SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
COMFORT SYSTEMS USA, INC.
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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1. Amount Previously Paid:
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4. Date Filed:
COMFORT SYSTEMS USA, INC.
777 POST OAK BOULEVARD, SUITE 500
HOUSTON, TEXAS 77056
April 24, 2000
To Our Stockholders:
You are cordially invited to attend the annual meeting of the stockholders
of Comfort Systems USA, Inc., which will be held on May 18, 2000 at the
DoubleTree Hotel, 2001 Post Oak Boulevard, Houston, Texas, 77056, at 10:30 a.m.
At this meeting stockholders are being asked (i) to elect five Class III
directors to serve for three years, (ii) to approve a 600,000-share increase in
the number of shares reserved for our 1998 Employee Stock Purchase Plan and
(iii) to approve the adoption of the Company's 2000 Incentive Plan, which
authorizes the issuance of up to 3,500,000 shares of the Company's common stock.
Please read the proxy statement, which describes the proposals to be voted
on and also presents other important information. When you have finished reading
the statement, please promptly mark, sign, and return your proxy card in the
enclosed envelope to ensure that your shares will be represented.
We hope that many of you will be able to attend the meeting in person. I
look forward to seeing you there.
Sincerely yours,
FRED M. FERREIRA
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
COMFORT SYSTEMS USA, INC.
777 POST OAK BOULEVARD, SUITE 500
HOUSTON, TEXAS 77056
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
MAY 18, 2000
Notice is hereby given that the 2000 Annual Meeting of Stockholders (the
"Meeting") of Comfort Systems USA, Inc. (the "Company") will be held at the
DoubleTree Hotel, 2001 Post Oak Boulevard, Houston, Texas, 77056, at 10:30 a.m.,
on Thursday, May 18, 2000 for the following purposes:
1. To elect five Class III directors to serve until the 2003 Annual
Meeting of Stockholders.
2. To approve a 600,000 share increase in the number of shares issuable
pursuant to the Company's 1998 Employee Stock Purchase Plan.
3. To approve the adoption of the Company's 2000 Incentive Plan, which
authorizes the issuance of up to 3,500,000 shares of the Company's
common stock.
4. To transact any other business that may properly come before the
meeting.
Stockholders of record at the close of business on March 31, 2000 are
entitled to notice of and to vote at the Meeting. A list of stockholders
entitled to vote at the Meeting will be open to examination by stockholders at
the Meeting and during normal business hours from May 8, 2000 to the date of the
Meeting at the principal executive offices of the Company located at 777 Post
Oak Boulevard, Suite 500, Houston, Texas 77056.
If you are unable to be present personally, please sign and date the
enclosed proxy and return it promptly in the enclosed envelope.
By Order of the Board of Directors
WILLIAM GEORGE
SENIOR VICE PRESIDENT, GENERAL COUNSEL
and SECRETARY
April 24, 2000
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING. PLEASE SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING IN PERSON.
COMFORT SYSTEMS USA, INC.
------------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 2000
------------------------
PROXY STATEMENT
The Annual Report to Stockholders for the Company's fiscal year ended
December 31, 1999 accompanies this proxy statement. This proxy statement and the
enclosed proxy are being mailed to stockholders on the same date as the date of
the Notice of Annual Meeting of Stockholders.
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Comfort Systems USA, Inc. (the "Company"), to be voted at the Annual
Meeting of Stockholders (the "Meeting") to be held at the DoubleTree Hotel,
2001 Post Oak Boulevard, Houston, Texas, 77056, at 10:30 a.m. on Thursday, May
18, 2000, or at any adjournment thereof. A proxy may be revoked by a stockholder
at any time before it is voted by (i) returning to the Company another properly
signed proxy bearing a later date, (ii) delivering a written revocation to the
Secretary of the Company or (iii) attending the Meeting or any adjourned session
thereof and voting the shares covered by the proxy in person. Shares represented
by the enclosed form of proxy properly executed and returned, and not revoked,
will be voted at the Meeting by the person named in the proxy for the proposals
set forth below.
The Company will pay the expense of soliciting proxies. Officers and
regular employees of the Company (who will receive no compensation in addition
to their regular salaries) may solicit proxies. In addition to the solicitation
of proxies by use of the mails, the Company may use the services of its officers
and regular employees to solicit proxies personally and by mail, telephone and
telegram from brokerage houses and other stockholders. The Company will
reimburse brokers and other persons for their reasonable charges and expenses in
forwarding soliciting materials to their principals.
