cash and 9,720,927 shares of Common Stock.

On June 27, 1997, Comfort Systems completed the Offering, which involved
the sale by Comfort Systems of 6,100,000 shares of Common Stock at a price to
the public of $13.00 per share. The net proceeds to Comfort Systems from the
Offering (after deducting underwriting discounts and commissions and offering
expenses) were approximately $69.7 million. Of this amount, $45.3 million was
used to pay the cash portion of the purchase prices relating to the acquisitions
for the Founding Companies. On July 9, 1997, Comfort Systems sold an additional
915,000 shares of Common Stock at $13.00 per share (which represents net
proceeds to the Company of $11.1 million after underwriting discounts and
commissions) pursuant to an overallotment option granted by Comfort Systems to
the underwriters in connection with the Offering. See "Risk Factors" included
elsewhere herein.

The Company has obtained a revolving line of credit of $75.0 million. The
facility is intended to be used for acquisitions, capital expenditures,
refinancing of debt not paid out of the proceeds of the Offering and for general
corporate purposes. The credit facility requires the Company to comply with
various loan covenants including (i) maintenance of certain financial ratios,
(ii) restrictions on additional indebtedness, and (iii) restrictions on liens,
guarantees, advances and dividends. The line of credit is subject to customary
drawing conditions. As of October 13, 1997, borrowings under the line of credit
were $18.9 million which was used to repay existing indebtedness of the Founding
Companies.

The Company also has outstanding options to purchase up to a total of
2,258,653 shares of Common Stock. Each of these options has an exercise price
equal to the stock price on the date of grant and will vest at the rate of 20%
per year, commencing on the first anniversary of the date of grant and will
expire at the earlier of seven years from the date of grant or three months
following termination of employment.

Since the IPO, and through October 13, 1997, the Company has acquired
eleven additional mechanical contracting companies engaged principally in the
HVAC business. The Company paid approximately $1.6 million in cash and 2,250,449
shares of Common Stock. The Company will account for seven of these acquisitions
as pooling-of-interests transactions and the remaining four acquisitions will be
accounted for as purchase transactions. Annualized revenues for these
acquisitions were approximately $70 million.

F-18

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Quality Air Heating & Cooling, Inc.:

We have audited the accompanying balance sheets of Quality Air Heating &
Cooling, Inc., as of March 31, 1995 and 1996, and December 31, 1996, and the
related statements of operations, shareholders' equity and cash flows for the
years ended March 31, 1995 and 1996, the nine months ended December 31, 1996,
and the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quality Air Heating &
Cooling, Inc., as of March 31, 1995 and 1996, and December 31, 1996, and the
results of their operations and their cash flows for the years ended March 31,
1995 and 1996, the nine months ended December 31, 1996 and the year ended
December 31, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-19
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31, JUNE 30,
1995 1996 1996 1997
--------- --------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,669 $ 4,191 $ 2,651 $ 550
Accounts receivable --
Trade, net of allowance of
$87, $80, $80 and $80,
respectively............ 4,510 4,188 5,260 5,487
Retainage.................. 457 464 453 563
Other receivables.......... 14 12 5 6
Inventories..................... 445 480 541 617
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 1,192 964 1,312 808
Prepaid expenses and other
current assets................ 92 63 17 70
Federal income tax deposit...... 506 654 691 1,400
--------- --------- ------------ ------------
Total current
assets............. 8,885 11,016 10,930 9,501
PROPERTY AND EQUIPMENT, net.......... 771 708 758 670
--------- --------- ------------ ------------
Total assets.......... $ 9,656 $ 11,724 $ 11,688 $ 10,171
========= ========= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.......................... $ 470 $ 613 $ 675 $ --
Accounts payable and accrued
expenses...................... 2,786 2,734 2,178 2,046
Dividends payable to
shareholder................... 1,538 3,314 1,519 127
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 897 604 1,254 732
Unearned revenue................ 335 362 372 405
--------- --------- ------------ ------------
Total current
liabilities........ 6,026 7,627 5,998 3,310
LONG-TERM DEBT, net of current
maturities......................... 2,444 1,392 646 7,389
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value;
250,000 shares authorized and
issued, 183,993 shares
outstanding................... 22 22 22 22
Additional paid-in capital...... 6 6 6 6
Retained earnings............... 2,056 3,575 5,914 342
Treasury stock, 66,007 shares,
at cost....................... (898) (898) (898) (898)
--------- --------- ------------ ------------
Total shareholders'
equity............. 1,186 2,705 5,044 (528)
--------- --------- ------------ ------------
Total liabilities and
shareholders'
equity............. $ 9,656 $ 11,724 $ 11,688 $ 10,171
========= ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-20
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS YEAR SIX MONTHS ENDED
MARCH 31, ENDED ENDED JUNE 30,
-------------------- DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1996 1996 1997
--------- --------- ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 24,434 $ 32,594 $ 23,282 $ 29,597 $ 15,396 $ 16,747

COST OF SERVICES..................... 15,634 20,850 14,176 18,467 9,819 9,854
--------- --------- ------------ ------------ --------- ---------
Gross profit.................... 8,800 11,744 9,106 11,130 5,577 6,893

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 6,646 6,791 5,032 6,640 3,186 3,879
--------- --------- ------------ ------------ --------- ---------
Income from operations.......... 2,154 4,953 4,074 4,490 2,391 3,014

OTHER INCOME (EXPENSE):

Interest expense................ (36) (218) (101) (154) (86) (72)

Other........................... 53 98 60 97 70 24
--------- --------- ------------ ------------ --------- ---------
NET INCOME........................... $ 2,171 $ 4,833 $ 4,033 $ 4,433 $ 2,375 $ 2,966
========= ========= ============ ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-21
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------ ---------- --------- -------- --------------

<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994................. 250,000 $ 22 $ 6 $ 3,636 $-- $ 3,664

Purchase of treasury stock......... -- -- -- -- (898) (898)

Distributions to shareholders...... -- -- -- (3,751) -- (3,751)

Net income......................... -- -- -- 2,171 -- 2,171
------- ------ ---------- --------- -------- --------------
BALANCE, March 31, 1995................. 250,000 22 6 2,056 (898) 1,186

Distributions to shareholders...... -- -- -- (3,314) -- (3,314)

Net income......................... -- -- -- 4,833 -- 4,833
------- ------ ---------- --------- -------- --------------
BALANCE, March 31, 1996................. 250,000 22 6 3,575 (898) 2,705

Distributions to shareholders...... -- -- -- (1,694) -- (1,694)

Net income......................... -- -- -- 4,033 -- 4,033
------- ------ ---------- --------- -------- --------------
BALANCE, December 31, 1996.............. 250,000 22 6 5,914 (898) 5,044

Distribution to shareholders
(unaudited)...................... -- -- -- (8,538) -- (8,538)

Net income (unaudited)............. -- -- -- 2,966 -- 2,966
------- ------ ---------- --------- -------- --------------
BALANCE, June 30, 1997 (unaudited)...... 250,000 $ 22 $ 6 $ 342 $ (898) $ (528)
======= ====== ========== ========= ======== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-22
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED NINE MONTHS YEAR ENDED
MARCH 31 ENDED ENDED JUNE 30,
-------------------- DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1996 1996 1997
--------- --------- ------------ ------------ --------- ---------

(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 2,171 $ 4,833 $ 4,033 $ 4,433 $ 2,375 $ 2,966
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --.....
Depreciation and amortization... 359 371 242 370 34 200
Loss (gain) on sale of property
and equipment................. 7 -- 25 25 -- --
Changes in operating assets and
liabilities --................
(Increase) decrease in --.....
Accounts receivable........ (1,334) 317 (1,054) 335 (2,137) (338)
Inventories................ (6) (35) (61) (76) (58) (76)
Costs and estimated
earnings in excess of
billings on uncompleted
contracts............... (804) 228 (348) (253) 399 504
Prepaid expenses and other
current assets.......... (15) 29 46 (3) (35) (53)
Federal income tax
deposit................. 50 (148) (37) (185) (148) (709)
Increase (decrease) in --.....
Accounts payable and
accrued expenses........ 470 (52) (556) (481) 586 (132)
Billings in excess of costs
and estimated earnings
on uncompleted
contracts............... 477 (293) 650 269 (332) (522)
Unearned revenue........... (15) 27 10 26 36 33
--------- --------- ------------ ------------ --------- ---------
Net cash provided by
operating
activities......... 1,360 5,277 2,950 4,460 720 1,873
--------- --------- ------------ ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and
equipment, net.................. (446) (308) (317) (441) (70) (197)
--------- --------- ------------ ------------ --------- ---------
Net cash used in
investing
activities......... (446) (308) (317) (441) (70) (197)
--------- --------- ------------ ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt....... 3,000 -- -- -- -- 6,068
Payments of long-term debt......... (226) (909) (684) (903) (392) --
Distributions to shareholders...... (3,088) (1,538) (3,489) (3,488) (2,674) (9,845)
Purchase of treasury stock......... (898) -- -- -- -- --
--------- --------- ------------ ------------ --------- ---------
Net cash used in
financing
activities......... (1,212) (2,447) (4,173) (4,391) (3,066) (3,777)
--------- --------- ------------ ------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (298) 2,522 (1,540) (372) (2,416) (2,101)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 1,967 1,669 4,191 3,023 3,023 2,651
--------- --------- ------------ ------------ --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 1,669 $ 4,191 $ 2,651 $ 2,651 $ 607 $ 550
========= ========= ============ ============ ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for --
Interest........................ $ 44 $ 201 $ 107 $ 152 $ 86 $ 55
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-23
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Quality Air Heating & Cooling, Inc., a Michigan corporation, (the
"Company") focuses on providing "design and build" installation services and
maintenance, repair and replacement of HVAC systems primarily for mid-sized to
large commercial facilities. Quality primarily operates throughout western
Michigan.

The Company and its shareholders intend to enter into a definitive
agreement with Comfort Systems USA, Inc. ("Comfort Systems"), pursuant to
which all outstanding shares of the Company's common stock will be exchanged for
cash and shares of Comfort Systems common stock concurrently with the
consummation of the initial public offering (the "Offering") of the common
stock of Comfort Systems.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL INFORMATION

The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.

Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.

REVENUE RECOGNITION

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to total estimated costs for each contract.
Provisions for the total estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and their effects are recognized in the period in
which the revisions are determined.

F-24
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance will be billed and
collected in the upcoming fiscal year.

WARRANTY COSTS

The Company warrants labor for the first year after installation on new air
conditioning and heating systems. The Company generally warrants labor for 30
days after servicing of existing air conditioning and heating systems. A reserve
for warranty costs is recorded upon completion of installation or service.

INCOME TAXES

The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholders report their share of the
Company's taxable earnings or losses in their personal tax returns. The Company
will terminate its S Corporation status concurrently with the effective date of
this Offering. Included in current assets are deposits to prepay certain of the
shareholders' federal income taxes.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED MARCH 31,
USEFUL LIVES -------------------- DECEMBER 31,
IN YEARS 1995 1996 1996
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Transportation equipment............. 5 $ 1,449 $ 1,554 $1,725
Machinery and equipment.............. 7 480 453 465
Computer and telephone equipment..... 5-7 80 87 90
Leasehold improvements............... 5 838 834 859
Furniture and fixtures............... 7 435 414 459
--------- --------- ------------
Less -- Accumulated depreciation and
amortization....................... (2,511) (2,634) (2,840)
--------- --------- ------------
Property and equipment, net..... $ 771 $ 708 $ 758
========= ========= ============
</TABLE>
F-25
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS):

Activity in the Company's allowance for doubtful accounts consists of the
following:

MARCH 31,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Balance at beginning of year......... $ 70 $ 87 $ 80
Additions to costs and expenses...... 142 35 2
Deductions for uncollectible
receivables written off and
recoveries......................... (125) (42) (2)
--------- --------- ------------
$ 87 $ 80 $ 80
========= ========= ============

Accounts payable and accrued expenses consist of the following:

MARCH 31,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Accounts payable, trade.............. $ 1,353 $ 1,145 $ 921
Accrued compensation and benefits.... 540 693 426
Other accrued expenses............... 893 896 831
--------- --------- ------------
$ 2,786 $ 2,734 $2,178
========= ========= ============

Installation contracts in progress are as follows:

MARCH 31,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Costs incurred on contracts in
progress........................... $ 5,240 $ 7,697 $ 7,231
Estimated earnings, net of losses.... 1,556 2,588 2,433
--------- --------- ------------
6,796 10,285 9,664
Less -- Billings to date............. 6,501 9,925 9,606
--------- --------- ------------
$ 295 $ 360 $ 58
========= ========= ============
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 1,192 $ 964 $ 1,312
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (897) (604) (1,254)
--------- --------- ------------
$ 295 $ 360 $ 58
========= ========= ============

5. LONG-TERM DEBT:

Long-term debt consists of a note payable to a bank. The debt is secured by
certain equipment, accounts receivable, inventory, a $1,000,000 life insurance
policy on the president and the personal guaranty of the president limited to 50
percent of the outstanding balance of the loan. The note is payable in monthly
installments of $63,000 including interest at the prime lending rate less .25
percent (8 percent at December 31, 1996). The Company has restrictive and
various financial covenants with which the Company was in compliance at December
31, 1996.

F-26
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The maturities of long-term debt as of December 31, 1996, are as follows
(in thousands):

Year ending December 31,
1997............................ $ 675
1998............................ 646
---------
$ 1,321
=========

The Company has a $2,000,000 line of credit with a bank. The line of credit
expires August 1, 1997, and bears interest at one-half percent below the prime
lending rate. The line of credit is secured by accounts receivable, inventory, a
$1,000,000 life insurance policy, and machinery and equipment. There was no
balance outstanding under this line of credit at March 31, 1995 and 1996, and
December 31, 1996.

6. LEASES:

The Company leases a facility from a company which is owned by one of the
Company's shareholders. The lease expires on April 30, 2005. Quality has an
option to renew the lease for one additional three-year term on the same terms.
The rent paid under this related-party lease was approximately $221,000 for each
of the years ended March 31, 1995 and 1996, and December 31, 1996. The Company
also leases a facility from a third party, which expires on June 30, 1998. The
rent paid under this lease was approximately $20,000 for each of the years ended
March 31, 1995 and 1996, and December 31, 1996. The Company has guaranteed the
payment of two series of public bonds issued in 1985 and 1990, respectively, by
the Michigan Strategic Fund on behalf of two real property development entities
owned by a shareholder, the proceeds of which were used to fund the construction
of the Company's leased warehouse facility and a second adjacent warehouse. As
of March 1997, approximately $1.6 million of the bond debt remained outstanding.

Future minimum lease payments under these non-cancellable operating leases
are as follows (in thousands):

Year ending December 31,
1997............................ $ 241
1998............................ 231
1999............................ 221
2000............................ 221
2001............................ 221
Thereafter...................... 718
---------
$ 1,853
=========

7. RELATED-PARTY TRANSACTIONS:

The Company paid management fees to an entity owned by its majority
shareholder through December 31, 1995. Total management fees paid amounted to
$260,000 and $190,000 for the years ended March 31, 1995 and 1996, respectively.

8. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution profit sharing plan. The plan
provides for the Company to match one-half of the first 4 percent contributed by
each employee. Total contributions by the Company under the plan were
approximately $104,000, $110,000 and $125,000 for the years ending March 31,
1995 and 1996, and December 31, 1996, respectively. The Company may also make
discretionary contributions. The Company made discretionary contributions of
$200,000 and $300,000 for the years ended March 31,

F-27
<PAGE>
QUALITY AIR HEATING & COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1995 and 1996, and had accrued approximately $169,000 at December 31, 1996, for
contributions to be funded in 1997.

9. FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents, a
line of credit, notes payable and debt. The Company believes that the carrying
value of these instruments on the accompanying balance sheet approximates their
fair value.

10. COMMITMENTS AND CONTINGENCIES:

LITIGATION

The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.

INSURANCE

The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.

The Company is self-insured for medical claims up to $30,000 per year per
covered individual. Additionally, the Company is part of the state's workers'
compensation plan and is responsible for claims up to $275,000 per accident with
a maximum aggregate exposure for twenty-four months of $648,000. Claims in
excess of these amounts are covered by a stop-loss policy. Under the state's
policy, the Company has a $300,000 letter of credit which expires December 31,
1997. The Company has recorded reserves for its portion of self-insured claims
based on estimated claims incurred through March 31, 1995 and 1996 and December
31, 1996.

ROYALTY AGREEMENT

The Company is obligated to pay royalties ranging from 1 percent to 4.5
percent based on the level of service revenues through December 1, 2001, for
management systems support. Royalties paid under this agreement were
approximately $157,000, $159,000 and $165,000 for the years ended March 31, 1995
and 1996 and December 31, 1996.

11. SHAREHOLDERS' EQUITY:

On February 15, 1995, the Company acquired 66,007 shares of common stock
from its majority shareholder for approximately $898,000.

12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

In March 1997, the Company and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of Comfort Systems, providing for the
merger of the Company with the subsidiary of Comfort Systems. On July 2, 1997,
Comfort Systems completed its initial public offering and the merger with the
Company.

As of June 30, 1997, the Company distributed $8,326,000 in cash and $85,000
in property to its shareholders. The Company distributed approximately $127,000
subsequent to the merger which has been reflected in the accompanying financial
statements.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-28

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Atlas Comfort Services USA, Inc.:

We have audited the accompanying consolidated balance sheets of Atlas
Comfort Services USA, Inc. (a Texas corporation) and its subsidiary (the
Company) as of June 30, 1995 and 1996 and December 31, 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended June 30, 1994, 1995 and 1996 and the six months ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlas Comfort Services USA, Inc., and its subsidiary as of June 30, 1995 and
1996, and December 31, 1996, and the consolidated results of their operations
and their cash flows for the three years ended June 30, 1994, 1995 and 1996 and
for the six months ended December 31, 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-29
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30,
-------------------- DECEMBER 31, JUNE 30,
1995 1996 1996 1997
--------- --------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 427 $ 391 $ 101 $ 144
Accounts receivable --
Trade, net of allowance of
$60, $60, $100 and $100,
respectively............ 2,920 3,953 2,604 3,205
Retainage.................. 904 1,327 1,208 1,249
Officers, employees and
other receivables....... 114 172 159 67
Inventories..................... 1,685 2,000 1,770 2,045
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 1,050 681 676 952
Current deferred income taxes... 155 164 145 145
Prepaid expenses and other
current assets................ 40 27 82 193
--------- --------- ------------ ---------
Total current
assets............. 7,295 8,715 6,745 8,000
PROPERTY AND EQUIPMENT, net.......... 231 484 499 654
OTHER ASSETS:
Goodwill, net................... 24 23 22 22
Deferred income tax............. 167 105 88 88
--------- --------- ------------ ---------
Total assets.......... $ 7,717 $ 9,327 $7,354 $ 8,764
========= ========= ============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................. $ 500 $ 600 $-- $ --
Current maturities of notes
payable to affiliates......... 200 102 107 --
Current obligations under
capital leases................ 32 92 101 140
Current maturities of long-term
debt.......................... 9 348 356 --
Accounts payable and accrued
expenses...................... 3,522 3,295 2,246 2,956
Income tax payable.............. 363 390 752 1,143
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 1,115 1,947 523 281
--------- --------- ------------ ---------
Total current
liabilities........ 5,741 6,774 4,085 4,520
NOTES PAYABLE TO AFFILIATES, net of
current portion.................... 1,271 149 98 --
OBLIGATIONS UNDER CAPITAL LEASES, net
of current portion................. 44 133 121 236
LONG-TERM DEBT, net of current
portion............................ 21 1,225 1,058 1,400
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value;
5,000 shares authorized,
1,000 issued and
outstanding................... 1 1 1 1
Retained earnings............... 639 1,045 1,991 2,607
--------- --------- ------------ ---------
Total shareholders'
equity............. 640 1,046 1,992 2,608
--------- --------- ------------ ---------
Total liabilities and
shareholders'
equity............. $ 7,717 $ 9,327 $7,354 $ 8,764
========= ========= ============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-30
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
SIX MONTHS ENDED
YEAR ENDED JUNE 30, ENDED JUNE 30,
------------------------------- DECEMBER 31, --------------------
1994 1995 1996 1996 1996 1997
--------- --------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 21,848 $ 22,444 $ 29,174 $ 15,545 $ 14,485 $ 13,962

COST OF SERVICES..................... 19,657 19,635 25,449 12,508 12,562 11,166
--------- --------- --------- ------------ --------- ---------
Gross profit..................... 2,191 2,809 3,725 3,037 1,923 2,796

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,086 2,166 2,843 1,432 1,426 1,740
--------- --------- --------- ------------ --------- ---------
Income from operations........... 105 643 882 1,605 497 1,056

OTHER INCOME (EXPENSE):

Interest expense................. (156) (168) (185) (107) (185) (105)

Other............................ 2 28 (11) 78 (13) 67
--------- --------- --------- ------------ --------- ---------
Income (loss) before income taxes,
extraordinary item, and cumulative
effect of a change in accounting
principle.......................... (49) 503 686 1,576 299 1,018

Provision for income taxes
(benefit).......................... (2) 199 280 630 121 402
--------- --------- --------- ------------ --------- ---------
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle..... (47) 304 406 946 178 616

Extraordinary item -- gain on
extinguishment of debt, net of
deferred taxes of $167,000 (Note
5)................................. 273 -- -- -- -- --
--------- --------- --------- ------------ --------- ---------
Income before cumulative effect of a
change in accounting principle..... 226 304 406 946 178 616

Cumulative effect on prior years of a
change in accounting for income
taxes (Note 7)..................... 141 -- -- -- -- --
--------- --------- --------- ------------ --------- ---------
NET INCOME........................... $ 367 $ 304 $ 406 $ 946 $ 178 $ 616
========= ========= ========= ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-31
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------- ------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 1,000 $ 1 $ (32) $ (31)

Net income...................... -- -- 367 367
------- ------- --------- -------------
BALANCE, June 30, 1994............... 1,000 1 335 336

Net income...................... -- -- 304 304
------- ------- --------- -------------
BALANCE, June 30, 1995............... 1,000 1 639 640

Net income...................... -- -- 406 406
------- ------- --------- -------------
BALANCE, June 30, 1996............... 1,000 1 1,045 1,046

Net income...................... -- -- 946 946
------- ------- --------- -------------
BALANCE, December 31, 1996........... 1,000 1 1,991 1,992

Net income (unaudited).......... -- -- 616 616
------- ------- --------- -------------
BALANCE, June 30, 1997 (unaudited)... 1,000 $ 1 $ 2,607 $ 2,608
======= ======= ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-32
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
SIX MONTHS ENDED
YEAR ENDED JUNE 30, ENDED JUNE 30,
------------------------------- DECEMBER 31, --------------------
1994 1995 1996 1996 1996 1997
--------- --------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................... $ 367 $ 304 $ 406 $ 946 $ 178 $ 616
Adjustments to reconcile net
income to net cash
provided by (used in) operating
activities --
Depreciation and
amortization.............. 104 124 92 84 37 71
Cumulative effect of a
change in accounting
principle................. (141) -- -- -- -- --
Extraordinary gain on
extinguishment of debt.... (440) -- -- -- -- --
Deferred income tax
provision................. 167 (196) 54 36 -- --
Changes in operating assets
and liabilities --
(Increase) decrease in --
Accounts receivable......... (1,672) 148 (1,514) 1,481 (245) (550)
Inventories................. (264) (554) (315) 230 (39) (275)
Costs and estimated earnings
in excess of billings on
uncompleted contracts..... (145) (266) 369 5 (65) (276)
Prepaid expenses and other
current assets............ 121 (14) 13 (55) 20 (111)
Increase (decrease) in --
Accounts payable and accrued
expenses.................. 1,320 (417) (227) (1,049) 1,213 710
Income tax payable.......... -- 363 27 362 51 391
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... 585 437 834 (1,424) (86) (242)
--------- --------- --------- ------------ --------- ---------
Net cash provided by (used
in) operating
activities................ 2 (71) (261) 616 1,064 334
--------- --------- --------- ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and
equipment, net................. (139) (67) (121) (50) (275) (226)
--------- --------- --------- ------------ --------- ---------
Net cash used in investing
activities................ (139) (67) (121) (50) (275) (226)
--------- --------- --------- ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of
credit......................... 400 100 100 (600) -- --
Principal payments on notes
payable to affiliates.......... (38) (261) (1,219) (50) -- (205)
Borrowings on notes payable to
affiliates..................... 1,202 100 -- 3 -- --
Principal payments on long-term
debt........................... (1,067) (14) (150) (176) (177) --
Borrowings on long-term debt..... 41 -- 1,689 15 -- 126
Additions to (principal payments
on) capital lease
obligations.................... (29) (37) (74) (48) 385 14
Cash paid for dividends.......... -- -- -- -- (312) --
--------- --------- --------- ------------ --------- ---------
Net cash provided by (used
in) financing
activities................ 509 (112) 346 (856) (104) (65)
--------- --------- --------- ------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 372 (250) (36) (290) 685 43
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 305 677 427 391 (294) 101
--------- --------- --------- ------------ --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 677 $ 427 $ 391 $ 101 $ 391 $ 144
========= ========= ========= ============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ -- $ -- $ -- $ -- $ 53 $ 105
Income Taxes..................... $ -- $ 30 $ 200 $ 224 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-33
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Atlas Comfort Services USA, Inc., a Texas corporation, and its subsidiary
(the "Company") is a leading provider of HVAC installation services for
apartment complexes, condominiums and hotels in the United States and also
provides maintenance, repair and replacement of HVAC systems. Atlas primarily
operates in the southwest, northeast, and the mid-Atlantic regions of the United
States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The consolidated financial statements include the accounts and results of
operations of the Company and its subsidiary which are under common control and
management of two individuals. All significant intercompany transactions and
balances have been eliminated in combination.

INTERIM FINANCIAL INFORMATION

The interim consolidated financial statements as of June 30, 1997, and for
the six months ended June 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

Inventories consist of duct materials, air conditioning equipment,
refrigeration supplies and accessories held for use in the ordinary course of
business and are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.

PROPERTY AND EQUIPMENT

F-34
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to total estimated costs for each contract.
Provisions for the total estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined.

WARRANTY COSTS

The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30 days
after servicing of existing air conditioning and heating units. A reserve for
warranty costs is recorded upon completion of installation or service.

INCOME TAXES

The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon the differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.

USE OF ESTIMATES

GOODWILL

Goodwill, in the amount of $33,000, represents the excess of cost over the
fair value of net assets acquired and is amortized using the straight-line
method over 40 years. The Company assesses the recoverability of its goodwill
whenever adverse events occur and believes that no material impairment exists.

NEW ACCOUNTING PRONOUNCEMENTS

Effective July 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect on
the financial position or results of operations of the Company.

F-35
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL LIVES -------------------- DECEMBER 31,
IN YEARS 1995 1996 1996
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Transportation equipment............. 5 $ 741 $ 987 $1,043
Machinery and equipment.............. 5 116 140 137
Leasehold improvements............... 3 28 28 28
Furniture and fixtures............... 5 266 286 212
--------- --------- ------------
Less -- Accumulated depreciation and
amortization....................... (920) (957) (921)
--------- --------- ------------
Property and equipment,
net..................... $ 231 $ 484 $ 499
========= ========= ============
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS):

Activity in the Company's allowance for doubtful accounts consists of the
following:

JUNE 30,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Balance at beginning of year......... $ 60 $ 60 $ 60
Additions to costs and expenses...... 75 77 42
Deductions for uncollectible
receivables written off and
recoveries......................... (75) (77) (2)
--------- --------- ------------
$ 60 $ 60 $ 100
========= ========= ============

Accounts payable and accrued expenses consist of the following:

JUNE 30,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Accounts payable, trade.............. $ 2,935 $ 2,409 $1,582
Accrued compensation and benefits.... 197 231 163
Accrued warranty expense............. 250 300 310
Other accrued expenses............... 140 355 191
--------- --------- ------------
$ 3,522 $ 3,295 $2,246
========= ========= ============

F-36
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Installation contracts in progress are as follows:

JUNE 30,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Costs incurred on contracts in
progress........................... $ 11,884 $ 12,526 $ 12,643
Estimated earnings, net of losses.... 2,666 2,589 2,582
--------- --------- ------------
14,550 15,115 15,225
Less -- Billings to date............. 14,615 16,381 15,072
--------- --------- ------------
$ (65) $ (1,266) $ 153
========= ========= ============
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... 1,050 681 676
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (1,115) (1,947) (523)
--------- --------- ------------
$ (65) $ (1,266) $ 153
========= ========= ============

5. DEBT:

LINE OF CREDIT

The Company has a $700,000 revolving line-of-credit facility with a bank at
the prime lending rate plus 1 percent with interest payable monthly. This credit
facility is secured by the Company's cash, accounts receivable, inventory, and
unpledged property and equipment. The credit facility is guaranteed by two of
the Company's officers and is also secured by investment accounts of certain
affiliates. The credit facility had an outstanding balance of $500,000,
$600,000, and $0 at June 30, 1995 and 1996 and December 31, 1996, respectively,
and matures in January 1998. The Company paid approximately $8,000, $33,000 and
$35,000 of interest relating to the revolving credit line for the years ended
June 30, 1994, 1995 and 1996 and $18,500 for the six months ended December 31,
1996.

NOTES PAYABLE TO FINANCIAL INSTITUTIONS

Long-term debt is summarized as follows:

JUNE 30,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
(IN THOUSANDS)
Note payable to a financial
institution with interest at prime
plus 1%, payable in monthly
installments of $26,667 plus
interest through January 1999, when
the entire balance of unpaid
principal and accrued interest
shall be due and payable........... $ -- $ 1,467 $1,306
Vehicle notes with interest at rates
ranging from 7.9% to 9.4%, payable
in monthly installments through
March 2001......................... 30 106 108
--------- --------- ------------
30 1,573 1,414
Less -- Current maturities........... 9 348 356
--------- --------- ------------
$ 21 $ 1,225 $1,058
========= ========= ============

The note payable to a financial institution is secured by cash, accounts
receivable, inventory, property and equipment, and the personal guarantee of the
two shareholders. In addition, investment accounts of the shareholders and of
certain affiliates of the shareholders are pledged as collateral for the note.
The Company paid interest of $3,000, $3,000 and $73,500 for the years ended June
30, 1994, 1995 and 1996, respectively, and $73,000 for the six months ended
December 31, 1996.

F-37
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In September 1993, the Company and a bank reached a settlement agreement in
which the bank released the Company from its total obligation of approximately
$1,500,000 related to a revolving line of credit, installment notes, equipment
notes and related accrued interest, for a lump sum payment of $1,100,000. The
payment was funded by the proceeds from the notes payable to affiliates
mentioned below. This early extinguishment of debt generated a gain aggregating
$440,000. The Company paid approximately $77,000 in interest during the year
ended June 30, 1994 related to these extinguished notes.

NOTES PAYABLE TO AFFILIATES

Notes payable to affiliates are summarized as follows:

JUNE 30,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
(IN THOUSANDS)
Note payable to a related party in
monthly installments of $5,500
including interest at 10% through
March 1998, collateralized by stock
of the Company..................... $ 159 $ 105 $ 78
Unsecured note payable to an
affiliate in monthly installments
of $2,500 including interest at 6%
through September 1996............. 326 -- --
Notes payable to Company officers in
monthly installments of $4,812
including interest at 10% through
June 1999.......................... 186 146 127
Notes payable to Company officers
with interest due monthly at the
prime rate through September 1996,
secured by accounts receivable,
certain property and equipment, and
intangible assets.................. 700 -- --
Unsecured note payable to Company
officers with interest and any
unpaid principal balance due August
8, 1995, at the rate of 9%......... 100 -- --
--------- --------- ------------
1,471 251 205
Less -- Current maturities........... 200 102 107
--------- --------- ------------
$ 1,271 $ 149 $ 98
========= ========= ============

The Company paid interest of $116,400, $112,600 and $68,000 related to
notes payable to affiliates for the years ended June 30, 1994, 1995 and 1996,
respectively, and $12,600 for the six months ended December 31, 1996.

The aggregate maturities of notes payable to financial institutions and
affiliates are as follows (in thousands):

Year ending December 31,
1997............................ $ 463
1998............................ 424
1999............................ 718
2000............................ 13
2001 and thereafter............. 1
---------
$ 1,619
=========

F-38
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LEASES:

The Company leases vehicles and warehouse facilities under capital and
operating leases expiring through October, 2000. Total rent expense related to
operating leases amounted to $95,000, $143,000 and $180,000 for the years ended
June 30, 1994, 1995 and 1996, respectively, and $60,000 for the six months ended
December 31, 1996.

Future minimum lease payments for capital and noncancelable operating
leases are as follows (in thousands):

NONCANCELABLE
CAPITAL OPERATING
LEASES LEASES
------- -------------
Year ended December 31,
1997............................ $ 117 $ 142
1998............................ 98 23
1999............................ 44 --
2000............................ 6 --
------- -------------
Total minimum lease payments.... 265 165
Amounts representing interest... 43
-------
Present value of net minimum
lease payments................ 222
Less -- Current portion......... 101
-------
Long-term obligation............ $ 121
=======

7. INCOME TAXES (IN THOUSANDS):

Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------- DECEMBER 31,
1994 1995 1996 1996
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Federal --
Current......................... $ (2) $ 331 $ 193 $ 504
Deferred........................ 141 (164) 43 28
State --
Current......................... -- 64 34 90
Deferred........................ 26 (32) 10 8
--------- --------- --------- ------------
$ 165 $ 199 $ 280 $ 630
========= ========= ========= ============
</TABLE>
F-39
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34 percent to income
(loss) before income taxes as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------- DECEMBER 31,
1994 1995 1996 1996
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Provision at the statutory rate...... $ (16) $ 171 $ 233 $ 536
Increase resulting from --
Permanent differences, mainly
meals and entertainment....... 164 7 19 29
State income tax, net of benefit
for federal deduction......... 17 21 28 65
--------- --------- --------- ------------
$ 165 $ 199 $ 280 $ 630
========= ========= ========= ============
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following:

JUNE 30,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Accounting for long-term contracts... $ 159 $ 74 $ (11)
Warranty reserves.................... 100 123 127
Inventory............................ 32 38 40
Allowance for doubtful accounts...... 36 30 51
Other accrued expenses not deducted
for tax purposes................... 25 62 90
Bases differences on property and
equipment and capital lease
accounting......................... (30) (58) (64)
--------- --------- ------------
Net deferred tax assets.............. $ 322 $ 269 $ 233
========= ========= ============

The net deferred tax assets and liabilities are comprised of the following:

JUNE 30,
-------------------- DECEMBER 31,
1995 1996 1996
--------- --------- ------------
Deferred tax assets --
Current......................... $ 209 $ 240 $ 293
Long-term....................... 221 171 149
--------- --------- ------------
Total...................... 430 411 442
--------- --------- ------------
Deferred tax liabilities --
Current......................... (54) (76) (148)
Long-term....................... (54) (66) (61)
--------- --------- ------------
Total...................... (108) (142) (209)
--------- --------- ------------
Net deferred income tax
assets.................. $ 322 $ 269 $ 233
========= ========= ============

The Company adopted the provisions of SFAS No. 109 in fiscal year 1994
resulting in a cumulative effect of a change in accounting principle of
$141,000.

8. RELATED-PARTY TRANSACTIONS:

Two shareholders lease to the Company the main office facility. Total
payments made under this lease agreement amounted to $90,000 for each of the
years ended June 30, 1994, 1995 and 1996, respectively, and $45,000 for the six
months ended December 31, 1996. The Company is in the process of entering into

F-40
<PAGE>
ATLAS COMFORT SERVICES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

an agreement with these shareholders to lease land on which a new facility will
be built. This lease agreement is anticipated to have a twenty year term.

9. COMMITMENTS AND CONTINGENCIES:

LITIGATION

The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal action will have
a material adverse effect on the Company's financial position or consolidated
results of operations.

INSURANCE

The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

10. EMPLOYEE BENEFIT PLAN

The Company sponsors a Profit Sharing and Savings Plan (the "Plan") which
covers substantially all employees. The employees who participate in the Plan
may contribute 1 percent to 20 percent of their base compensation, and the
Company may make discretionary matching contributions. The Company did not make
any contributions for the years ended December 31, 1994 and 1995. The Company
made $18,248 in contributions for the year ended June 30, 1996 and $12,667 for
the six months ended December 31, 1996.

11. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
notes receivable, notes payable, a line of credit and long-term debt. The
Company believes that the carrying value of these instruments on the
accompanying balance sheet approximates their fair value.

12. SIGNIFICANT CUSTOMERS AND VENDORS:

Significant customers are those that account for greater than ten percent
of the Company's revenues. For the year ended June 30, 1996 and the six months
ended December 31, 1996, one customer, a publicly traded Real Estate Investment
Trust, accounted for 14% and 20% of the Company's revenues, respectively.
Receivables outstanding from this customer represented 13% and 12% of the
Company's trade and retainage receivables as of June 30, 1996 and December 31,
1996, respectively. In addition, one of the Company's shareholders has less than
1% ownership in this customer.

During the years ended June 30, 1994, 1995 and 1996 and the six months
ended December 31, 1996, two vendors accounted for 12% and 11%; 29% and 17%; 20%
and 17%; and 15% and 12% of the Company's purchases, respectively.

13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

In March 1997, the Company and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of Comfort Systems providing for the
merger of the Company with the subsidiary of Comfort Systems. On July 2, 1997,
Comfort Systems completed its initial public offering and the merger with the
Company.