The holders of record of shares of the common stock, $.01 par value per
share (the "Common Stock"), and of the restricted voting common stock, $.01
par value per share (the "Restricted Common Stock"), of the Company at the
close of business on March 31, 2000 (the "Record Date") are entitled to
receive notice of and to vote at the Meeting. As of the Record Date, the Company
had issued and outstanding 35,899,384 shares of Common Stock and 1,531,892
shares of Restricted Common Stock, for a total of 37,431,276 shares outstanding.
Each share of Common Stock is entitled to one vote on each matter before the
Meeting except for the election of one director designated to holders of the
Restricted Common Stock. Each share of Restricted Common Stock is entitled to
.55 of one vote on most matters submitted to stockholders; however, holders of
Restricted Common Stock are not eligible to vote for directors other than one
Class III director.
Consistent with Delaware state law and the Company's Bylaws, a majority of
the shares entitled to be cast on a particular matter, present in person or
represented by proxy, constitutes a quorum as to such matter. Votes cast by
proxy or in person at the meeting will be counted by two persons appointed by
the Company to act as election inspectors for the meeting. In the absence of
contrary instructions, the persons named as proxies will vote FOR all nominees
listed in Proposal 1 and FOR Proposals 2 and 3.
With respect to Proposal 1, there are five nominees for director and five
seats up for election. Four of these nominees are the nominees for the holders
of Common Stock. The remaining nominee, Steven S. Harter, is the nominee for the
holders of Restricted Voting Common Stock, who are entitled only to vote in
favor of one candidate for director. Consequently, a vote by a holder of Common
Stock FOR the nominees identified on the proxy card is a vote in favor of all
such nominees except Steven S. Harter; and a vote by a holder of Restricted
Voting Common Stock FOR the nominees identified on the proxy card is a vote in
favor of Steven S. Harter only. The four nominees for
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election as Class III directors receiving the greatest number of votes properly
cast on behalf of holders of Common Stock for the election of directors at the
Meeting will be elected. The nominee for election as Class III director
receiving the greatest number of votes properly cast on behalf of holders of
Restricted Voting Common Stock for the election of a director at the Meeting
will be elected. The election inspectors will count shares represented by
proxies that withhold authority to vote for a nominee for election as a director
only as shares that are present and entitled to vote on the matter for purposes
of determining the presence of a quorum.
Proposal 2, approval of a 600,000 share increase in the 1998 Employee Stock
Purchase Plan, requires a majority of the shares of Common Stock and Restricted
Common Stock, voting together, which are cast with respect to such proposal at
the Meeting to approve the Purchase Plan. Each share of Restricted Voting Common
Stock is entitled to .55 of one vote with respect to this approval. Votes cast
by proxy or in person at the Meeting will be counted by persons appointed by the
Company to act as election inspectors for the meeting. Because Proposal Number 2
must receive the affirmative vote of a majority of the outstanding Common Stock
and Restricted Common Stock represented at the Meeting, voting together,
abstentions will have no effect on Proposal Number 2. Shares represented by
proxies in the form enclosed, if properly executed and returned and not revoked,
will be voted as specified, but where no specification is made, the shares will
be voted in favor of Proposal 2.
Proposal 3, approval of the adoption of the Company's 2000 Incentive Plan,
which authorizes the issuance of up to 3,500,000 shares of the Company's common
stock, requires a majority of the shares of Common Stock and Restricted Common
Stock, voting together, which are cast with respect to such proposal at the
Meeting to approve the 2000 Incentive Plan. Each share of Restricted Voting
Common Stock is entitled to .55 of one vote with respect to this approval. Votes
cast by proxy or in person at the Meeting will be counted by persons appointed
by the Company to act as election inspectors for the meeting. Because Proposal
Number 3 must receive the affirmative vote of a majority of the outstanding
Common Stock and Restricted Common Stock represented at the Meeting, voting
together, abstentions will have no effect on Proposal Number 3. Shares
represented by proxies in the form enclosed, if properly executed and returned
and not revoked, will be voted as specified, but where no specification is made,
the shares will be voted in favor of Proposal 3.
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PROPOSAL NUMBER 1
ELECTION OF CLASS III DIRECTORS
The Board of Directors is divided into three classes, as nearly equal in
number as possible, with each class serving a three-year term. 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. The
Board of Directors is currently divided into three classes of six directors,
with the term of each class expiring at the Annual Meeting of Stockholders in
2000, 2001 and 2002, respectively. Only five of the directors with expiring
terms have been nominated for new terms and after the annual meeting the Board
of Directors is expected to be composed of seventeen directors. Salvatore P.