Concurrently with the merger, the Company entered into agreements with the
shareholders to lease land and buildings used in the Company's operations for
negotiated amounts and terms.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-41

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Tri-City Mechanical, Inc.:

We have audited the accompanying balance sheets of Tri-City Mechanical,
Inc. as of December 31, 1995 and 1996, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tri-City Mechanical, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-42
<PAGE>
TRI-CITY MECHANICAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,551 $1,958 $ 497
Restricted cash................. 383 325 --
Investments..................... -- 493 --
Accounts Receivable --
Trade, net of allowance of
$130, $30 and $30,
respectively............ 4,495 3,734 4,981
Retainage.................. 831 756 1,129
Other receivables.......... 2 11 88
Inventories..................... 1,183 762 273
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 306 288 1,097
Prepaid expenses and other
current assets................ 1 12 90
------------ ------------ ------------
Total current assets....... 9,752 8,339 8,155
PROPERTY AND EQUIPMENT, net.......... 508 656 627
------------ ------------ ------------
Total assets............... $ 10,260 $8,995 $8,782
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 2,683 $2,179 $4,322
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 2,207 667 830
------------ ------------ ------------
Total current
liabilities............. 4,890 2,846 5,152
PAYABLE TO SHAREHOLDER............... -- -- 388
LONG-TERM DEBT, net of current
maturities......................... -- -- 3,112
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $10 par 2,500
shares authorized, 2,500
issued and outstanding........ 25 25 25
Additional paid-in capital...... 105 105 105
Retained earnings............... 5,240 6,019 --
------------ ------------ ------------
Total shareholders'
equity.................. 5,370 6,149 130
------------ ------------ ------------
Total liabilities and
shareholders' equity.... $ 10,260 $8,995 $8,782
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-43
<PAGE>
TRI-CITY MECHANICAL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- --------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 16,883 $ 25,030 $ 24,237 $ 11,199 $ 17,016

COST OF SERVICES..................... 14,271 19,298 18,561 8,417 14,528
------------ ------------ ------------ --------- ---------
Gross profit.................... 2,612 5,732 5,676 2,782 2,488

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,219 3,193 3,903 1,982 1,346
------------ ------------ ------------ --------- ---------
Income from operations.......... 393 2,539 1,773 800 1,142

OTHER INCOME (EXPENSE):

Interest expense................ (2) (1) -- -- --

Interest income................. 50 132 152 83 70

Other........................... 24 81 89 30 3
------------ ------------ ------------ --------- ---------
NET INCOME........................... $ 465 $ 2,751 $ 2,014 $ 913 $ 1,215
============ ============ ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-44
<PAGE>
TRI-CITY MECHANICAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 2,500 $ 25 $ 105 $ 2,577 $ 2,707
Distributions to shareholders... -- -- -- (338) (338)
Net income...................... -- -- -- 465 465
------ ------ ---------- -------- --------------
BALANCE, December 31, 1994........... 2,500 25 105 2,704 2,834
Distributions to shareholders... -- -- -- (215) (215)
Net income...................... -- -- -- 2,751 2,751
------ ------ ---------- -------- --------------
BALANCE, December 31, 1995........... 2,500 25 105 5,240 5,370
Distributions to shareholders... -- -- -- (1,235) (1,235)
Net income...................... -- -- -- 2,014 2,014
------ ------ ---------- -------- --------------
BALANCE, December 31, 1996........... 2,500 25 105 6,019 6,149
Distributions to shareholders
(unaudited)................... -- -- -- (7,234) (7,234)
Net income (unaudited).......... -- -- -- 1,215 1,215
------ ------ ---------- -------- --------------
BALANCE, June 30, 1997 (unaudited)... 2,500 $ 25 $ 105 $ -- $ 130
====== ====== ========== ======== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-45
<PAGE>
TRI-CITY MECHANICAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 465 $ 2,751 $ 2,014 $ 913 $ 1,215
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation.................... 131 134 102 60 52
Deferred income taxes........... (218) -- -- -- --
Loss (gain) on sale of property
and equipment................. -- 1 (10) -- --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Restricted cash............ (73) (75) 58 (92) 325
Accounts receivable........ (231) (1,306) 827 2,521 (1,697)
Inventories................ (329) (801) 421 1,028 489
Costs in excess of billings
and estimated earnings
on uncompleted
contracts............... 17 (90) 18 16 (809)
Prepaid expenses and other
current assets.......... (14) 28 (11) (58) (78)
Increase (decrease) in --
Accounts payable and
accrued expenses........ 864 519 (504) (1,221) 2,143
Billings in excess of costs
and estimated earnings
on uncompleted
contracts............... 1,360 508 (1,540) (1,313) 163
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities......... 1,972 1,669 1,375 1,854 1,803
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchase) of property and
equipment, net.................. (311) 139 (240) (47) (23)
Purchase (sale) of investment,
net............................. -- -- (493) (487) 493
--------- --------- --------- --------- ---------
Net cash (used in)
provided by
investing
activities......... (311) (139) (733) (534) 470
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in payable to
shareholders.................... (210) -- -- -- --
Borrowings on line of credit....... 19 1 -- -- 3,112
Payments on line of credit......... (17) (15) -- (181) --
Distributions to shareholders...... (338) (215) (1,235) (265) (6,846)
--------- --------- --------- --------- ---------
Net cash used in
financing
activities......... (546) (229) (1,235) (446) (3,734)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 1,115 1,301 (593) 874 (1,461)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 135 1,250 2,551 2,551 1,958
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 1,250 $ 2,551 $ 1,958 $ 3,425 $ 497
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 2 $ 1 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-46
<PAGE>
TRI-CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Tri-City Mechanical, Inc., an Arizona corporation, (the "Company")
focuses on providing "design and build" installation services and maintenance,
repair and replacement of HVAC systems primarily for large commercial and
industrial facilities, as well as process piping for industrial facilities.
Tri-City primarily operates in Arizona, California and Nevada.

The Company and its shareholders intend to enter into a definitive
agreement with Comfort Systems USA, Inc. ("Comfort Systems") pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash
and shares of Comfort Systems common stock concurrently with the consummation of
the initial public offering (the "Offering") of the common stock of Comfort
Systems.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL INFORMATION

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

RESTRICTED CASH

The Company also maintains restricted cash which consists of certificates
of deposit. These certificates of deposit are held in a joint checking account
between the contractors and Tri-City for the retainage balance due from
contractors at the completion of the job.

INVENTORIES

INVESTMENTS

The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which requires that investments in debt securities and marketable equity
securities be designated as trading, held-to-maturity or available-for-sale. At
December 31, 1996, investments have been categorized as held-to-maturity, are
stated at cost, and are classified in the balance sheet as current assets.
Investments at December 31, 1996 consist of U.S. Treasury Bills.

PROPERTY AND EQUIPMENT

F-47
<PAGE>
TRI-CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION

WARRANTY COSTS

INCOME TAXES

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset is compared to the asset's carrying amount to determine if a
write-down to market value is necessary. Adoption of this standard did not have
a material effect on the financial position or results of operations of the
Company.

F-48
<PAGE>
TRI-CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):

ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1995 1996
------------ --------- ---------
Transportation equipment............. 5 $ 521 $ 623
Machinery and equipment.............. 10 639 680
Computer and telephone equipment..... 5 121 157
Leasehold improvements............... 5 48 48
Furniture and fixtures............... 6 54 54
--------- ---------
1,383 1,562
Less -- Accumulated depreciation..... (875) (906)
--------- ---------
Property and equipment, net..... $ 508 $ 656
========= =========

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):

DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Balance at beginning of year......... $ 100 $ 130 $ 130
Additions to costs and expenses...... 184 1 48
Deductions for uncollectible
receivables written off and
recoveries......................... (154) (1) (148)
--------- --------- ---------
$ 130 $ 130 $ 30
========= ========= =========

Accounts payable and accrued expenses consist of the following (in
thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Accounts payable, trade................. $ 2,178 $ 1,749
Accrued compensation and benefits....... 181 97
Warranty reserve........................ 301 278
Other accrued expenses.................. 23 55
--------- ---------
$ 2,683 $ 2,179
========= =========

F-49
<PAGE>
TRI-CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Installation contracts in progress are as follows (in thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Costs incurred on contracts in
progress........................... $ 14,659 $ 8,615
Estimated earnings, net of losses.... 3,865 2,471
--------- ---------
18,524 11,086
Less -- Billings to date............. 20,425 11,465
--------- ---------
$ (1,901) $ (379)
========= =========
Costs and estimated earnings in
excess of billings on
uncompleted contracts.............. $ 306 $ 288
Billings in excess of costs and
estimated earnings on
uncompleted contracts.............. (2,207) (667)
--------- ---------
$ (1,901) $ (379)
========= =========

5. LONG-TERM DEBT:

The Company has a $1.0 million line of credit with a financial services
company. The line of credit expires October 31, 1997, and bears interest at 9
percent per annum. The line of credit is secured by a lien on accounts
receivable. There was no balance outstanding under this line of credit at
December 31, 1995 or 1996.

6. LEASES:

The Company leases facilities from a company which is wholly owned by one
of the shareholders. The lease expires June 30, 1998. The rent paid under this
related-party lease was approximately $109,000 for the year ended 1996. The
lease requires the Company to pay taxes, maintenance, insurance and certain
other operating costs of the leased property. The lease contains renewal and
termination provisions.

The Company leases vehicles for certain key members of management. The
leases expire October 1, 1999. The lease payments under these vehicle leases
were approximately $6,000, $15,000 and $16,000 for the years ended December 31,
1994, 1995 and 1996, respectively.

Future minimum lease payments for operating leases are as follows (in
thousands):

Year ending December 31 --
1997............................ $ 142
1998............................ 65
1999............................ 3
---------
$ 210
=========

7. EMPLOYEE BENEFIT PLANS:

The Company has adopted a 401(k) plan. The plan provides for the Company to
match 20 percent of the first 6 percent contributed by each employee. Total
contributions by the Company under this plan were approximately $13,000, $22,000
and $24,000 during 1994, 1995 and 1996, respectively. Amounts due to this plan
were approximately $ --, $ -- and $4,000 for the years ended December 31, 1994,
1995 and 1996, respectively.

F-50
<PAGE>
TRI-CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. RELATED-PARTY TRANSACTIONS:

The Company provides accounting services and building maintenance at no
cost to Nothum Properties & SMAC companies which are wholly owned by the
shareholders. The estimated value of the services provided during the years
ended December 31, 1994, 1995 and 1996 was $25,000, $28,000 and $30,000,
respectively.

9. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
investments, and a line of credit. The Company believes that the carrying value
of these instruments on the accompanying balance sheet approximates their fair
value.

11. SALES TO SIGNIFICANT CUSTOMER:

For the years ended December 31, 1994, 1995 and 1996, a customer accounted
for approximately 17, 11 and 11 percent, respectively, of the Company's sales.

12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

As of June 30, 1997, the Company distributed $6,846,000 from the Company's
S Corporation accumulated adjustment account. The Company distributed
approximately $388,000 subsequent to the merger which has been reflected in the
accompanying financial statements.

Concurrently with the merger, the Company entered into agreements with the
shareholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.

Tri-City has a verbal commitment with a limited liability corporation owned
by Mr. Nothum, Jr. and his father to construct new office, operations and
warehouse facilities. The Company believes that the rent for its current and
future property does not and will not exceed fair market value.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-51

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To S. M. Lawrence Inc.:

We have audited the accompanying combined balance sheets of S. M. Lawrence
Inc. and related company as of October 31, 1995 and 1996, and the related
combined statements of operations, shareholders' equity and cash flows for the
three years ended October 31, 1996. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of S. M. Lawrence Inc.
and related company as of October 31, 1995 and 1996, and the results of their
operations and their cash flows for the three years ended October 31, 1996 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-52
<PAGE>
S. M. LAWRENCE INC. AND RELATED COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

OCTOBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ---------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 680 $ 327 $ 162
Accounts receivable --
Trade......................... 1,457 2,493 2,344
Retainage..................... 454 896 1,006
Other receivables............. 1 1 --
Note receivable from shareholder... 50 75 --
Inventories........................ 215 253 211
Costs and estimated earnings in
excess of billings on
uncompleted contracts............ 66 358 278
Prepaid expenses and other current
assets........................... 39 61 192
--------- --------- ---------
Total current assets..... 2,962 4,464 4,193
PROPERTY AND EQUIPMENT, net............. 459 644 743
OTHER NONCURRENT ASSETS................. 138 132 207
--------- --------- ---------
Total assets............. $ 3,559 $ 5,240 $ 5,143
========= ========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Line of credit..................... $ 10 $ -- $ --
Note payable to affiliate.......... -- -- --
Accounts payable and accrued
expenses......................... 1,153 2,737 1,959
Income tax payable................. -- -- --
Billings in excess of costs and
estimated earnings on
uncompleted contracts............ 299 344 724
--------- --------- ---------
Total current
liabilities........... 1,462 3,081 2,683
LONG-TERM DEBT, net of current
maturities............................ -- -- 300
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 3,000
shares authorized, 1,480 shares
issued and outstanding........... 161 161 161
Treasury stock, at cost............ (15) (15) (15)
Retained earnings.................. 1,951 2,013 2,014
--------- --------- ---------
Total shareholders'
equity................ 2,097 2,159 2,160
--------- --------- ---------
Total liabilities and
shareholders'
equity................ $ 3,559 $ 5,240 $ 5,143
========= ========= =========

The accompanying notes are an integral part of these combined financial
statements.

F-53
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
YEARS ENDED OCTOBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 12,758 $ 12,568 $ 17,163 $ 9,775 $ 11,575
COST OF SERVICES........................ 9,797 9,142 12,211 7,200 8,156
--------- --------- --------- --------- ---------
Gross profit....................... 2,961 3,426 4,952 2,575 3,419
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 2,849 3,477 4,885 2,890 3,460
--------- --------- --------- --------- ---------
Income (loss) from operations......... 112 (51) 67 (315) (41)
OTHER INCOME (EXPENSE):
Interest income, net.................. 32 55 47 -- 3
Other................................. (41) 34 8 22 39
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES....... 103 38 122 (293) 1
PROVISION (BENEFIT) FOR INCOME TAXES.... 50 30 60 (117) --
--------- --------- --------- --------- ---------
NET INCOME (LOSS)....................... $ 53 $ 8 $ 62 $ (176) $ 1
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-54
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
--------- ------ --------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, October 31, 1993............ 1,480 $ 161 $ 1,890 $ (15) $ 2,036

Net income...................... -- -- 53 -- 53
--------- ------ --------- --------- -------------
BALANCE, October 31, 1994............ 1,480 161 1,943 (15) 2,089

Net income...................... -- -- 8 -- 8
--------- ------ --------- --------- -------------
BALANCE, October 31, 1995............ 1,480 161 1,951 (15) 2,097

Net income...................... -- -- 62 -- 62
--------- ------ --------- --------- -------------
BALANCE, October 31, 1996............ 1,480 161 2,013 (15) 2,159

Net income (unaudited).......... -- -- 1 -- 1
--------- ------ --------- --------- -------------
BALANCE, June 30, 1997 (unaudited)... 1,480 $ 161 $ 2,014 $ (15) $ 2,160
========= ====== ========= ========= =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-55
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
YEARS ENDED OCTOBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 53 $ 8 $ 62 $ (176) $ 1
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating
activities --
Depreciation and amortization... 263 121 200 32 152
Gain on sale of property and
equipment..................... -- -- -- -- (128)
Changes in operating assets and
liabilities
(Increase) decrease in --
Accounts receivable........ 262 203 (1,502) (1,231) 115
Inventories................ (18) (26) (38) 66 42
Costs and estimated
earnings in excess of
billings on uncompleted
contracts............... 42 26 (292) (122) 80
Prepaid expenses and other
assets.................. 46 (13) 3 (91) (206)
Increase (decrease) in --.....
Accounts payable and
accrued expenses........ (156) 143 1,584 1,093 (778)
Billings in excess of costs
on uncompleted
contracts............... 33 (171) 45 726 380
--------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities......... 525 291 62 297 (342)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments of (additions to) cash
surrender value of insurance.... (38) (45) (19) 3 --
Sales (purchases) of property and
equipment, net.................. (74) (380) (386) (188) (123)
--------- --------- --------- --------- ---------
Net cash used in
investing
activities......... (112) (425) (405) (185) (123)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note receivable from
shareholder..................... -- (2) (10) (10) --
Proceeds received on note from
shareholder..................... -- 12 -- -- --
Payments on note payable to
shareholder..................... (181) -- -- -- --
Borrowings on long-term debt....... -- -- -- -- 300
--------- --------- --------- --------- ---------
Net cash provided by
(used in)
financing
activities......... (181) 10 (10) (10) 300
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 232 (124) (353) 102 (165)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 572 804 680 680 327
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 804 $ 680 $ 327 $ 782 $ 162
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 14 $ -- $ 5 $ -- $ --
Income taxes.................... -- 16 14 -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-56
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

S.M. Lawrence Inc., a Tennessee corporation (the "Company") focuses on
providing "design and build" installation services and process piping
primarily for industrial facilities and maintenance, repair and replacement of
commercial and industrial HVAC systems. S.M. Lawrence primarily operates in
Tennessee and the immediately surrounding states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The financial statements include the accounts and results of operations of
S.M. Lawrence Inc. and Lawrence Services, Inc. which are under common control
and management of two individuals. All significant intercompany transactions and
balances have been eliminated in combination.

INTERIM FINANCIAL INFORMATION

The interim combined financial statements as of June 30, 1997, and for the
eight months ended June 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the combined
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, and depreciation is computed
using an accelerated method of depreciation. Leasehold improvements are
capitalized and amortized over the lesser of the life of the lease or the
estimated useful life of the asset.

REVENUE RECOGNITION

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-

F-57
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

completion method measured by the percentage of costs incurred to total
estimated costs for each contract. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects are recognized in the period in which the revisions are
determined.

WARRANTY COSTS

The Company warrants labor and parts for one year after installation of new
air conditioning and heating systems. A reserve for warranty costs is recorded
upon completion of installation or service.

INCOME TAXES

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect on
the financial position or results of operations of the Company.

F-58
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):

ESTIMATED OCTOBER 31,
USEFUL LIVES --------------------
IN YEARS 1995 1996
------------ --------- ---------
Transportation equipment............. 5 $ 774 $ 907
Machinery and equipment.............. 7 648 677
Furniture and fixtures............... 5 145 210
Leasehold improvements............... 32 122 231
Construction in process.............. 81 --
--------- ---------
1,770 2,025
Less -- Accumulated depreciation and
amortization....................... (1,311) (1,381)
--------- ---------
Property and equipment,
net..................... $ 459 $ 644
========= =========

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Accounts payable and accrued expenses consist of the following (in
thousands):

OCTOBER 31,
--------------------
1995 1996
--------- ---------
Accounts payable, trade.............. $ 620 $ 1,560
Accrued compensation and benefits.... 466 1,091
Other accrued expenses............... 67 86
--------- ---------
$ 1,153 $ 2,737
========= =========

Installation contracts in progress are as follows (in thousands):

OCTOBER 31,
--------------------
1995 1996
--------- ---------
Costs incurred on contracts in
progress........................... $ 13,475 $ 15,503
Estimated earnings, net of losses.... 4,193 5,641
--------- ---------
17,668 21,144
Less -- Billings to date............. 17,901 21,130
--------- ---------
$ (233) $ 14
========= =========
Costs and estimated earnings in
excess of billings on
uncompleted contracts.............. $ 66 $ 358
Billings in excess of costs and
estimated earnings on
uncompleted contracts.............. (299) (344)
--------- ---------
$ (233) $ 14
========= =========

5. LINE OF CREDIT:

The Company had an unsecured bank line of credit at October 31, 1995 and
1996, with an outstanding balance of $0 for all years. The available balance was
$800,000 for 1995 and $850,000 for 1996. The line of credit is secured by
guarantees and is payable upon demand. Interest is payable on the line of credit
at prime plus 1 percent.

F-59
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. LEASES:

The Company leases facilities from a company which is owned by one of the
shareholders. The lease is for a one-year period and is renewed annually. For
each year ended October 31, 1994, 1995 and 1996, the rent expense under this
related-party lease was $110,400.

7. INCOME TAXES:

Federal and state income taxes are as follows (in thousands):

OCTOBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
Federal --
Current............................ $ 25 $ 24 $ 54
Deferred........................... 17 1 (3)
State --
Current............................ 5 4 10
Deferred........................... 3 1 (1)
-------- --------- ---------
$ 50 $ 30 $ 60
========= ========= =========

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes for 1994 and 1995 and 35 percent for 1996 as follows (in
thousands):

OCTOBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
Provision at the statutory rate......... $ 35 $ 13 $ 39
Increase resulting from --
State income tax, net of benefits
for federal deduction............ 5 3 6
Other.............................. 10 14 15
--------- --------- ---------
$ 50 $ 30 $ 60
========= ========= =========

Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following (in thousands):

OCTOBER 31,
------------------------
1995 1996
----------- -----------
Accruals and reserves not deductible
until paid............................ $ (1) $ 2
--------- ---------
Net deferred income tax assets
(liabilities)......................... $ (1) $ 2
========= =========

F-60
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The net deferred tax assets and liabilities are comprised of the following
(in thousands):

OCTOBER 31,
------------------------
1995 1996
----------- -----------
Deferred tax assets --
Current............................ $ -- $ 2
----------- -----------
Total......................... -- 2
----------- -----------
Deferred tax liabilities --
Current............................ (1) --
----------- -----------
Total......................... (1) --
----------- -----------
Net deferred income tax assets
(liabilities).............. $ (1) $ 2
========== ==========

8. RELATED-PARTY TRANSACTIONS:

The Company loans one of the shareholders money annually. In 1994, the
shareholder signed a promissory note for $44,695 to be paid on demand, accruing
interest at eight percent. The entire balance remained outstanding at year-end
1994. The entire note was repaid during fiscal year 1995. In fiscal year 1995,
the shareholder signed a promissory note for $50,435 to be paid on demand,
accruing interest at eight percent. The entire amount remained outstanding at
year-end 1995. The entire note was repaid during fiscal year 1996. In 1996, the
shareholder signed a promissory note for $75,435 to be paid on demand, accruing
interest at eight percent. The entire balance remained outstanding at year-end
1996.

The Company entered into a non-compete agreement with a former major
shareholder on November 1, 1991 for $542,562. Under this agreement, the former
shareholder agreed not to compete with the Company for a period of 36 months
beginning with November 1, 1991. The principal to be paid was recorded as an
asset and was fully amortized over 36 months. The last payment of $180,854 was
made during fiscal 1994.

In September 1995, the Company entered into an agreement to purchase
equipment from a related party. The terms of the agreement included a $2,776
cash down payment and a note payable due in one year for $11,852. Payments on
the note were $1,975 and $9,877 during 1995 and 1996, respectively.

9. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

The Company has adopted a partially self-funded medical plan. Under this
plan, the Company pays up to $20,000 per year per employee. The Company's
insurance copay pays the remaining amount. For the years ended December 31,
1994, 1995, and 1996 the Company contributed $102,647, $82,866 and $143,788,
respectively. For claims incurred but not yet reported the Company accrued
$25,000 for the years ended December 31, 1995 and 1996.

F-61
<PAGE>
S.M. LAWRENCE INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFIT PLANS:

The Company has adopted a 401(k) retirement plan which provides for 100
percent matching contribution by the Company, up to a maximum liability of 5
percent of each participating employee's annual compensation. The Company has
the right to make additional discretionary contributions. Total contributions by
the Company under this plan to provide contributions and pay expenses were
$57,434, $141,105 and $368,377 during 1994, 1995, and 1996, respectively.
Amounts due to this plan were approximately $117,508 and $397,000 for the years
ended December 31, 1995 and 1996, respectively.

11. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
notes receivable, investments, notes payable and a line of credit. The Company
believes that the carrying value of these instruments on the accompanying
balance sheet approximates their fair value.

12. SALES TO SIGNIFICANT CUSTOMER:

During 1996, one customer accounted for approximately 19 percent of the
Company's sales.

13. SUBSEQUENT EVENT:

In December 1996, the Company entered into an agreement to purchase a
one-third interest in an investment. The investment is a partnership and will
own an aircraft, available for use by any of the partners. The Company's cost
for this investment was $100,000. In connection with the agreement, the Company
signed a note payable to the partnership on December 31, 1996 for $100,000 with
interest of 7 percent. This note was fully paid in 1997.

14. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

Concurrently with the merger, the Company entered into agreements with the
shareholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-62

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Accurate Air Systems, Inc.:

We have audited the accompanying balance sheets of Accurate Air Systems,
Inc. as of June 30, 1995, December 31, 1995 and 1996, and the related statements
of operations, shareholder's equity and cash flows for each of the years ended
June 30, 1994 and 1995, for the six months ended December 31, 1995, and for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Accurate Air Systems, Inc.,
as of June 30, 1995, December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years ended June 30, 1994 and 1995, for
the six months ended December 31, 1995, and for the year ended December 31, 1996
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-63
<PAGE>
ACCURATE AIR SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1995 1996 1997
-------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 50 $ 33 $ 79 $ 208
Accounts receivable --
Trade, net of allowance of $70,
$70, $33 and $28,
respectively.................. 1,385 1,671 1,778 2,306
Retainage........................ 550 321 725 191
Other receivables................ 8 16 18 40
Inventories........................... 122 129 104 141
Costs and estimated earnings in excess
of billings on uncompleted
contracts.......................... 275 212 231 330
Prepaid expenses and other current
assets............................. 181 81 -- 12
-------- ------------ ------------ ------------
Total current assets............. 2,571 2,463 2,935 3,228
PROPERTY AND EQUIPMENT, net............. 804 1,014 925 497
DEFERRED TAX ASSET...................... 14 -- -- --
-------- ------------ ------------ ------------
Total assets..................... $3,389 $3,477 $3,860 $3,725
======== ============ ============ ============

LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................... $ 88 $ 109 $ 42 $--
Accounts payable and accrued
expenses........................... 1,707 1,355 1,236 1,514
Line of credit........................ 374 600 500 --
Note payable -- shareholder........... -- -- 630 (8)
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... 229 206 312 150
-------- ------------ ------------ ------------
Total current liabilities........ 2,398 2,270 2,720 1,656
LONG-TERM DEBT, net of current
maturities............................ 56 175 133 993
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock $1 par, 250,000 shares
authorized, 1,000 shares issued and
outstanding........................ 1 1 1 1
Retained earnings..................... 934 1,031 1,006 1,075
-------- ------------ ------------ ------------
Total shareholder's equity....... 935 1,032 1,007 1,076
-------- ------------ ------------ ------------
Total liabilities and
shareholder's equity.......... $3,389 $3,477 $3,860 $3,725
======== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-64
<PAGE>
ACCURATE AIR SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, SIX MONTHS ENDED
ENDED YEAR ENDED JUNE 30,
-------------------- DECEMBER 31, DECEMBER 31, --------------------
1994 1995 1995 1996 1996 1997
-------- -------- ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $9,763 $ 12,171 $5,585 $ 16,806 $ 7,416 $ 6,204

COSTS OF SERVICES.................... 7,204 8,998 4,312 13,270 5,707 4,776
-------- -------- ------------ ------------ --------- ---------
Gross profit.................... 2,559 3,173 1,273 3,536 1,709 1,428

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,681 2,960 1,131 3,037 1,376 1,200
-------- -------- ------------ ------------ --------- ---------
Income (Loss) from
operations.................... (122) 213 142 499 333 228

OTHER INCOME/(EXPENSE):

Interest expense................ (21) (48) (41) (80) (44) (65)

Other........................... (9) (9) (4) 14 26 7
-------- -------- ------------ ------------ --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... (152) 156 97 433 315 170
-------- -------- ------------ ------------ --------- ---------
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (54) 60 -- -- -- --
-------- -------- ------------ ------------ --------- ---------
NET INCOME (LOSS).................... $ (98) $ 96 $ 97 $ 433 $ 315 $ 170
======== ======== ============ ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-65
<PAGE>
ACCURATE AIR SYSTEMS, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED SHAREHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1993............... 1,000 $ 1 $ 941 $ 942

Net loss........................ -- -- (98) (98)
------ ------ -------- -------------
BALANCE, June 30, 1994............... 1,000 1 843 844

Distribution to shareholder..... -- -- (5) (5)

Net income...................... -- -- 96 96
------ ------ -------- -------------
BALANCE, June 30, 1995............... 1,000 1 934 935

Net income...................... -- -- 97 97
------ ------ -------- -------------
BALANCE, December 31, 1995........... 1,000 1 1,031 1,032

Distributions to shareholder.... -- -- (458) (458)

Net income...................... -- -- 433 433
------ ------ -------- -------------
BALANCE, December 31, 1996........... 1,000 $ 1 $1,006 $ 1,007

Distributions to shareholders
(unaudited)................... -- -- (101) (101)

Net income (unaudited).......... -- -- 170 170
------ ------ -------- -------------
BALANCE, June 30, 1997 (unaudited)... 1,000 $ 1 $1,075 $ 1,076
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-66
<PAGE>
ACCURATE AIR SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, SIX MONTHS ENDED
ENDED YEAR ENDED JUNE 30,
-------------------- DECEMBER 31, DECEMBER 31, --------------------
1994 1995 1995 1996 1996 1997
--------- --------- ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (98) $ 96 $ 97 $ 433 $ 315 $ 170
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities --
Depreciation and amortization... 128 124 85 186 91 110
Deferred income tax provision... (150) (70) 81 -- -- --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable........ 127 (395) (66) (513) (1,180) (16)
Costs and estimated
earnings in excess of
billings on uncompleted
contracts................. (90) (58) 63 (19) (177) (99)
Prepaid expenses and other
current assets............ (1) (44) 31 81 81 (12)
Inventories................ (22) (16) (7) 25 19 (37)
Increase (decrease) in --
Accounts payable and
accrued expenses.......... 365 419 (350) (119) 248 278
Billings in excess of costs
and estimated earnings
on uncompleted
contracts............... 64 119 (22) 106 470 (162)
--------- --------- ------------ ------------ --------- ---------
Net cash provided by (used in)
operating activities........ 323 175 (88) 180 (133) 232
--------- --------- ------------ ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchase) of property and
equipment......................... (100) (347) (295) (97) (18) (52)
--------- --------- ------------ ------------ --------- ---------
Net cash provided by (used in)
investing activities........ (100) (347) (295) (97) (18) (52)
--------- --------- ------------ ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt....... -- 183 192 -- -- 239
Payments of long-term debt......... (186) (39) (52) (109) (66) --
Borrowings of short-term debt...... -- -- -- 630 -- --
Borrowings on line of credit....... 50 -- 226 -- -- --
Payments on line of credit......... -- (76) -- (100) -- --
Distributions to shareholder....... -- (5) -- (458) 426 (290)
--------- --------- ------------ ------------ --------- ---------
Net cash provided by (used in)
financing activities........ (136) 63 366 (37) 360 (51)
--------- --------- ------------ ------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 87 (109) (17) 46 209 129
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 72 159 50 33 33 79
--------- --------- ------------ ------------ --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 159 $ 50 $ 33 $ 79 $ 242 $ 208
========= ========= ============ ============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 21 $ 48 $ 41 $ 79 $ 44 $ 66
Income taxes.................... 53 34 -- -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-67
<PAGE>
ACCURATE AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Accurate Air Systems, Inc., a Texas corporation, (the "Company") focuses
on providing "design and build" installation services and maintenance, repair
and replacement of HVAC systems for commercial facilities. Accurate primarily
operates in Texas and Oklahoma.

The Company and its shareholder intend to enter into a definitive agreement
with Comfort Systems USA, Inc. ("Comfort Systems") pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Comfort Systems common stock concurrently with the consummation of the
initial public offering (the "Offering") of the common stock of Comfort
Systems.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CHANGE IN FISCAL YEAR END

Effective July 1, 1995, the Company changed its fiscal year end from June
30 to December 31. The statements of operations, shareholder's equity and cash
flows for the six months ended December 31, 1995 are presented in the
accompanying financial statements. The results of operations for the six month
period are not necessarily indicative of the results for a full year period.

INTERIM FINANCIAL INFORMATION

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

PROPERTY AND EQUIPMENT

REVENUE RECOGNITION

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-

F-68
<PAGE>
ACCURATE AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

WARRANTY COSTS

The Company warrants labor for the first year after installation on new air
conditioning and heating systems. The Company generally warrants labor for 90
days after the servicing of existing air conditioning and heating systems. A
reserve for warranty costs is recorded upon completion of installation or
service.

INCOME TAXES

Effective July 1, 1995, the Company elected S Corporation status as defined
by the Internal Revenue Code whereby the Company is not subject to taxation for
federal purposes. Under S Corporation status, each shareholder reports his share
of the Company's taxable earnings or losses in his personal federal and state
tax returns. The balance in the deferred tax liability account at July 1, 1995
was credited to income during the six month period ended December 31, 1995.

Prior to July 1, 1995, the Company followed the liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109. Under this method, deferred income taxes were recorded
based upon differences between the financial reporting and tax bases of assets
and liabilities and were measured using the enacted tax rates and laws that
would have been in effect when the underlying assets or liabilities were
recovered or settled.

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

F-69
<PAGE>
ACCURATE AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES JUNE 30, --------------------
IN YEARS 1995 1995 1996
------------ -------- --------- ---------
<S> <C> <C> <C> <C>
Land................................. -- $ 200 $ 200 $ 200
Buildings............................ 31.5 205 213 213
Transportation equipment............. 5 414 336 241
Machinery and equipment.............. 5 - 7 262 477 510
Leasehold improvements............... 15 - 18 57 60 61
Furniture and fixtures............... 5 - 7 74 122 133
-------- --------- ---------
Less -- Accumulated depreciation and
amortization....................... (408) (394) (433)
-------- --------- ---------
Property and equipment, net..... $ 804 $ 1,014 $ 925
======== ========= =========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS):

Activity in the Company's allowance for doubtful accounts consist of the
following:

DECEMBER 31,
JUNE 30, --------------------
1995 1995 1996
-------- --------- ---------
Balance at beginning of year......... $ 57 $ 70 $ 70
Additions to costs and expenses...... 19 -- --
Deductions for uncollectible
receivables written off and
recoveries......................... (6) -- (37)
-------- --------- ---------
$ 70 $ 70 $ 33
======== ========= =========

Accounts payable and accrued expenses consist of the following:

DECEMBER 31,
JUNE 30, --------------------
1995 1995 1996
-------- --------- ---------
Accounts payable, trade.............. $ 537 $ 871 $ 685
Accrued compensation and benefits.... 509 179 288
Other accrued expenses............... 575 243 190
Warranty reserve..................... 86 62 73
-------- --------- ---------
$1,707 $ 1,355 $ 1,236
======== ========= =========

Installation contracts in progress are as follows:

DECEMBER 31,
JUNE 30, --------------------
1995 1995 1996
-------- --------- ---------
Costs incurred on contracts in
progress........................... $4,113 $ 2,468 $ 5,514
Estimated earnings, net of losses.... 1,428 726 1,760
Less -- Billings to date............. 5,495 3,188 7,355
-------- --------- ---------
$ 46 $ 6 $ (81)
======== ========= =========
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 275 $ 212 $ 231
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (229) (206) (312)
-------- --------- ---------
$ 46 $ 6 $ (81)
======== ========= =========

F-70
<PAGE>
ACCURATE AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. SHORT-TERM DEBT:

On October 15, 1996, the Company executed a renewal and extension of its
revolving line of credit with its bank. The new agreement provides for maximum
borrowings of up to $900,000 with interest payable monthly on the amount
outstanding at the rate of prime plus one percent, not to exceed 18 percent. The
agreement provides that the Company may borrow up to 70 percent of its accounts
receivable that are less than sixty days past due. The revolving line of credit
is secured by accounts receivable and the personal guaranty of the sole
shareholder, and requires the Company to maintain certain minimum tangible net
worth and cash flow ratios. Balances outstanding relating to the line are
approximately $374,000, $600,000, and $500,000 as of June 30, 1995, and December
31, 1995 and 1996, respectively. The Company was in compliance with all
covenants at each applicable year end.

On December 27, 1996, the Company borrowed $630,000 from the Company's
shareholder. Interest is payable monthly at a rate of 9 percent on the
outstanding balance. The note matures on June 30, 1997. The entire balance was
outstanding as of December 31, 1996.

6. LONG-TERM DEBT:

DECEMBER 31,
JUNE 30, --------------------
1995 1995 1996
-------- --------- ---------
(IN THOUSANDS)
Note payable, secured by real estate,
payable in twenty-four installments
of $2,540 including interest at
9.50% per annum with the final
payment due January 28, 1997....... $ 44 $ 31 $ --
Notes payable, secured by
transportation and operating
equipment, monthly installments of
various amounts, including interest
at rates ranging from 9.00% to
9.75% per annum until 1997......... 100 69 21
Note payable, secured by operating
equipment, payable in thirty-five
installments of $3,177 including
interest at a rate of prime plus
one percent. A final payment of
$128,696 due on August 1, 1998..... -- 184 154
-------- --------- ---------
144 284 175
Less -- Current maturities........... 88 109 42
-------- --------- ---------
$ 56 $ 175 $ 133
======== ========= =========

The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):

1997................................. $ 42
1998................................. 133
---------
$ 175
=========

7. LEASES:

The Company leases facilities from a company which is partially owned by
the shareholder. The lease expires in April 1999. The rent paid under this
related-party lease was approximately $15,000, $60,000, $30,000 and $60,000 for
the years ended June 30, 1994 and 1995, the six months ended December 31, 1995
and the year ended December 31, 1996 respectively. The Company also leased a
facility from a third party, which expired on December 31, 1996. The rent paid
under this lease was approximately $12,000, $12,000, $6,000 and $13,200 for the
years ended June 30, 1994 and 1995, the six months ended December 31, 1995, and
the year ended December 31, 1996, respectively. The leases require the Company
to pay taxes, maintenance, insurance and certain other operating costs of the
leased properties.

F-71
<PAGE>
ACCURATE AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company also leases vehicles for operations which expire in 1998. The
payments under these vehicle leases were approximately $--, $1,400, $26,000 and
$94,000 for the years ended June 30, 1994 and 1995, the six months ended
December 31, 1995 and the year ended December 31, 1996, respectively.

Future minimum lease payments for operating leases are as follows (in
thousands):

DECEMBER 31,
1996
------------
Year Ended
1997............................... $ 197
1998............................... 60
1999............................... 15
------------
$ 272
============

8. INCOME TAXES (IN THOUSANDS):

Federal and state income taxes are as follows:

YEAR ENDED JUNE 30,
--------------------
1994 1995
--------- ---------
Federal --
Current............................ $ (37) $ 111
Deferred........................... (9) (60)
State --
Current............................ (7) 20
Deferred........................... (1) (11)
--------- ---------
$ (54) $ 60
========= =========

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:

YEAR ENDED JUNE 30,
--------------------
1994 1995
--------- ---------
Provision at the statutory rate......... $ (52) $ 53
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction............. (2) 6
Other.............................. -- 1
--------- ---------
$ (54) $ 60
========= =========

F-72
<PAGE>
ACCURATE AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

JUNE 30,
1995
--------
Depreciation and amortization........ $ 14
Accruals and reserves not deductible
until paid......................... 121
State taxes.......................... (4)
Cash to accrual adjustments.......... (50)
--------
Net deferred income tax assets....... $ 81
========

The net deferred tax assets and liabilities are comprised of the following:

JUNE 30,
1995
--------
Deferred tax assets --
Current......................... $ 114
Long-term....................... 14
--------
Total...................... 128
--------
Deferred tax liabilities --
Current......................... 47
Long-term....................... --
--------
Total...................... 47
--------
Net deferred income tax
assets................. $ 81
========

9. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

Effective January 1, 1995, the Company became self-insured for medical
claims up to $30,000 per year per covered individual per event. Claims in excess
of these amounts are covered by a stop-loss policy. The Company has recorded
reserves for self-insured claims based on estimated claims incurred through June
30, 1995, six months ended December 31, 1995 and the year ended December 31,
1996.

10. EMPLOYEE BENEFIT PLANS:

The Company has adopted a 401(k) plan which provides for 10 percent
matching contributions by the Company, up to a maximum of 6 percent of each
participating employee's annual compensation. The Company has the right to make
additional discretionary contributions. Employees become 100 percent vested in
the employer's contribution after 7 years of service. Total contributions by the
Company under

F-73
<PAGE>
ACCURATE AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

this plan to provide contributions and pay expenses were approximately $118,000,
$131,000, $12,000 and $199,000 during the years ended June 30, 1994 and 1995,
the six months ended December 31, 1995 and the year ended December 31, 1996,
respectively. Amounts due to this plan were approximately $109,000, $--and
$173,000 for the year ended June 30, 1995, the six months ended December 31,
1995 and the year ended December 31, 1996, respectively.