Giardina has requested that he not be nominated because of personal and family
reasons. All officers serve at the discretion of the Board of Directors.
The five nominees for election as Class III directors are Alfred J.
Giardinelli, Samuel M. Lawrence, Robert M. Powers, Diane D. Sanders, and Steven
S. Harter (collectively the "Nominees"). The Nominees presently serve as five
directors designated as Class III directors and their current terms expire at
the Meeting. The enclosed proxy cannot be voted for more than four persons by
holders of Common Stock. Holders of Restricted Voting Common Stock are entitled
to vote in favor of one director only. Steven S. Harter is the Nominee for the
holders of Restricted Voting Common Stock. A vote by a holder of Restricted
Voting Common Stock FOR the nominees identified on the proxy card is a vote in
favor of Steven S. Harter only.
If elected, each nominee would serve for a term of three years expiring at
the 2003 Annual Meeting of Stockholders, and until his or her respective
successor was elected and qualified to serve. It is expected that all of the
Nominees will be able to serve, but if any Nominee is unable to serve, the
proxies reserve discretion to vote, or refrain from voting, for a substitute
nominee.
NOMINEES
Set forth below is certain information concerning each of the Nominees:
ALFRED J. GIARDINELLI , JR., 52
DIRECTOR
Alfred J. Giardinelli, Jr. is a Class III director of the Company. He has
been the President of Eastern Heating & Cooling, Inc., a New York corporation
that is a wholly owned subsidiary of the Company, since 1982, and has been a
director of the Company since 1997.
SAMUEL M. LAWRENCE III, 48
DIRECTOR
Samuel M. Lawrence III is a Class III director of the Company. He has been
employed by S. M. Lawrence Company, Inc., a Tennessee corporation which is a
wholly owned subsidiary of the Company, since 1977, serving as its Chairman and
Chief Executive Officer since 1992, and has been a director of the Company since
1997.
ROBERT J. POWERS, 60
DIRECTOR
Robert J. Powers is a Class III director of the Company. He recently
retired from Quality Air Heating & Cooling, Inc., a Michigan corporation
("Quality") which is a wholly owned subsidiary of the Company. Mr. Powers was
employed at Quality from 1977 to 1999, serving as its President beginning in
1988. Mr. Powers has been a director of the Company since 1997.
DIANE DAY SANDERS, 50
DIRECTOR
Diane Day Sanders is a Class III director of the Company. She has been
employed for the past five years as Vice President and Treasurer of Sysco
Corporation, the largest foodservice marketing and
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distribution organization in North America, and is responsible for its treasury,
cash management, executive benefit and stock-based incentive benefit plans,
capital structure, investor relations and risk management activities. Ms.
Sanders has worked for Sysco Corporation since 1977 where she has also held the
positions of Internal Auditor, Director of Internal Audit, and Assistant
Controller. Prior to her employment by Sysco Corporation, Ms. Sanders was a
certified public accountant with the accounting firm of Touche Ross & Co. She
has been a director of the Company since 1999.
STEVEN S. HARTER, 37
DIRECTOR
Steven S. Harter has been a director of the Company since December 1996 and
is the director (Class III) elected by the holders of the Restricted Common
Stock. Mr. Harter is President of Notre Capital Ventures III, LLC ("Notre"), a
consolidator of highly fragmented industries. Prior to becoming President of
Notre, Mr. Harter was President of Notre Capital Ventures II, LLC from August
1995 to March 1999, and Senior Vice President of Notre Capital Ventures, Ltd.
from June 1993 through July 1995. 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 director of Metals USA, Inc. and was a director of Coach
USA, Inc. until September 15, 1999, when Coach USA was acquired by Stagecoach
Holdings plc.
OTHER DIRECTORS
Following is certain information concerning each of the other persons who
currently serve as directors. Messrs. Ferreira, Atlas, Cook, Klapperich,
Mercadante, and Shambaugh serve as Class I directors whose terms expire in 2001
and Messrs. Beaty, Beittenmiller, Hess, Martin, Nothum, and Phillips serve as
Class II directors whose terms expire in 2002.
FRED M. FERREIRA, 57
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
Fred M. Ferreira has been a director and served as Chairman of the Board,
Chief Executive Officer and President of the Company since January 1997. He is a
Class I director. Mr. Ferreira was responsible for introducing the consolidation
opportunity in the commercial and industrial HVAC industry to Notre Capital
Ventures II, L.L.C. ("Notre") and has been primarily responsible for the
organization of the Company. 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.
BRIAN S. ATLAS, 48
DIRECTOR
Brian S. Atlas served as Regional Director of the Southern Region of the
Company from August 1998 to December 1999 and is a Class I director of the
Company. Since 1974, he has been employed by Atlas Air Conditioning Company
L.P., a Texas limited partnership which is an entity wholly owned by
subsidiaries of the Company, serving as its Chief Executive Officer since 1983,
and has been a director of the Company since 1997.
THOMAS J. BEATY, 46
DIRECTOR
Thomas J. Beaty is a Class II director of the Company. He founded and has
served as President of Accurate Air Systems, L.P., a Texas limited partnership
which is an entity wholly owned by subsidiaries of the Company, since 1980, and
has been a director of the Company since 1997.
4
J. GORDON BEITTENMILLER, 41
DIRECTOR, CHIEF FINANCIAL OFFICER AND EXECUTIVE VICE PRESIDENT
J. Gordon Beittenmiller has served as Executive Vice President of the
Company since May 1998, as Chief Financial Officer and a director since February
1997, as Senior Vice President from February 1997 to May 1998, and is a Class II
director. 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 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.
ROBERT R. COOK, 45
DIRECTOR
Robert R. Cook is a Class I director of the Company. He founded and has
served as President of Tech Heating and Air Conditioning, Inc., an Ohio
corporation which is a wholly owned subsidiary of the Company, since 1979, and
has been a director of the Company since 1997.
SALVATORE P. GIARDINA, 50
DIRECTOR
Salvatore P. Giardina is a Class III director of the Company. He has been
the Secretary and Treasurer of F & G Mechanical Corporation, a Delaware
corporation which is a wholly owned subsidiary of the Company, and its
predecessor in interest, a New Jersey corporation having the same name, since
1976, and has been a director of the Company since 1998. Mr. Giardina's term
expires in 2000, however, for family and personal reasons Mr. Giardina requested
that he not be nominated for an additional term.
GARY E. HESS, 52
DIRECTOR, CHIEF OPERATING OFFICER
Gary E. Hess has served as Executive Vice President and Chief Operating
Officer of the Company since May 1999. He was elected by the Board of Directors
to serve as a Class II director in March 2000. Prior to becoming Chief Operating
Officer, Mr. Hess served the Company as a regional operations director for its
Northeast Region from August 1998 to January 1999 and as Senior Vice President
of Operations from January to May 1999. Prior to that time, Mr. Hess was
President and Chief Executive Officer of Hess Mechanical Corporation, which was
acquired by and became a subsidiary of the Company in 1998. During 1996, Mr.
Hess was President of Associated Builders and Contractors (ABC), a leading
industry organization, and was selected as their 1997 Contractor of the Year. He
is a decorated Vietnam veteran.
CHARLES W. KLAPPERICH, 53
DIRECTOR
Charles W. Klapperich founded and has served as Chief Executive Officer of
Western Building Services, Inc., a Colorado corporation, a wholly owned
subsidiary of the Company, since 1980. He served as Regional Director of the
Mountain Region of the Company from August 1998 to December 1999 and is a Class
I director of the Company. Mr. Klapperich has been a director of the Company
since 1997.
LARRY MARTIN, 58
DIRECTOR
Larry Martin is a Class II director of the Company. Mr. Martin, a
co-founder of Sanifill, Inc., an environmental service 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 is a
5
private investor and is the founder of Frontier Waste Services, Inc., an
environmental services company. He has been a director of the Company since
1997.
JOHN MERCADANTE, JR., 55
DIRECTOR
John Mercadante, Jr. is a Class I 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 USA,
Inc. ("Coach") at the time of Coach's initial public offering in May 1996. Mr.
Mercadante served as President, Chief Operating Officer and director of Coach
from its initial public offering through its acquisition by Stagecoach Holdings,
plc in 1999, after which time he retired. He has been a director of the Company
since 1997.
MICHAEL NOTHUM, JR., 45
DIRECTOR, VICE PRESIDENT
Michael Nothum, Jr. is a Vice President and Class II director of the
Company. Mr. Nothum served as Chief Operating Officer and Executive Vice
President from January to April 1999. He was employed by Tri-City Mechanical,
Inc., an Arizona corporation that is a wholly owned subsidiary of the Company,
since 1979, serving as President from 1992 to December 1997. He has been a
director of the Company since 1997.