The Company also adopted a discretionary profit-sharing plan under which
the Company may contribute up to 25 percent of a participant's compensation, up
to a maximum contribution of $30,000. Employees become 100 percent vested in the
employer's contributions after 7 years of service. The Company's contributions
and administrative expenses were approximately $5,000, $8,000, $-- and $--, for
the years ended June 30, 1994 and 1995, and six months ended December 31, 1995
and the year ended December 31, 1996, respectively.

11. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
notes payable, a line of credit, and debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheet
approximates their fair value.

12. CAPITAL STOCK:

In addition to the 250,000 authorized shares of $1 par value voting common
stock, the Company has the following classes of authorized capital stock. None
of these three classes have been issued.

SHARES PAR
AUTHORIZED VALUE
----------- ------
Nonvoting Common..................... 250,000 $ 1
Voting Preferred..................... 250,000 $ 1
Nonvoting Preferred.................. 250,000 $ 1

13. SALES TO SIGNIFICANT CUSTOMERS:

For the years ended June 30, 1994 and 1995, the six months ended December
31, 1995, and year ended December 31, 1996 one customer accounted for
approximately 12, 25, 13, and 0 percent, respectively, of the Company's revenue.

14. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

In March 1997, the Company and its shareholder entered into a definitive
agreement with a wholly-owned subsidiary of Comfort Systems, providing for the
merger of the Company with the subsidiary of Comfort Systems. On July 2, 1997,
Comfort Systems completed its initial public offering and the merger with the
Company.

In connection with the merger, the Company transferred certain assets to
the shareholder, consisting of land, buildings, and automobiles, with a total
carrying value of approximately $370,000 as of June 30, 1997. The Company also
distributed approximately $101,000 to its shareholder as of June 30, 1997.

Concurrently with the merger, the Company entered into new agreements with
a company partially owned by the shareholder to lease land and buildings owned
by such party used in the Company's operations for a negotiated amount and term.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-74

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Eastern Heating and Cooling, Inc.:

We have audited the accompanying balance sheet of Eastern Heating and
Cooling, Inc., as of December 31, 1996, and the related statements of
operations, shareholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eastern Heating and Cooling,
Inc., as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-75
<PAGE>
EASTERN HEATING AND COOLING, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 83 $ 485
Accounts receivable --
Trade, net of allowance of
$25 and $26,
respectively............ 1,214 1,197
Retainage.................. 43 82
Other receivables.......... 13 --
Inventories..................... 100 113
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 66 450
Prepaid expenses and other
current assets................. -- 181
------------ ------------
Total current
assets............. 1,519 2,508
PROPERTY AND EQUIPMENT, net.......... 604 638
OTHER NONCURRENT ASSETS.............. 144 132
------------ ------------
Total assets.......... $2,267 $3,278
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt........................... $ 302 $--
Accounts payable and accrued
expenses....................... 826 1,527
Line of credit.................. 140 --
Billings in excess of costs and
estimated earnings on
uncompleted contracts.......... 102 98
------------ ------------
Total current
liabilities........ 1,370 1,625
PAYABLE TO SHAREHOLDER............... -- 465
LONG-TERM DEBT, net of current
maturities......................... 431 1,138
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value, 200
shares authorized, 100 shares
issued and outstanding......... 50 50
Retained earnings............... 416 --
------------ ------------
Total shareholder's
equity............. 466 50
------------ ------------
Total liabilities and
shareholder's
equity............. $2,267 $3,278
============ ============

The accompanying notes are an integral part of these financial statements.

F-76
<PAGE>
EASTERN HEATING AND COOLING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)

SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)

REVENUES............................. $ 7,944 $ 4,047 $ 3,465

COST OF SERVICES..................... 5,276 2,714 2,112
------------ --------- ---------

Gross profit.................... 2,668 1,333 1,353

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,237 1,084 1,144
------------ --------- ---------

Income from operations.......... 431 249 209

OTHER INCOME (EXPENSE):

Interest expense................ (87) (46) (43)

Other........................... 40 2 34
------------ --------- ---------

NET INCOME........................... $ 384 $ 205 $ 200
============ ========= =========

The accompanying notes are an integral part of these financial statements.

F-77
<PAGE>
EASTERN HEATING AND COOLING, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED SHAREHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 100 $ 50 $ 356 $ 406

Distributions to shareholder.... -- -- (324) (324)

Net income...................... -- -- 384 384
------ ------ -------- -------------
BALANCE, December 31, 1996........... 100 $ 50 $ 416 $ 466

Distributions to shareholder
(unaudited)................... -- -- (616) (616)

Net income (unaudited).......... -- -- 200 200
------ ------ -------- -------------
BALANCE, June 30, 1997 (unaudited)... 100 $ 50 $-- $ 50
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-78
<PAGE>
EASTERN HEATING AND COOLING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................ $ 384 $ 205 $ 200
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and amortization.... 144 60 79
Gain on sale of property and
equipment....................... (31) -- 13
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable......... (434) (493) 3
Inventories................. 4 (14) (13)
Costs and estimated earnings
in excess of billings on
uncompleted contracts..... 123 33 (384)
Other noncurrent assets..... 80 (71) (181)
Increase (decrease) in --
Accounts payable and accrued
expenses.................. 246 286 701
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... 10 99 (4)
------------ --------- ---------
Net cash provided by
operating
activities........... 526 105 414
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and
equipment, net................... (224) (9) (126)
------------ --------- ---------
Net cash used in
investing
activities........... (224) (9) (126)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt....... 208 139 265
Borrowings from shareholder........ -- -- 465
Payments of long-term debt......... (280) -- --
Borrowings on line of credit....... 140 -- --
Distributions to shareholder....... (325) (205) (616)
------------ --------- ---------
Net cash provided by
(used in) financing
activities........... (257) (66) 114
------------ --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 45 30 402
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 38 38 83
------------ --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 83 $ 68 $ 485
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ 52 $ 46 $ 43

The accompanying notes are an integral part of these financial statements.

F-79
<PAGE>
EASTERN HEATING AND COOLING, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Eastern Heating and Cooling, Inc., a New York corporation, (the
"Company") focuses on providing "design and build" installation and
maintenance, repair and replacement of HVAC systems for commercial and
industrial facilities. Eastern also offers continuous monitoring and control
systems for commercial facilities. Eastern primarily operates in the area within
a 75 mile radius of Albany, New York.

The Company and its shareholder intends to enter into a definitive
agreement with Comfort Systems USA, Inc. ("Comfort Systems") pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash
and shares of Comfort Systems common stock concurrently with the consummation of
the initial public offering (the "Offering") of the common stock of Comfort
Systems.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL INFORMATION

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT

REVENUE RECOGNITION

F-80
<PAGE>
EASTERN HEATING AND COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The balances billed but not paid by customers pursuant to retainage
provision in construction contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the retention balance will be billed and collected in
the upcoming fiscal year.

WARRANTY COSTS

INCOME TAXES

The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholder reports his share of the
Company's taxable earnings or losses in his personal tax returns. The Company
will terminate its S Corporation status concurrently with the effective date of
this Offering.

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to market value is necessary.
Adoption of this standard did not have a material effect on the financial
position or results of operations of the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):

ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1996
------------ ------------
Transportation equipment............. 7 $ 957
Machinery and equipment.............. 10 54
Computer and telephone equipment..... 3-5 6
Leasehold improvements............... 20 36
Furniture and fixtures............... 7-10 126
------------
1,179
Less -- Accumulated depreciation and
amortization....................... (575)
------------
Property and equipment, net..... $ 604
============

F-81
<PAGE>
EASTERN HEATING AND COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):

DECEMBER 31,
1996
------------
Balance at beginning of year......... $ 16
Additions to costs and expenses...... 25
Deductions for uncollectible
receivables written off and
recoveries......................... (16)
------------
$ 25
============

Accounts payable and accrued expenses consist of the following (in
thousands):

DECEMBER 31,
1996
------------
Accounts payable, trade.............. $ 611
Accrued compensation and benefits.... 120
Other accrued expenses............... 95
------------
$ 826
============

Installation contracts in progress are as follows (in thousands):

DECEMBER 31,
1996
------------
Costs incurred on contracts in
progress........................... $ 749
Estimated earnings, net of losses.... 235
------------
984
Less -- Billings to date............. 1,020
------------
$ (36)
============

Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 66
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (102)
------------
$ (36)
============

5. LONG-TERM DEBT:

Long-term debt consists of the following:

The Company has a term note payable to a financial institution with an
outstanding balance of approximately $133,000 at December 31, 1996. The term
note matures in April 1999, and bears interest at prime plus 2 percent (10.25
percent at December 31, 1996) which is payable along with principal of $4,583
monthly. The note is secured by substantially all assets of the Company and is
guaranteed by the Company's shareholder.

The Company has various installment notes with several financial
institutions which are secured by transportation equipment. The terms of the
notes range from 48 months to 60 months with monthly payments of principal and
interest of approximately $12,300. The notes bear interest at rates ranging from
6.5 percent to 10.5 percent and mature from 1997 to 2001.

The Company has a note payable to its former owner with an outstanding
balance of $288,444 at December 31, 1996. The note payable was calculated using
an implied interest rate of 9 percent. The note

F-82
<PAGE>
EASTERN HEATING AND COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

payable is due in installments of $159,385 on January 1, 1997 and $168,948 on
January 1, 1998, including interest.

The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):

Year ending December 31 --
1997............................ $ 302
1998............................ 296
1999............................ 85
2000............................ 42
2001............................ 8
---------
$ 733
=========

6. LINE OF CREDIT:

The Company has a $500,000 line of credit with a financial services
company. The line of credit is due on demand and bears interest at prime plus 1
percent per annum (9.25 percent at December 31, 1996). The line of credit is
secured by substantially all assets of the Company. The balance outstanding
under this line of credit at December 31, 1996 was $140,000.

7. LEASES:

The Company leases a facility from a company which is 50 percent owned by
the Company's shareholder. The lease expires in December 1999. The rent paid
under this related-party lease was approximately $50,000 for the year ended
December 31, 1996.

Additionally, the Company rents other facilities from non-related parties.
Future minimum lease payments under non-cancellable operating leases are as
follows (in thousands):

Year Ended December 31 --
1997............................... $ 55
1998............................... 55
1999............................... 50
------------
$ 160
============

8. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

F-83
<PAGE>
EASTERN HEATING AND COOLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
investments, notes payable, a line of credit, and debt. The Company believes
that the carrying value of these instruments on the accompanying balance sheet
approximates their fair value.

10. SALES TO SIGNIFICANT CUSTOMER:

During 1996, one customer accounted for approximately 12 percent of the
Company's sales.

11. SUBSEQUENT EVENT:

Effective January 2, 1997, an affiliate of the Company acquired the
business and certain operating assets of RECC, Inc., a New York corporation.
This affiliate agreed to pay $10,000 over a period of one year.

12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

As of June 30, 1997, the Company distributed $454,000 from the accumulated
adjustment account. The Company distributed approximately $162,000 subsequent to
the merger which has been reflected in the accompanying financial statements.

Concurrently with the merger, the Company entered into agreements with the
shareholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.

Eastern intends to enter into a 10-year lease with 60 Loudonville Road
Associates for a new building and terminate the existing lease. Eastern has
agreed to install the HVAC systems in the new building at a price which the
Company believes to be at a fair market value. The Company's annual rental in
the new building will be at fair market value, as determined by appraisal.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-84

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Contract Service, Inc.:

We have audited the accompanying balance sheets of Contract Service, Inc.,
as of December 31, 1995 and 1996, and the related statements of operations,
shareholders' equity and cash flows for the three years ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Contract Service, Inc., as
of December 31, 1995 and 1996, and the results of their operations and their
cash flows for the three years ended December 31, 1996 in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-85
<PAGE>
CONTRACT SERVICE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 116 $ 207 $ 264
Accounts receivable --
Trade, net of allowance of
$11, $22 and $20,
respectively............... 651 680 732
Retainage..................... 10 26 20
Other......................... -- -- 4
Inventories........................ 306 362 486
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................ 104 110 158
Prepaid expenses and other current
assets........................... 11 4 15
--------- --------- -----------
Total current assets.......... 1,198 1,389 1,679
PROPERTY AND EQUIPMENT, net............. 549 642 676
OTHER NONCURRENT ASSETS................. 14 16 23
--------- --------- -----------
Total assets.................. $ 1,761 $ 2,047 $ 2,378
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term
debt............................. $ 100 $ 100 $ 1
Accounts payable and accrued
expenses......................... 576 691 749
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................ 149 136 235
--------- --------- -----------
Total current liabilities..... 825 927 985
PAYABLE TO SHAREHOLDERS................. -- -- 529
LONG-TERM DEBT, net of current
maturities............................ 263 429 855
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 20,000
shares authorized, 8,946 shares
issued and outstanding........... 9 9 9
Retained earnings.................. 664 682 --
--------- --------- -----------
Total shareholders' equity.... 673 691 9
--------- --------- -----------
Total liabilities and
shareholders' equity....... $ 1,761 $ 2,047 $ 2,378
========= ========= ===========

The accompanying notes are an integral part of these financial statements.

F-86
<PAGE>
CONTRACT SERVICE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 6,502 $ 6,361 $ 7,842 $ 3,509 $ 3,828

COST OF SERVICES........................ 4,393 4,413 5,201 2,354 2,535
--------- --------- --------- --------- ---------

Gross profit............. 2,109 1,948 2,641 1,155 1,293

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,228 1,500 1,660 723 865
--------- --------- --------- --------- ---------

Income from operations... 881 448 981 432 428

OTHER INCOME (EXPENSE):

Interest expense................... (5) (9) (29) (24) (43)

Other.............................. 29 38 51 31 16
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 905 $ 477 $ 1,003 $ 439 $ 401
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-87
<PAGE>
CONTRACT SERVICE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ------ -------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 8,946 $ 9 $ 660 $ 669

Distributions to shareholders... -- -- (911) (911)

Net income...................... -- -- 905 905
--------- ------ -------- --------------
BALANCE, December 31, 1994........... 8,946 9 654 663

Distributions to shareholders... -- -- (467) (467)

Net income...................... -- -- 477 477
--------- ------ -------- --------------
BALANCE, December 31, 1995........... 8,946 9 664 673

Distributions to shareholders... -- -- (985) (985)

Net income...................... -- -- 1,003 1,003
--------- ------ -------- --------------
BALANCE, December 31, 1996........... 8,946 9 682 691

Distributions to shareholders
(unaudited)................... -- -- (1,083) (1,083)

Net income (unaudited).......... -- -- 401 401
--------- ------ -------- --------------
BALANCE, June 30, 1997 (unaudited)... 8,946 $ 9 $-- $ 9
========= ====== ======== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-88
<PAGE>
CONTRACT SERVICE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 905 $ 477 $ 1,003 $ 439 $ 401
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Depreciation..................... 97 120 138 57 66
Gain (loss) on sale of property
and equipment................... 8 (5) -- -- --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable......... (219) (96) (45) (142) (50)
Inventories................. 20 (49) (57) (136) (124)
Costs and estimated earnings
in excess of billings on
uncompleted contracts...... (44) 35 (6) (36) (48)
Prepaid expenses and other
current assets............. (9) (2) 7 3 (7)
Other noncurrent assets..... (8) 5 (2) -- (11)
Increase (decrease) in --
Accounts payable and accrued
expenses................... (27) (3) 115 245 58
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... 12 17 (13) 69 99
--------- --------- --------- --------- ---------
Net cash provided by operating
activities.................... 735 499 1,140 499 384
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and
equipment......................... (138) (193) (230) (189) (100)
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... (138) (193) (230) (189) (100)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from shareholders....... -- -- -- -- 529
Borrowings of long-term debt....... 102 201 166 -- 327
Distributions to shareholders...... (911) (467) (985) (125) (1,083)
Collections of advances to officers
and shareholders.................. 86 -- -- -- --
--------- --------- --------- --------- ---------
Net cash (used in) financing
activities.................... (723) (266) (819) (125) (227)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (126) 40 91 185 57
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 202 76 116 116 207
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 76 $ 116 $ 207 $ 301 $ 264
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ 6 $ 30 $ 41 $ 24 $ 41
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-89
<PAGE>
CONTRACT SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Contract Service, Inc., a Utah corporation, (the "Company") focuses on
providing comprehensive maintenance, repair and replacement of HVAC systems for
commercial and residential facilities primarily in Utah.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL INFORMATION

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.

REVENUE RECOGNITION

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to total estimated costs for each contract.
Provisions for the total estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined.

F-90
<PAGE>
CONTRACT SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

WARRANTY COSTS

The Company warrants labor for the first year after installation of new air
conditioning and heating units. The Company generally warrants labor for 30 days
after the servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.

INCOME TAXES

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to market value is necessary.
Adoption of this standard did not have a material effect on the financial
position or results of operations of the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, DECEMBER 31,
IN YEARS 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Transportation equipment............. 5-10 $ 690 $ 907
Machinery and equipment.............. 5-30 126 127
Furniture and fixtures............... 5-20 178 189
------------ ------------
Less -- Accumulated depreciation..... (445) (581)
------------ ------------
Property and equipment, net..... $ 549 $ 642
============ ============
</TABLE>
F-91
<PAGE>
CONTRACT SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Balance at beginning of year......... $ 11 $ 11
Additions to costs and expenses...... 18 26
Deductions for uncollectible
receivables written off and
recoveries......................... (18) (15)
--------- ---------
$ 11 $ 22
========= =========

Accounts payable and accrued expenses consist of the following (in
thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Accounts payable, trade.............. $ 242 $ 256
Accrued compensation................. 219 312
Other accrued expenses............... 115 123
--------- ---------
$ 576 $ 691
========= =========

Installation contracts in progress are as follows (in thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Costs incurred on contracts in
progress........................... $ 1,998 $ 2,534
Estimated earnings, net of losses.... 741 978
--------- ---------
2,739 3,512
Less -- Billings to date............. 2,784 3,538
--------- ---------
$ (45) $ (26)
========= =========

Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 104 $ 110
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (149) (136)
--------- ---------
$ (45) $ (26)
========= =========

5. LONG-TERM DEBT:

Long-term debt consists of ten unsecured promissory notes to the Company's
shareholders of which two are demand notes. All notes, except the demand notes,
are due 10 years from the date of the note. The notes bear an interest rate of
10 percent. Monthly interest payments are made to the shareholders with the
principal due at the date of maturity.

F-92
<PAGE>
CONTRACT SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The aggregate maturities of long-term debt are as follows (in thousands):

Year ending December 31,

1997................................. $ 100
1998................................. --
1999................................. --
2000................................. --
2001................................. --
Thereafter........................... 429
---------
$ 529
=========

6. LEASES:

The Company leases its facilities from a company owned by its two
shareholders. The lease is currently on a month-to-month basis. The rent paid
under this related-party lease was approximately $66,000, $106,000 and $120,000
for the years ended December 31, 1994, 1995 and 1996, respectively.

Future minimum lease payments for operating leases are as follows (in
thousands):

Year ending December 31,
1997............................ $ 120
1998............................ 120
1999............................ 120
2000............................ 120
2001............................ 120
---------
$ 600
=========

7. RELATED-PARTY TRANSACTIONS:

At December 31, 1994, 1995 and 1996, the Company held notes payable to the
shareholders in the amount of $162,000, $363,000 and $529,000, respectively.
(See Note 5.) The notes bear interest at 10 percent. Interest paid during the
years ended December 31, 1994, 1995 and 1996 related to these loans was $6,000,
$29,000 and $41,000, respectively.

8. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

F-93
<PAGE>
CONTRACT SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. EMPLOYEE BENEFIT PLAN:

Beginning January 1, 1994, the Company adopted a 401(k) plan. The plan
allows employees to contribute a portion of their gross wages into the plan as a
salary deferral and requires the Company to match 25 percent of the employee
contribution up to 5 percent of employee's gross wages. The Company's matching
contributions for the years ended December 31, 1995 and 1996 were $17,000 and
$19,000 respectively.

The Company has also adopted a cafeteria plan pursuant to Section 125 of
the Internal Revenue Code that covers all employees from 90 days after the
commencement of employment. Under this plan, the employees may reduce their
compensation to fund medical, dental and dependent care/day care benefits. The
funds withheld are used to pay actual claims or medical insurance, based on the
employees' elections.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
and debt. The Company believes that the carrying value of these instruments on
the accompanying balance sheet approximates their fair value.

11. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

As of June 30, 1997, the Company distributed approximately $1,083,000 which
represents the Company's S Corporation accumulated adjustment account.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-94

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Tech Heating and Air Conditioning, Inc.:

We have audited the accompanying combined balance sheets of Tech Heating
and Air Conditioning, Inc., and related company as of December 31, 1995 and
1996, and the related combined statements of operations, shareholders' equity
and cash flows for the years then ended. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Tech
Heating and Air Conditioning, Inc., and related company as of December 31, 1995
and 1996, and the combined results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-95
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 313 $ 611 $ 405
Accounts receivable --
Trade, net of allowance of
$45, $40 and $20,
respectively............... 1,244 1,723 1,701
Retainage..................... 92 48 75
Other receivables............. -- 7 58
Inventories........................ 67 208 228
Prepaid expenses and other current
assets........................... 7 33 53
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................ -- -- 50
Total current assets..... 1,723 2,630 2,570
PROPERTY AND EQUIPMENT, net............. 368 500 323
--------- --------- -----------
Total assets............. $ 2,091 $ 3,130 $ 2,893
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................... $ -- $ 62 $--
Accounts payable and accrued
expenses........................... 1,048 757 939
Line of credit..................... 88 190 --
--------- --------- -----------
Total current
liabilities.............. 1,136 1,009 939
LONG-TERM DEBT, net of current
maturities............................ 48 60 1,906
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,000
shares authorized, 500 shares
issued........................... 1 1 1
Treasury stock..................... (3) (3) (3)
Retained earnings.................. 909 2,063 50
--------- --------- -----------
Total shareholders'
equity................. 907 2,061 48
--------- --------- -----------
Total liabilities and
shareholders' equity... $ 2,091 $ 3,130 $ 2,893
========= ========= ===========

The accompanying notes are an integral part of these combined financial
statements.

F-96
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................ $ 6,960 $ 7,537 $ 3,395 $ 3,904
COST OF SERVICES........................ 4,212 3,996 2,004 2,229
--------- --------- --------- ---------
Gross profit....................... 2,748 3,541 1,391 1,675
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,800 1,861 957 1,059
--------- --------- --------- ---------
Income from operations............. 948 1,680 434 616
OTHER INCOME (EXPENSE):
Interest expense................... (12) (18) (6) (29)
Other.............................. 20 31 17 (19)
--------- --------- --------- ---------
NET INCOME.............................. $ 956 $ 1,693 $ 445 $ 568
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-97
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANY
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- TREASURY RETAINED SHAREHOLDERS'
SHARES AMOUNT STOCK EARNINGS EQUITY
------ ------ -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 500 $ 1 $ (3) $ 575 $ 573
Distributions to shareholders...... -- -- -- (622) (622)
Net income......................... -- -- -- 956 956
------ ------ --- -------- -------------
BALANCE, December 31, 1995.............. 500 1 (3) 909 907
Distributions to shareholders...... -- -- -- (539) (539)
Net income......................... -- -- -- 1,693 1,693
------ ------ --- -------- -------------
BALANCE, December 31, 1996.............. 500 1 (3) 2,063 2,061
Distributions to shareholders
(unaudited)...................... -- -- -- (2,581) (2,581)
Net income (unaudited)............. -- -- -- 568 568
------ ------ --- -------- -------------
BALANCE, June 30, 1997 (unaudited)...... 500 $ 1 $ (3) $ 50 $ 48
====== ====== === ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-98
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income......................... $ 956 $ 1,693 $ 445 $ 568
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation.................... 89 142 95 71
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable........ 581 (442) (632) 2
Inventories................ (42) (141) 20 (20)
Prepaid expenses and other
current assets.......... 7 (26) (21) (20)
Costs and estimated
earnings in excess of
billings on uncompleted
contracts............... -- -- -- (50)
Increase (decrease) in --
Accounts payable and
accrued expenses........ (513) (291) (291) 182
--------- --------- --------- ---------
Net cash provided by
(used in) operating
activities......... 1,078 935 (384) 733
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and
equipment....................... (127) (274) (120) 106
--------- --------- --------- ---------
Net cash provided by
(used in) investing
activities......... (127) (274) (120) 106
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit....... 76 102 -- --
Borrowings on long-term debt....... -- 205 191 1,594
Payments on long-term debt......... (100) (131) -- --
Distributions to shareholders...... (622) (539) -- (2,639)
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities......... (646) (363) 191 (1,045)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 305 298 (313) (206)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 8 313 313 611
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 313 $ 611 $ -- $ 405
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 12 $ 18 $ 3 $ 37
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-99
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.
AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Tech Heating and Air Conditioning, Inc., an Ohio corporation, and related
company (collectively, the "Company") focuses on providing "design and
build" installation and services, maintenance, repair and replacement of HVAC
systems for commercial and industrial facilities. Tech also offers continuous
monitoring and control services for commercial facilities. The Company's
customers are primarily in the greater Cleveland, Ohio area.

The Company and its shareholders intend to enter into a definitive
agreement with Comfort Systems, USA, Inc. ("Comfort Systems") pursuant to
which all outstanding shares of the Company's common stock will be exchanged for
cash and shares of Comfort Systems common stock concurrently with the
consummation of the initial public offering (the "Offering") of the common
stock of Comfort Systems.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The combined financial statements include the accounts and results of
operations of Tech Heating and Air Conditioning, Inc., and its related company,
Tech Mechanical which are under common control and management of two
individuals. All significant intercompany transactions and balances have been
eliminated in combination.

INTERIM FINANCIAL INFORMATION

The interim combined financial statements as of June 30, 1997, and for the
six months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the combined interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.

F-100
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.
AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION

WARRANTY COSTS

The Company warrants labor for the first year after installation of new air
conditioning and heating systems. The Company generally warrants labor for 30
days after the servicing of existing air conditioning and heating systems. A
reserve for warranty costs is recorded upon completion of installation or
service.

INCOME TAXES

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset are compared to the asset's carrying amount to determine if a
write-down to market value is necessary. Adoption of this standard did not have
a material effect on the financial position or combined results of operations of
the Company.

F-101
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.
AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):

ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1995 1996
------------ --------- ---------
Transportation equipment................ 5 $ 462 $ 553
Machinery and equipment................. 7 61 159
Computer and telephone equipment........ 5 107 190
Furniture and fixtures.................. 5-7 145 128
--------- ---------
Less -- Accumulated depreciation........ (407) (530)
--------- ---------
Property and equipment, net........ $ 368 $ 500
========= =========

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Balance at beginning of year............ $ 25 $ 45
Additions to costs and expenses......... 20 --
Deductions for uncollectible receivables
written off and recoveries............ -- (5)
--------- ---------
$ 45 $ 40
========= =========

Accounts payable and accrued expenses consist of the following (in
thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Accounts payable, trade................. $ 428 $ 388
Accrued compensation and benefits....... 337 226
Other accrued expenses.................. 283 143
--------- ---------
$ 1,048 $ 757
========= =========

At December 31, 1995 and 1996 billings to customers generally equalled work
performed which resulted in no costs and estimated earnings in excess of
billings or billings in excess of costs and estimated earnings on uncompleted
contracts.

F-102
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.
AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT AND NOTES PAYABLE:

Long-term debt consists of installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes range from 24 months to 36 months with monthly payments of
principal and interest of approximately $8,000. The notes bear interest at rates
ranging from 7.5 percent to 9.95 percent.

The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):

Year ending December 31 --
1997............................... $ 252
1998............................... 55
1999............................... 5
---------
$ 312
=========

The Company has a $1,500,000 line of credit with a financial services
company. The line of credit expires in July 1997 and bears interest at prime
plus .25 percent per annum (8.5 percent at December 31, 1996). The line of
credit is secured by a lien on accounts receivable and inventory and is
guaranteed by the shareholders. There was $190,000 outstanding under this line
of credit at December 31, 1996.

6. LEASES:

The Company leases facilities from a company which is partially owned by
one of the shareholders. The lease expires in April of 2000. The rent paid under
this related-party lease was approximately $84,000 for the year ended December
31, 1996. The lease requires the Company to pay taxes, maintenance, insurance
and certain other operating costs of the leased property. The lease contains
renewal provisions.

The Company leases a vehicle for a key member of management. The lease
payments under this vehicle lease totaled approximately $6,700 for the year
ended December 31, 1996.

Future minimum lease payments for operating leases are as follows (in
thousands):

Year ending December 31
1997............................ $ 100
1998............................ 91
1999............................ 86
2000............................ 28
---------
$ 305
=========

7. EMPLOYEE BENEFIT PLANS:

The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code. The Company has the right to make
discretionary contributions. Total contributions by the Company under this plan
were approximately $18,000 and $12,000 for 1995 and 1996, respectively.

8. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents
and debt. The Company believes that the carrying value of these instruments on
the accompanying balance sheet approximates their fair value.

F-103
<PAGE>
TECH HEATING AND AIR CONDITIONING, INC.
AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

10. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

As of June 30, 1997, the Company distributed $2,639,000 from the
accumulated adjustment account through increased borrowings on the line of
credit of $900,000 with the remainder paid from cash on hand.

Concurrently with the merger, the Company entered into agreements with the
shareholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-104

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Seasonair, Inc.:

We have audited the accompanying balance sheet of Seasonair, Inc. as of
December 31, 1996, and the related statements of operations, shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Seasonair, Inc., as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-105
<PAGE>
SEASONAIR, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 69 $ 125
Accounts receivable --
Trade, net of allowance of $
-- and $--, respectively... 961 982
Retainage..................... 17 58
Other receivables............. -- --
Inventories........................ 190 186
Costs on uncompleted contracts in
excess of billings................ 75 99
Deferred tax asset................. 104 110
Prepaid expenses and other current
assets............................ 96 109
------------ ------------
Total current assets..... 1,512 1,669
PROPERTY AND EQUIPMENT, net............. 63 56
OTHER NONCURRENT ASSETS................. 83 115
------------ ------------
Total assets............. $1,658 $1,840
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.............................. 34 --
Accounts payable and accrued
expenses.......................... 810 857
Billings in excess of costs and
estimated earnings on uncompleted
contracts......................... 156 122
------------ ------------
Total current
liabilities.......... 1,000 979
LONG-TERM DEBT, net of current
maturities............................ 76 154
DEFERRED TAX LIABILITY.................. 17 17
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value,
2,000,000 shares authorized,
1,244,000 shares issued and
outstanding....................... 78 78
Additional paid-in capital......... 1 1
Retained earnings.................. 721 846
Treasury stock..................... (235) (235)
------------ ------------
Total shareholders'
equity............... 565 690
------------ ------------
Total liabilities and
shareholders'
equity............... $1,658 $1,840
============ ============

The accompanying notes are an integral part of these financial statements.

F-106
<PAGE>
SEASONAIR, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)

SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
REVENUES................................ $ 6,737 $ 3,203 $ 3,767
COST OF SERVICES........................ 4,006 1,803 2,339
------------ --------- ---------
Gross profit.................. 2,731 1,400 1,428
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 2,597 1,253 1,244
------------ --------- ---------
Income from operations........ 134 147 184
OTHER INCOME (EXPENSE):
Interest expense................... (21) (9) (6)
Other.............................. 82 18 30
------------ --------- ---------
INCOME BEFORE INCOME TAXES.............. 195 156 208
PROVISION FOR INCOME TAXES.............. 69 62 83
------------ --------- ---------
NET INCOME.............................. $ 126 $ 94 $ 125
============ ========= =========

The accompanying notes are an integral part of these financial statements.

F-107
<PAGE>
SEASONAIR, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------------ ------ ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 1,214,724 $ 78 $ 1 $ 632 $ (269) $ 442

Sales of treasury stock......... 29,503 -- -- -- 34 34

Distributions to shareholders... -- -- -- (37) -- (37)

Net income...................... -- -- -- 126 -- 126
------------ ------ ---------- --------- --------- -------------
BALANCE, December 31, 1996........... 1,244,227 78 1 721 (235) 565

Purchase of treasury stock...... (266) -- -- -- -- --

Net income (unaudited).......... -- -- -- 125 -- 125
------------ ------ ---------- --------- --------- -------------
BALANCE, June 30, 1997 (unaudited)... 1,243,961 $ 78 $ 1 $ 846 $ (235) $ 690
============ ====== ========== ========= ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-108
<PAGE>
SEASONAIR, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 126 $ 94 $ 125
Adjustments to reconcile net income
(loss) to net cash provided by
(used in)
operating activities
Depreciation.................... 28 14 11
Gain on sale of property and
equipment..................... (4) -- --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable........ 49 (164) (62)
Inventories................ (35) (22) 4
Prepaid expenses and other
current assets.......... (171) (97) (13)
Costs of uncompleted
contracts in excess of
billings................ 58 87 (24)
Other noncurrent assets.... (71) -- (32)
Increase (decrease) in --
Accounts payable and
accrued expenses........ (74) 135 47
Billings in excess of costs
on uncompleted
contracts............... (23) (48) (34)
Deferred tax liability..... 30 -- (6)
------------ --------- ---------
Net cash provided by
(used in) operating
activities......... (87) (1) 16
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and
equipment, net................ (11) (18) (4)
------------ --------- ---------
Net cash provided by
(used in) investing
activities......... (11) (18) (4)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit.... -- -- --
Borrowings of long-term debt.... -- -- 44
Payments of long-term debt...... (105) (19) --
Distributions to shareholders... (37) (38) --
Cash received for sale of
treasury shares............... 34 -- --
------------ --------- ---------
Net cash provided by
(used in) financing
activities......... (108) (57) 44
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (206) (76) 56
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 275 275 69
------------ --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 69 $ 199 $ 125
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest................... $ 22 $ 9 $ 43
Income taxes............... 163 67 --

The accompanying notes are an integral part of these financial statements.

F-109
<PAGE>
SEASONAIR, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Seasonair, Inc., a Maryland corporation, (the "Company") focuses on
providing installation services and maintenance, repair and replacement of HVAC
systems for light commercial facilities. Seasonair primarily operates in
Maryland, the District of Columbia and Virginia.

INTERIM FINANCIAL INFORMATION

The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting princples, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, and depreciation is computed
using an accelerated method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.

REVENUE RECOGNITION

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenue from construction
contracts is recognized on the completed-contract method. This method is used
because the typical contract is completed within a twelve-month period, and the
Company's current financial position and results of operations do not vary
significantly from those which would result from use of the
percentage-of-completion method. A contract is considered complete when all
costs except insignificant items have been incurred, and the installation is
operating according to specifications or has been accepted by the customer.

F-110
<PAGE>
SEASONAIR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Contract costs include all direct equipment, material, labor, and
subcontract costs. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.

WARRANTY COSTS

INCOME TAXES

The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes". Under this method, deferred income taxes are
recorded based upon differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the underlying assets or liabilities are recovered
or settled.

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect on
the financial position or results of operations of the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):

ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1996
------------ ------------
Transportation equipment............. 5 $ 17
Machinery and equipment.............. 5 208
Leasehold improvements............... 39 15
Furniture and fixtures............... 7 16
------------
256
Less -- Accumulated depreciation and
amortization....................... (193)
------------
Property and equipment, net..... $ 63
============

F-111
<PAGE>
SEASONAIR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts consist of the
following (in thousands):

DECEMBER 31,
1996
------------
Balance at beginning of year............ $ --
Additions to costs and expenses......... 5
Deductions for uncollectible receivables
written off and recoveries............ (5)
---
$ --
===

Accounts payable and accrued expenses consist of the following (in
thousands):

DECEMBER 31,
1996
------------
Accounts payable, trade.............. $ 353
Accrued compensation and benefits.... 321
Warranty reserve..................... 37
Other................................ 99
------------
$ 810
============

5. LONG-TERM DEBT:

Long-term debt consists of two notes payable to officers and an installment
note payable for transportation equipment, which is secured by the related
transportation equipment. The terms of the notes range from 51 months to 80
months with monthly payments of principal and interest of approximately $3,598.
The notes bear interest at rates ranging from 10 percent to 12.7 percent.

The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):

Year ending December 31 --
1997............................... $ 34
1998............................... 37
1999............................... 38
2000............................... 1
---------
$ 110
=========

The Company has a $150,000 line of credit with a financial services
company. The line of credit expires August 5, 1997, and bears interest at prime
plus one percent per annum. There was no balance outstanding under this line of
credit at December 31, 1996.

6. LEASES:

The Company leases facilities from a partnership which is partially owned
by one of the shareholders. The lease expires in October, 2006. The rent paid
under this lease was approximately $62,640 for the year ended December 31, 1996.
The lease requires the Company to pay taxes, maintenance, insurance and certain
other operating costs of the leased property.

The Company leases vehicles for operations. The payments under these
vehicle leases were approximately $189,000 for the year ended December 31, 1996.

F-112
<PAGE>
SEASONAIR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments for operating leases are as follows (in
thousands):

Year ending December 31 --
1997............................... $ 241
1998............................... 202
1999............................... 158
2000............................... 105
2001............................... 65
---------
$ 771
=========

7. INCOME TAXES:

Federal and state income taxes for the year ended December 31, 1996, are as
follows (in thousands):

Federal --
Current............................ $ 50
Deferred........................... 7
State --
Current............................ 11
Deferred........................... 1
---------
$ 69
=========

Actual income tax expense for the year ended December 31, 1996, differs
from income tax expense computed by applying the U.S. federal statutory
corporate tax rate of 35% to income before income taxes as follows (in
thousands):

Provision at the statutory rate......... $ 68
Increase (decrease) resulting from --
State income tax, net of benefits
for federal deduction............. 8
Other.............................. (7)
---------
$ 69
=========

Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities as of December 31, 1996, result principally from the
following (in thousands):

Depreciation and amortization........... $ (18)
Accruals and reserves not deductible
until paid............................ 110
State taxes............................. (5)
---------
Net deferred income tax asset........... $ 87
=========

F-113
<PAGE>
SEASONAIR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The net deferred tax assets and liabilities at December 31, 1996, are comprised
of the following (in thousands):

Deferred tax assets --
Current............................ $ 104
Long-term.......................... --
---------
Total......................... 104
---------
Deferred tax liabilities --
Current............................ --
Long-term.......................... 17
---------
Total......................... 17
---------
Net deferred income tax
asset...................... $ 87
=========

8. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

9. EMPLOYEE BENEFIT PLAN:

The Company has a 401(k) profit-sharing plan which provides for the Company
to match employee contributions up to a maximum of $260 per person per year as
well as an employee stock ownership plan. Total contributions for both plans by
the Company under the plan were approximately $80,000 for purchase of treasury
stock for the employee stock ownership plan, and $5,000 for the 401(k) plan for
the year ended December 31, 1996.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
notes receivable, investments, notes payable, and debt. The Company believes
that the carrying value of these instruments on the accompanying balance sheet
approximates their fair value.

11. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

In March 1997, the Company and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of Comfort Systems, providing for the
exchange of shares by the Company with the subsidiary of Comfort Systems. On
July 2, 1997, Comfort Systems completed its initial public offering and the
merger with the Company.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-114

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Western Building Services, Inc.:

We have audited the accompanying balance sheets of Western Building
Services, Inc. as of December 31, 1995 and 1996, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Western Building Services,
Inc. as of December 31, 1995 and 1996, and the results of their operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 7, 1997

F-115
<PAGE>
WESTERN BUILDING SERVICES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)

DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ -- $ 177 $ 52
Accounts receivable --
Trade......................... 726 661 662
Retainage on uncompleted
contracts.................. 78 183 121
Other receivables............. 133 3 5
Inventories........................ 71 86 82
Costs and estimated earnings in
excess of billings on
uncompleted contracts............ 65 26 137
Prepaid expenses and other current
assets........................... 31 30 22
--------- --------- -----------
Total current assets..... 1,104 1,166 1,081
PROPERTY AND EQUIPMENT, net............. 150 191 183
OTHER NONCURRENT ASSETS................. 22 129 122
--------- --------- -----------
Total assets............. $ 1,276 $ 1,486 $ 1,386
========= ========= ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Line of credit..................... $ 231 $ -- $ --
Notes payable...................... -- 6 --
Current maturities of long-term
debt............................. 86 73 --
Current portion of capital
leases........................... 17 21 --
Accounts payable and accrued
expenses......................... 732 556 514
Billings in excess of costs and
estimated earnings on
uncompleted contracts............ 76 151 21
--------- --------- -----------
Total current
liabilities........... 1,142 807 535
PAYABLE TO SHAREHOLDERS................. -- -- 317
LONG-TERM DEBT, net of current
maturities............................ 179 261 460
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, $.10 par value,
4,000,000 shares authorized,
2,600 and 2,700 shares issued and
outstanding...................... 1 1 1
Additional paid-in capital......... 61 62 62
Retained earnings (deficit)........ (107) 355 11
--------- --------- -----------
Total shareholders'
equity (deficit)...... (45) 418 74
--------- --------- -----------
Total liabilities and
shareholders'
equity................ $ 1,276 $ 1,486 $ 1,386
========= ========= ===========

The accompanying notes are an integral part of these financial statements.

F-116
<PAGE>
WESTERN BUILDING SERVICES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)

YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)

REVENUES............................ $ 4,112 $ 6,494 $ 2,844 $ 2,174

COST OF SERVICES.................... 3,408 4,662 2,038 1,641
--------- --------- --------- ---------

Gross profit................... 704 1,832 806 533

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 855 1,088 575 457
--------- --------- --------- ---------

Income (loss) from operations.. (151) 744 231 76

OTHER INCOME (EXPENSE):

Interest expense............... (35) (51) (28) (22)

Other.......................... 6 (21) (3) (13)
--------- --------- --------- ---------

NET INCOME (LOSS)................... $ (180) $ 672 $ 200 $ 41
========= ========= ========= =========

The accompanying notes are an integral part of these financial statements.

F-117
<PAGE>
WESTERN BUILDING SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED SHAREHOLDERS'
---------------- PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... 2,600 $ 1 $ 61 $ 73 $ 135

Net loss........................ -- -- -- (180) (180)
------ ------ --- --------- -------------
BALANCE, December 31, 1995........... 2,600 1 61 (107) (45)

Distributions to shareholders... -- -- -- (210) (210)

Net income...................... -- -- -- 672 672

Common stock issuance........... 100 -- 1 -- 1
------ ------ --- --------- -------------
BALANCE, December 31, 1996........... 2,700 1 62 355 418

Distributions to shareholders
(unaudited) -- -- -- (385) (385)

Net income (unaudited).......... -- -- -- 41 41
------ ------ --- --------- -------------
BALANCE, June 30, 1997 (unaudited)... 2,700 $ 1 $ 62 $ 11 $ 74
====== ====== === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-118
<PAGE>
WESTERN BUILDING SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (180) $ 672 $ 200 $ 41
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --.....
Depreciation and amortization... 51 51 22 50
Gain on sale of assets.......... -- -- -- (1)
Changes in operating assets and
liabilities --................
(Increase) decrease in --.....
Accounts receivable........ (179) 91 (439) 59
Inventories................ (35) (15) -- 4
Costs and estimated
earnings in excess of
billings on uncompleted
contracts............... (5) 39 (57) (111)
Prepaid expenses and other
current assets.......... 5 1 (43) 8
Other noncurrent assets.... (15) (106) -- 7
Increase (decrease) in --.....
Accounts payable and
accrued expenses........ 186 (177) 395 (42)
Billings in excess of costs
and estimated earnings
on uncompleted
contracts............... 17 74 10 (130)
--------- --------- --------- ---------
Net cash provided by
(used in) operating
activities......... (155) 630 88 (115)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchases) of property and
equipment, net.................. -- 20 -- --
Additions of property and
equipment....................... (40) (113) (54) (41)
--------- --------- --------- ---------
Net cash used in
investing
activities......... (40) (93) (54) (41)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common
stock........................... -- 1 1 --
Borrowings of long-term debt....... 206 175 -- 99
Payments of long-term debt......... (259) (96) (24) --
Net borrowings in line of credit... 230 (230) -- --
Distributions to shareholders...... -- (210) -- (68)
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities......... 177 (360) (23) 31
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (18) 177 11 (125)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 18 -- -- 177
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ -- $ 177 $ 11 $ 52
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 35 $ 51 $ 25 $ 19
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-119
<PAGE>
WESTERN BUILDING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Western Building Services, Inc., a Colorado corporation, (the "Company")
focuses on providing "design and build" installation services and maintenance,
repair and replacement of HVAC systems for commercial facilities. Western also
offers continuous monitoring and control services for commercial facilities. The
Company primarily operates in Colorado.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL INFORMATION

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt investments purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

PROPERTY AND EQUIPMENT

REVENUE RECOGNITION

F-120
<PAGE>
WESTERN BUILDING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined.

Revenues of approximately $783,000 and $2,291,000 with gross profits of
$339,000 and $874,000 were recognized by the Company in 1995 and 1996,
respectively, for energy conversions and new installations related to an
incentive program developed by the Public Service Company of Colorado (PSC). The
Demand Side Management program provided incentives for PSC customers to convert
from electric heat to gas/steam heat in order to reduce peak demand for
electricity. This program ended November 1996.

WARRANTY COSTS

INCOME TAXES

USE OF ESTIMATES

NEW ACCOUNTING PRONOUNCEMENT

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to market value is necessary.
Adoption of this standard did not have a material effect on the financial
position or results of operations of the Company.

F-121
<PAGE>
WESTERN BUILDING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (dollars in thousands):

ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1995 1996
------------ --------- ---------
Transportation equipment............. 5 $ 47 $ 47
Machinery and equipment.............. 6-7 133 68
Computer and telephone equipment..... 5 120 145
Leasehold improvements............... 3 21 71
Furniture and fixtures............... 7 28 20
--------- ---------
349 351
Less -- Accumulated depreciation and
amortization....................... (199) (160)
--------- ---------
Property and equipment, net..... $ 150 $ 191
========= =========

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Other noncurrent assets consist of the following (in thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Covenant not to compete.............. $ -- $ 75
Life insurance surrender value....... 14 27
Other noncurrent assets.............. 8 27
--------- ---------
$ 22 $ 129
========= =========

At December 31, 1996, the Company acquired the contract rights of a
competitor for $75,000 through a covenant not to compete agreement. This
agreement will be amortized over its three year term which expires at
December 31, 1999.

Accounts payable and accrued expenses consist of the following (in
thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Accounts payable, trade.............. $ 403 $ 249
Accrued compensation and benefits.... 108 86
Accrued warranty expense............. 82 82
Other accrued expenses............... 139 139
--------- ---------
$ 732 $ 556
========= =========

F-122
<PAGE>
WESTERN BUILDING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Installation contracts in progress are as follows (in thousands):

DECEMBER 31,
--------------------
1995 1996
--------- ---------
Costs incurred on contracts in
progress........................... $ 335 $ 530
Estimated earnings, net of losses.... 206 160
--------- ---------
541 690
Less -- Billings to date............. 552 815
--------- ---------
$ (11) $ (125)
========= =========
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 65 $ 26
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (76) (151)
--------- ---------
$ (11) $ (125)
========= =========

5. LONG-TERM DEBT:

Long-term debt consists of installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes range from 36 months to 48 months with monthly payments of
principal and interest of approximately $8,600. The notes bear interest at rates
ranging from 9 percent to 13 percent.

Long-term debt also consists of term loans and capital leases. The term
loans were issued in the amounts of $175,000 and $200,000 in 1996 and 1995,
respectively. The $175,000 term loan is secured by equipment, inventory,
accounts receivable and all contract rights. The $200,000 term loan is secured
by all inventory and equipment and bears interest at prime plus 2 percent per
annum. These term loans are also guaranteed by the Company president.

The capital leases relate to computer equipment and printers. The terms of
the leases range from 12 to 36 months. The interest rates on these leases range
from 10 to 12 percent.

The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):

Year ending December 31
1997............................ $ 85
1998............................ 89
1999............................ 98
2000............................ 89
---------
$ 361
=========

The Company has a $300,000 line of credit with a financial institution. The
line of credit expires September 28, 1997, and bears interest at prime plus 2
percent per annum. The line of credit is secured by accounts receivable and
inventory and is guaranteed by the Company president. There was no balance
outstanding under this line of credit at December 31, 1996.

6. LEASES:

The Company leases its facility from a third party, which expires in 1999.
The rent paid under this lease was approximately $43,000 and $66,500 for the
years ended December 31, 1995 and 1996. The lease requires the Company to pay
taxes, maintenance, insurance and certain other operating costs of the leased
property. The lease contains renewal provisions.

F-123
<PAGE>
WESTERN BUILDING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company leases vehicles for operating purposes. The lease payments
under these vehicle leases totaled approximately $47,000 and $71,000 for the
years ended December 31, 1995 and 1996, respectively.

Future minimum lease payments for operating leases are as follows (in
thousands):

Year ending December 31
1997............................ $ 144
1998............................ 132
1999............................ 19
---------
$ 295
=========

7. EMPLOYEE BENEFIT PLANS:

The Company has adopted a 401(k) plan which allows the Company to make
discretionary contributions and discretionary profit sharing contributions. No
contributions were made by the Company under this plan in 1995 and 1996.
However, expenses of $2,733 and $3,903 were incurred by the Company during 1995
and 1996, respectively.

8. FINANCIAL INSTRUMENTS:

9. RELATED-PARTY TRANSACTIONS:

At December 31, 1995, the Company had a receivable of $109,500 due from the
president and vice president. At December 31, 1996, this balance was $173,500.
The Company offset this balance with the dividends payable of $210,315 at
December 31, 1996, resulting in a remaining dividend payable of $36,875 to two
shareholders and one director.

10. COMMITMENTS AND CONTINGENCIES:

LITIGATION

INSURANCE

11. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

As of June 30, 1997, the Company distributed $68,000 to its shareholders.
The Company distributed approximately $317,000 subsequent to the merger which
has been reflected in the financial statements.

In connection with the merger, Comfort Systems assumed all debt of the
Company. Subsequent to the IPO, substantially all of the debt has been repaid.

F-124
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

------------------

TABLE OF CONTENTS

PAGE
-----
Prospectus Summary............................. 3
Risk Factors................................... 9
Price Range of Common Stock.................... 12
The Company.................................... 13
Use of Proceeds................................ 13
Selling Stockholders........................... 13
Plan of Distribution........................... 14
Dividend Policy................................ 15
Capitalization................................. 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 38
Management..................................... 46
Certain Transactions........................... 51
Principal Stockholders......................... 55
Description of Capital Stock................... 56
Shares Eligible for Future Sale................ 59
Legal Matters.................................. 60
Experts........................................ 60
Additional Information......................... 60
Index to Financial Statements.................. F-1

583,878 SHARES

[LOGO]
COMFORT SYSTEMS USA, INC.
COMMON STOCK

-------------------
PROSPECTUS
-------------------

, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses payable by the
Company in connection with the registration of the securities being registered.
In connection with future acquisitions, additional printing, legal, accounting
and miscellaneous expenses are expected to be incurred with respect to the
issuance and distribution of the securities being registered hereby. All amounts
are estimates except for the fees payable to the SEC.

AMOUNT TO BE
PAID
-------------
SEC registration fee.................... $ 3,329
Printing expenses....................... $10,000
Legal fees and expenses................. $10,000
Accounting fees and expenses............ $20,000
Transfer Agent's and Registrar's fees... $ 1,000
Miscellaneous........................... $ 5,671
-------------
TOTAL......................... $50,000
=============

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.

As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.

Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.

The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.

II-1
<PAGE>
The Company has purchased liability insurance policies covering directors
and officers in certain circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On December 12, 1996, Comfort Systems issued and sold 1,000 shares of
Common Stock to Notre for a consideration of $1,000. This sale was exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.

On January 6, 1997, Comfort Systems issued and sold shares of Common Stock
to the following parties in the amounts and for the consideration indicated.
These sales were exempt from registration under Section 4(2) of the Securities
Act: Notre -- 23,516.623 shares for a consideration of $28,699.12; Fred M.
Ferreira -- 3957.7359 shares for a consideration of $4,794.35; J. Gordon
Beittenmiller -- 825.5 shares for a consideration of $1,000.00; Reagan S.
Busbee -- 825.5 shares for a consideration of $1,000.00; S. Craig
Lemmon -- 825.5 shares for a consideration of $1,000.00; Milburn E.
Honeycutt -- 412.75 shares for a consideration of $500.00; Brian J.
Vensel -- 412.75 shares for a consideration of $500.00; Emmett E.
Moore -- 412.75 shares for a consideration of $500.00; John W.
Bouloubasis -- 412.75 shares for a consideration of $500.00; Stephen R.
Baur -- 330.2 shares for a consideration of $400.00; Shellie LePori -- 206.375
shares for a consideration of $250.00; Constance Drew -- 288.925 shares for a
consideration of $350.00; John Mercandante, Jr. -- 82.55 shares for a
consideration of $100.00; Larry Martin -- 82.55 shares for a consideration of
$100.00; Norton Family Trust -- 61.9125 shares for a consideration of $75.00;
Larry E. Jacobs -- 61.9125 shares for a consideration of $75.00; Richard T.
Howell -- 41.275 shares for a consideration of $50.00; Rod Crosby -- 41.275
shares for a consideration of $50.00; Jennifer Summerford -- 24.765 shares for a
consideration of $30.00; Infoscope Partners, Inc. -- 8.255 shares for a
consideration of $10.00; Melinda Malik -- 4.1275 shares for a consideration of
$5.00; and Steven T. Zellers -- 16.51 shares for a consideration of $20.00.

On February 25, 1997, Comfort Systems issued and sold shares of Common
Stock to the following parties in the amounts and for the consideration
indicated. These sales were exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved: William George,
III -- 619.125 shares for a consideration of $750.00; J. Gordon
Beittenmiller -- 132.08 shares for a consideration of $160.00; Reagan S.
Busbee -- 132.08 shares for a consideration of $160.00; S. Craig
Lemmon -- 132.08 shares for a consideration of $160.00; Milburn E.
Honeycutt -- 66.04 shares for a consideration of $80.00; and Brian J.
Vensel -- 66.04 shares for a consideration of $80.00.

Effective March 20, 1997, Comfort Systems effected a 121.1387 to 1 stock
split on outstanding shares of Common Stock as of March 19, 1997.

Effective March 20, 1997, Comfort Systems issued and sold 2,742,912 shares
of Restricted Voting Common Stock to Notre in exchange for 2,742,912 shares of
Common Stock. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.

On July 2, 1997, the Company issued 9,720,927 shares of its Common Stock in
connection with the Mergers of the Founding Companies. Each of these
transactions was completed without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.

Since September 1, 1997, the Company issued 2,057,823 unregistered shares
of its Common Stock in connection with acquisitions of HVAC businesses, none of
which was individually material. Of such shares, 583,878 are being registered
hereby. See "Summary -- Recent Developments." Each of these transactions was
completed without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act or involved the
issuance of registered shares under the Company's shelf registration (Commission
File No. 333-32595).

II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS

The exhibits listed below are filed as exhibits to this registration
statement and are filed manually herewith or incorporated by reference to the
statements or reports indicated below:
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW AND TO THE
FILING WITH THE
COMMISSION
INDICATED BELOW
-------------------
EXHIBIT EXHIBIT FILE
NUMBER DESCRIPTION OF EXHIBITS NUMBER NUMBER
- ------------------------ ----------------------------------------------------------------------------- ------ ---------
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.1 333-24021
Comfort Systems USA, Inc., Accurate Acquisition Corp., Accurate Air Systems,
Inc. and the Stockholder named therein
2.2 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.2 333-24021
Comfort Systems USA, Inc., Atlas Air Acquisition I Corp., Atlas Comfort
Services USA, Inc. and the Stockholders named therein
2.3 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.3 333-24021
Comfort Systems USA, Inc., Contract Acquisition Corp., Contract Service, Inc.
and the Stockholders named therein
2.4 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.4 333-24021
Comfort Systems USA, Inc., Eastern Acquisition Corp., Eastern II Acquisition
Corp., Eastern Heating & Cooling, Inc., Eastern Refrigeration Co., Inc. and
the Stockholder named therein
2.5 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.5 333-24021
Comfort Systems USA, Inc., Freeway Acquisition Corp., Freeway Heating & Air
Conditioning, Inc. and the Stockholders named therein
2.6 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.6 333-24021
Comfort Systems USA, Inc., Quality Acquisition Corp., Quality Air Heating &
Cooling, Inc. and the Stockholders named therein
2.7 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.7 333-24021
Comfort Systems USA, Inc., S. M. Lawrence Acquisition Corp., S. M. Lawrence
II Acquisition Corp., S. M. Lawrence Company, Inc., Lawrence Service, Inc.
and the Stockholders named therein
2.8 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.8 333-24021
Comfort Systems USA, Inc., Seasonair, Inc. and the Stockholders named therein
2.9 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.9 333-24021
Comfort Systems USA, Inc., Standard Acquisition Corp., Standard Heating & Air
Conditioning Company and the Stockholders named therein
2.10 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.10 333-24021
Comfort Systems USA, Inc., Tech I Acquisition Corp., Tech II Acquisition
Corp., Tech Heating and Air Conditioning, Inc., Tech Mechanical, Inc. and the
Stockholder named therein
2.11 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.11 333-24021
Comfort Systems USA, Inc., Tri-City Acquisition Corp., Tri-City Mechanical,
Inc. and the Stockholders named therein
2.12 -- Agreement and Plan of Organization, dated as of March 18, 1997, by and among 2.12 333-24021
Comfort Systems USA, Inc., Western Building Acquisition Corp., Western
Building Services, Inc. and the Stockholders named therein
3.1 -- Second Amended and Restated Certificate of Incorporation of Comfort Systems 3.1 333-24021
USA, Inc.

II-3
<PAGE>
3.2 -- Bylaws of Comfort Systems USA, Inc., as amended 3.2 333-24021
4.1 -- Form of certificate evidencing ownership of Common Stock of Comfort Systems 4.1 333-24021
USA, Inc.
5.1* -- Opinion of Bracewell & Patterson, L.L.P. Filed herewith
10.1 -- Comfort Systems USA, Inc. 1997 Long-Term Incentive Plan 10.1 333-24021
10.2 -- Comfort Systems USA, Inc. 1997 Non-Employee Directors' Stock Plan 10.2 333-24021
10.3 -- Form of Employment Agreement between Comfort Systems USA, Inc. and Fred M. 10.3 333-24021
Ferreira.
10.4 -- Form of Employment Agreement between Comfort Systems USA, Inc. and J. Gordon 10.4 333-24021
Beittenmiller.
10.5 -- Form of Employment Agreement between Comfort Systems USA, Inc. and William 10.5 333-24021
George, III.
10.6 -- Form of Employment Agreement between Comfort Systems USA, Inc. and Reagan S. 10.6 333-24021
Busbee.
10.7 -- Form of Employment Agreement between Comfort Systems USA, Inc., Accurate Air 10.7 333-24021
Systems, Inc. and Thomas J. Beaty.
10.8 -- Form of Employment Agreement between Comfort Systems USA, Inc., Atlas Comfort 10.8 333-24021
Services USA, Inc. and Brian S. Atlas.
10.9 -- Form of Employment Agreement between Comfort Systems USA, Inc., Contract 10.9 333-24021
Service, Inc. and John C. Phillips.
10.10 -- Form of Employment Agreement between Comfort Systems USA, Inc., Eastern 10.10 333-24021
Heating & Cooling, Inc. and Alfred J. Giardenelli, Jr.
10.11 -- Form of Employment Agreement between Comfort Systems USA, Inc., Quality Air 10.11 333-24021
Heating & Cooling, Inc. and Robert J. Powers.
10.12 -- Form of Employment Agreement between Comfort Systems USA, Inc., S. M. 10.12 333-24021
Lawrence Company, Inc. and Samuel M. Lawrence III.
10.13 -- Form of Employment Agreement between Comfort Systems USA, Inc., Tech Heating 10.13 333-24021
and Air Conditioning, Inc. and Robert R. Cook.
10.14 -- Form of Employment Agreement between Comfort Systems USA, Inc., Tri-City 10.14 333-24021
Mechanical, Inc. and Michael Nothum, Jr.
10.15 -- Form of Employment Agreement between Comfort Systems USA, Inc., Western 10.15 333-24021
Building Services, Inc. and Charles W. Klapperich.
10.16 -- Form of Agreement among certain stockholders 10.16 333-24021
10.17 -- Lease between M & B Interests, Inc. and Atlas Air Conditioning Company, Inc. 10.17 333-32595
dated October 1, 1994.
10.18 -- Lease between Thomas J. and Bonnie J. Beaty and Accurate Air Systems, Inc. 10.18 333-32595
dated July 1, 1997.
10.19 -- Amended and Restated Agreement of Lease between Thomas J. and Bonnie J. Beaty 10.19 333-32595
and Accurate Air Systems, Inc. dated July 1, 1997.
10.20 -- Lease between Nothum Development, L.L.C. and Tri-City Mechanical, Inc. dated 10.20 333-32595
July 1, 1997.
10.21 -- Lease between Samuel Matthews Lawrence, Jr. and S.M. Lawrence Company, 10.21 333-32595
Incorporated dated November 1, 1996.
10.22 -- Lease between K and P Warehouse #1 and Quality Trane Heating and Cooling, 10.22 333-32595
Inc. (n/k/a/ Quality Air Heating and Cooling, Inc.) dated April 1, 1986,
together with amendments thereto.
10.23 -- Lease between J&J Investments and Contract Service, Inc. dated March 1, 1997. 10.23 333-32595
10.24 -- Lease by Tech Heating and Air Conditioning, Inc. dated April 2, 1995 as 10.24 333-32595
amended by Amendment between Cook Properties, Inc. and Tech Heating and Air
Conditioning, Inc. on March 13, 1997.
10.25* -- First Amended and Restated Credit Agreement among the Company and its Filed herewith
subsidiaries, Bank One, Texas, N.A., as agent and the banks listed therein
dated September 22, 1997.

II-4
<PAGE>
10.26 -- Form of Indemnity Agreement entered into by the Company with each of the 10.26 333-32595
following persons: Fred M. Ferreira, J. Gordon Beittenmiller, Reagan S.
Busbee, William George, III, Steven S. Harter, Robert J. Powers, Michael
Nothum, Jr., Robert R. Cook, Brian S. Atlas, Thomas J. Beaty, John C.
Phillips, Samuel M. Lawrence III, Alfred J. Giardenelli, Jr., Charles W.
Klapperich, Larry Martin and John Mercandante, Jr. on June 27, 1997.
10.27 -- Indemnity Agreement between the Company and Notre Capital Ventures II, L.L.C. 10.27 333-32595
10.28* -- Comfort Systems USA, Inc. 1998 Employee Stock Purchase Plan. Filed herewith
21.1* -- List of subsidiaries of Comfort Systems USA, Inc. Filed herewith
23.1* -- Consent of Arthur Andersen LLP Filed herewith
23.2 -- Consent of Bracewell & Patterson, L.L.P. (contained in Exhibit 5.1). Filed herewith
23.3 -- Consent of Fred M. Ferreira to be named as a director. 23.3 333-24021
23.4 -- Consent of J. Gordon Beittenmiller to be named as a director. 23.4 333-24021
23.5 -- Consent of Brian S. Atlas to be named as a director. 23.5 333-24021
23.6 -- Consent of Thomas J. Beaty to be named as a director. 23.6 333-24021
23.7 -- Consent of Robert R. Cook to be named as a director. 23.7 333-24021
23.8 -- Consent of Alfred J. Giardenelli, Jr. to be named as a director. 23.8 333-24021
23.9 -- Consent of Charles W. Klapperich to be named as a director. 23.9 333-24021
23.10 -- Consent of Samuel M. Lawrence III to be named as a director. 23.10 333-24021
23.11 -- Consent of Michael Nothum, Jr. to be named as a director. 23.11 333-24021
23.12 -- Consent of John C. Phillips to be named as a director. 23.12 333-24021
23.13 -- Consent of Robert J. Powers to be named as a director. 23.13 333-24021
23.14 -- Consent of Steven S. Harter to be named as a director. 23.14 333-24021
23.15 -- Consent of Larry Martin to be named as a director. 23.15 333-24021
23.16 -- Consent of John Mercadante, Jr. to be named as a director. 23.16 333-24021
24.1 -- Power of Attorney (included herein on Signature Page) Filed herewith
</TABLE>
- ------------

* Filed herewith.

II-5
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable accounting
regulation of the SEC are not required under the related instructions, are
inapplicable, or the information is included in the consolidated financial
statements, and therefore have been omitted.

ITEM 17. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

(b) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b), if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

II-6
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, COMFORT SYSTEMS
USA, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF
TEXAS, ON OCTOBER 15, 1997.

COMFORT SYSTEMS USA, INC.
By /s/ FRED M. FERREIRA
FRED M. FERREIRA
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Fred M. Ferreira, J. Gordon Beittenmiller and
William George, III, each with full power to act without the other, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments and amendments thereto) to this
Registration Statement, and to file the name, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing he or she might do or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON OCTOBER 15, 1997.

SIGNATURE TITLE
- --------------------------------------------------------------------------------
/s/FRED M. FERREIRA Chairman of the Board, Chief Executive
FRED M. FERREIRA Officer and President

/s/J. GORDON BEITTENMILLER Senior Vice President, Chief Financial
J. GORDON BEITTENMILLER Officer and Director
(PRINCIPAL ACCOUNTING OFFICER)

/s/STEVEN S. HARTER Director
STEVEN S. HARTER

/s/MICHAEL NOTHUM, JR. Director
MICHAEL NOTHUM, JR.

/s/BRIAN S. ATLAS Director
BRIAN S. ATLAS

/s/THOMAS J. BEATY Director
THOMAS J. BEATY

II-7
<PAGE>
SIGNATURES -- (CONTINUED)

/s/ROBERT R. COOK Director
ROBERT R. COOK

/s/ALFRED J. GIARDENELLI Director
ALFRED J. GIARDENELLI

/s/CHARLES W. KLAPPERICH Director
CHARLES W. KLAPPERICH

__________________________ Director
SAMUEL M. LAWRENCE III

/s/JOHN C. PHILLIPS Director
JOHN C. PHILLIPS

/s/ROBERT J. POWERS Director
ROBERT J. POWERS

__________________________ Director
LARRY MARTIN

/s/JOHN MERCADANTE, JR. Director
JOHN MERCADANTE, JR.

II-8

October 15, 1997

Comfort Systems USA, Inc.
Three Riverway, Suite 200
Houston, Texas 77056

Gentlemen:

We have acted as counsel to Comfort Systems USA, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of its Registration
Statement on Form S-1 (the "Registration Statement"), filed by the Company under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the offering and sale by the Company of up to 583,878 shares of its common
stock, par value $.01 per share (the "Common Stock").

We have examined originals or copies of (i) the Second Amended and Restated
Certificate of Incorporation of the Company; (ii) the Bylaws of the Company, as
amended; (iii) certain resolutions of the Board of Directors of the Company; and
(iv) such other documents and records as we have deemed necessary and relevant
for purposes hereof. We have relied upon certificates of public officials and of
officers of the Company as to certain matters of fact relating to this opinion
and have made such investigations of law as we have deemed necessary and
relevant as a basis hereof. We have not independently verified any factual
matter relating to this opinion.

We have assumed the genuineness of all signatures, the authenticity of all
documents, certificates and records submitted to us as copies, and the
conformity to original documents, certificates and records of all documents,
certificates and records submitted to us as copies.
<PAGE>
Comfort Systems USA, Inc.
October 15, 1997
Page 2

Based upon the foregoing, and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:

1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.

2. The issuance of the Common Stock has been duly authorized, and when
issued and delivered by the Company against payment therefor as described in the
Registration Statement, such shares will be validly issued, fully paid and
nonassessable.

The foregoing opinion is based on and is limited to the laws of the State of
Delaware and the relevant law of the United States of America, and we render no
opinion with respect to the law of any other jurisdiction.

We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as Exhibit 5.1 to the Registration Statement and to the reference to
this firm as having passed on the validity of the issuance of the Common Stock
under the caption "Legal Matters" in the prospectus contained in the
Registration Statement. By giving such consent, we do not admit that we are
included within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations issued thereunder.

Very truly yours,

Bracewell & Patterson, L.L.P.

EXHIBIT 10.25

FIRST AMENDED AND RESTATED
CREDIT AGREEMENT

$75,000,000.00 REVOLVING CREDIT LOAN

AMONG

COMFORT SYSTEMS USA, INC.
AS THE COMPANY,

THE SUBSIDIARIES OF THE COMPANY
LISTED AS GUARANTORS HEREIN

AND

BANK ONE, TEXAS, N.A.,
AS THE AGENT

AND

THE BANKS NAMED HEREIN

DATED AS OF SEPTEMBER 22, 1997
<PAGE>
TABLE OF CONTENTS
PAGE

ARTICLE I DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION..................1
SECTION 1.01. DEFINITIONS..........................................1
SECTION 1.02. TYPES OF ADVANCES...................................14
SECTION 1.03. ACCOUNTING TERMS....................................14
SECTION 1.04. SCHEDULES...........................................14

ARTICLE II THE LOANS.....................................................14
SECTION 2.01. THE LOANS...........................................14
SECTION 2.02. THE NOTES...........................................14
SECTION 2.03. NOTICE OF ADVANCE...................................14
SECTION 2.04. DISBURSEMENT OF FUNDS FOR LOANS.....................15
SECTION 2.05. CONVERSIONS AND CONTINUANCES........................15
SECTION 2.06. VOLUNTARY PREPAYMENTS...............................16
SECTION 2.07. MANDATORY REPAYMENTS................................16
SECTION 2.08. METHOD AND PLACE OF PAYMENT.........................16
SECTION 2.09. PRO RATA ADVANCES...................................16
SECTION 2.10. INTEREST............................................17
SECTION 2.11. INTEREST PERIODS....................................18
SECTION 2.12. INTEREST RATE NOT ASCERTAINABLE.....................19
SECTION 2.13. CHANGE IN LEGALITY..................................19
SECTION 2.14. INCREASED COSTS, TAXES OR CAPITAL ADEQUACY
REQUIREMENTS........................................20
SECTION 2.15. EURODOLLAR ADVANCE PREPAYMENT AND DEFAULT PENALTIES.21
SECTION 2.16. VOLUNTARY REDUCTION OF COMMITMENT...................22
SECTION 2.17. TAX FORMS...........................................22

ARTICLE III LETTERS OF CREDIT.............................................22
SECTION 3.01. LETTERS OF CREDIT...................................22
SECTION 3.02. LETTER OF CREDIT REQUESTS...........................23
SECTION 3.03. LETTER OF CREDIT PARTICIPATIONS.....................23
SECTION 3.04. INCREASED COSTS.....................................25
SECTION 3.05. CONFLICT BETWEEN APPLICATIONS AND AGREEMENT.........26

ARTICLE IV FEES...........................................................26
SECTION 4.01. FEES................................................26

ARTICLE V CONDITIONS PRECEDENT............................................27
SECTION 5.01. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE.........27
SECTION 5.02. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS...........28
SECTION 5.03. DELIVERY OF DOCUMENTS...............................28

-i-
<PAGE>
ARTICLE VI REPRESENTATIONS AND WARRANTIES.................................29
SECTION 6.01. ORGANIZATION AND QUALIFICATION......................29
SECTION 6.02. AUTHORIZATION AND VALIDITY..........................29
SECTION 6.03. GOVERNMENTAL CONSENTS...............................29
SECTION 6.04. CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS...29
SECTION 6.05. TITLE TO ASSETS.....................................30
SECTION 6.06. LITIGATION..........................................30
SECTION 6.07. FINANCIAL STATEMENTS................................30
SECTION 6.08. DEFAULT.............................................30
SECTION 6.09. INVESTMENT COMPANY ACT..............................30
SECTION 6.10. PUBLIC UTILITY HOLDING COMPANY ACT..................31
SECTION 6.11. ERISA...............................................31
SECTION 6.12. TAX RETURNS AND PAYMENTS............................31
SECTION 6.13. ENVIRONMENTAL MATTERS...............................31
SECTION 6.14. PURPOSE OF LOANS....................................32
SECTION 6.15. FRANCHISES AND OTHER RIGHTS.........................32
SECTION 6.16. SUBSIDIARIES AND ASSETS.............................32
SECTION 6.17. SOLVENCY............................................32
SECTION 6.18. PAYMENT OF CERTAIN INDEBTEDNESS.....................32

ARTICLE VII AFFIRMATIVE COVENANTS........................................33
SECTION 7.01. INFORMATION COVENANTS...............................33
SECTION 7.02. BOOKS, RECORDS AND INSPECTIONS......................34
SECTION 7.03. INSURANCE AND MAINTENANCE OF PROPERTIES.............35
SECTION 7.04. PAYMENT OF TAXES....................................35
SECTION 7.05. CORPORATE EXISTENCE.................................35
SECTION 7.06. COMPLIANCE WITH STATUTES............................35
SECTION 7.07. ERISA...............................................36
SECTION 7.08. ADDITIONAL SUBSIDIARIES.............................36

ARTICLE VIII NEGATIVE COVENANTS...........................................36
SECTION 8.01. CHANGE IN BUSINESS..................................36
SECTION 8.02. CONSOLIDATION, MERGER OR SALE OF ASSETS.............36
SECTION 8.03. INDEBTEDNESS........................................37
SECTION 8.04. LIENS...............................................38
SECTION 8.05. INVESTMENTS.........................................38
SECTION 8.06. RESTRICTED PAYMENTS.................................39
SECTION 8.07. CHANGE IN ACCOUNTING................................39
SECTION 8.08. CHANGE OF CERTAIN INDEBTEDNESS......................39
SECTION 8.09. TRANSACTIONS WITH AFFILIATES........................39
SECTION 8.10. CURRENT RATIO.......................................40
SECTION 8.11. FUNDED DEBT TO EBITDA RATIO.........................40
SECTION 8.12. FUNDED DEBT TO CONSOLIDATED TANGIBLE NET WORTH RATIO40
SECTION 8.13. CAPITAL EXPENDITURES................................40
SECTION 8.14. INTEREST COVERAGE RATIO.............................40

-ii-
<PAGE>
ARTICLE IX GUARANTY.......................................................40
SECTION 9.01. GUARANTY............................................40
SECTION 9.02. CONTINUING GUARANTY.................................41
SECTION 9.03. EFFECT OF DEBTOR RELIEF LAWS........................42
SECTION 9.04. WAIVER OF SUBROGATION...............................42
SECTION 9.05. SUBORDINATION.......................................43
SECTION 9.06. WAIVER..............................................43
SECTION 9.07. FULL FORCE AND EFFECT...............................44

ARTICLE X EVENTS OF DEFAULT AND REMEDIES.................................44
SECTION 10.01. EVENTS OF DEFAULT...................................44
SECTION 10.02. PRIMARY REMEDIES....................................45
SECTION 10.03. OTHER REMEDIES......................................46

ARTICLE XI THE AGENT.....................................................46
SECTION 11.01. AUTHORIZATION AND ACTION............................46
SECTION 11.02. AGENT'S RELIANCE....................................47
SECTION 11.03. AGENT AND AFFILIATES; BOT AND AFFILIATES............47
SECTION 11.04. BANK CREDIT DECISION................................48
SECTION 11.05. AGENT'S INDEMNITY...................................48
SECTION 11.06. SUCCESSOR AGENT.....................................49
SECTION 11.07. NOTICE OF DEFAULT...................................49

ARTICLE XII MISCELLANEOUS................................................49
SECTION 12.01. AMENDMENTS..........................................49
SECTION 12.02. NOTICES.............................................50
SECTION 12.03. NO WAIVER; REMEDIES.................................51
SECTION 12.04. COSTS, EXPENSES AND TAXES...........................51
SECTION 12.05. INDEMNITY...........................................52
SECTION 12.06. RIGHT OF SETOFF.....................................52
SECTION 12.07. GOVERNING LAW.......................................52
SECTION 12.08. INTEREST............................................53
SECTION 12.09. SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........54
SECTION 12.10. SUCCESSORS AND ASSIGNS; PARTICIPATIONS..............54
SECTION 12.11. CONFIDENTIALITY.....................................55
SECTION 12.12. PRO RATA TREATMENT..................................55
SECTION 12.13. SEPARABILITY........................................56
SECTION 12.14. EXECUTION IN COUNTERPARTS...........................56
SECTION 12.15. INTERPRETATION......................................56
SECTION 12.16. SUBMISSION TO JURISDICTION..........................57
SECTION 12.17. WAIVER OF JURY TRIAL................................58
SECTION 12.18. FINAL AGREEMENT OF THE PARTIES......................58

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<PAGE>
Exhibits and Schedules:

Exhibit 1.01A Administrative Questionnaire
Exhibit 1.01B Subordination Terms
Exhibit 2.02(a) Form of Note
Exhibit 2.03 Form of Notice of Advance
Exhibit 2.05 Form of Notice of Conversion
Exhibit 3.02 Form of Letter of Credit Request
Exhibit 7.01(d) Form of Compliance Certificate
Exhibit 12.10(c) Form of Assignment and Acceptance

Schedule 6.04 Agreements
Schedule 6.06 Litigation
Schedule 6.13 Exceptions to Environmental Matters
Schedule 6.16 Subsidiaries
Schedule 8.03(b)(i) Existing Indebtedness
Schedule 8.03(b)(ii) Existing Indebtedness to be Retired
Schedule 8.04(a) Existing Liens
Schedule 8.05(b) Investments

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<PAGE>
FIRST AMENDED AND RESTATED CREDIT AGREEMENT

This FIRST AMENDED AND RESTATED CREDIT AGREEMENT dated as of
September 22, 1997 (this "AGREEMENT") is among COMFORT SYSTEMS USA, INC., a
Delaware corporation (the "COMPANY"), the Subsidiaries of the Company listed on
the signature pages hereto as Guarantors (together with each other person who
subsequently becomes a Guarantor, collectively the "GUARANTORS"), the banks and
other financial institutions listed on the signature pages hereto under the
caption "Banks" (together with each other person who becomes a Bank,
collectively the "BANKS") and BANK ONE, TEXAS, N.A., individually as a Bank
("BOT") and as agent for the other Banks (in such capacity together with any
other Person who becomes the agent, the "AGENT").