JOHN C. PHILLIPS, 58
DIRECTOR
John C. Phillips is a Class II director of the Company. He co-founded
Contract Service, Inc., a Utah corporation that is a wholly owned subsidiary of
the Company, 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.
He has been a director of the Company since 1997.
MARK P. SHAMBAUGH, 46
DIRECTOR
Mark P. Shambaugh, P.E. is a Class I director of the Company. He has been
employed by Shambaugh & Son, Inc., an Indiana corporation that is a wholly owned
subsidiary of the Company, since 1976, serving as its Chief Executive Officer
since 1989. Mr. Shambaugh is a past president of and a current member of the
Board of Directors of the Design-Build Institute of America. He has been a
director of the Company since 1998.
BOARD OF DIRECTORS AND COMMITTEES
During the year ended December 31, 1999, the Board of Directors of the
Company held four meetings. Each director attended at least 75% of the meetings
of the Board and the Board Committees of which he is a member that took place
during his term of office.
The Board of Directors has established an Audit Committee, a Compensation
Committee, an Acquisitions Committee, a Small Acquisitions Committee, an
Executive Committee, a Financing Committee, and an Option Approval Committee.
The members of the Audit Committee are Mr. Harter, Mr. Mercadante, Mr. Martin
and Ms. Sanders. The members of the Compensation Committee are Mr. Harter, Mr.
Mercadante and Ms. Sanders. Ms. Sanders replaced Mr. Martin on the Compensation
Committee and was added to the Audit Committee at the August, 1999 meeting of
the Board. The members of the Acquisition Committee are Messrs. Ferreira, Atlas,
Beittenmiller, Harter and Lawrence, and the members 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.
The members of the Financing Committee are Mssrs. Ferreira, Beittenmiller and
Harter. The members of the Option Approval Committee are Ms. Sanders and Mr.
Mercadante. None of the Audit or Compensation Committee members is an executive
officer or employee of the
6
Company, nor has any been such at any time while serving on those committees.
The Board of Directors does not have a Nominating Committee.
The Audit Committee, which held four meetings during 1999, reviews with
management and the independent public accountants the Company's annual financial
statements, the scope of the audit, any comments made by the independent public
accountants and such other matters as the Audit Committee deems appropriate. In
addition, the Audit Committee reviews the performance and retention of the
Company's independent auditors and reviews with management such matters relating
to compliance with corporate policies as the Audit Committee deems appropriate.
The Compensation Committee, which held four meetings during 1999,
administers the Company's stock option and stock purchase plans and sets the
compensation of the Company's executive officers.
The Executive Committee, which held one meeting during 1999, has been
established by the Board of Directors to have the authority, responsibilities
and powers of the Board, whenever the Board shall not be at meeting, except that
the Executive Committee does not have the authority to (i) amend or repeal any
action of the Board of Directors which by its terms are not subject to repeal by
the Executive Committee, (ii) amend the Bylaws of the Company, (iii) amend the
Certificate of Incorporation of the Company, (iv) recommend to the stockholders
the sale, lease or exchange of all or substantially all of the Company's stock,
property or assets, (v) dissolve or recommend the dissolution of the Company,
(vi) fill a vacancy on the Board of Directors or any committee thereof, (vii)
remove any officer of the Company, or (viii) take any action which may not be
delegated by the Board of Directors pursuant to the General Corporation Law of
the State of Delaware.
The Acquisitions Committee, which held one meeting during 1999, is
empowered by the Board to approve acquisitions in which the consideration to be
paid by the Company does not exceed $20 million and to authorize the issuance of
stock, options, debt and other consideration and take any other action as the
Acquisitions Committee may deem necessary in connection with such acquisitions.
The Small Acquisitions Committee, which held no formal meetings during
1999, was empowered by the Board through November 20, 1999, to approve
acquisitions in which the consideration to be paid by the Company did not exceed
$10 million and to authorize the issuance of stock, options, debt and other
consideration and take any other action as the Small Acquisitions Committee may
deem necessary in connection with such acquisitions. After November 20, 1999, at
the direction of the Board of Directors, the Small Acquisitions Committee
deferred all decisions relating to acquisitions to the Acquisitions Committee.
The Financing Committee, which held no formal meeting during 1999, is
empowered by the board to authorize repurchases by the Company of its shares in
the open market. Decisions of the Financing Committee with respect to
repurchases of stock must be unanimous.
The Option Approval Committee, which held no formal meetings in 1999, is
responsible for approving grants of stock options under the Company's Long Term
Equity Incentive Plan.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries receives 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).
Directors are also reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof.