The Company, Guarantors, BOT and the Agent are parties to that
certain Credit Agreement dated as of July 2, 1997 (the "Credit Agreement"),
which Credit Agreement provides for a revolving credit facility pursuant to
which BOT will commit to make loans of up to $75,000,000.00 including a letter
of credit facility not to exceed $5,000,000.00 to the Company for general
corporate purposes, including working capital, financing permitted acquisitions
and the issuance of letters of credit.

The Company has requested to further amend the Credit Agreement to
modify certain terms and conditions thereof, all as set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the Company, the Agent, the Guarantors, and the
Banks agree as follows:

ARTICLE I
DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION

SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:

"ADMINISTRATIVE QUESTIONNAIRE" means the questionnaire attached
hereto as EXHIBIT 1.01(A) to be completed by each Bank and returned to the
Agent.

"ADVANCE" means an advance, pursuant to a Notice of Advance,
comprised of a single Type of Loans from all the Banks (or resulting from
a conversion or conversions on the same date having, in the case of
Eurodollar Rate Advances, the same Interest Period (except as otherwise
provided in this Agreement)), made by all of the Banks concurrently to the
Company.

"ADVANCE DATE" means, with respect to each Advance, the Business Day
upon which the proceeds of such Advance are to be made available to the
Company.
<PAGE>
"AFFILIATE" means any other Person directly or indirectly
controlling (including all directors and officers of such Person),
controlled by, or under direct or indirect common control with such
Person.

"AGENT" has the meaning specified in the introduction to this
Agreement.

"AGREEMENT" has the meaning specified in the introduction to this
Agreement.

"ALTERNATE BASE RATE" means, for any date, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a)
the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and
(b) the Prime Rate in effect on such day. For purposes hereof, the term
"PRIME RATE" means, as of a particular date, the prime rate of BOT most
recently announced by BOT and in effect on such date, automatically
fluctuating upward or downward, as the case may be, with and at the time
of each change therein without notice to the Company or any other Person,
which prime rate may not necessarily represent the lowest or best rate
actually charged to a customer. "FEDERAL FUNDS EFFECTIVE RATE" means, for
any day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it. If, for any reason, the Agent shall
have determined (which determination shall be conclusive absent manifest
error) that it is unable to ascertain the Federal Funds Effective Rate,
including the inability or failure of the Agent to obtain sufficient
quotations in accordance with the terms hereof, the Alternate Base Rate
shall be determined without regard to clause (a) of the first sentence of
this definition until the circumstances giving rise to such inability no
longer exist. Any change in the Alternate Base Rate due to a change in the
Prime Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate or the Federal Funds
Effective Rate, respectively.

"ALTERNATE BASE RATE ADVANCE" means any Advance bearing interest at
a rate determined by reference to the Alternate Base Rate in accordance
with the provisions of ARTICLE II.

"APPLICABLE LENDING OFFICE" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of an Alternate Base Rate
Advance and such Bank's Eurodollar Lending Office in the case of a
Eurodollar Rate Advance.

"APPLICATION FOR LETTER OF CREDIT" means a letter of credit
application in a form satisfactory to the Issuing Bank.

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<PAGE>
"ASSETS" (whether or not capitalized) means any interest in any kind
of property or asset, whether real, personal or mixed, or tangible or
intangible.

"ASSIGNMENT AND ACCEPTANCE" has the meaning specified in SECTION
12.10 (C).

"BANK" has the meaning provided in the introduction to this
Agreement.

"BANKRUPTCY CODE" has the meaning specified in SECTION 10.01(E).

"BOARD" means the Board of Governors of the Federal Reserve System
of the United States (or any successor).

"BOT" means Bank One, Texas, N.A., 910 Travis, 7th Floor, Houston,
Texas 77002.

"BUSINESS DAY" means any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Texas) on which most banks are
open for business in Houston, Texas.

"CAPITALIZED LEASE OBLIGATIONS" means all lease or rental
obligations which, pursuant to GAAP, are capitalized for balance sheet
purposes.

"CERCLA" means the comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, state and local
analogs, and all rules and regulations and requirements thereunder in each
case as now or hereafter in effect.

"CHANGE OF CONTROL" means any of (i) the acquisition by any Person
(other than the shareholders on the Credit Agreement Effective Date), or
two or more Persons acting in concert, after the Credit Agreement
Effective Date of beneficial ownership of 50% or more of the outstanding
shares of voting stock of the Company, (ii) during any period of 24
consecutive months, beginning on the Credit Agreement Effective Date, the
ceasing of those individuals (the "CONTINUING DIRECTORS") who (a) were
directors of the Company on the first day of each such period or (b)
subsequently became directors of the Company and whose initial nomination
for election subsequent to that date was approved by a majority of the
Continuing Directors then on the board of directors of the Company, to
constitute a majority of the board of directors of the Company at any time
during such period, (iii) all or substantially all of the assets of the
Company and its Subsidiaries are sold in a single transaction or series of
related transactions to any Persons or (iv) the Company merges or
consolidates with or into any other Person except as permitted hereunder.

-3-
<PAGE>
"CODE" means the Internal Revenue Code of 1986 and the regulations
promulgated thereunder.

"COMMITMENT" and "COMMITMENTS" means the obligation of each of the
Banks to enter into and perform this Agreement, to make available the
Loans and to issue or participate in the Letters of Credit to the Company
in the amounts shown on the signature page of each Bank hereto and all
other duties and obligations of the Banks hereunder.

"COMMITMENT FEE" has the meaning specified in SECTION 4.01(A).

"COMPANY" has the meaning specified in the introduction to this
Agreement.

"CONSOLIDATED TANGIBLE NET WORTH" means, at any date, an amount
equal to the consolidated stockholders' equity of the Company and its
subsidiaries LESS intangibles of such Persons determined in accordance
with GAAP as of such date.

"CONVERSION" or "CONVERT" (in each case whether or not capitalized)
means the changing of a Eurodollar Rate Advance to an Alternate Base Rate
Advance or vice versa in accordance with the provisions hereof.

"CREDIT AGREEMENT EFFECTIVE DATE" means July 2, 1997.

"CREDIT EVENT" means the making of any Advance or the issuance or
extension of any Letter of Credit.

"CURRENT ASSETS" and "CURRENT LIABILITIES" means, as to the Company
and its Subsidiaries determined on a consolidated basis, at any time the
aggregate current assets or current liabilities (other than the repayment
of the Loans) of the Company, each as determined in accordance with GAAP.

"DEFAULT" means the occurrence of any event which with or without
the giving of notice or the passage of time or both could become an Event
of Default.

"DEFAULT RATE" means the lesser of (i) the Highest Lawful Rate and
(ii) with respect to (a) Alternate Base Rate Advances, the rate per annum
which would otherwise be applicable plus two percent (2%), and (b)
Eurodollar Rate Advances, the rate per annum which would otherwise be
applicable plus three percent (3%).

"DESIGNATED PAYMENT DATE" means March 31, June 30, September 30 and
December 31 of each year; PROVIDED, HOWEVER, if a Designated Payment Date
shall be a day which is not a Business Day, such Designated Payment Date
shall be the next succeeding Business Day, and such extension of time
shall be included in determining the amount to be paid on such date.

-4-
<PAGE>
"DOMESTIC LENDING OFFICE" means, with respect to any Bank, the
office of such Bank designated from time to time as its "Domestic Lending
Office" hereunder.

"EBITDA" means, for any period, the consolidated pre-tax income for
such period, plus the aggregate amount which was deducted for such period
in determining such consolidated, pre-tax income in respect of interest
expense (including amortization of debt discount, imputed interest and
capitalized interest), plus depreciation and amortization, provided, the
calculations of EBITDA after the acquisition of assets or entities
permitted under Section 8.05(d) shall include pro forma adjustments
consistent with the regulations and practices of the United States
Securities and Exchange Commission (whether or not applicable) to account
for such acquired entity's historical EBITDA for the relevant period or
similar adjustments in the case of an asset acquisition.

"EFFECTIVE DATE" means the date on which all conditions to make an
Advance set forth in SECTION 5.01 are first met or waived in accordance
with SECTION 12.01 hereof.

"ELIGIBLE ASSIGNEE" means (a) any Bank; (b) a commercial bank
organized under the laws of the United States, or any state thereof, and
having total assets in excess of $250,000,000.00; (c) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development or any successor
organization, or a political subdivision of any such country, and having
total assets in excess of $1,000,000,000.00; PROVIDED that such bank is
acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the Organization
for Economic Cooperation and Development or any successor organization;
(d) the central bank of any country which is a member of the Organization
for Economic Cooperation and Development or any successor organization;
and (e) any other bank or similar financial institution approved by the
Agent, the Majority Banks and the Company, which consent of the Company
shall not be unreasonably withheld.

"ENVIRONMENTAL LAWS" means federal, state or local laws, rules or
regulations, and any judicial or administrative interpretations thereof,
including any judicial or administrative order, judgment, permit,
approval, decision or determination pertaining to conservation or
protection of the environment in effect at the time in question, including
the Clean Air Act, CERCLA, the Federal Water Pollution Control Act, the
Occupational Safety and Health Act, the Resource Conservation and Recovery
Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the
Superfund Amendment and Reauthorization Act of 1986, the Hazardous
Materials Transportation Act, and comparable state and local laws, and
other environmental conservation and protection laws.

"ERISA" means the Employee Retirement Income Security Act of 1974
and the regulations promulgated thereunder.

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<PAGE>
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is either a member of the same "controlled group" or
under "common control," within the meaning of Section 414 of the Code and
the regulations thereunder, with the Company and (b) any Subsidiary of the
Company.

"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D
as in effect from time to time.

"EURODOLLAR LENDING OFFICE" means, with respect to each Bank, the
branches or affiliates of such Bank designated as its "Eurodollar Lending
Office" from time to time hereunder.

"EURODOLLAR RATE" means, with respect to any Eurodollar Rate
Advance, the rate (rounded to 1/16 of 1%) at which dollar deposits
approximately equal in principal amount to the entire portion of such
Advance and for a maturity equal to the applicable Interest Period are
offered in immediately available funds to the Agent by prime banks in
whatever Eurodollar interbank market may be selected by the Agent in its
sole and absolute discretion at the time of determination and in
accordance with the then usual practice in such market at approximately
10:00 a.m. (Houston, Texas time) two Business Days prior to the
commencement of such Interest Period.

"EURODOLLAR RATE ADVANCE" means any Advance bearing interest at a
rate determined by reference to the Eurodollar Rate in accordance with the
provisions of ARTICLE II.

"EVENTS OF DEFAULT" has the meaning specified in SECTION 10.01.

"EXECUTION DATE" means the date upon which this Agreement shall have
been executed by the Company, the Guarantors, the Banks, and the Agent.

"FEDERAL FUNDS EFFECTIVE RATE" has the meaning specified in the
definition of the term "ALTERNATE BASE RATE."

"FEES" has the meaning specified in SECTION 4.01.

"FINANCIALS" has the meaning specified in SECTION 6.07.

"FUNDED DEBT" means all indebtedness for borrowed money evidenced by
a written document and subject to required payments of interest and/or
principal exclusive of Subordinated Debt.

"GAAP" means generally accepted accounting principles as in effect
from time to time as set forth in the opinions, statements and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the Financial Accounting
Standards Board and such other Persons who shall be approved by a
significant segment of the accounting profession and concurred in by the
independent certified public accountants certifying any audited financial
statements of the Company.

-6-
<PAGE>
"GUARANTEED OBLIGATIONS" has the meaning specified in SECTION 9.01.

"GUARANTORS" has the meaning provided in the introduction to this
Agreement.

"GUARANTY" means the obligations contained in ARTICLE IX hereof and
in any document containing similar obligations executed by subsequent
Guarantors.

"HAZARDOUS MATERIALS" means (a) hazardous waste as defined in the
Resource Conservation and Recovery Act of 1976, or in any applicable
federal, state or local law or regulation, (b) hazardous substances, as
defined in CERCLA, or in any applicable state or local law or regulation,
(c) gasoline, or any other petroleum product or by-product, (d) toxic
substances, as defined in the Toxic Substances Control Act of 1976, or in
any applicable federal, state or local law or regulation or (e)
insecticides, fungicides, or rodenticides, as defined in the Federal
Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable
federal, state or local law or regulation, as each such act, statute or
regulation may be amended from time to time.

"HIGHEST LAWFUL RATE" means, as to any Bank, the maximum nonusurious
rate of interest that, under applicable law, may be contracted for, taken,
reserved, charged or received by such Bank on the Loans or under the Loan
Documents at any time or from time to time. If the maximum rate of
interest which, under applicable law, any of the Banks are permitted to
charge the Company on the Loans shall change after the date hereof, to the
extent permitted by applicable law, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, as of the
effective time of such change without notice to the Company or any other
Person.

"INDEBTEDNESS" means, without duplication, (a) all indebtedness for
borrowed money (whether by loan or the issuance and sale of debt
securities) or for the deferred purchase price of property or services,
(b) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property, (c) all
Capitalized Lease Obligations, (d) hedge or swap agreements; and (e)
obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of another Person of the kinds referred to in clauses (a)
through (d) above.

"INTEREST EXPENSE" means, with respect to the Company and its
Subsidiaries determined on a consolidated basis, for any period the total
interest expense for such period determined in conformity with GAAP
including any interest expense attributable to Capitalized Lease
Obligations.

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<PAGE>
"INTEREST PERIOD" has the meaning specified in SECTION 2.11.

"INVESTMENT" means, as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of the assets, stock or other
securities of any other Person, or any direct or indirect loan, advance or
capital contribution by such Person to any other Person, and any other
item which would be classified as an "investment" on a balance sheet of
such Person in accordance with GAAP, including any direct or indirect
contribution by such Person of property or assets to a joint venture,
partnership or other business entity in which such Person retains an
interest.

"ISSUING BANK" means, for each Letter of Credit, BOT.

"LETTER OF CREDIT" has the meaning specified in SECTION 3.01(A).

" LETTER OF CREDIT FEE" means the following computed on the undrawn
face amount of each Letter of Credit (i) a 1/8% per annum fronting fee
payable to the Issuing Bank and (ii) a fee payable to the Issuing Bank for
the ratable benefit of the Banks equal to the greater of (a) $500.00 or
(b) a rate per annum determined in accordance with the grid set forth
below as a function of the Funded Debt to EBITDA ratio:

FUNDED DEBT/EBITDA RATIO LETTER OF CREDIT FEE
- --------------------------------------------------------------------------------
less than 1.00 .875%
greater than or equal to 1 but less than 1.50 1.125%
greater than or equal to 1.50 but less than 2.00 1.375%
greater than or equal to 2.00 but less than 2.50 1.875%

Any Letter of Credit Fees expressed as a rate per annum shall be
calculated on the basis of a 365 day year.

"LETTER OF CREDIT OBLIGATIONS" means at any time the sum of (a) the
aggregate then undrawn and unexpired amount of outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit
not reimbursed pursuant to SECTION 3.03(C).

"LETTER OF CREDIT REQUEST" has the meaning specified in SECTION
3.02(A).

"LIEN" means, when used with respect to any Person, any mortgage,
lien, charge, pledge, security interest or encumbrance of any kind
(whether voluntary or involuntary and whether imposed or created by
operation of law or otherwise) upon, or pledge of, any of its property or
assets, whether now owned or hereafter acquired, or any lease intended as

-8-
<PAGE>
security, any capital lease in the nature of the foregoing, any
conditional sale agreement or other title retention agreement, in each
case, for the purpose, or having the effect, of protecting a creditor
against loss or securing the payment or performance of an obligation.

"LOAN" and "LOANS" has the meaning assigned thereto in SECTION 2.01.

"LOAN DOCUMENTS" means this Agreement and the other documents
described in ARTICLE V hereof, the Notes, the Notice of Advance, and the
corporate resolutions authorizing the Loan Documents.

"MAJORITY BANKS" means Banks holding at least 662/3% of the Advances
outstanding under the Loans, or, if no Advances are outstanding, Banks
holding such percentage of the Total Commitment (notwithstanding any
reduction or termination of the Total Commitment) or if there are no
Advances or Commitments outstanding, Banks holding such percentage of
outstanding Letters of Credit.

"MARGIN" means with respect to any Advance, the percentage
determined in accordance with the following table as a function of the
Funded Debt to EBITDA ratio:

FUNDED DEBT/ EURODOLLAR RATE ALTERNATE BASE
EBITDA RATIO ADVANCE RATE ADVANCE
- --------------------------------------------------------------------------------
less than 1.00 1.00% 0.00%
greater than or equal to 1 but less than 1.50 1.25% 0.00%
greater than or equal to 1.50 but less than 2.00 1.50% 0.00%
greater than or equal to 2.00 but less than 2.50 2.00% 0.25%

If sufficient information does not exist to calculate the Margin,
Eurodollar Rate Advances shall not be available to the Company and the
Margin for Alternate Base Rate Advances shall be deemed to be 0%.

"MARGIN PERIOD" means (a) the period from the Credit Agreement
Effective Date through the date that the first quarterly financial
statements are delivered pursuant to Section 7.01(a) and (b) thereafter, a
period commencing on the date on which the quarterly or annual financial
statements of the Company are required to be delivered pursuant to SECTION
7.01(A) or SECTION 7.01(B), as the case may be, and ending on the next
date a financial statement is required to be so delivered.

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<PAGE>
"MATERIAL ADVERSE EFFECT" means, relative to any occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), (a) a material
adverse effect on the financial condition, business or operations of the
Company individually or the Company and its Subsidiaries taken as a whole
or (b) a material impairment of the collective ability of the Company and
its Subsidiaries to make payment hereunder or under any Note or the right
of any Bank to enforce any of its remedies to collect any amounts owing
under the Loan Documents.

"MATURITY DATE" means a date which is three years after the Credit
Agreement Effective Date.

"MAXIMUM GUARANTEED AMOUNT" means for each Guarantor the maximum
amount which any Guarantor could pay under the Guaranty without having
such payment set aside as a fraudulent transfer or conveyance or similar
action under the Bankruptcy Code or any applicable state or foreign law.

"MULTIEMPLOYER PLAN" means any plan which is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA).

"NOTE" has the meaning specified in SECTION 2.02.

"NOTE" and "NOTES" have the meaning specified in SECTION 2.02.

"NOTICE OF ADVANCE" has the meaning provided in SECTION 2.03(A).

"NOTICE OF CONVERSION" has the meaning provided in SECTION 2.05.

"NOTICE OF DEFAULT" has the meaning specified in SECTION 10.02.

"OBLIGATIONS" means all the obligations of the Company now or
hereafter existing under the Loan Documents, whether for principal,
interest, Fees, expenses, indemnification or otherwise.

"OTHER ACTIVITIES" has the meaning specified in SECTION 11.03.

"OTHER FINANCINGS" has the meaning specified in SECTION 11.03.

"PAYMENT OFFICE" means the office of the Agent located at 1111
Fannin Street, Houston, Texas 77002, or such other office as the Agent may
hereafter designate in writing as such to the other parties hereto.

"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.

-10-
<PAGE>
"PERMITTED INVESTMENTS" means, as to any Person:

(a) securities issued or directly and fully guaranteed or
insured by the United States or any agency or instrumentality
thereof (PROVIDED that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more
than twelve months from the date of acquisition thereof,

(b) time deposits and certificates of deposit with maturities
of not more than twelve months from the date of acquisition by such
Person which deposits or certificates are either: (a) fully insured
by the Federal Deposit Insurance Corporation or (b) in any Bank or
other commercial bank incorporated in the United States or any U.S.
branch of any other commercial bank, in each case having capital,
surplus and undivided profits aggregating $100,000,000.00 or more
with a long-term unsecured debt rating of at least A- from Standard
& Poor's Ratings Group or A3 from Moody's Investors Service,

(c) commercial paper issued by any Person incorporated in the
United States rated at least A2 or the equivalent thereof by
Standard & Poor's Ratings Group or at least P2 or the equivalent
thereof by Moody's Investors Service and, in each case, maturing not
more than 270 days after the date of issuance,

(d) investments in money market mutual funds having assets in
excess of $2,000,000,000.00 substantially all of whose assets are
comprised of securities of the types described in clauses (a)
through (c) above, and

(e) repurchase or reverse purchase agreements respecting
obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into
with any bank listed in or meeting the qualifications specified in
clause (b) above.

"PERMITTED LIENS" shall mean: (a) Liens for taxes, assessments,
levies or other governmental charges not yet due or which are being
contested in good faith by appropriate proceedings and for which adequate
reserves are maintained in accordance with GAAP; (b) Liens in connection
with worker's compensation, unemployment insurance or other social
security, old age pension or public liability obligations not yet due or
which are being contested in good faith by appropriate proceedings and for
which adequate reserves are maintained in accordance with GAAP; (c)
operator's, vendors', carriers', warehousemen's, repairmen's, mechanics',
workers', materialmen's or other like Liens arising by operation of law in
the ordinary course of business (or deposits to obtain the release of any
such Lien) and securing amounts not yet due or which are being contested
in good faith by appropriate proceedings and for which adequate reserves
are maintained in accordance with GAAP; (d) deposits to secure insurance
in the ordinary course of business; (e) deposits to secure the performance
of bids, tenders, contracts (other than contracts for the payment of money
or the

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<PAGE>
deferred purchase price of goods or services), leases, licenses,
franchises, trade contracts, statutory obligations, surety and appeal
bonds and performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (f) easements, rights of way,
covenants, restrictions, reservations, exceptions, encroachments, zoning
and similar restrictions and other similar encumbrances (other than to
secure the payment of borrowed money or the deferred purchase price of
goods or services) or title defects, in each case incurred in the ordinary
course of business which, in the aggregate, are not substantial in
amount, and which do not in any case singly or in the aggregate materially
detract from the value or usefulness of the Property subject thereto for
the business conducted by the Company and its Subsidiaries or materially
interfere with the ordinary conduct of the business of the Company and its
Subsidiaries; (g) bankers' liens arising by operation of law; (h) inchoate
Liens arising under ERISA to secure contingent liabilities of the Company
and its Subsidiaries; and (i) Liens on assets of Subsidiaries to secure
indebtedness to the Company provided same are collaterally assigned to the
Agent, provided further, such Liens may be incurred only to the extent the
underlying Indebtedness is otherwise permitted under the terms of this
Agreement.

"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a foreign or
domestic state or political subdivision thereof or any agency of such
state or subdivision.

"PLAN" means any employee pension benefit plan (as defined in
Section 3(2) of ERISA), subject to Title IV of ERISA or Section 412 of the
Code, other than a Multiemployer Plan, with respect to which the Company
or an ERISA Affiliate contributes or has an obligation or liability to
contribute, including any such plan that may have been terminated.

"PRESCRIBED FORMS" shall mean such duly executed form(s) or
statement(s), and in such number of copies, which may, from time to time,
be prescribed by law and which, pursuant to applicable provisions of the
Code or an income tax treaty between the United States and the country of
residence of the Bank providing the form(s) or statement(s), permit each
of the Company and the Agent to make payments hereunder for the account of
such Bank free of deduction or withholding of income and other taxes.

"PRIME RATE" has the meaning set forth in the definition of
Alternate Base Rate.

"PROPERTY" (whether or not capitalized) means any interest in any
kind of property or asset, whether real, personal or mixed, or tangible or
intangible.

"REGULATIONS A, D, G, T, U AND X" means Regulations A, D, G, T, U
and X of the Board as the same are from time to time in effect, and all
official rulings and interpretations thereunder or thereof.

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"RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment (including the abandonment or discarding of barrels,
containers and other closed receptacles).

"REPORTABLE EVENT" means an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has
not been waived by the PBGC.

"REQUIREMENTS OF ENVIRONMENTAL LAWS" means, as to any Person, the
requirements of any applicable Environmental Law relating to or affecting
such Person or the condition or operation of such Person's business or its
properties, both real and personal.

"RESERVE PERCENTAGE" means, for any Interest Period and for any
Bank, the reserve percentage applicable during such Interest Period under
regulations issued from time to time by the Board (or if more than one
such percentage is so applicable, the daily average for such percentages
for those days in such Interest Period during which any such percentage
shall be so applicable) for determining the actual reserve requirement
(including any marginal, supplemental or emergency reserves) for such Bank
in respect of liabilities or assets consisting of or including
Eurocurrency Liabilities.

"RESPONSIBLE OFFICER" means, with respect to the Company, the
chairman of the board of directors, president, any vice president, chief
executive officer, chief operating officer, treasurer or chief financial
officer of the Company.

"SUBSIDIARY" means and includes, with respect to any Person, (a) any
corporation more than 50% of whose stock of any class or classes having by
the terms thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at the time
stock of any class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time
owned by such Person, directly or indirectly and (b) any partnership,
association, joint venture or other entity in which such Person, directly
or indirectly, has greater than 50% of the equity interest. Unless
otherwise provided or the context otherwise requires, the term
"Subsidiary" or "Subsidiaries" shall mean a Subsidiary or Subsidiaries of
the Company.

"SUBORDINATED DEBT" means any Indebtedness of the Company or any
subsidiary of the Company which is expressly and validly subordinated to
the obligations of the Company hereunder and under the Notes and other
Loan Documents pursuant to terms and conditions substantially in the form
of the attached EXHIBIT 1.01(B);

"TOTAL COMMITMENT" means the sum of the Commitments for each Bank
totaling a maximum of $75,000,000.00 for all Banks.

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"UNUTILIZED COMMITMENT" means the Total Commitment less Letter of
Credit Obligations less the outstanding Advances under the Loan, as same
may be reduced pursuant to SECTION 2.16.

SECTION 1.02. TYPES OF ADVANCES. Advances hereunder are
distinguished by "Type". The Type of an Advance refers to the determination
whether such Advance is a Eurodollar Rate Advance or an Alternate Base Rate
Advance.

SECTION 1.03. ACCOUNTING TERMS. All accounting terms not defined
herein shall be construed in accordance with GAAP, as applicable, and all
calculations required to be made hereunder and all financial information
required to be provided hereunder shall be done or prepared in accordance with
GAAP.

SECTION 1.04. SCHEDULES. Schedules hereto may be updated by the
Company from time to time to reflect transactions and other matters not
prohibited by the Loan Documents.

ARTICLE II
THE LOANS

SECTION 2.01. THE LOANS. Subject to the terms and conditions hereof,
each Bank severally agrees at any time and from time to time on and after the
Effective Date and prior to the Maturity Date, to make and maintain a loan or
loans (together with any Advances under a Letter of Credit described in Article
III, a "LOAN" and collectively, the "LOANS") to the Company not to exceed at any
time outstanding the maximum amount of its Commitment, which Loans (i) shall, at
the option of the Company, be made and maintained pursuant to one or more
Advances comprised of Alternate Base Rate Advances or Eurodollar Rate Advances;
PROVIDED that, except as otherwise specifically provided herein, all Advances
made simultaneously under the Loan shall be of the same Type, (ii) in the case
of Eurodollar Rate Advances, shall be made in the minimum amount of
$1,000,000.00 and integral multiples of $100,000.00 and, in the case of
Alternate Base Rate Advances, in the minimum amount of $100,000.00 and integral
multiples thereof, or, in either case, in the remaining balance of the Total
Commitment, (iii) may be repaid and, so long as no Default or Event of Default
exists hereunder, reborrowed, at the option of the Company in accordance with
the provisions hereof, and (iv) shall, in the aggregate at any time outstanding
and together with all Letter of Credit Obligations, not exceed the Total
Commitment. There shall be no further Advances after the Maturity Date.

SECTION 2.02. THE NOTES. The Loans shall be evidenced by a Note in
favor of each Bank (individually a "NOTE" and collectively, the "NOTES"),
substantially in the form of EXHIBIT 2.02(A).

SECTION 2.03. NOTICE OF ADVANCE. (a) Whenever the Company desires an
Advance, it shall give written notice thereof (a "NOTICE OF ADVANCE") (or
telephonic notice promptly

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confirmed in writing) to the Agent (i) in the case of an Alternate Base Rate
Advance, not later than 10:00 a.m. (Houston, Texas time) on the date of such
Advance and (ii) in the case of a Eurodollar Rate Advance, not later than noon
(Houston, Texas time) three Business Days prior to the date of such Advance.
Each Notice of Advance shall be irrevocable and shall be in the form of EXHIBIT
2.03 hereto, specifying (i) the aggregate principal amount of the Advance to be
made, (ii) the date of such Advance (which shall be a Business Day), (iii)
whether it is to be an Alternate Base Rate Advance or a Eurodollar Rate Advance
and (iv) if the proposed Advance is to be a Eurodollar Rate Advance, the initial
Interest Period to be applicable thereto.

(b) The Agent shall promptly give the Banks written notice or
telephonic notice (promptly confirmed in writing) of each proposed Advance, of
each Bank's proportionate share thereof and of the other matters covered by each
Notice of Advance.

SECTION 2.04. DISBURSEMENT OF FUNDS FOR LOANS. (a) No later than
1:00 p.m. (Houston, Texas time) on any Advance Date for Loans, each Bank shall
make available its pro rata portion of the amount of such Advance in U.S.
dollars and in immediately available funds at the Payment Office. At such time,
the Agent shall credit the amounts so received to the general deposit account of
the Company maintained with the Agent in immediately available funds or as
otherwise directed by the Company.

(b) Unless the Agent shall have been notified by any Bank prior to
disbursement of the Advance by the Agent that such Bank does not intend to make
available to the Agent such Bank's portion of the Advance to be made on such
date, the Agent may assume that such Bank has made such amount available to the
Agent on such Advance Date and the Agent may, in reliance upon such assumption,
make available to the Company a corresponding amount. If such corresponding
amount is not in fact made available to the Agent by such Bank and the Agent has
made available same to the Company, the Agent shall be entitled to recover such
corresponding amount on demand from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent shall
promptly notify the Company, and the Company shall pay such corresponding amount
to the Agent within two (2) Business Days after demand therefor. The Agent shall
also be entitled to recover from such Bank or the Company, as the case may be,
interest on such corresponding amount from the date such corresponding amount
was made available by the Agent to the Company to the date such corresponding
amount is recovered by the Agent, at a rate per annum equal to (i) as to the
Company, the Alternate Base Rate or the Eurodollar Rate PLUS the applicable
Margin, as appropriate or (ii) as to any Bank, the Federal Funds Effective Rate
on the date of such Advance for a period of three (3) days and thereafter at the
Alternate Base Rate or the Eurodollar Rate PLUS the applicable Margin, as
appropriate. Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its Commitments hereunder or to prejudice any rights which
the Company may have against any Bank as a result of any default by such Bank
hereunder.

SECTION 2.05. CONVERSIONS AND CONTINUANCES. The Company shall have
the option to convert or continue on any Business Day all or a portion of the
outstanding principal

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<PAGE>
amount of one Type of Advance for any Loan into another Type of Advance,
PROVIDED, no Advances may be converted into or continued as Eurodollar Rate
Advances if a Default or Event of Default is in existence on the date of the
conversion. Any continuation of an Advance as the same Type of Advance in the
same amount shall be effected by the Company giving notice to the Agent, in
writing, or by telephone promptly confirmed in writing, of its intention to
continue such Advance as an Advance of the same Type. Each such conversion shall
be effected by the Company giving the Agent written notice (each a "NOTICE OF
CONVERSION"), substantially in the form of EXHIBIT 2.05 hereto, prior to noon
(Houston, Texas time) at least (a) three (3) Business Days prior to the date of
such conversion in the case of conversion into or continuance as Eurodollar Rate
Advances and (b) prior to 10:00 a.m. (Houston, Texas time) one Business Day
prior to the date of conversion in the case of a conversion into Alternate Base
Rate Advances, specifying each Advance (or portions thereof) to be so converted
and, if to be converted into or continued as Eurodollar Rate Advances, the
Interest Period to be initially applicable thereto. The Agent shall thereafter
promptly notify each Bank of such Notice of Conversion.

SECTION 2.06. VOLUNTARY PREPAYMENTS. The Company shall have the
right to voluntarily prepay any Loan in whole or in part at any time on the
following terms and conditions: (a) no Eurodollar Rate Advance may be prepaid
prior to the last day of its Interest Period unless, simultaneously therewith,
the Company pays to the Agent for the benefit of the Banks, all sums necessary
to compensate the Banks for all costs and expenses resulting from such
prepayment, as reasonably determined by the Banks, including but not limited to
those costs described in SECTIONS 2.10(F), 2.14, and SECTION 2.15 hereof; and
(b) each prepayment pursuant to this section shall be applied first, to the
payment of accrued and unpaid interest, and then, to the outstanding principal
of such Advances.

SECTION 2.07. MANDATORY REPAYMENTS.

The Company shall repay Loans on any day on which the aggregate
outstanding principal amount of the Loans together with the outstanding Letter
of Credit Obligations exceeds the Total Commitment, in the amount of such
excess. The aggregate amount under the Notes (and all accrued, unpaid interest)
shall be due and payable, and the Commitments shall terminate, on the Maturity
Date.

SECTION 2.08. METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments under this Agreement due from the
Company shall be made to the Agent for the benefit of the Banks not later than
11:00 a.m. (Houston, Texas time) on the date when due and shall be made in
lawful money of the United States in immediately available funds at the Payment
Office.

SECTION 2.09. PRO RATA ADVANCES. All Advances under this Agreement
shall be incurred from the Banks pro rata, on the basis of their respective
Commitments. It is understood that no Bank shall be responsible for any default
by any other Bank in its obligation to make Loans

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<PAGE>
hereunder and that each Bank shall be obligated to make the Loans provided to be
made by it hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.

SECTION 2.10. INTEREST. (a) Subject to SECTION 12.08, the
Company agrees to pay interest on the total outstanding principal balance of all
Alternate Base Rate Advances from the date of each respective Advance to
maturity (whether by acceleration or otherwise) at a rate per annum which shall
at all times be equal to the lesser of (i) the Highest Lawful Rate and (ii) the
Alternate Base Rate in effect from time to time plus the Margin for Alternate
Base Rate Advances, which Margin shall be adjusted on the first day of each
Margin Period. If the Alternate Base Rate is based on the Prime Rate, interest
shall be computed on the basis of the actual number of days elapsed over a year
of 365 or 366 days, as the case may be. If the Alternate Base Rate is based on
the Federal Funds Effective Rate, interest shall be computed on the basis of the
actual number of days elapsed over a year of 360 days.

(b) Subject to SECTION 12.08, the Company agrees to pay interest on
the total outstanding principal balance of all Eurodollar Rate Advances from the
date of each respective Advance to maturity (whether by acceleration or
otherwise) at a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 360 days) which shall, during each Interest Period
applicable thereto, be equal to the lesser of (i) the Highest Lawful Rate and
(ii) the applicable Eurodollar Rate for such Interest Period plus the Margin for
Eurodollar Rate Advances. The applicable Eurodollar Rate shall be fixed for each
Interest Period and shall not change during said Interest Period, but the
applicable Margin, which is added to said Eurodollar Rate to determine the total
interest payable to the Banks, shall be adjusted, if applicable under the
definition of "Margin", effective on the first day of each Margin Period,
whether or not said adjustment occurs at a time other than the beginning of an
Interest Period.

(c) Subject to SECTION 12.08, overdue principal and, to the extent
permitted by law, overdue interest in respect of any Advance and all other
overdue amounts owing hereunder shall bear interest for each day that such
amounts are overdue at a rate per annum equal to the Default Rate.

(d) Interest on each Advance shall accrue from and including the
date of such Advance to but excluding the date of any repayment thereof and
shall be payable (i) in respect of Eurodollar Rate Advances (A) on the last day
of the Interest Period (as defined below) applicable thereto and on each
Designated Payment Date during any Interest Period in excess of three (3) months
and (B) on the date of any voluntary or mandatory repayment or any conversion or
continuance, (ii) in respect of Alternate Base Rate Advances (A) on each
Designated Payment Date, and (B) on the date of any voluntary or mandatory
repayment of such Advances on the principal amount repaid and (iii) in respect
of each Advance, at maturity (whether by acceleration or otherwise) and, after
maturity, on demand.

(e) The Agent, upon determining the Eurodollar Rate for any Interest
Period, shall notify the Company thereof. Each such determination shall, absent
manifest error, be final and

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<PAGE>
conclusive and binding on all parties hereto. In addition, prior to the due date
for the payment of interest on any Advances set forth in the immediately
preceding paragraph, the Agent shall notify the Company of the amount of
interest due by the Company on all outstanding Advances on the applicable due
date, but any failure of the Agent to so notify the Company shall not reduce the
Company's liability for the amount owed.

(f) The Company shall pay to the Agent for the account of each Bank,
so long as such Bank shall be required under regulations of the Board to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid principal
amount of such Bank's share of each Eurodollar Rate Advance, from the date of
such Advance until such principal amount is paid in full, at an interest rate
per annum equal at all times during the Interest Period for such Advance to the
lesser of (i) the Highest Lawful Rate and (ii) the remainder obtained by
subtracting (A) the Eurodollar Rate for such Interest Period from (B) the rate
obtained by dividing such Eurodollar Rate referred to in clause (A) above by
that percentage equal to 100% minus the Reserve Percentage of such Bank for such
Interest Period. Such additional interest shall be determined by such Bank as
incurred and shall be payable upon demand therefor by the Bank to the Company.
Each determination by such Bank of additional interest due under this Section
shall be conclusive and binding for all purposes in the absence of manifest
error.

SECTION 2.11. INTEREST PERIODS. (a) At the time the Company gives
any Notice of Advance or Notice of Conversion or provides notice of its intent
to continue a loan as the same Type in respect of the making of, or conversion
into, a Eurodollar Rate Advance, the Company shall have the right to elect, by
giving the Agent on the dates and at the times specified in SECTION 2.03 or
SECTION 2.05, as the case may be, notice of the interest period (each an
"INTEREST PERIOD") applicable to such Eurodollar Rate Advance, which Interest
Period shall be either a one, two, three or six month period; PROVIDED, that:

(i) the initial Interest Period for any Eurodollar Rate
Advance shall commence on the date of such Eurodollar Rate Advance
(including the date of any conversion thereto or continuance thereof
pursuant to SECTION 2.05); each Interest Period occurring thereafter in
respect of such Eurodollar Rate Advance shall commence on the expiration
date of the immediately preceding Interest Period;

(ii) if any Interest Period relating to a Eurodollar Rate
Advance begins on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period, such
Interest Period shall end on the last Business Day of such calendar month;

(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, PROVIDED, that if there are no more Business Days
in that month, the Interest Period shall expire on the preceding Business
Day;

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<PAGE>
(iv) no Interest Period for Advances shall extend beyond the
applicable Maturity Date; and

(v) the Company shall be entitled to have a maximum of ten
(10) separate Eurodollar Rate Advances hereunder for all Loans outstanding
at any one time.

(b) If, upon the expiration of any Interest Period applicable to a
Eurodollar Rate Advance, the Company has failed to elect a new Interest Period
to be applicable to such Advance as provided above, the Company shall be deemed
to have elected to convert such Advance into an Alternate Base Rate Advance
effective as of the expiration date of such current Interest Period.

SECTION 2.12. INTEREST RATE NOT ASCERTAINABLE. In the event that the
Agent shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) that on any date for determining
the Eurodollar Rate for any Interest Period, by reason of any changes arising
after the date of this Agreement affecting the Eurodollar interbank market or
the Agent's position in such market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of Eurodollar Rate, then, and in any such event, the Agent shall
forthwith give notice to the Company and to the Banks of such determination.
Until the circumstances giving rise to the suspension described herein no longer
exist, the obligations of the Banks to make Eurodollar Rate Advances shall be
suspended.

SECTION 2.13. CHANGE IN LEGALITY. (a) Notwithstanding anything to
the contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Bank or
its Eurodollar Lending Office to make or maintain any Eurodollar Rate Advance or
to give effect to its obligations as contemplated hereby, then, by prompt
written notice to the Company, such Bank may:

(i) declare that Eurodollar Rate Advances will not thereafter
be made by such Bank hereunder, whereupon the Company shall be prohibited
from requesting Eurodollar Rate Advances from such Bank hereunder unless
such declaration is subsequently withdrawn, PROVIDED, such request for a
Eurodollar Rate Advance shall, if the Company so indicates, be
automatically converted (as to such Bank) into a request for an Alternate
Base Rate Advance and the affected Bank or Banks shall respond thereto as
provided herein; and

(ii) require that all outstanding Eurodollar Rate Advances
made by such Bank be converted to Alternate Base Rate Advances, in which
event (A) all such Eurodollar Rate Advances shall be automatically
converted to Alternate Base Rate Advances as of the effective date of such
notice as provided in paragraph (b) below if required by applicable law or
regulation, or if not so required, at the end of the current Interest
Period and (B) all payments and prepayments of principal which would
otherwise have been applied to repay the converted Eurodollar Rate
Advances shall instead be applied to repay the Alternate Base Rate
Advances resulting from the conversion of such Eurodollar Rate Advances.

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(b) For purposes of this Section, a notice to the Company by the
Agent pursuant to paragraph (a) above shall be effective on the date of receipt
thereof by the Company.

SECTION 2.14. INCREASED COSTS, TAXES OR CAPITAL ADEQUACY
REQUIREMENTS. (a) If any change in the application or effectiveness of any
applicable law or regulation or compliance by any Bank with any applicable
guideline or request issued after the date hereof from any central bank or
governmental authority having jurisdiction over such Bank (whether or not having
the force of law) (i) shall change the basis of taxation of payments to such
Bank of the principal of or interest on any Eurodollar Rate Advance made by such
Bank or any other fees or amounts payable hereunder with respect to Eurodollar
Rate Advances (other than taxes imposed on the overall net income of such Bank
or its Applicable Lending Office or franchise taxes imposed upon it by the
jurisdiction in which such Bank or its Applicable Lending Office has an office),
(ii) shall impose, modify or deem applicable any reserve, special deposit or
similar requirement with respect to Eurodollar Rate Advances against assets of,
deposits with or for the account of, or credit extended by, such Bank (without
duplication of any amounts paid pursuant to SECTION 2.10(F)) or (iii) shall
impose on such Bank any other condition affecting this Agreement with respect to
Eurodollar Rate Advances or any Eurodollar Rate Advance made by such Bank, and
the result of any of the foregoing shall be to increase the cost to such Bank of
maintaining its Commitment or of making or maintaining any Eurodollar Rate
Advance or to reduce the amount of any sum received or receivable by such Bank
hereunder (whether of principal, interest or otherwise) in respect thereof by an
amount deemed in good faith by such Bank to be material, then the Company shall
pay to such Bank such additional amount as will compensate it for such increase
or reduction within ten (10) days after notice thereof pursuant to SECTION
2.14(C).

(b) If any Bank shall have determined in good faith that any change
in any law, rule, regulation or guideline regarding capital adequacy, or any
change therein or any change in the interpretation or administration thereof or
compliance with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency has or would have the effect of reducing the rate of return on the
capital of such Bank as a consequence of, or with reference to, such Bank's
obligations hereunder to a level below that which it could have achieved but for
such adoption, change or compliance by an amount deemed by such Bank to be
material, then, from time to time, the Company shall pay to the Agent for the
benefit of such Bank such additional amount as will reasonably compensate it for
such reduction within ten (10) days after notice thereof pursuant to SECTION
2.14(C).

(c) Each Bank will notify the Company through the Agent of any event
occurring after the date of this Agreement which will entitle it to compensation
pursuant to this Section, as promptly as practicable after it becomes aware
thereof and determines to request compensation and in any case, within 120 days
after becoming aware thereof. A certificate setting forth in reasonable detail
the amount necessary to compensate the Bank in question as specified in
paragraph (a) or (b) above, as the case may be, and the calculation of such
amount shall be delivered to the Company and shall be conclusive absent manifest
error. The failure on the part of any Bank to demand increased compensation with
respect to any Interest Period shall not constitute a waiver of the right to
demand

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compensation thereafter within the 120 day time limit set forth above. Each Bank
agrees, to the extent it may lawfully do so without incurring additional costs,
to use its best efforts to minimize costs arising under this section by
designating another lending office for the Loans affected, PROVIDED no Bank
shall be required to do so.

(d) In the event any Bank gives a notice to the Company pursuant to
SECTION 2.13 or 2.14 that it cannot fund certain Loans or that such funding will
be at an increased cost, or is unable to deliver the Prescribed Forms as
required by SECTION 2.17 below, the Company may give notice in response, with
copies to the Agent, that it wishes to seek one or more banks to replace such
Bank in accordance with the provisions set forth in SECTION 12.10. Each Bank
giving such a notice agrees that, at the request of the Company, it will assign
all of its interests hereunder and under the Notes and the Commitment to a
designated, Eligible Assignee for the full amount then owing to it, all in
accordance with SECTION 12.10. Thereafter, said assignee shall have all of the
rights hereunder and obligations of the Assigning Bank (except as otherwise
expressly set forth herein) and such Bank shall have no further obligations to
the Company hereunder.

(e) Any notice given pursuant to this SECTION 2.14 shall be deemed
to contain a representation by the Bank issuing such notice that the increased
costs and charges are common to substantially all of the loan customers of such
Bank and are not unique to the Company.

SECTION 2.15. EURODOLLAR ADVANCE PREPAYMENT AND DEFAULT PENALTIES.
Subject to SECTION 12.08, the Company shall indemnify each Bank against any loss
or expense (excluding loss of anticipated profits) which it may sustain or incur
as a consequence of (a) an Advance of, or a conversion from or into, Eurodollar
Rate Advances that does not occur on the date specified therefor in a Notice of
Advance or Notice of Conversion or (b) any payment, prepayment or conversion of
a Eurodollar Rate Advance required by any other provision of this Agreement or
otherwise made on a date other than the last day of the applicable Interest
Period. Such loss or expense shall include an amount equal to the excess
determined by each Bank of (i) its cost of obtaining the funds for the Advance
being paid, prepaid or converted or not borrowed (based on the Eurodollar Rate)
for the period from the date of such payment, prepayment or conversion or
failure to borrow to the last day of the Interest Period for such Advance (or,
in the case of a failure to borrow, the Interest Period for the Advance which
would have commenced on the date of such failure to borrow) OVER (ii) the amount
of interest (as determined by each Bank) that would be realized in reemploying
the funds so paid, prepaid or converted or not borrowed for such period or
Interest Period, as the case may be. The Agent, on behalf of the Banks, will
notify the Company of any loss or expense which will entitle the Banks to
compensation pursuant to this Section, as promptly as possible after it becomes
aware thereof, but failure to so notify shall not affect the Company's liability
therefor. A certificate of any Bank setting forth any amount which it is
entitled to receive pursuant to this Section shall be delivered to the Company
and shall be conclusive absent manifest error if such determination is made on a
reasonable basis. The Company shall pay to the Agent for the account of the
Banks the amount shown as due on any certificate within ten (10) days after its
receipt of the same. Without prejudice to the survival of any other obligations
of the Company hereunder, the obligations of the Company under this Section
shall survive the termination

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of this Agreement and, with respect to the assigning Bank, the assignment of any
of the Notes, in each case for one hundred and twenty (120) days.

SECTION 2.16. VOLUNTARY REDUCTION OF COMMITMENT. Upon at least three
(3) Business Days' prior written notice, the Company shall have the right,
without premium or penalty, to reduce or terminate the Commitments, in whole or
in part, in the amount of $5,000,000.00 or integral multiples thereof.

SECTION 2.17. TAX FORMS. With respect to any Bank which is organized
under the laws of a jurisdiction outside the United States, on the date of the
initial Advance hereunder or on the date it becomes a party hereto, and from
time to time thereafter if requested by the Company or the Agent, each such Bank
shall provide the Agent and the Company with the Prescribed Forms. Unless the
Company and the Agent have received such Prescribed Forms, the Agent and the
Company if required by applicable law or regulation, may withhold taxes from
payments under the Loan Documents at the applicable rate in the case of payments
to or for any Bank organized under the laws of a jurisdiction outside the United
States, PROVIDED the Company shall, unless otherwise directed in writing by the
Agent or unless otherwise required by law, make all payments in full to the
Agent without deducting any withholding or similar taxes.

ARTICLE III
LETTERS OF CREDIT

SECTION 3.01. LETTERS OF CREDIT. (a) Subject to and upon the terms
and conditions herein set forth, the Issuing Bank agrees that it will, at any
time and from time to time on or after the Credit Agreement Effective Date and
prior to the Maturity Date, following its receipt of a Letter of Credit Request
and Application for Letter of Credit, issue for the account of the Company and
in support of the obligations of the Company or any of its Subsidiaries, one or
more letters of credit (the "LETTERS OF CREDIT"), up to a maximum amount
outstanding at any one time for all Letters of Credit of $5,000,000.00, PROVIDED
that the Issuing Bank shall not issue any Letter of Credit if at the time of
such issuance: (i) Letter of Credit Obligations shall be greater than an amount
which, when added to the sum of all Advances then outstanding plus Letter of
Credit Obligations, would exceed the Total Commitment or (ii) the expiry date
or, in the case of any Letter of Credit containing an expiry date that is
extendible at the option of the Issuing Bank, the initial expiry date, of such
Letter of Credit is a date that is later than the Maturity Date.

(b) The Issuing Bank shall neither renew or extend nor permit the
renewal or extension of any Letter of Credit (which renewal or extension will
not be for any period ending after the Revolving Credit Maturity Date) if any of
the conditions precedent to such renewal set forth in SECTION 5.02 are not
satisfied or waived or, after giving effect to such renewal, the expiry date of
such Letter of Credit would be a date that is later than the Maturity Date.

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SECTION 3.02. LETTER OF CREDIT REQUESTS. (a) Whenever the Company
desires that a Letter of Credit be issued for its account or that the existing
expiry date shall be extended, it shall give the Issuing Bank (with copies to be
sent to the Agent and each Bank) (i) in the case of a Letter of Credit to be
issued, at least five (5) Business Days' prior written request therefor and (ii)
in the case of the extension of the existing expiry date of any Letter of
Credit, at least five (5) Business Days prior to the date on which the Issuing
Bank must notify the beneficiary thereof that the Issuing Bank does not intend
to extend such existing expiry date. Each such request shall be executed by the
Company and shall be in the form of EXHIBIT 3.02 attached hereto (each a "LETTER
OF CREDIT REQUEST") and shall be accompanied by an Application for Letter of
Credit therefor, completed to the reasonable satisfaction of the Issuing Bank,
and such other certificates, documents and other papers and information as the
Issuing Bank or the Agent may reasonably request. Each Letter of Credit shall be
denominated in U.S. dollars, shall expire no later than the date specified in
SECTION 3.01, shall not be in an amount greater than is permitted under clause
(i) of SECTION 3.01(A) and shall be in such form as may be reasonably approved
from time to time by the Issuing Bank and the Company.

(b) The making of each Letter of Credit Request shall be deemed to
be a representation and warranty by the Company that such Letter of Credit may
be issued in accordance with, and will not violate the requirements of this
Agreement. Unless the Issuing Bank has received notice from any Bank before it
issues the respective Letter of Credit or extends the existing expiry date of a
Letter of Credit that one or more of the conditions specified in ARTICLE V are
not then satisfied, or that the issuance of such Letter of Credit would violate
this Agreement, then the Issuing Bank shall issue the requested Letter of Credit
for the account of the Company in accordance with the Issuing Bank's usual and
customary practices. Upon its issuance of any Letter of Credit or the extension
of the existing expiry date of any Letter of Credit, as the case may be, the
Issuing Bank shall promptly notify the Company and the Agent and the Agent shall
notify each Bank of such issuance or extension, which notices shall be
accompanied by a copy of the Letter of Credit actually issued or a copy of any
amendment extending the existing expiry date of any Letter of Credit, as the
case may be.

SECTION 3.03. LETTER OF CREDIT PARTICIPATIONS. (a) All Letters of
Credit issued subsequent hereto shall be deemed to have been sold and
transferred by the Issuing Bank to each Bank, and each Bank shall be deemed
irrevocably and unconditionally to have purchased and received from the Issuing
Bank, without recourse or warranty, an undivided interest and participation, (to
the extent of such Bank's percentage participation in the Commitment) in each
such Letter of Credit (including extensions of the expiry date thereof), each
substitute Letter of Credit, each drawing made thereunder and the obligations of
the Company under this Agreement and the other Loan Documents with respect
thereto, and any security therefor or guaranty pertaining thereto.

(b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall have no obligation relative to the Banks other than to
confirm that any documents required to be delivered under such Letter of Credit
appear to have been delivered and that they appear to comply on their face with
the requirements of such Letter of Credit.

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(c) In the event that the Issuing Bank makes any payment under any
Letter of Credit, the same shall be considered an Alternate Base Rate Advance
without further action by any Person. The Issuing Bank shall promptly notify the
Agent, which shall promptly notify each Bank thereof. Each Bank shall
immediately pay to the Agent for the account of the Issuing Bank the amount of
such Lender's percentage participation of such Advance. If any Bank shall not
have so made its percentage participation available to the Agent, such Lender
agrees to pay interest thereon, for each day from such date until the date such
amount is paid at the lesser of (i) the Federal Funds Effective Rate and (ii)
the Highest Lawful Rate.

(d) The Issuing Bank shall not be liable for, and the obligations of
the Company and the Banks to make payments to the Agent for the account of the
Issuing Bank with respect to Letters of Credit shall not be subject to, any
qualification or exception whatsoever, including any of the following
circumstances:

(i) any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;

(ii) the existence of any claim, setoff, defense or other right
which the Company may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit, the Agent, any
Issuing Bank, any Bank, or any other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions contemplated herein
or any unrelated transactions (including any underlying transaction
between the Company and the beneficiary named in any such Letter of
Credit);

(iii) any draft, certificate or any other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;

(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents; or

(v) the occurrence of any Default or Event of Default.

(e) The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by such Issuing Bank's gross negligence or willful
misconduct. IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT SUCH ISSUING
BANK, ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS (OTHER THAN WITH RESPECT TO
ANY CLAIMS BY THE ISSUING BANK AGAINST ANY SUCH OFFICER, DIRECTOR, EMPLOYEE OR
AGENT THEREOF) SHALL BE INDEMNIFIED AND HELD HARMLESS FROM, SUBJECT TO THE SAME
TYPE OF PROTECTIONS SET FORTH IN SECTION 11.05(B), ANY ACTION TAKEN OR OMITTED
BY SUCH PERSON UNDER OR IN CONNECTION WITH ANY LETTER OF CREDIT OR ANY RELATED
DRAFT OR DOCUMENT ARISING OUT OF OR RESULTING FROM SUCH PERSON'S SOLE OR
CONTRIBUTORY NEGLIGENCE, BUT NOT FROM THE GROSS NEGLIGENCE OR WILLFUL

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MISCONDUCT OF SUCH PERSON. The Company agrees that any action taken or omitted
by the Issuing Bank under or in connection with any Letter of Credit or the
related drafts or documents, if done in accordance with the standards of care
specified in the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce, Publication No. 500 (and any
subsequent revisions thereof approved by a Congress of the International Chamber
of Commerce and adhered to by the Issuing Bank) and, to the extent not
inconsistent therewith, the Uniform Commercial Code of the State of Texas, shall
not result in any liability of the Issuing Bank to the Company.

SECTION 3.04. INCREASED COSTS. (a) Notwithstanding any other
provision herein, but subject to SECTION 12.08, if any Bank shall have
determined in good faith that any change after the Credit Agreement Effective
Date of any law, rule, regulation or guideline or the application or
effectiveness of any applicable law or regulation or any change after the Credit
Agreement Effective Date in the interpretation or administration thereof, or
compliance by any Bank (or any lending office of such Bank) with any applicable
guideline or request from any central bank or governmental authority (whether or
not having the force of law) issued after the Credit Agreement Effective Date
either (i) shall impose, modify or make applicable any reserve, deposit, capital
adequacy or similar requirement against Letters of Credit issued, or
participated in, by any Bank or (ii) shall impose on any Bank any other
conditions affecting this Agreement or any Letter of Credit; and the result of
any of the foregoing is to increase the cost to any Bank of issuing, maintaining
or participating in any Letter of Credit, or reduce the amount received or
receivable by any Bank hereunder with respect to Letters of Credit, by an amount
deemed by such Lender to be material, then, from time to time, the Company shall
pay to the Agent for the account of such Lender such additional amount or
amounts as will reasonably compensate such Lender for such increased cost or
reduction by such Lender.

(b) Each Bank will notify the Company through the Agent of any event
occurring after the date of this Agreement which will entitle such Bank to
compensation pursuant to subsection (a) above, as promptly as practicable. A
certificate of such Lender (i) stating that the compensation sought to be
recovered pursuant to this SECTION 3.04 is generally being charged to other
similarly situated customers and (ii) setting forth in reasonable detail such
amount or amounts as shall be necessary to compensate such Bank as specified in
subsection (a) above may be delivered to the Company (with a copy to the Agent)
and shall be conclusive absent manifest error. The Company shall pay to the
Agent for the account of such Bank the amount shown as due on any such
certificate upon demand; PROVIDED that with respect to events occurring prior to
any notice given under this SECTION 3.04(B), such Bank shall only be entitled to
recover compensation for such events occurring over a period of 120 days.

(c) Except as expressly provided in SECTION 3.04(B), failure on the
part of any Bank to demand compensation for any increased costs or reduction in
amounts received or receivable or reduction in return on capital with respect to
any Letter of Credit shall not constitute a waiver of such Bank's rights to
demand compensation for any increased costs or reduction in amounts received or
receivables or reduction in return on capital with respect to such Letter of
Credit.

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SECTION 3.05. CONFLICT BETWEEN APPLICATIONS AND AGREEMENT. To the
extent that any provision of any application related to any Letter of Credit is
inconsistent with the provisions of this Agreement, the provisions of this
Agreement shall control.

ARTICLE IV
FEES

SECTION 4.01. FEES. Subject to SECTION 12.08 hereof, the Company
agrees to pay the following fees (the "FEES"):

(a) The Company agrees to pay to the Agent for the ratable account
of the Banks a Commitment fee (the "COMMITMENT FEE") for the period from and
including the Credit Agreement Effective Date to the Maturity Date,
respectively, computed at a rate per annum determined by the grid set forth
below and calculated on the basis of a 360 day-year on the daily average of the
Unutilized Commitment of each Bank. The rate for the Commitment Fee shall be
adjusted on the first day of each Margin Period. Commitment Fees shall be due
and payable in arrears on each Designated Payment Date commencing on the first
such date following the Credit Agreement Effective Date and on the Maturity
Date.

FUNDED DEBT/ EBITDA RATIO COMMITMENT FEE
- --------------------------------------------------------------------------------
less than 1.00 12.5 basis points
greater than or equal to 1 but less than 1.50 25.0 basis points
greater than or equal to 1.50 but less than 2.00 25.0 basis points
greater than or equal to 2.00 but less than 2.50 37.5 basis points

(b) The Letter of Credit Fees shall be due and payable at the time
the Issuing Bank is to issue or renew any Letter of Credit. The Letter of Credit
Fee shall be adjusted, if applicable under the definition of "Letter of Credit
Fee", on the first day of each Margin Period.

(c) The fees described in that one certain Fee Letter among the
Company, the Agent, BOT and Bank One Capital Markets dated May 13, 1997 and
executed by the Company on May 16, 1997.

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ARTICLE V
CONDITIONS PRECEDENT

SECTION 5.01. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The
obligation of each Bank to make its initial Advance to the Company is subject to
the occurrence of or receipt by the Agent of the following, all in form and
substance satisfactory to the Agent, and, where relevant, executed by all
appropriate parties:

(a) this Agreement (which includes the Guaranty);

(b) one Note for each Bank;

(d) a certificate of an officer and of the secretary or an assistant
secretary of the Company dated as of the Credit Agreement Effective Date
certifying, (i) true and complete copies of each of the articles or certificate
of incorporation, as amended and in effect of the Company and each of the
Guarantors, the bylaws, as amended and in effect, of the Company and each of the
Guarantors and the resolutions adopted by the board of directors of the Company
and each of the Guarantors (A) authorizing the execution, delivery and
performance by the Company and each of its Subsidiaries of this Agreement and
the other Loan Documents to which it is or will be a party and, in the case of
the Company, the Advances to be made hereunder, (B) approving the forms of the
Loan Documents to which it is or will be a party and which will be delivered at
or prior to the date of the initial Advance and (C) authorizing officers of the
Company and each of its Subsidiaries to execute and deliver the Loan Documents
to which it is or will be a party and any related documents, including, any
agreement contemplated by this Agreement, (ii) the incumbency and specimen
signatures of the officers of the Company and each of its Subsidiaries executing
any documents on its behalf and (iii) that there has been no change in the
businesses or financial condition of the Company which could reasonably be
expected to have a Material Adverse Effect since December 31, 1996.

(e) a favorable, signed opinion addressed to the Agent and the Banks
from Bracewell & Patterson, L.L.P., counsel to the Company and the Guarantors
dated as of the Credit Agreement Effective Date;

(f) the payment to the Agent and the Banks of all Fees owing on the
Execution Date and all reasonable fees and expenses (including the reasonable
fees and disbursements of Andrews & Kurth L.L.P.) agreed upon by such parties to
be paid on the Execution Date;

(g) certificates of appropriate public officials as to the
existence, good standing and qualification to do business as a foreign
corporation, as applicable, of the Company and its Subsidiaries in each
jurisdiction in which the ownership of its properties or the conduct of its

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business requires such qualifications and where the failure to so qualify would
have a Material Adverse Effect; and

(h) The consummation of the initial public offering of the stock of
the Company pursuant to the S-1 Registration Statement filed with the Securities
and Exchange Commission on March 26, 1997, as amended, at a minimum share price
of $8.00 per share with gross proceeds of at least $48,800,000.

The acceptance of the benefits of the initial Credit Event shall
constitute a representation and warranty by the Company to the Agent and each of
the Banks that, all of the conditions specified in this Section above shall have
been satisfied or waived as of that time.

SECTION 5.02. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The
obligation of the Banks to make any Advance is, including, without limitation,
the initial Advance, subject to the further conditions precedent that on the
date of such Credit Event:

(a) The representations and warranties set forth in ARTICLE VI shall
be true and correct in all material respects as of, and as if such
representations and warranties were made on, the date of the proposed Advance
(unless such representation and warranty expressly relates to an earlier date or
is no longer true and correct solely as a result of transactions permitted by
the Loan Documents), and the Company shall be deemed to have certified to the
Agent and the Banks that such representations and warranties are true and
correct in all material respects by submitting a Notice of Advance.

(b) The Company shall have complied with the provisions of SECTION
2.03 hereof.

(d) No Material Adverse Effect shall have occurred since the
delivery of the most recent financial statements delivered pursuant to SECTION
7.01.

(e) The Agent shall have received such other approvals or documents
as the Agent or the Banks may reasonably request.

The acceptance of the benefits of each such Credit Event shall
constitute a representation and warranty by the Company to the Agent and each of
the Banks that all of the conditions specified in this Section above exist as of
that time.

SECTION 5.03. DELIVERY OF DOCUMENTS. All of the Notes, certificates,
legal opinions and other documents and papers referred to in this ARTICLE V,
unless otherwise specified,

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shall be delivered to the Agent for the account of each of the Banks and, except
for the Notes, in sufficient counterparts for each of the Banks and shall be
reasonably satisfactory in form and substance to the Banks.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES

The Company, as to itself and each of its Subsidiaries, makes, on or
as of the occurrence of each Credit Event (except to the extent such
representations or warranties relate to an earlier date or are no longer true
and correct in all material respects solely as a result of transactions not
prohibited by the Loan Documents), the following representations and warranties
to the Agent and the Banks:

SECTION 6.01. ORGANIZATION AND QUALIFICATION. Each of the Company
and its Subsidiaries (a) is duly formed or organized, validly existing and is in
good standing under the laws of the state of its organization, (b) has the power
to own its property and to carry on its business as now conducted, except where
the failure to do so would not have a Material Adverse Effect and (c) is duly
qualified to do business and is in good standing in every jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect.

SECTION 6.02. AUTHORIZATION AND VALIDITY. Each of the Company and
its Subsidiaries has the corporate power and authority to execute, deliver and
perform its obligations hereunder and under the other Loan Documents to which it
is a party and all such action has been duly authorized by all necessary
corporate proceedings on its part. The Loan Documents to which each of the
Company and its Subsidiaries is a party have been duly and validly executed and
delivered by such Person and constitute a valid and legally binding agreement of
such Person enforceable in accordance with the respective terms thereof, except,
in each case, as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws relating
to or affecting the enforcement of creditors' rights generally, and by general
principles of equity regardless of whether such enforceability is a proceeding
in equity or at law.

SECTION 6.03. GOVERNMENTAL CONSENTS. No authorization, consent,
approval, license or exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is necessary for the valid execution, delivery or
performance by the Company or any Subsidiary of any Loan Document.

SECTION 6.04. CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS.
Neither the Company nor any Subsidiary is a party to any contract or agreement
or subject to any restriction which would reasonably be expected to have a
Material Adverse Effect. All agreements of the Company relating to the lending
of money or the issuance of letters of credit by any party in existence on the
Credit Agreement Effective Date are described hereto on SCHEDULE 6.04. Neither

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the execution nor delivery of the Loan Documents nor compliance with the terms
and provisions hereof or thereof will be contrary to the provisions of, or
constitute a default under (a) the charter or bylaws of the Company or any of
its Subsidiaries or (b) any law, regulation, order, writ, injunction or decree
of any court or governmental instrumentality that is applicable to the Company
or any of its Subsidiaries or (c) any material agreement to which the Company or
any of its Subsidiaries is a party or by which it is bound or to which it is
subject.

SECTION 6.05. TITLE TO ASSETS. Each of the Company and its
Subsidiaries has good title to all material personalty and good and indefeasible
title to all material realty as reflected on the Company's and the Subsidiaries'
books and records as being owned by them, except for properties disposed of in
the ordinary course of business, subject to no Liens, except those permitted
hereunder, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect. All of such assets have been and are being
maintained by the appropriate Person in good working condition in accordance
with industry standards, except where the failure to do so could not reasonably
be expected to have a Material Adverse Effect.

SECTION 6.06. LITIGATION. No proceedings against or affecting the
Company or any Subsidiary are pending or, to the knowledge of the Company,
threatened before any court or governmental agency or department which involve a
reasonable material risk of having a Material Adverse Effect except those listed
on SCHEDULE 6.06 hereof.

SECTION 6.07. FINANCIAL STATEMENTS. Prior to the Credit Agreement
Effective Date, the Company has furnished to the Banks its audited consolidated
balance sheet, audited consolidated income statement and statement of cash flows
for the twelve (12) months ended December 31, 1996 (such financials, the
"FINANCIALS"). The Financials have been prepared in conformity with GAAP
consistently applied (except as otherwise disclosed in such financial
statements) throughout the periods involved and present fairly, in all material
respects, the consolidated financial condition of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations for the periods then ended. As of the Credit Agreement
Effective Date, no Material Adverse Effect has occurred since December 31, 1996.

SECTION 6.08. DEFAULT. Neither the Company nor any Subsidiary is in
default under any material provisions of any instrument evidencing any
Indebtedness or of any agreement relating thereto, or in default in any respect
under any order, writ, injunction or decree of any court, or in default in any
respect under or in violation of any order, injunction or decree of any
governmental instrumentality, in each case in such manner as to cause a Material
Adverse Effect.

SECTION 6.09. INVESTMENT COMPANY ACT. Neither the Company nor any
Subsidiary is, or is directly or indirectly controlled by or acting on behalf of
any Person which is, an "investment company," as such term is defined in the
Investment Company Act of 1940, as amended.

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SECTION 6.10. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the
Company nor any Subsidiary is a non-exempt "holding company," or subject to
regulation as such, or, to the knowledge of the Company's or such Subsidiary's
officers, an "affiliate" of a "holding company" or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding Company Act
of 1935, as amended.

SECTION 6.11. ERISA. No accumulated funding deficiency (as defined
in Section 412 of the Code or Section 302 of ERISA), that would cause a Material
Adverse Effect whether or not waived, exists or is expected to be incurred with
respect to any Plan. No liability to the PBGC (other than required premium
payments) has been or is expected by the Company to be incurred with respect to
any Plan by the Company or any ERISA Affiliate that would cause a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any
withdrawal liability under Title IV of ERISA with respect to any Multi-Employer
Plans.

SECTION 6.12. TAX RETURNS AND PAYMENTS. Each of the Company and
its Subsidiaries has filed all federal income tax returns and other tax returns,
statements and reports (or obtained extensions with respect thereto) which are
required to be filed and has paid or deposited or made adequate provision, in
accordance with GAAP for the payment of all taxes (including estimated taxes
shown on such returns, statements and reports) which are shown to be due
pursuant to such returns, except for such taxes as are being contested in good
faith and by appropriate proceedings.

SECTION 6.13. ENVIRONMENTAL MATTERS. Each of the Company and its
Subsidiaries (a) possesses all environmental, health and safety licenses,
permits, authorizations, registrations, approvals and similar rights necessary
under law or otherwise for the Company or such Subsidiary to conduct its
operations as now being conducted (other than those with respect to which the
failure to possess or maintain would not, individually or in the aggregate for
the Company and such Subsidiaries, reasonably be expected to have a Material
Adverse Effect) and (b) each of such licenses, permits, authorizations,
registrations, approvals and similar rights is valid and subsisting, in full
force and effect and enforceable by the Company or such Subsidiary, and each of
the Company and its Subsidiaries is in compliance with all effective terms,
conditions or other provisions of such permits, authorizations, registrations,
approvals and similar rights except for such failure or noncompliance that,
individually or in the aggregate for the Company and such Subsidiaries, would
not reasonably be expected to have a Material Adverse Effect. Except as
disclosed on SCHEDULE 6.13 on the Credit Agreement Effective Date, neither the
Company nor any of its Subsidiaries has received any notices of any violation
of, noncompliance with, or remedial obligation under, Requirements of
Environmental Laws (which violation or non-compliance has not been cured), and
there are no writs, injunctions, decrees, orders or judgments outstanding, or
lawsuits, claims, proceedings, investigations or inquiries pending or, to the
knowledge of the Company or any Subsidiary, threatened, relating to the
ownership, use, condition, maintenance or operation of, or conduct of business
related to, any property owned, leased or operated by the Company or such
Subsidiary or other assets of the Company or such Subsidiary, other than those
violations, instances of noncompliance, obligations, writs, injunctions,
decrees, orders, judgments,

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lawsuits, claims, proceedings, investigations or inquiries that, individually or
in the aggregate for the Company and such Subsidiaries, would not have a
Material Adverse Effect. Except as disclosed on SCHEDULE 6.13, there are no
material obligations, undertakings or liabilities arising out of or relating to
Environmental Laws to which the Company or any of its Subsidiaries has agreed,
assumed or retained, or by which the Company or any of its Subsidiaries is
adversely affected, by contract or otherwise and, further, except as disclosed
on SCHEDULE 6.13, neither the Company nor any of its Subsidiaries has received a
written notice or claim to the effect that the Company or any of its
Subsidiaries is or may be liable to any other Person as the result of a Release
or threatened Release of a Hazardous Material which, in either case, could
reasonably be expected to have a Material Adverse Effect.

SECTION 6.14. PURPOSE OF LOANS. (a) The proceeds of the Loan will be
used solely for general corporate purposes, including working capital and to
finance acquisitions permitted hereunder.

(b) None of the proceeds of any Advance will be used directly or
indirectly for the purpose of purchasing or carrying any "margin stock" within
the meaning of Regulation U or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
stock.

SECTION 6.15. FRANCHISES AND OTHER RIGHTS. The Company and each of
its Subsidiaries has all franchises, permits, licenses and other authority as
are necessary to enable them to carry on their respective businesses as now
being conducted and is not in default in respect thereof where the absence of
such or any such default could reasonably be expected to have a Material Adverse
Effect.

SECTION 6.16. SUBSIDIARIES AND ASSETS. The Subsidiaries listed on
SCHEDULE 6.16 are all of the Subsidiaries of the Company as of the Credit
Agreement Effective Date and the address given for such Guarantors is the
correct mailing address as of the Credit Agreement Effective Date.

SECTION 6.17. SOLVENCY. After giving effect to the initial Advance
hereunder and all other Indebtedness of the Company existing at the time of such
Advance, the Company and its Subsidiaries, viewed as a consolidated entity have
at such time (a) capital sufficient to carry on their businesses and
transactions and (b) assets, the fair market value of which exceeds their
consolidated liabilities (as reflected on the Financials or on the financial
statements most recently delivered to the Banks).

SECTION 6.18. PAYMENT OF CERTAIN INDEBTEDNESS. The Company has (a)
repaid in full all of the Indebtedness described on Schedule 8.03(b)(ii) and (b)
obtained, and where applicable recorded in all appropriate locations, releases
of liens for all real and personal property securing same.

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ARTICLE VII
AFFIRMATIVE COVENANTS

The Company, as to itself and each of its Subsidiaries, covenants
and agrees that on and after the date hereof and for so long as this Agreement
is in effect and until the Notes have been paid in full and the Commitments have
terminated:

SECTION 7.01. INFORMATION COVENANTS. The Company will furnish to
each Bank:

(a) As soon as available, and in any event within forty-five (45)
days after the close of each fiscal quarter, the consolidated and consolidating
balance sheet of the Company and its Subsidiaries as of the end of such period
and the related consolidated and consolidating statements of income and cash
flow for such period, setting forth, in each case, comparative consolidated
figures for the related periods in the prior fiscal year, all of which shall be
certified by the chief financial officer or chief executive officer of the
Company as fairly presenting in all material respects, the financial position of
the Company and its Subsidiaries as of the end of such period and the results of
their operations for the period then ended in accordance with GAAP, subject to
changes resulting from normal year-end audit adjustments.

(b) As soon as available, and in any event within one hundred twenty
(120) days after the close of each fiscal year of the Company, the audited
consolidated and the unaudited consolidating balance sheets of the Company and
its Subsidiaries as at the end of such fiscal year and the related consolidated
and consolidating statements of income, stockholders equity and cash flows for
such fiscal year, setting forth, in each case, comparative figures for the
preceding fiscal year and certified by Arthur Andersen or other independent
certified public accountants of recognized national standing, whose report shall
be without limitation as to the scope of the audit and reasonably satisfactory
in substance to the Banks.

(i) any material violation of, noncompliance with, or remedial
obligations under, Requirements of Environmental Laws that could cause a
Material Adverse Effect;

(ii) any Release or threatened material Release of Hazardous
Materials affecting any property owned, leased or operated by the Company
or any of its Subsidiaries that could cause a Material Adverse Effect;

(iii) any event or condition which constitutes a Default or an
Event of Default;

(iv) any condition or event which, in the opinion of
management of the Company, would reasonably be expected to have a Material
Adverse Effect;

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(v) any Person having given any written notice to the Company
or taken any other action with respect to a claimed material default or
event under any material instrument or material agreement;

(vi) the institution of any litigation which might reasonably
be expected in the good faith judgment of the Company either to have a
Material Adverse Effect or result in a final, non-appealable judgment or
award in excess of $1,000,000.00 with respect to any single cause of
action; and

(vii) all ERISA notices required by SECTION 7.07;

such notice shall specify the nature and period of existence thereof and
specifying the notice given or action taken by such Person and the nature of any
such claimed default, event or condition and, in the case of an Event of Default
or Default, what action has been taken, is being taken or is proposed to be
taken with respect thereto.

(d) At the time of the delivery of the financial statements provided
for in SECTIONS 7.01(A) and 7.01(B), a compliance certificate of a Responsible
Officer in the form attached hereto as EXHIBIT 7.01(D) to the effect that, no
Default or Event of Default exists or, if any Default or Event of Default does
exist, specifying the nature and extent thereof and the action that is being
taken or that is proposed to be taken with respect thereto, which certificate
shall set forth the calculations required to establish whether the Company was
in compliance with the provisions of SECTIONS 8.10 through 8.14 as at the end of
such fiscal period or year, as the case may be.

(e) Promptly following request by the Agent such environmental
reports, studies and audits of the Company's procedures and policies, assets and
operations in respect of Environmental Laws as the Agent may reasonably request.

(f) Promptly upon receipt thereof, a copy of any report or letter
submitted to the Company by its independent accountants in connection with any
regular or special audit of the Company's records.

(g) From time to time and with reasonable promptness, such other
information or documents as the Agent or any Bank through the Agent may
reasonably request.

SECTION 7.02. BOOKS, RECORDS AND INSPECTIONS. The Company and its
Subsidiaries will maintain, and will permit, or cause to be permitted, any
Person designated by any Bank or the Banks to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine the corporate books
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any such corporations with the officers of the Company and its Subsidiaries
and with their independent public accountants, all at such reasonable times and
as often as the Agent or such Bank may reasonably request. Such inspections
shall be at the expense of the Bank or Banks requesting same unless there

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is in existence a Default at the time of such request in which event such
expense shall be at the expense of the Company.

SECTION 7.03. INSURANCE AND MAINTENANCE OF PROPERTIES. (a) Each of
the Company and its Subsidiaries will keep reasonably adequately insured by
financially sound and reputable insurers all of its material property, which is
of a character, and in amounts and against such risks, usually and reasonably
insured by similar Persons engaged in the same or similar businesses, including,
without limitation, insurance against fire, casualty and any other hazards
normally insured against. Each of the Company and its Subsidiaries will at all
times maintain insurance against its liability for injury to Persons or
property, which insurance shall be by financially sound and reputable insurers
and in such amounts and form as are customary for corporations of established
reputation engaged in the same or a similar business and owning and operating
similar properties. The Company shall provide the Agent a listing of all such
insurance and such other certificates and other evidence thereof, on or prior to
the Credit Agreement Effective Date hereof and annually thereafter.

(b) Each of the Company and its Subsidiaries will cause all of its
material properties used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all reasonably necessary
repairs, renewals and replacements thereof, all as in the reasonable judgment of
such Person may be reasonably necessary so that the business carried on in
connection therewith may be properly conducted at all times, except where such
failure could not reasonably be expected to have a Material Adverse Effect.

SECTION 7.04. PAYMENT OF TAXES. Each of the Company and its
Subsidiaries will pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
except for such amounts that are being contested in good faith and by
appropriate proceedings, except where such failure could not reasonably be
expected to have a Material Adverse Effect.

SECTION 7.05. CORPORATE EXISTENCE. Each of the Company and its
Subsidiaries will do all things necessary to preserve and keep in full force and
effect (a) the existence of the Company, and (b) unless the failure to do so
would not reasonably be expected to have a Material Adverse Effect, the rights
and franchises of each of the Company and its Subsidiaries.

SECTION 7.06. COMPLIANCE WITH STATUTES. Each of the Company and its
Subsidiaries will comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property, except to the extent the failure to do so would not reasonably
be expected to have a Material Adverse Effect.

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SECTION 7.07. ERISA. Promptly after any Responsible Officer of the
Company or any of its Subsidiaries knows or has reason to know any of the
following items are true the Company will deliver or cause to be delivered to
the Banks a certificate of the chief financial officer of the Company setting
forth details as to such occurrence and such action, if any, the Company or its
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Company or its ERISA
Affiliate with respect thereto: that a Reportable Event has occurred or that an
application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard; that a Multiemployer
Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that any required contribution to a Plan or
Multiemployer Plan has not been or may not be timely made; that proceedings may
be or have been instituted under Section 4069(a) of ERISA to impose liability on
the Company or an ERISA Affiliate or under Section 4042 of ERISA to terminate a
Plan or appoint a trustee to administer a Plan; that the Company or any ERISA
Affiliate has incurred or may incur any liability (including any contingent or
secondary liability) on account of the termination of or withdrawal from a Plan
or a Multiemployer Plan; and that the Company or an ERISA Affiliate may be
required to provide security to a Plan under Section 401(a)(29) of the Code.

SECTION 7.08. ADDITIONAL SUBSIDIARIES. The Company will cause any
Person that becomes a Subsidiary subsequent to the Credit Agreement Effective
Date, within ten (10) Business Days after becoming a Subsidiary, to execute a
Guaranty or a counterpart of this Agreement and deliver same to the Agent,
PROVIDED if said Subsidiary is not incorporated under the laws of the United
States or one of its states or territories, no such guaranty will be required if
the Company makes arrangements, satisfactory to the Agent, in its sole
discretion, regarding restrictions on transfer of funds or other assets by the
Company or any Subsidiary to said new foreign Subsidiary.

ARTICLE VIII
NEGATIVE COVENANTS

The Company covenants and agrees, as to itself and, except as
otherwise provided herein, each of its Subsidiaries, that on and after the date
hereof and for so long as this Agreement is in effect and until the Commitments
have terminated:

SECTION 8.01. CHANGE IN BUSINESS. The Company will not, and will not
permit any of its Subsidiaries to, engage in any businesses not of the same
general type or reasonably related thereto as those conducted by the Company on
the Credit Agreement Effective Date.

SECTION 8.02. CONSOLIDATION, MERGER OR SALE OF ASSETS. Except as
previously disclosed to the Agent, the Company will not, and will not permit any
of its Subsidiaries to, wind up, liquidate or dissolve their affairs, or enter
into any transaction of merger or consolidation, or sell or otherwise dispose of
all or any substantial part of their property or assets (other than sales of

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inventory and surplus or obsolete assets in the ordinary course of business
provided that any disposal does not prejudice the Banks in any way), including
the capital stock of any Subsidiary, except for (a) mergers permitted under
SECTION 8.05(D), (b) mergers by the Company with any of its wholly-owned
Subsidiaries and mergers by the Company's wholly-owned Subsidiaries with another
of the Company's wholly-owned Subsidiaries and (c) mergers by a wholly-owned
Subsidiary of the Company with another Person in connection with an investment
permitted under SECTION 8.05(D).

SECTION 8.03. INDEBTEDNESS. Neither the Company nor any Subsidiary
of the Company will create, incur, assume or permit to exist any Indebtedness of
the Company or any Subsidiary except:

(a) Indebtedness existing hereunder;

(b) Indebtedness existing on the Credit Agreement Effective Date and
described in the Financials or, if not shown, listed on SCHEDULE 8.03(B)(I) and
(II) (but subject to SECTION 7.09);

(c) Indebtedness arising as a result of the endorsement in the
ordinary course of business of negotiable instruments in the course of
collection;

(d) accounts payable and unsecured, current and long-term,
liabilities (including accrued insurance related liabilities), not the result of
indebtedness for borrowed money, to vendors, suppliers and other Persons for
goods and services in the ordinary course of business;

(e) agreements to acquire any Person or assets issued by the Company
or any of its Subsidiaries in anticipation of acquiring such Person or assets if
such acquisition is not prohibited by this Agreement;

(f) intercompany Indebtedness of any Subsidiary of the Company to
the Company or any other Subsidiary and Indebtedness of the Company to any
Subsidiary of the Company provided that same is subordinate to the Obligations
in the manner provided in SECTION 8.05 hereof;

(g) current and deferred taxes;

(h) Other Indebtedness not in excess of $2,000,000.00 in the
aggregate at any time outstanding;

(i) Subordinated Debt incurred by Borrower solely in connection with
investments permitted by SECTION 8.05(D);

(j) Indebtedness assumed or acquired in connection with Investments
permitted under SECTION 8.05(D); provided that all of such Indebtedness in
excess of three percent (3%) of the

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net book value of the assets acquired in any such Investment shall be retired
within 60 days after the date of such Investment; and

(k) renewals and extensions with the same lenders (in the same or
lesser principal amount on similar terms and conditions) of any Indebtedness
listed in subparagraphs (a) through (i) above.

SECTION 8.04. LIENS. Neither the Company nor any Subsidiary of the
Company will create, incur, assume or suffer to exist any Lien upon or with
respect to any of its property or assets of any kind whether now owned or
hereafter acquired (nor will they covenant with any other Person not to grant
such a Lien to the Agent, except:

(a) Liens existing on the Credit Agreement Effective Date and listed
on SCHEDULE 8.04(A);

(b) Liens securing currently secured Indebtedness permitted under
SECTION 8.03(B) or (h) above;

(d) Liens securing Indebtedness permitted under SECTION 8.03(H) AND
8.03(J); and

(e) any renewal, extension or replacement of any Lien referred to
above with the same lenders; PROVIDED, that no Lien arising or existing as a
result of such extension, renewal or replacement shall be extended to cover any
property not theretofore subject to the Lien being extended, renewed or replaced
and PROVIDED FURTHER that the principal amount of the Indebtedness secured
thereby shall not exceed the principal amount of the Indebtedness so secured at
the time of such extension, renewal or replacement.

SECTION 8.05. INVESTMENTS. Neither the Company nor any Subsidiary
will, directly or indirectly, make or own any Investment in any Person, except:

(a) Permitted Investments;

(b) Investments owned on the Credit Agreement Effective Date as set
forth on SCHEDULE 8.05(B), including Investments in the Subsidiaries, direct and
indirect;

(c) Investments arising out of loans and advances for expenses,
travel per diem and similar items in the ordinary course of business to
officers, directors and employees and intercompany Indebtedness permitted by
SECTION 8.03(F);

(d) Investments in the stock, warrants, stock appreciation rights,
other securities and/or other assets of domestic entities engaged in the same
general type of business as the Company

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on the Credit Agreement Effective Date, (i) in which the Company or one of its
wholly owned Subsidiaries is the surviving entity, (ii) at a time when no
Default or Event of Default exists hereunder and (iii) the cash portion of the
purchase price for any one such Investment does not exceed $10,000,000.00;

(e) other Investments not exceeding $500,000.00 in the aggregate at
any one time outstanding;

(f) Investments in the form of stock buybacks allowed under SECTION
8.06; and

(g) Investments in capital stock of wholly-owned Subsidiaries of the
Company.

SECTION 8.06. RESTRICTED PAYMENTS. The Company will not pay any
dividends or redeem, retire, purchase or guaranty the value of or make any other
acquisition, direct or indirect, of any shares of any class of stock of the
Company, or of any warrants, rights or options to acquire any such shares, now
or hereafter outstanding, except to the extent that the consideration therefor
consists solely of shares of stock (including warrants, rights or options
relating thereto) of the Company or is approved by the Majority Banks; PROVIDED,
the Company may purchase the stock of departing officers and employees upon
their departure in a maximum, aggregate amount not to exceed $500,000.00 in the
aggregate or such larger amount at the Agent's written consent.

SECTION 8.07. CHANGE IN ACCOUNTING. The Company will not and will
not permit any Subsidiary to, change its method of accounting except for (a)
changes permitted by GAAP in which the Company's auditors concur, (b) changes
with respect to any Person or assets acquired by the Company to conform with the
Company's policies and procedures and which are permitted by GAAP or (c) changes
required by GAAP. The Company shall advise the Agent in writing promptly upon
making any material change to the extent same is not disclosed in the financial
statements required under SECTION 7.01 hereof. In the event of any such change,
the Company, the Banks and the Agent agree to negotiate amendments to SECTIONS
8.10 through 8.14 hereof (and related definitions, if relevant) so as to
equitably reflect such changes thereon with the intended result that the
criteria for evaluating the financial condition of the Company and its
Subsidiaries shall be substantially the same after such changes as before.

SECTION 8.08. CHANGE OF CERTAIN INDEBTEDNESS. The Company will not,
and will not permit any of its Subsidiaries after the occurrence and during the
continuance of any Event of Default to make any voluntary prepayments of
principal or interest on any other of the Company's Indebtedness.

SECTION 8.09. TRANSACTIONS WITH AFFILIATES. The Company will not,
directly or indirectly, engage in any transaction with any Affiliate, including
the purchase, sale or exchange of assets or the rendering of any service, except
in the ordinary course of business or pursuant to the reasonable requirements of
its business and, in each case, upon terms that are no less favorable than those
which might be obtained in an arm's-length transaction at the time from
non-Affiliates.

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SECTION 8.10. CURRENT RATIO. The Company will not permit the ratio
of Current Assets to Current Liabilities to be less than 1.25 to 1.0.

SECTION 8.11. FUNDED DEBT TO EBITDA RATIO. The Company will not as
of the last day of any fiscal quarter permit the ratio of its total Funded Debt
on such day to EBITDA for the four (4) quarters then ended to be greater than
2.5 to 1.0 at any time during the term hereof.

SECTION 8.12. FUNDED DEBT TO CONSOLIDATED TANGIBLE NET WORTH RATIO.
The Company will not permit as of the last day of any fiscal quarter the ratio
of (a) its total Funded Debt minus investable cash and Permitted Investments on
such day to (b) Consolidated Tangible Net Worth plus Subordinated Debt on such
day, to be greater than 1.25 to 1.0 at any time during the term hereof.

SECTION 8.13. CAPITAL EXPENDITURES. The Company will not permit
total consolidated capital expenditures (including Capitalized Lease Obligations
but exclusive of Investments permitted under SECTION 8.05(D) to be greater than
two percent (2%) of gross revenues for any fiscal year during the term hereof.

SECTION 8.14. INTEREST COVERAGE RATIO. The Company will not permit
as of the last day of any fiscal quarter the ratio EBITDA less depreciation for
the four (4) quarters ended on such day to required cash Interest Expense for
such period to be less than 4.0 to 1. This interest coverage ratio shall be
calculated on a year to date basis during the initial four quarter period during
the term hereof and on a rolling four (4) quarter basis thereafter.

ARTICLE IX
GUARANTY

SECTION 9.01. GUARANTY. In consideration of, and in order to induce
the Banks to make the Loans and the Issuing Bank to issue Letters of Credit
hereunder, the Guarantors hereby absolutely, unconditionally and irrevocably,
jointly and severally, guarantee the punctual payment and performance when due,
whether at stated maturity, by acceleration or otherwise, of the Obligations,
and all other obligations and covenants of the Company now or hereafter existing
under this Agreement, the Notes and the other Loan Documents whether for
principal, interest (including interest accruing or becoming owing both prior to
and subsequent to the commencement of any proceeding against or with respect to
the Company under any chapter of the Bankruptcy Code), Fees, commissions,
expenses (including reasonable attorneys' fees and expenses) or otherwise, and
all reasonable costs and expenses, if any, incurred by the Agent or any Bank in
connection with enforcing any rights under this Guaranty (all such obligations
being the "GUARANTEED OBLIGATIONS"), and agree to pay any and all reasonable
expenses incurred by each Bank and the Agent in enforcing this Guaranty;
PROVIDED that notwithstanding anything contained herein or in any of the Loan
Documents to the contrary, the maximum liability of each Guarantor hereunder and
under the other Loan Documents shall in no event exceed such Guarantor's Maximum
Guaranteed Amount,

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PROVIDED FURTHER, each Guarantor shall be unconditionally required to pay all
amounts demanded of it hereunder prior to any determination of such Maximum
Guaranteed Amount and the recipient of such payment, if so required by a final
non-appealable order of a court of competent jurisdiction, shall then be liable
for the refund of any excess amounts. If any such rebate or refund is ever
required, all other Guarantors (and the Company) shall be fully liable for the
repayment thereof to the maximum extent allowed by applicable law. This Guaranty
is an absolute, unconditional, present and continuing guaranty of payment and
not of collectibility and is in no way conditioned upon any attempt to collect
from the Company or any other action, occurrence or circumstance whatsoever.
Each Guarantor agrees that the Guaranteed Obligations may at any time and from
time to time exceed the Maximum Guaranteed Amount of such Guarantor without
impairing this Guaranty or affecting the rights and remedies of the Banks
hereunder.

SECTION 9.02. CONTINUING GUARANTY. Each Guarantor guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement, the Notes and the other Loan Documents. Each Guarantor agrees
that the Guaranteed Obligations and Loan Documents may be extended or renewed,
and Loans repaid and reborrowed in whole or in part, without notice to or assent
by such Guarantor, and that it will remain bound upon this Guaranty
notwithstanding any extension, renewal or other alteration of any Guaranteed
Obligations or Loan Documents, or any repayment and reborrowing of Loans. To the
maximum extent permitted by applicable law, the obligations of each Guarantor
under this Guaranty shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms hereof under any
circumstances whatsoever, including:

(a) any extension, renewal, modification, settlement, compromise,
waiver or release in respect of any Guaranteed Obligations;

(b) any extension, renewal, amendment, modification, rescission,
waiver or release in respect of any Loan Documents;

(c) any release, exchange, substitution, non-perfection or
invalidity of, or failure to exercise rights or remedies with respect to, any
direct or indirect security for any Guaranteed Obligations, including the
release of any Guarantor or other Person liable on any Guaranteed Obligations;

(d) any change in the corporate existence, structure or ownership of
the Company, any Guarantor, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Company, such Guarantor, any other
Guarantor or any of their respective assets;

(e) the existence of any claim, defense, set-off or other rights or
remedies which such Guarantor at any time may have against the Company, or the
Company or such Guarantor may have at any time against the Agent, any Bank, any
other Guarantor or any other Person, whether in connection with this Guaranty,
the Loan Documents, the transactions contemplated thereby or any

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other transaction other than by the payment in full by the Company of the
Guaranteed Obligations after the termination of the Commitments of the Banks;

(f) any invalidity or unenforceability for any reason of this
Agreement or other Loan Documents, or any provision of law purporting to
prohibit the payment or performance by the Company, such Guarantor or any other
Guarantor of the Guaranteed Obligations or Loan Documents, or of any other
obligation to the Agent or any Bank; or

(g) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing.

SECTION 9.03. EFFECT OF DEBTOR RELIEF LAWS. If after receipt of any
payment of, or proceeds of any security applied (or intended to be applied) to
the payment of all or any part of the Guaranteed Obligations, the Agent or any
Bank is for any reason compelled to surrender or voluntarily surrenders such
payment or proceeds to any Person (a) because such payment or application of
proceeds is or may be avoided, invalidated, declared fraudulent, set aside,
determined to be void or voidable as a preference, fraudulent conveyance,
fraudulent transfer, impermissible set-off or a diversion of trust funds or (b)
for any other similar reason, including (i) any judgment, decree or order of any
court or administrative body having jurisdiction over the Agent, any Bank or any
of their respective properties or (ii) any settlement or compromise of any such
claim effected by the Agent or any Bank with any such claimant (including the
Company), then the Guaranteed Obligations or part thereof intended to be
satisfied shall be reinstated and continue, and this Guaranty shall continue in
full force as if such payment or proceeds have not been received,
notwithstanding any revocation thereof or the cancellation of any Note or any
other instrument evidencing any Guaranteed Obligations or otherwise; and the
Guarantors, jointly and severally, shall be liable to pay the Agent and the
Banks, and hereby do indemnify the Agent and the Banks and hold them harmless
for the amount of such payment or proceeds so surrendered and all expenses
(including reasonable attorneys' fees, court costs and expenses attributable
thereto) incurred by the Agent or any Bank in the defense of any claim made
against it that any payment or proceeds received by the Agent or any Bank in
respect of all or part of the Guaranteed Obligations must be surrendered. The
provisions of this paragraph shall survive the termination of this Guaranty, and
any satisfaction and discharge of the Company by virtue of any payment, court
order or any federal or state law.

SECTION 9.04. WAIVER OF SUBROGATION. Notwithstanding any payment or
payments made by any Guarantor hereunder, or any set-off or application by the
Agent or any Bank of any security or of any credits or claims, no Guarantor will
assert or exercise any rights of the Agent or any Bank or of such Guarantor
against the Company to recover the amount of any payment made by such Guarantor
to the Agent or any Bank hereunder by way of any claim, remedy or subrogation,
reimbursement, exoneration, contribution, indemnity, participation or otherwise
arising by contract, by statute, under common law or otherwise, and such
Guarantor shall not have any right of recourse to or any claim against assets or
property of the Company, in each case unless and until the Obligations of the
Company guaranteed hereby have been fully and finally satisfied. Until such
time, each Guarantor hereby expressly waives any right to exercise any claim,
right or remedy which

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such Guarantor may now have or hereafter acquire against the Company that arises
under this Agreement or any other Loan Document or from the performance by any
Guarantor of the Guaranty hereunder including any claim, remedy or right of
subrogation, reimbursement, exoneration, contribution, indemnification or
participation in any claim, right or remedy of the Agent or any Bank against the
Company, or any security that the Agent or any Bank now has or hereafter
acquires, whether or not such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise. If any amount shall be paid
to a Guarantor by the Company or another Guarantor after payment in full of the
Obligations, and the Obligations shall thereafter be reinstated in whole or in
part and the Agent or any Bank forced to repay and sums received by any of them
in payment of the Obligations, this Guaranty shall be automatically reinstated
and such amount shall be held in trust for the benefit of the Agent and the
Banks and shall forthwith be paid to the Agent to be credited and applied to the
Guaranteed Obligations, whether matured or unmatured. The provisions of this
paragraph shall survive the termination of this Guaranty, and any satisfaction
and discharge of the Company by virtue of any payment, court order or any
federal or state law.

SECTION 9.05. SUBORDINATION. If any Guarantor becomes the holder of
any indebtedness payable by the Company or another Guarantor, each Guarantor
hereby subordinates all indebtedness owing to it from the Company to all
indebtedness of the Company to the Agent and the Banks, and agrees that during
the continuance of any Event of Default it shall not accept any payment on the
same until payment in full of the Obligations of the Company under this
Agreement and the other Loan Documents after the termination of the Commitments
of the Banks and shall in no circumstance whatsoever attempt to set-off or
reduce any obligations hereunder because of such indebtedness. If any amount
shall nevertheless be paid in violation of the foregoing to a Guarantor by the
Company or another Guarantor prior to payment in full of the Guaranteed
Obligations, such amount shall be held in trust for the benefit of the Agent and
the Banks and shall forthwith be paid to the Agent to be credited and applied to
the Guaranteed Obligations, whether matured or unmatured.

SECTION 9.06. WAIVER. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and waives presentment, demand of
payment, notice of intent to accelerate, notice of dishonor or nonpayment and
any requirement that the Agent or any Bank institute suit, collection
proceedings or take any other action to collect the Guaranteed Obligations,
including any requirement that the Agent or any Bank protect, secure, perfect or
insure any Lien against any property subject thereto or exhaust any right or
take any action against the Company or any other Person or any collateral (it
being the intention of the Agent, the Banks and each Guarantor that this
Guaranty is to be a guaranty of payment and not of collection). It shall not be
necessary for the Agent or any Bank, in order to enforce any payment by any
Guarantor hereunder, to institute suit or exhaust its rights and remedies
against the Company, any other Guarantor or any other Person, including others
liable to pay any Guaranteed Obligations, or to enforce its rights against any
security ever given to secure payment thereof. Each Guarantor hereby expressly
waives to the maximum extent permitted by applicable law each and every right to
which it may be entitled by virtue of the suretyship laws of the State of Texas,
including any and all rights it may have pursuant

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to Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil
Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce
Code. Each Guarantor hereby waives marshaling of assets and liabilities, notice
by the Agent or any Bank of any indebtedness or liability to which such Bank
applies or may apply any amounts received by such Bank, and of the creation,
advancement, increase, existence, extension, renewal, rearrangement or
modification of the Guaranteed Obligations. Each Guarantor expressly waives, to
the extent permitted by applicable law, the benefit of any and all laws
providing for exemption of property from execution or for valuation and
appraisal upon foreclosure.

SECTION 9.07. FULL FORCE AND EFFECT. This Guaranty is a continuing
guaranty and shall remain in full force and effect until all of the Obligations
of the Company under this Agreement and the other Loan Documents and all other
amounts payable under this Guaranty have been paid in full (after the
termination of the Commitments of the Banks). All rights, remedies and powers
provided in this Guaranty may be exercised, and all waivers contained in this
Guaranty may be enforced, only to the extent that the exercise or enforcement
thereof does not violate any provisions of applicable law which may not be
waived.

ARTICLE X
EVENTS OF DEFAULT AND REMEDIES

SECTION 10.01. EVENTS OF DEFAULT. The following events shall
constitute Events of Default ("EVENTS OF DEFAULT") hereunder:

(a) any installment of principal is not paid when due or any payment
of interest or Fees is not paid on the date on which such payment is due and
such failure continues for a period of five (5) days; or

(b) any representation or warranty made or deemed made by the
Company or any Subsidiary herein or in any of the Loan Documents or other
document, certificate or financial statement delivered in connection with this
Agreement or any other Loan Document shall prove to have been incorrect in any
material respect when made or deemed made or reaffirmed, as the case may be; or

(c) the Company shall fail to perform or observe or cause any
Subsidiary to fail to perform or observe (i) any duty or covenant contained in
ARTICLE VIII of this Agreement or (ii) any other duty or covenant contained
elsewhere in this Agreement or in any of the Loan Documents and such failure
continues for a period of thirty (30) days; or

(d) the Company or any Subsidiary shall (i) fail to make (whether as
primary obligor or as guarantor or other surety) any principal payment of or
interest or premium, if any, on any instrument of Indebtedness in excess of
$2,500,000 allowed hereunder outstanding beyond any period of grace provided
with respect thereto or (ii) shall fail to duly observe, perform or comply

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with any agreement with any Person or any term or condition of any instrument of
Indebtedness in excess of $2,500,000, if the effect of such failure is to cause,
or to permit the holder or holders to cause, such obligations to become due
prior to any stated maturity; or

(e) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Company or any Subsidiary, or of a substantial part of the
property or assets of the Company or any Subsidiary, under Title 11 of the
United States Code, as now or hereafter in effect, or any successor thereto (the
"BANKRUPTCY CODE"), or any other federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company or any
Subsidiary or for a substantial part of the property or assets of the Company or
any Subsidiary or (iii) the winding-up or liquidation of the Company or any
Subsidiary; and such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered; or

(f) the Company or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under the Bankruptcy Code or any
other federal or state bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in clause (e)
above, (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company or any
Subsidiary or for a substantial part of the property or assets of the Company or
any Subsidiary, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors, (vi) become unable, or admit in writing its
inability or fail generally to pay its debts as they become due or (vii) take
any action for the purpose of effecting any of the foregoing; or

(g) a judgment or order, which with other outstanding judgments and
orders against the Company and its Subsidiaries equal or exceed $500,000.00 in
the aggregate (to the extent not covered by insurance as to which the respective
insurer has acknowledged coverage), shall be entered against the Company or any
Subsidiary and (i) within 30 days after entry thereof such judgment shall not
have been paid or discharged or execution thereof stayed pending appeal or,
within 30 days after the expiration of any such stay, such judgment shall not
have been paid or discharged or (ii) any enforcement proceeding shall have been
commenced (and not stayed) by any creditor or upon such judgment; or

(h) a Change of Control shall occur.

SECTION 10.02. PRIMARY REMEDIES. In any such event, and at any time
after the occurrence of any of the above described events, the Agent, if
directed by the Majority Banks, shall by written notice to the Company (a
"NOTICE OF DEFAULT") take any or all of the following actions, PROVIDED that, if
an Event of Default specified in SECTION 10.01(E) or SECTION 10.01(F) shall
occur, the following shall occur automatically without the giving of any Notice
of Default: (a) declare

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the Commitments terminated, whereupon the Commitments shall forthwith terminate
immediately and any Commitment Fee and any other owing and unpaid Fee shall
forthwith become due and payable without any other notice of any kind; (b)
declare the principal of and any accrued and unpaid interest in respect of all
Advances, and all obligations owing hereunder, to be, whereupon the same shall
become, forthwith due and payable without presentment, demand, notice of demand
or of dishonor and non-payment, protest, notice of protest, notice of intent to
accelerate, declaration or notice of acceleration or any other notice of any
kind (except as herein expressly provided), all of which are hereby waived by
the Company; (c) set off any assets or money of the Company or any Guarantor
in its or any Bank's possession against the Obligations; and (d) exercise any
rights or remedies under any document securing any of the Loan Documents or
under any applicable state or federal law.

SECTION 10.03. OTHER REMEDIES. Upon the occurrence and during the
continuance of any Event of Default, the Agent may proceed to protect and
enforce its and the Banks' rights, either by suit in equity or by action at law
or both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in any other Loan Document or in aid of the
exercise of any power granted in this Agreement or in any other Loan Document;
or may proceed to enforce the payment of all amounts owing to the Banks under
the Loan Documents and any accrued and unpaid interest thereon in the manner set
forth herein or therein; it being intended that no remedy conferred herein or in
any of the other Loan Documents is to be exclusive of any other remedy, and each
and every remedy contained herein or in any other Loan Document shall be
cumulative and shall be in addition to every other remedy given hereunder and
under the other Loan Documents or now or hereafter existing at law or in equity
or by statute or otherwise.

ARTICLE XI
THE AGENT

SECTION 11.01. AUTHORIZATION AND ACTION. Each Bank hereby
irrevocably appoints and authorizes the Agent to act on its behalf and to
exercise such powers under this Agreement and the other Loan Documents as are
specifically delegated to or required of the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. The Agent may perform any
of its duties hereunder by or through its agents and employees. The duties of
the Agent shall be mechanical and administrative in nature; the Agent shall not
have by reason of this Agreement or any other Loan Documents a fiduciary
relationship in respect of any Bank; and nothing in this Agreement or any other
Loan Document, expressed or implied, is intended to, or shall be so construed as
to, impose upon the Agent any obligations in respect of this Agreement or any
other Loan Document except as expressly set forth herein or therein. As to any
matters not expressly provided for by this Agreement, the Notes or the other
Loan Documents (including enforcement or collection of the Notes), the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority Banks,
and such instructions shall be binding upon the Banks and all holders of Notes
and the Obligations; PROVIDED, that the Agent shall

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not be required to take any action which exposes the Agent to personal liability
and shall not be required or entitled to take any action which is contrary to
any of the Loan Documents or applicable law.

SECTION 11.02. AGENT'S RELIANCE. (a) Neither the Agent nor any of
its directors, officers, agents or employees shall be liable to the Banks for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement, the Notes or any of the other Loan Documents (i) with the
consent or at the request of the Majority Banks or (ii) in the absence of its
or their own gross negligence or willful misconduct, IT BEING THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT THE AGENT AND ITS DIRECTORS, OFFICERS,
AGENTS AND EMPLOYEES SHALL HAVE NO LIABILITY TO THE BANKS FOR ACTIONS AND
OMISSIONS UNDER THIS SECTION RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY
NEGLIGENCE.

(b) Without limitation of the generality of the foregoing, the
Agent: (i) may treat the payee of each Note and the Obligations as the holder
thereof until the Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to the Agent; (ii) may
consult with legal counsel (including counsel for the Company), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations made in or in connection with this
Agreement, any Note or any other Loan Document; (iv) except as otherwise
expressly provided herein, shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions of
this Agreement, any Note or any other Loan Document or to inspect the property
(including the books and records) of the Company; (v) shall not be responsible
to any Bank for the due execution, legality, validity, enforceability,
collectibility, genuineness, sufficiency or value of this Agreement, any Note,
any other Loan Document or any other instrument or document furnished pursuant
hereto or thereto; (vi) shall not be responsible to any Bank for the perfection
or priority of any Lien securing the Obligations; and (vii) shall incur no
liability under or in respect of this Agreement, any Note or any other Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telegram, telecopier or cable) reasonably believed by
it to be genuine and signed or sent by the proper party or parties.

SECTION 11.03. AGENT AND AFFILIATES; BOT AND AFFILIATES. Without
limiting the right of any other Bank to engage in any business transactions with
the Company or any of its Affiliates, with respect to their Commitments, the
Loans made by them and the Notes issued to them, BOT and each other Bank who may
become the Agent shall have the same rights and powers under this Agreement and
its Notes as any other Bank and may exercise the same as though it was not the
Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly
indicated, include BOT and any such other Bank, in their individual capacities.
BOT, each other Person who becomes the Agent and their respective Affiliates may
be engaged in, or may hereafter engage in, one or more loan, letter of credit,
leasing or other financing activity not the subject of this Agreement
(collectively, the "OTHER FINANCINGS") with the Company, any Subsidiary or any
of its Affiliates, or

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may act as trustee on behalf of, or depositary for, or
otherwise engage in other business transactions with the Company, any Subsidiary
or any of its Affiliates (all Other Financings and other such business
transactions being collectively, the "OTHER ACTIVITIES") with no responsibility
to account therefor to the Banks. Without limiting the rights and remedies of
the Banks specifically set forth herein, no other Bank by virtue of being a Bank
hereunder shall have any interest in (a) any Other Activities, (b) any present
or future guaranty by or for the account of the Company not contemplated or
included herein, (c) any present or future offset exercised by the Agent in
respect of any such Other Activities, (d) any present or future property taken
as security for any such Other Activities or (e) any property now or hereafter
in the possession or control of the Agent which may be or become security for
the Obligations of the Company hereunder and under the Notes by reason of the
general description of indebtedness secured, or of property contained in any
other agreements, documents or instruments related to such Other Activities;
PROVIDED, HOWEVER, that if any payment in respect of such guaranties or such
property or the proceeds thereof shall be applied to reduction of the
Obligations evidenced hereunder and by the Notes, then each Bank shall be
entitled to share in such application according to its pro rata portion of such
Obligations.

SECTION 11.04. BANK CREDIT DECISION. Each Bank acknowledges and
agrees that it has, independently and without reliance upon the Agent or any
other Bank and based on the financial statements referred to in SECTION 7.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges and agrees that it will, independently and without reliance upon
the Agent or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.

SECTION 11.05. AGENT'S INDEMNITY. (a) The Agent shall not be
required to take any action hereunder or to prosecute or defend any suit in
respect of this Agreement, the Notes or any other Loan Document unless
indemnified to the Agent's satisfaction by the Banks against loss, cost,
liability and expense. If any indemnity furnished to the Agent shall become
impaired, it may call for additional indemnity and cease to do the acts
indemnified against until such additional indemnity is given. In addition, the
Banks agree to indemnify the Agent (to the extent not reimbursed by the
Company), ratably according to the respective aggregate principal amounts of the
Notes then held by each of them (or if no Notes are at the time outstanding,
ratably according to the respective amounts of the Commitments), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any action
taken or omitted by the Agent under this Agreement, the Notes and the other Loan
Documents. Without limitation of the foregoing, each Bank agrees to reimburse
the Agent promptly upon demand for its ratable share of any out-of-pocket
expenses (including reasonable counsel fees) incurred by the Agent in connection
with the preparation, execution, administration, or enforcement of, or legal
advice in respect of rights or responsibilities under, this Agreement, the Notes
and the other Loan Documents to the extent that the Agent is not reimbursed for
such expenses by the Company. The provisions of this Section shall

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survive the termination of this Agreement, the payment of the Obligations and/or
the assignment of any of the Notes.

(b) Notwithstanding the foregoing, no Bank shall be liable under
this Section to the Agent for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements due to the Agent resulting from the Agent's gross negligence or
willful misconduct. EACH BANK AGREES, HOWEVER, THAT IT EXPRESSLY INTENDS, UNDER
THIS SECTION, TO INDEMNIFY THE AGENT RATABLY AS AFORESAID FOR ALL SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING FROM THE AGENT'S
SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE.

SECTION 11.06. SUCCESSOR AGENT. The Agent may resign at any time by
giving written notice thereof to the Banks and the Company and may be removed as
Agent under this Agreement, the Notes and the other Loan Documents at any time
with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the Majority Banks, and
shall have accepted such appointment, within 30 calendar days after the retiring
Agent's giving of notice of resignation or the Majority Banks' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be an Eligible Assignee. Upon the acceptance of any
appointment as Agent hereunder and under the Notes and the other Loan Documents
by a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement, the Notes and the other Loan Documents. After any retiring
Agent's resignation or removal as Agent hereunder and under the Notes and the
other Loan Documents, the provisions of this ARTICLE XI shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement, the Notes and the other Loan Documents.

SECTION 11.07. NOTICE OF DEFAULT. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent shall have received notice from a Bank or the Company
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default." If the Agent receives such
notice, the Agent shall give notice thereof to the Banks; PROVIDED, HOWEVER, if
such notice is received from a Bank, the Agent also shall give notice thereof to
the Company. The Agent shall be entitled to take action or refrain from taking
action with respect to such Default or Event of Default as provided in SECTION
10.01 and SECTION 10.02.

ARTICLE XII
MISCELLANEOUS

SECTION 12.01. AMENDMENTS. No amendment or waiver of any provision
of this Agreement, any Note or any other Loan Document, nor consent to any
departure by the Company

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herefrom or therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Company, as to amendments, and by the Majority
Banks in all cases, and then, in any case, such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given PROVIDED, no such waiver or amendment shall be effective unless signed by
all of the Banks if it attempts to: (a) change the definition of "COMMITMENT",
"DESIGNATED PAYMENT DATE", "MAJORITY BANKS", "MARGIN" or "MATURITY DATE"; (b)
modify or waive the requirements of this Section, SECTIONS 4.01(A), SECTION
4.01(B), or SECTION 10.01(A); (c) modify so as to increase the ratio set forth
in SECTION 8.12 or waive the requirements of SECTION 8.12, in either case, for a
second consecutive fiscal quarter of the Company; (d) release any Guarantor or
(e) in any other manner change the repayment terms of the Loans, including
required principal payments, the rate, amount or time of interest payments or
the reimbursement obligations under any Letter of Credit.

SECTION 12.02. NOTICES. Except with respect to telephone
notifications specifically permitted pursuant to ARTICLE II, all notices,
consents, requests, approvals, demands and other communications provided for
herein shall be in writing (including telecopy communications) and mailed,
telecopied, sent by overnight courier or delivered:

(a) If to the Company and the Guarantors:

Comfort Systems USA, Inc.
Three Riverway, Suite 200
Houston, Texas 77056
Telephone No.: (713) 830-9600
Telecopy No: (713) 627-7176
Attention: J. Gordon Beittenmiller

(b) If to the Agent:

Bank One, Texas, N.A.
910 Travis, 7th Floor
Houston, Texas 77002
Telephone No.: (713) 751-3828
Telecopy No: (713) 751-6199
Attention: Mr. H. Gale Smith, Jr.

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and to:

Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Telephone No.:(713) 220-4274
Telecopy No.: (713) 220-4285
Attention: Mr. Douglas J. Dillon

or, in the case of any party hereto, such other address or telecopy number as
such party may hereafter specify for such purpose by notice to the other
parties.

(c) If to any Bank, to the address shown on the signature page
hereof or specified by such Bank (or the Agent on behalf of any Bank) to the
Company.

All communications shall, when mailed, telecopied or delivered, be
effective when mailed by certified mail, return receipt requested to any party
at its address specified above, or telecopied to any party to the telecopy
number set forth above, or delivered personally to any party at its address
specified above; PROVIDED, that communications to the Agent pursuant to ARTICLE
II shall not be effective until actually received by the Agent, and PROVIDED
FURTHER that communications sent by telecopy after 5:00 p.m., Houston, Texas
time, shall be effective on the next succeeding business day.

SECTION 12.03. NO WAIVER; REMEDIES. No failure on the part of any
Bank or the Agent to exercise, and no delay in exercising, any right hereunder,
under any Note or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, or any
abandonment or discontinuance of any steps to enforce such right, preclude any
other or further exercise thereof or the exercise of any other right. No notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances. The remedies
herein are cumulative and not exclusive of any other remedies provided by law,
at equity or in any other agreement.

SECTION 12.04. COSTS, EXPENSES AND TAXES. The Company agrees to pay
on demand: (a) all reasonable out-of-pocket costs and expenses of the Agent in
connection with the preparation, execution and delivery of this Agreement, the
Notes, the other Loan Documents and the other documents to be delivered
hereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Agent with respect thereto and with respect to advising the Agent as to
its rights and responsibilities under this Agreement, the Notes and the other
Loan Documents, and any modification, supplement or waiver of any of the terms
of this Agreement or any other Loan Document, (b) all reasonable costs and
expenses of any Bank and any other holder of an interest in the Notes, and the
Obligations of the Company hereunder and under the Loan Documents, including
reasonable legal fees and expenses, in connection with the enforcement of this
Agreement, the Notes and the other Loan Documents and (c) reasonable costs and
expenses incurred in connection with

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third party professional services required by the Agent such as appraisers,
environmental consultants, accountants or similar Persons, PROVIDED THAT, prior
to any Event of Default hereunder, the Agent will first obtain the consent of
the Company to such expense, which consent shall not be unreasonably withheld.
Without prejudice to the survival of any other obligations of the Company
hereunder and under the Notes, the obligations of the Company under this Section
shall survive the termination of this Agreement or the replacement of the Agent
and each assignment of the Notes.

SECTION 12.05. INDEMNITY. (a) The Company shall and hereby does
indemnify the Agent and each Bank and each Affiliate thereof and their
respective directors, officers, employees and agents from, and hold each of them
harmless against, any and all losses, liabilities, claims or damages (including
reasonable legal fees and expenses) to which any of them may become subject,
insofar as such losses, liabilities, claims or damages arise out of or result
from any actual or proposed use by the Company of the proceeds of any extension
of credit hereunder or any investigation, litigation or other proceeding
(including any threatened investigation or proceeding) relating to the foregoing
or any of the other Loan Documents, and the Company shall reimburse each Bank
and each Affiliate thereof and their respective directors, officers, employees
and agents, upon demand for any expenses (including legal fees) reasonably
incurred in connection with any such investigation or proceeding; but excluding
any such losses, liabilities, claims, damages or expenses incurred by reason of
the gross negligence or willful misconduct of the Person to be indemnified (the
"INDEMNIFIED OBLIGATIONS").

(B) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL INDEMNIFIED
OBLIGATIONS: (I) ARISING OUT OF OR RESULTING FROM THE ORDINARY SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON OR (II) IMPOSED UPON SAID PARTY UNDER ANY
THEORY OF STRICT LIABILITY. Without prejudice to the survival of any other
obligations of the Company hereunder and under the other Loan Documents, the
obligations of the Company under this Section shall survive the termination of
this Agreement and the other Loan Documents and the payment of the Obligations
or the assignment of the Notes.

SECTION 12.06. RIGHT OF SETOFF. Without limiting the remedies
provided for in ARTICLE X, each Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits held and other indebtedness owing by such Bank, or any branch,
subsidiary or Affiliate, to or for the credit or the account of the Company
against any and all the Obligations of the Company now or hereafter existing
under this Agreement and the other Loan Documents and other obligations of the
Company held by such Bank, irrespective of whether or not such Bank shall have
made any demand under this Agreement, its Note or the Obligations and although
the Obligations may be unmatured. The rights of each Bank under this Section are
in addition to other rights and remedies (including other rights of setoff)
which such Bank may have.

SECTION 12.07. GOVERNING LAW. This Agreement, all Notes, the other
Loan Documents and all other documents executed in connection herewith shall be
deemed to be contracts

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and agreements executed by the Company and each Bank under the laws of the State
of Texas and of the United States of America and for all purposes shall be
construed in accordance with, and governed by, the laws of said state and of the
United States of America. Without limitation of the foregoing, nothing in this
Agreement, or in the Notes or in any other Loan Document shall be deemed to
constitute a waiver of any rights which any Bank may have under applicable
federal legislation relating to the amount of interest which such Bank may
contract for, take, receive or charge in respect of the Loan and the Loan
Documents, including any right to take, receive, reserve and charge interest at
the rate allowed by the law of the state where any Bank is located. The Agent,
each Bank and the Company further agree that insofar as the provisions of
Article 5069-1.04, of the Revised Civil Statutes of Texas, as amended, are
applicable to the determination of the Highest Lawful Rate with respect to the
Notes and the Obligations hereunder and under the other Loan Documents, the
indicated rate ceiling of such Article shall be applicable; PROVIDED, HOWEVER,
that to the extent permitted by such Article, the Agent may from time to time by
notice to the Company revise the election of such interest rate ceiling as such
ceiling affects the then current or future balances of the Loans. The provisions
of Article 5069-15.01 ET SEQ. do not apply to this Agreement, any Note issued
hereunder or the other Loan Documents.

SECTION 12.08. INTEREST. Each provision in this Agreement and each
other Loan Document is expressly limited so that in no event whatsoever shall
the amount paid, or otherwise agreed to be paid, to the Agent or any Bank, or
charged, contracted for, reserved, taken or received by the Agent or any Bank,
for the use, forbearance or detention of the money to be loaned under this
Agreement or any Loan Document or otherwise (including any sums paid as required
by any covenant or obligation contained herein or in any other Loan Document
which is for the use, forbearance or detention of such money), exceed that
amount of money which would cause the effective rate of interest to exceed the
Highest Lawful Rate, and all amounts owed under this Agreement and each other
Loan Document shall be held to be subject to reduction to the effect that such
amounts so paid or agreed to be paid, charged, contracted for, reserved, taken
or received which are for the use, forbearance or detention of money under this
Agreement or such Loan Document shall in no event exceed that amount of money
which would cause the effective rate of interest to exceed the Highest Lawful
Rate. Anything in any Note or any other Loan Document to the contrary
notwithstanding, the Company shall not be required to pay unearned interest on
any Note and the Company shall not be required to pay interest on the
Obligations at a rate in excess of the Highest Lawful Rate, and if the effective
rate of interest which would otherwise be payable under such Note and such Loan
Documents would exceed the Highest Lawful Rate, or if the holder of such Note
shall receive any unearned interest or shall receive monies that are deemed to
constitute interest which would increase the effective rate of interest payable
by the Company under such Note and the other Loan Documents to a rate in excess
of the Highest Lawful Rate, then (a) the amount of interest which would
otherwise be payable by the Company shall be reduced to the amount allowed under
applicable law and (b) any unearned interest paid by the Company or any interest
paid by the Company in excess of the Highest Lawful Rate shall in the first
instance be credited on the principal of the Obligations of the Company (or if
all such Obligations shall have been paid in full, refunded to the Company). It
is further agreed that, without limitation of the foregoing, all calculations of
the rate of interest contracted for, reserved, taken, charged or received by any
Bank under the Notes and

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the Obligations and under the other Loan Documents are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate, and shall be
made, to the extent permitted by usury laws applicable to such Bank, by
amortizing, prorating and spreading in equal parts during the period of the full
stated term of the Notes and this Agreement all interest at any time contracted
for, charged or received by such Bank in connection therewith. Furthermore, in
the event that the maturity of any Note or other obligation is accelerated or in
the event of any required or permitted prepayment, then such consideration that
constitutes interest under applicable law may never include more than the
maximum amount allowed by applicable law and excess interest, if any, provided
for in this Agreement, any Note or otherwise shall be canceled automatically as
of the date of such acceleration or prepayment and, if theretofore paid, shall
be refunded to the Company.

SECTION 12.09. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants contained herein or made in writing by
the Company in connection herewith and the other Loan Documents shall survive
the execution and delivery of this Agreement, the Notes and the other Loan
Documents, the termination of the Commitments of the Banks and will bind and
inure to the benefit of the respective successors and assigns of the parties
hereto, whether so expressed or not, PROVIDED, that the Commitments of the Banks
shall not inure to the benefit of any successor or assign of the Company.

SECTION 12.10. SUCCESSORS AND ASSIGNS; PARTICIPATIONS. (a) All
covenants, promises and agreements by or on behalf of the Company or the Banks
that are contained in this Agreement shall bind and inure to the benefit of
their respective permitted successors and assigns. The Company may not assign or
transfer any of its rights or obligations hereunder.

(b) Any of the Banks may assign to or sell participations to one or
more banks of all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including all or a portion of its
Commitment, the Advances and the Obligations of the Company owing to it and the
Notes); PROVIDED, that the participating banks or other entities shall be
entitled to the cost protection provisions contained in Article II and SECTION
12.04 and the Company shall continue to deal solely and directly with the Agent
in connection with its rights and obligations under this Agreement and the other
Loan Documents. Except with respect to cost protections provided to a
participant pursuant to this paragraph and the items listed in SECTION 12.01
hereof, no participant shall be a third party beneficiary of this Agreement nor
shall it be entitled to enforce any rights provided to the Banks against the
Company under this Agreement.

(c) A Bank may assign to any other Bank or Banks or to any Affiliate
of a Bank and, with the prior written consent of the Company and the Agent
(which consent shall not be unreasonably withheld), a Bank may assign to one or
more other Eligible Assignees all or a portion of its interests, rights, and
obligations under this Agreement and the other Loan Documents (including all or
a portion of its Commitment and the same portion of the Loans and other
Obligations of the Company at the time owing to it and the Note held by it);
PROVIDED, HOWEVER, that (i) each such assignment shall be in a minimum principal
amount of not less than $5,000,000.00 all Types of Loans and shall be of a
constant, and not a varying, percentage of all the assigning Bank's

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Commitment, rights and obligations under this Agreement, (ii) the parties to
each such assignment shall execute and deliver to the Agent, for its acceptance,
an Assignment and Acceptance, substantially in the form of EXHIBIT 12.10(C)
hereto, in form and substance satisfactory to the Agent (an "ASSIGNMENT AND
ACCEPTANCE") and any Note subject to such assignment and (iii) no assignment
shall be effective until receipt by the Agent of a reasonable service fee from
the assignee in respect of said assignment equal to $2,000.00. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date (unless
otherwise agreed to by the assigning Bank, the Eligible Assignee thereunder and
the Agent) shall be at least five Business Days after the execution thereof, (x)
the Eligible Assignee thereunder shall be a party hereto and to the other Loan
Documents and, to the extent provided in such Assignment and Acceptance, have
the rights and obligations of a Bank hereunder and under the other Loan
Documents and (y) the assignor Bank thereunder shall, to the extent provided in
such Assignment and Acceptance, be released from its obligations under this
Agreement and the other Loan Documents (and, in the case of an Assignment and
Acceptance covering all of the remaining portion of an assigning Bank's rights
and obligations under this Agreement and the other Loan Documents, such Bank
shall cease to be a party hereto).

(d) Notwithstanding any other provision herein, any Bank may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this section, disclose to the assignee or participant
or proposed assignee or participant, any information relating to the Company
furnished to such Bank by or on behalf of the Company.

SECTION 12.11. CONFIDENTIALITY. Each Bank agrees to exercise its
best efforts to keep any information delivered or made available by the Company
to it which is clearly indicated to be confidential information, confidential
from anyone other than Persons employed or retained by such Bank who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; PROVIDED that nothing herein shall prevent any Bank
from disclosing such information (a) to any other Bank, (b) pursuant to subpoena
or upon the order of any court or administrative agency, (c) upon the request or
demand of any regulatory agency or authority having jurisdiction over such Bank,
(d) which has been publicly disclosed, (e) to the extent reasonably required in
connection with any litigation to which the Agent, any Bank, the Company or its
respective Affiliates may be a party, (f) to the extent reasonably required in
connection with the exercise of any remedy hereunder, (g) to such Bank's legal
counsel and independent auditors and (h) to any actual or proposed participant
or assignee of all or part of its rights hereunder which has agreed in writing
to be bound by the provisions of this Section. Each Bank will promptly notify
the Company of any information that it is required or requested to deliver
pursuant to clause (b) or (c) of this Section and, if the Company is a party to
any such litigation, clause (e) of this Section .

SECTION 12.12. PRO RATA TREATMENT. (a) Except as otherwise
specifically permitted hereunder, each payment or prepayment of principal, if
permitted under this Agreement, and each payment of interest with respect to an
Advance shall be made pro rata among the Banks.

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(b) Each Bank agrees that if, through the exercise of a right of
banker's Lien, setoff or claim of any kind against the Company as a result of
which the unpaid principal portion of the Notes and the Obligations held by it
shall be proportionately less than the unpaid principal portion of the Notes and
Obligations held by any other Bank, it shall be deemed to have simultaneously
purchased from such other Bank a participation in the Notes and Obligations held
by such other Bank, in the amount required to render such amounts proportional;
PROVIDED, HOWEVER, that if any such purchase or purchases or adjustments shall
be made pursuant to this Section and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustments restored without interest.

SECTION 12.13. SEPARABILITY. Should any clause, sentence, paragraph
or Section of this Agreement be judicially declared to be invalid, unenforceable
or void, such decision will not have the effect of invalidating or voiding the
remainder of this Agreement, and the parties hereto agree that the part or parts
of this Agreement so held to be invalid, unenforceable or void will be deemed to
have been stricken herefrom and the remainder will have the same force and
effectiveness as if such part or parts had never been included herein.

SECTION 12.14. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Any Subsidiary of the Company that executes this Agreement after the
date of this Agreement shall, upon such execution, become a party hereto as a
Guarantor.

SECTION 12.15. INTERPRETATION. (a) In this Agreement, unless a clear
contrary intention appears:

(i) the singular number includes the plural number and VICE
VERSA;

(ii) reference to any gender includes each other gender;

(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;

(iv) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually,
PROVIDED that nothing in this clause is intended to authorize any
assignment not otherwise permitted by this Agreement;

(v) except as expressly provided to the contrary herein,
reference to any agreement, document or instrument (including this
Agreement) means such agreement,

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<PAGE>
document or instrument as amended, supplemented or modified and in effect
from time to time in accordance with the terms thereof and, if applicable,
the terms hereof, and reference to any Note or other note includes any
Note issued pursuant hereto in extension or renewal thereof and in
substitution or replacement therefor;

(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section hereof
or such Schedule or Exhibit hereto;

(vii) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;

(viii) with respect to the determination of any period of
time, except as expressly provided to the contrary, the word "from" means
"from and including" and the word "to" means "to but excluding"; and

(ix) reference to any law, rule or regulation means such as
amended, modified, codified or reenacted, in whole or in part, and in
effect from time to time.

(b) The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.

(c) No provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.

(d) In the event of any conflict between the specific provisions of
this Agreement and the provisions of any application pertaining to any Letter of
Credit, the terms of this Agreement shall control.

SECTION 12.16. SUBMISSION TO JURISDICTION. (a) ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE COMPANY AND
EACH GUARANTOR FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS
ADDRESS PROVIDED IN SECTION 12.02 AND WITH RESPECT TO ANY GUARANTOR, AT THE
ADDRESS PROVIDED ON SCHEDULE 6.16 HERETO, SUCH SERVICE TO BECOME

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EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN
ANY OTHER JURISDICTION.

(b) EACH OF THE COMPANY AND THE GUARANTORS HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.

SECTION 12.17. WAIVER OF JURY TRIAL. EACH OF THE COMPANY
AND EACH GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY

HOU04:68880.5

<PAGE>

APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR RELATING TO ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.

SECTION 12.18. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT
(INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTES AND THE OTHER LOAN
DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE
TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.

BORROWER:

COMFORT SYSTEMS USA, INC.

By: /s/ J. GORDON BEITTENMILLER
J. Gordon Beittenmiller
Chief Financial Officer

GUARANTORS:

ACCURATE AIR SYSTEMS, INC.
ATLAS COMFORT SERVICES USA, INC.
ATLAS AIR CONDITIONING COMPANY
CONTRACT SERVICE, INC.
EASTERN HEATING & COOLING, INC.
EASTERN REFRIGERATION CO., INC.
FREEWAY HEATING & AIR CONDITIONING,
INC.
LAWRENCE SERVICE, INC.
QUALITY AIR HEATING & COOLING, INC.
SEASONAIR, INC.
S.M. LAWRENCE COMPANY, INC.
STANDARD HEATING & AIR CONDITIONING
COMPANY
TECH HEATING AND AIR CONDITIONING, INC.
TECH MECHANICAL, INC.
TRI-CITY MECHANICAL, INC.
WESTERN BUILDING SERVICES, INC.

By:/s/ J. GORDON BEITTENMILLER
J. Gordon Beittenmiller
Vice President
<PAGE>
AMOUNT OF COMMITMENT: AGENT/BANK:

$30,000,000.00 BANK ONE, TEXAS, N.A.,
as Agent and Individually, as a Bank

By:/s/H. GALE SMITH, JR.
H. Gale Smith, Jr.
Vice President
<PAGE>
AMOUNT OF COMMITMENT: AGENT/BANK:

$25,000,000.00 THE FIRST NATIONAL BANK
OF CHICAGO

By:/s/ JENNY A. GILPIN
Jenny A. Gilpin
Vice President

ADDRESS FOR NOTICE:

One First National Plaza
Suite 0324
Chicago, Illinois 60670
<PAGE>
AMOUNT OF COMMITMENT: AGENT/BANK:

$20,000,000.00 NATIONAL CITY BANK OF COLUMBUS

By:/s/MICHAEL J. DURBIN
Michael J. Durbin
Assistant Vice President

ADDRESS FOR NOTICE:

155 East Broad Street
Columbus, Ohio 43251-0034
<PAGE>

EXHIBIT 10.28

1998 EMPLOYEE STOCK PURCHASE PLAN

(Effective January 1, 1998)

ARTICLE I - BACKGROUND

1.1 ESTABLISHMENT OF THE PLAN.

Comfort Systems USA, Inc. (the "Company"), hereby establishes a stock purchase
plan, effective January 1, 1998, to be known as the "1998 Employee Stock
Purchase Plan" (the "Plan"), as set forth in this document. The Plan is intended
to be a qualified employee stock purchase plan within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended, and the regulations and
rulings thereunder.

1.2 APPLICABILITY OF THE PLAN.

The provisions of this Plan are applicable only to certain individuals who, on
or after January 1, 1998, are employees of the Company and its subsidiaries
participating in the Plan.

1.3 PURPOSE.

The purpose of the Plan is to enhance the proprietary interest among the
employees of the Company and its participating subsidiaries through ownership of
Common Stock of the Company.

ARTICLE II - DEFINITIONS

Whenever capitalized in this document, the following terms shall have the
respective meanings set forth below.

2.1 ADMINISTRATOR.

Administrator shall mean the person or persons (who may be officers or employees
of the Company) selected by the Committee to operate the Plan, perform
day-to-day administration of the Plan, and maintain records of the Plan.

2.2 BOARD.

Board shall mean the Board of Directors of the Company.

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2.3 CODE.

Code shall mean the Internal Revenue Code of 1986, as amended from time to time,
and the regulations thereunder.

2.4 COMMITTEE.

Committee shall mean a committee which consists of members of the Board and
which has been designated by the Board to have the general responsibility for
the administration of the Plan. Members of the Committee shall not be eligible
to participate in the Plan. Each member of the Committee shall not be eligible
to participate in the Plan. Each member of the Committee shall be a
"disinterested person" within the meaning of Section 16 of, and Rule 16b-3
under, the Securities Exchange Act of 1934. The Committee shall satisfy the
requirements of Section 16 of the Securities Exchange Act of 1934, and all rules
and regulations thereunder, regarding disinterested administration.

Subject to the express provisions of the Plan, the Committee shall have plenary
authority in its sole and absolute discretion to interpret and construe any and
all provisions of the Plan, to adopt rules and regulations for administering the
Plan, and to make all other determinations necessary or advisable for
administering the Plan. The Committee's determinations on the foregoing matters
shall be conclusive and binding upon all persons.

2.5 COMMON STOCK.

Common Stock shall mean Common Stock, $0.01 par value per share, of the Company.

2.6 COMPANY.

Company shall mean Comfort Systems USA, Inc.

2.7 COMPENSATION.

(a) For purposes of this Plan, "Total Compensation" shall mean, for any
Participant, for any period, the Participant's total compensation
including fixed and variable components of base compensation and
cash incentive compensation paid to the Participant for the
respective period; but excluding car allowances, life insurance
premiums, moving expenses, income from disqualifying dispositions of
incentive stock options and other similar items.

(b) Total Compensation shall include any amounts deferred by the
Participant under a plan maintained by an Employer under Code
Section 401(k) or amounts contributed by the Participant under a
plan maintained by an Employer under Code Section 125.

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<PAGE>
2.8 DATE OF GRANT.

Date of Grant shall mean the first day of each Option Period.

2.9 EFFECTIVE DATE.

Effective Date shall mean January 1, 1998.

2.10 EMPLOYEE.

Employee shall mean an employee of an Employer.

2.11 EMPLOYER.

Employer shall mean the Company and any Subsidiary designated by the Committee
as an employer participating in the Plan.

2.12 ENROLLMENT FORM.

Enrollment Form shall mean an Employee's authorization either in writing on a
form approved by the Administrator or through telephonic communication approved
by the Administrator that specifies the Employee's payroll deduction, and
contains such other terms and provisions as may be required by the
Administrator.

2.13 EXERCISE DATE.

Exercise Date shall mean the last day of each Option Period.

2.14 FAIR MARKET VALUE.

Fair Market Value of a share of Common Stock, as of any applicable date, shall
mean --

(a) if the Common Stock is not traded on the applicable date on a
national stock exchange, the closing price for the Common Stock as
reported on the New York Stock Exchange for that date or, if no
closing price is so reported for that date, the closing price on the
next preceding date for which a closing price was reported; or

(b) if the Common Stock is traded on the applicable date on a national
stock exchange, the closing price on such date of a share of Common
Stock as traded on the largest stock exchange on which it is then
traded or, if no shares were traded on such date, on the next
preceding day on which shares were traded on such exchange, as
reported by National Quotation Bureau, Inc., or other national
quotation service.

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<PAGE>
If at any time shares of Common Stock are not traded on an exchange or in the
over-the- counter market, Fair Market Value shall be the value determined by the
Board or the Committee, taking into consideration those factors affecting or
reflecting value which they deem appropriate.

2.15 OPTION.

Option shall mean a right to purchase Common Stock under the Plan.

2.16 OPTION PERIOD.

Option Period shall mean each six-month period beginning each January 1 and July
1.

2.17 OPTION PRICE.

Option Price shall mean the purchase price of Common Stock determined under
Section 5.1.

2.18 PARTICIPANT.

Participant shall mean any Employee who meets the eligibility requirements of
Section 3.1 and who has elected to participate in the Plan under Section 3.3 and
who has an account balance under the Plan.

2.19 PLAN.

Plan shall mean the 1998 Employee Stock Purchase Plan, as amended and in effect
from time to time.

2.20 REPORTING PERSON.

Reporting Person shall mean a Participant who, on the relevant date, is a
director, executive officer or 10% shareholder of the Company as defined in
Section 16(a) of the Securities Exchange Act of 1934, as amended.

2.21 SUBSIDIARY.

Subsidiary shall mean any present or future corporation that is a "subsidiary
corporation" of the Company as defined in Code Section 424.

Except when otherwise indicated by the context, the definition of any term
herein in the singular may also include the plural.

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<PAGE>
ARTICLE III - ELIGIBILITY AND PARTICIPATION

3.1 ELIGIBILITY.

Each Employee who is an Employee regularly scheduled to work at least twenty
hours each week shall be eligible to participate in the Plan as of the later of:

(a) the first Date of Grant following the Employee's last date of hire
by an Employer; or

(b) the Effective Date.

Notwithstanding the foregoing, no Employee shall be granted an Option for an
Option Period if, immediately after the grant, the Employee would own stock,
and/or hold outstanding options to purchase stock, possessing five percent (5%)
or more of the total combined voting power or value of all classes of stock of
the Company or any Subsidiary. For purposes of this section, the attribution
rules of Code Section 424(d) shall apply in determining stock ownership of any
Employee.

3.2 LEAVE OF ABSENCE.

For purposes of Section 3.1, an individual on a leave of absence from an
Employer shall be deemed to be an Employee for all or such portion of such leave
of absence as the Committee shall determine, with all such determinations to be
made in a nondiscriminatory manner. Such individual's employment with the
Employer shall be deemed to terminate in accordance with such determination by
the Committee or in accordance with the rules adopted from time to time by the
Committee for such purpose.

3.3 INITIAL PARTICIPATION.

An Employee eligible to participate in the Plan under Section 3.1 may submit an
Enrollment Form to the Administrator for an Option Period. The Enrollment Form
shall authorize a regular payroll deduction from the Employee's Total
Compensation for the Option Period subject to the limits and procedures
described in Article VI. A Participant's Enrollment Form authorizing a regular
payroll deduction shall remain effective from Option Period to Option Period
until amended or canceled under Section 6.3.

ARTICLE IV - STOCK AVAILABLE

4.1 IN GENERAL.

Subject to the adjustments in Sections 4.2 and 4.3, an aggregate of Three
Hundred Thousand (300,000) shares of Common Stock shall be available for
purchase by

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Participants pursuant to the provisions of the Plan. These shares may be
authorized and unissued shares or may be shares issued and subsequently acquired
by the Company or an independent agent of the Company if the Company should
choose to use one. If an Option under the Plan expires or terminates for any
reason without having been exercised in whole or part, the shares subject to
such Option that are not purchased shall again be available for subsequent
Option grants under the Plan. If the total number of shares of Common Stock for
which Options are exercised on any Exercise Date exceeds the maximum number of
shares available for the Option Period, the Committee shall make a pro rata
allocation of the shares available in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable; and the balance of the
cash credited to Participants' accounts shall be distributed to the Participants
as soon as practicable.

4.2 ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION.

In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution with respect to holders of the Company's Common Stock other than
normal cash dividends, an automatic adjustment shall be made in the number and
kind of shares as to which outstanding Options or portions thereof then
unexercised shall be exercisable and in the available shares set forth in
Section 4.1, so that the proportionate interest of the Participants shall be
maintained as before the occurrence of such event. This adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised portion of such Options and with a corresponding adjustment
in the Option Price per share.

4.3 DISSOLUTION, LIQUIDATION OR MERGER.

Upon the dissolution or liquidation of the Company, or upon a reorganization,
merger, or consolidation of the Company with one or more corporations in which
the Company is not the surviving corporation, or upon a sale of substantially
all of the property or stock of the Company to another corporation, the holder
of each Option then outstanding under the Plan shall be entitled to receive at
the next Exercise Date upon the exercise of such Option for each share as to
which such Option shall be exercised, as nearly as reasonably may be determined,
the cash, securities, or property that a holder of one share of the Common Stock
was entitled to receive upon and at the time of such transaction. The Board
shall take such steps in connection with these transactions as the Board deems
necessary or appropriate to assure that the provisions of this section shall
thereafter be applicable, as nearly as reasonably may be determined, in relation
to the cash, securities, or property which the holder of the Option may
thereafter be entitled to receive. In lieu of the foregoing, the Committee may
terminate the Plan in accordance with Section 8.2.

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<PAGE>
ARTICLE V - OPTION PROVISIONS

5.1 OPTION PRICE.

The Option Price of a share of Common Stock purchased for a Participant pursuant
to the exercise of an Option for the Option Period shall be set by the Committee
at the lesser of:

(a) Eighty-five percent of the Fair Market Value of a share of Common
Stock on the Date of Grant; or

(b) Eighty-five percent of the Fair Market Value of a share of Common
Stock on the Exercise Date.

5.2 CALENDAR YEAR $25,000 LIMIT.

Notwithstanding anything else contained herein, no Employee may be granted an
Option which permits such Employee's rights to purchase Common Stock under this
Plan and any other qualified employee stock purchase plan (within the meaning of
Code Section 423) of the Company and its Subsidiaries to accrue at a rate which
exceeds $25,000 of Fair Market Value of such Common Stock for each calendar year
in which an Option is outstanding at any time. For purposes of this section,
Fair Market Value shall be determined as of the Date of Grant.

ARTICLE VI - PURCHASING COMMON STOCK

6.1 PARTICIPANT'S ACCOUNT.

The Administrator shall establish a book account in the name of each
Participant. As discussed in Section 6.2 below, a Participant's payroll
deductions shall be credited to the Participant's account, without interest,
until such cash is withdrawn, distributed, or used to purchase Common Stock as
described below.

All cash received or held by the Company under the Plan may be used by the
Company for any corporate purpose. The Company shall not be obligated to
segregate any assets held under the Plan.

As soon as practicable following each Exercise Date, the Company shall deliver
to each Participant a stock certificate evidencing the Participant's shares of
Common Stock acquired upon exercise of an Option on such Exercise Date. A
Participant shall have all ownership rights as to the shares evidenced by such
certificate from and after the relevant Exercise Date.

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<PAGE>
6.2 PAYROLL DEDUCTIONS

(a) PAYROLL DEDUCTIONS.

By submitting an Enrollment Form before the beginning of any Option Period
in accordance with rules adopted by the Committee, an Employee eligible to
participate in the Plan under Section 3.1 may authorize a payroll
deduction to purchase Common Stock under the Plan for the Option Period.
The payroll deduction shall be in any whole percentage from two (2) to
eight (8) percent of such Employee's Total Compensation payable each pay
period, and at any other time an element of Total Compensation is payable.
A Participant's payroll deduction, however, shall be at least ten dollars
($10.00) each payroll period.

(b) OPTION PERIOD $2,000 LIMIT.

Notwithstanding anything else contained herein, no Employee may have more
than $2,000 deducted during any Option Period.

A Participant's Enrollment Form authorizing a regular payroll deduction
shall remain effective, from Option Period to Option Period, until amended
or canceled under Section 6.3.

6.3 DEDUCTION CHANGES AND DISCONTINUANCE.

A Participant may not increase his or her payroll deduction during an Option
Period. A Participant may increase payroll deductions for a future Option Period
by filing a new Enrollment Form in accordance with rules adopted by the
Administrator.

A Participant may decrease, or completely discontinue, his or her payroll
deductions by filing a new Enrollment Form with the Administrator. This decrease
or discontinuance shall be effective on the first pay period commencing at least
twenty days after receipt of the Enrollment Form by the Administrator.

If a Participant who is not a Reporting Person discontinues his or her payroll
deductions during an Option Period, such Participant may not recommence
participation in the Plan until the next Option Period. Any amount held in the
Participant's account after the effective date of the discontinuance of his or
her payroll deductions will either be refunded or used to purchase Common Stock
in accordance with Section 7.1.

If a Participant who is a Reporting Person discontinues his or her payroll
deductions during an Option Period, the Reporting Person may not recommence
participation in the Plan until the next Option Period commencing at least six
months after the effective date

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<PAGE>
of the discontinuance of his or her payroll deductions. Any amount held in the
Reporting Person's account after such effective date of discontinuance shall be
refunded to the Reporting Person as soon as practicable.

6.4 LEAVE OF ABSENCE; TRANSFER TO INELIGIBLE STATUS.

If a Participant either begins a leave of absence, is transferred to employment
with a Subsidiary not participating in the Plan, or remains employed with an
Employer but is no longer customarily scheduled to work at least twenty hours
each week, the Participant shall cease to be eligible for payroll deductions to
his or her account pursuant to Section 6.2. The cash standing to the credit of
the Participant's account shall become subject to the provisions of Section 7.1.
However, any amount held in the account of a Reporting Person shall be refunded
to the Reporting Person as soon as practicable.

If the Participant returns from the leave of absence before being deemed to have
ceased employment with the Employer under Section 3.2, or again becomes an
Employee of the Employer customarily scheduled to work at least twenty (20)
hours each week, the Enrollment Form, if any, in effect immediately before the
leave of absence or disqualifying change in employment status shall be deemed
void and the Participant must again complete a new Enrollment Form to resume
participation in the Plan. A Participant who is a Reporting Person must wait at
least six months from the date such Reporting Person ceased to be eligible for
payroll deductions before recommencing his or her participation in the Plan.

6.5 AUTOMATIC EXERCISE.

Unless the cash credited to a Participant's account is withdrawn or distributed
as provided in Article VII, his or her Option shall be deemed to have been
exercised automatically on the Exercise Date, for the purchase of the number of
full shares of Common Stock which the cash credited to his or her account at
that time will purchase at the Option Price. However, in no event may a
Participant purchase more than two thousand (2,000) shares of Common Stock on
any Exercise Date. Moreover, the amount of cash that may be used to purchase
shares of Common Stock may not exceed the Compensation restrictions set forth in
Section 6.2.

Except in the case of cash that would have been used to purchase fractional
shares as described in the following paragraph, if the cash credited to a
Participant's account on the Exercise Date exceeds the applicable Compensation
restrictions of Section 6.2 or exceeds the amount necessary to purchase the
maximum number of shares of Common Stock available during the Option Period,
such excess cash shall be refunded to the Participant. The excess cash may not
be used to purchase shares of Common Stock or retained in the Participant's
account for a future Option Period.

Fractional shares of Common Stock shall not be issued or purchased under the
Plan. Any accumulated cash balances which would have been used to purchase
fractional shares

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shall be held in the Participant's account for the next Option Period if a valid
Enrollment Form is in effect for such Option Period, or otherwise distributed to
the Participant without interest.

6.6 LISTING REGISTRATION AND QUALIFICATION OF SHARES.

The granting of Options for, and the sale and delivery of, Common Stock under
the Plan shall be subject to the effecting by the Company of any listing,
registration, or qualification of the shares subject to that Option upon any
securities exchange or market or under any federal or state law, or the
obtaining of the consent or approval of any governmental regulatory body deemed
necessary or desirable for the issuance or purchase of the shares covered.

ARTICLE VII - WITHDRAWALS; DISTRIBUTIONS

7.1 DISCONTINUANCE OF DEDUCTIONS; LEAVE OF ABSENCE; TRANSFER TO INELIGIBLE
STATUS.

In the event of a Participant's (other than a Reporting Person's) complete
discontinuance of payroll deductions under Section 6.3 or a Participant's (other
than a Reporting Person's) leave of absence or transfer to an ineligible status
under Section 6.4, the cash balance then standing to the credit of the
Participant's account shall be:

(a) returned to the Participant, in cash, without interest, as soon as
practicable, upon the Participant's written request received by the
Administrator at least twenty days before the next Exercise Date; or

(b) held under the Plan and used to purchase Common Stock for the
Participant under the automatic exercise provisions of Section 6.5.

In the event of a Reporting Person's complete discontinuance of payroll
deductions under Section 6.3 or 6.4, the cash balance standing to the credit of
the Reporting Person's account as of the effective date of the discontinuance
shall be returned to the Reporting Person, in cash, without interest, as soon as
practicable, without the necessity of receiving a written request.

7.2 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH.

If a Participant terminates employment with the Company and the Subsidiaries for
reasons other than death, the cash balance in the Participant's account shall be
returned to the Participant in cash, without interest, as soon as practicable.

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7.3 DEATH.

In the event a Participant dies, the cash balance in his or her account shall be
distributed to the Participant's beneficiary, in cash, without interest, as soon
as practicable.

In the event of the Participant's death, the Participant's beneficiary shall be
the person or entity identified on the Participant's Enrollment Form or on such
other form as determined by the Administrator. This designation of beneficiary
may be changed by the Participant in accordance with procedures established by
the Administrator.

7.4 REGISTRATION OF CERTIFICATES.

The Common Stock certificates, when distributed under this Plan, shall be
registered only in the name of the Participant (or beneficiary, if applicable).
No other names may be included in the Common Stock registration. For each
distribution of Common Stock, only one Common Stock certificate shall be issued
to a Participant or beneficiary representing the Participant's shares of Common
Stock. In lieu of delivering a stock certificate to each Participant, the
Administrator may, in its discretion, implement a designated broker program and
direct the Company to issue a single stock certificate to a broker designated by
the Administrator. Such designated broker shall establish an account for each
Participant and shall effect transfers and sales from each such account at the
direction of the specified Participant. To facilitate the designated broker
program, the Administrator may require, as a condition to participation in the
Plan, that a Participant agree to the issuance of his or her stock certificates
directly to the designated broker.

ARTICLE VIII - AMENDMENT AND TERMINATION

8.1 AMENDMENT.

The Committee shall have the right to amend or modify the Plan, in full or in
part, at any time and from time to time; provided, however, that no amendment or
modification shall

(a) affect any right or obligation with respect to any grant previously
made, unless required by law, or

(b) unless previously approved by the stockholders of the Company, where
such approval is necessary to satisfy federal securities laws, the
Code, or rules of any stock exchange or market on which the
Company's Common Stock is listed

(1) in any manner materially affect the eligibility requirements
set forth in Sections 3.1 and 3.2, or change the definition of
Employer as set forth in Section 2.11,

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(2) increase the number of shares of Common Stock subject to any
options issued to Participants (except as provided in Sections
4.2 and 4.3), or

(3) materially increase the benefits to Participants under the
Plan.

8.2 TERMINATION.

The Committee may terminate the Plan at any time in its sole and absolute
discretion. The Plan shall be terminated by the Committee if at any time the
number of shares of Common Stock authorized for purposes of the Plan is not
sufficient to meet all purchase requirements, except as specified in Section
4.1.

Upon termination of the Plan, the Administrator shall give notice thereof to
Participants and shall terminate all payroll deductions. Cash balances then
credited to Participants' accounts shall be distributed as soon as practicable,
without interest.

ARTICLE IX - MISCELLANEOUS

9.1 SHAREHOLDER APPROVAL.

The Plan shall be approved and ratified by the stockholders of the Company, not
later than July 1, 1998, pursuant to Treasury regulation Section 1.423-2(c). If
for any reason such approval is not given by such date, the Plan shall be null
and void, and all payroll deductions and direct cash payments to the Plan shall
cease. The cash balances and Common Stock credited to Participants' accounts
shall be promptly distributed to them; and any Common Stock certificates issued
and delivered to Participants prior to such date shall remain the property of
the Participants.

9.2 EMPLOYMENT RIGHTS.

Neither the establishment of the Plan, nor the grant of any Options thereunder,
nor the exercise thereof shall be deemed to give to any Employee the right to be
retained in the employ of the Company or any Subsidiary or to interfere with the
right of the Company or any Subsidiary to discharge any Employee or otherwise
modify the employment relationship at any time.

9.3 TAX WITHHOLDING.

The Administrator may make appropriate provisions for withholding of federal,
state, and local income taxes, and any other taxes, from a Participant's Total
Compensation to the extent the Administrator deems such withholding to be
legally required.

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9.4 RIGHTS NOT TRANSFERABLE.

Rights and Options granted under this Plan are not transferable by the
Participant other than by will or by the laws of descent and distribution and
are exercisable only by the Participant during his or her lifetime.

9.5 NO REPURCHASE OF STOCK BY COMPANY.

The Company is under no obligation to repurchase from any Participant any shares
of Common Stock acquired under the Plan.

9.6 GOVERNING LAW.

The Plan shall be governed by and construed in accordance with the laws of the
State of Delaware except to the extent such laws are preempted by the laws of
the United States.

**************

IN WITNESS WHEREOF, COMFORT SYSTEMS USA, INC. has caused this document to be
executed on this ______ day of ____________________, 1997.

By: ____________________________

Title: __________________________
ATTEST:

By: ____________________________

Title: __________________________

EXHIBIT 21.1

COMFORT SYSTEMS USA, INC. SUBSIDIARIES

Accurate Air Systems, Inc.
Atlas Comfort Services USA, Inc.
Contract Service, Inc.
Eastern Heating & Cooling, Inc.
Fred Hayes Mechanical Contractors, Inc.
Freeway Heating & Air Conditioning, Inc.
Kuempel Service, Inc.
River City Mechanical, Inc.
Salmon & Alder, Inc.
S&K Air Conditioning Co., Inc.
S.M. Lawrence Company, Inc.
Seasonair, Inc.
Standard Heating & Air Conditioning Company
Tech Heating and Air Conditioning, Inc.
Temp-Right Service, Inc.
Tri-City Mechanical, Inc.
Troost Service Co.
Quality Air Heating & Cooling, Inc.
Western Building Services, Inc.
Walker-J-Walker, Inc.

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas
October 14, 1997