In addition, 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 Company's
initial public offering (which closed in July 1997) of an option to purchase
10,000 shares, (ii) the automatic grant to each non-employee director after the
initial public offering of an
7
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. Of the 250,000 shares of Common Stock initially
available under the Directors' Plan, 180,000 remained available as of March 31,
2000.
Each director who was in office at the time of the initial public offering
has also been indemnified by the Company as more particularly described in the
section that follows entitled "COMPENSATION OF EXECUTIVE OFFICERS."
The five nominees for election as Class III directors receiving the
greatest number of votes properly cast on behalf of holders of Common Stock for
the election of directors at the Meeting will be elected. The persons named in
the enclosed proxy intend to vote each share as to which a proxy has been
properly executed and returned (and not revoked) in favor of the election as a
Class III director of each of the nominees named below, unless authority to vote
for the election of any of such nominees is withheld by marking the proxy to
that effect.; provided, however, that the persons named in the enclosed proxy
will vote each share of Restricted Voting Common Stock only with respect to
Steven S. Harter, as explained above. The election inspectors will count shares
of Common Stock represented by proxies that withhold authority to vote for one
or more nominees for election as a director only as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum, but withholding authority to vote for one or more nominees will not have
any effect on the outcome of voting on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE NOMINEES DESCRIBED IN PROPOSAL
NUMBER 1.
8
PROPOSAL NUMBER 2
APPROVAL OF THE AMENDMENT OF THE
1998 EMPLOYEE STOCK PURCHASE PLAN
On September 18, 1997, the Board of Directors adopted, and the stockholders
subsequently approved, the 1998 Employee Stock Purchase Plan (the "Purchase
Plan"). The maximum number of shares of Common Stock available for issuance
under the Purchase Plan was set at 300,000. Because of the significant drop in
the Company stock price late last year, far more shares became issuable for the
purchase period ending January 31, 2000 than were anticipated. The remaining
shares that had been reserved were insufficient to fully fund purchases under
the plan for that period and for that reason under the Purchase Plan employees
received a partial refund of amounts withheld.
On March 3, 2000, the Board of Directors reviewed the status of the
Purchase Plan and decided that it was in the best interest of the Company to
approve an amendment to Section 4.1 of the Purchase Plan to increase the number
of shares authorized for issuance under the Purchase Plan by 600,000 shares. The
Board of Directors believes that the Purchase Plan provides a convenient and
attractive way for employees to become stockholders of the Company and thus to
align the employees' interests more closely with those of the stockholders. The
following paragraphs describe the basic terms of the Purchase Plan.
The Purchase Plan is designed to enable eligible employees to purchase
shares of Common Stock at a discount through payroll deductions. All employees
of the Company and any subsidiary of the Company designated as an "employer"
under the Purchase Plan who are regularly scheduled to work at least twenty
hours per week other than employees owning stock representing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
any participating subsidiary (including options to acquire such stock) are
eligible to participate in any option period commencing after the date the
employee is hired by the Company or its subsidiaries. As of January 31, 2000,
there were approximately 1,077 employees enrolled in the Purchase Plan, and
approximately 10,853 employees were eligible to participate in the Purchase
Plan.
Purchases occur twice a year at the end of six-month option periods that
begin February 1 and August 1 of each year. The purchase price for Common Stock
under the Purchase Plan is 85% of the lesser of the fair market value of the
Common Stock on the first day of the option period and the fair market value of
the Common Stock on the last day of the option period. On January 31, 2000, the
last reported sale price for the Common Stock as reported on the New York Stock
Exchange was $7.00 per share. The Purchase Plan permits eligible employees to
purchase up to 2,000 shares of Common Stock in any six-month option period
through payroll deductions, which may be equal to 2%-8% of the participant's
total compensation for that period and may not be less than $10.00 per payroll
period nor exceed $2,000 during any option period. In no event may a participant
be granted options to purchase Common Stock under the Purchase Plan which would
allow the fair market value (determined on the first day of the current option
period) of total options exercisable and Common Stock purchased during a
calendar year under the Purchase Plan and any other qualified employee stock
purchase plan of the Company and its subsidiaries to exceed $25,000. Payroll
deductions are held in book accounts for each participant and do not accrue
interest. The Company is not obligated to segregate these funds and may use them
for any corporate purpose. Options granted under the Purchase Plan are not
transferable other than by will or the laws of descent and distribution and the
Company is under no obligation to repurchase Common Stock issued to participants
under the Purchase Plan.
If a participant's employment with the Company or participating subsidiary
terminates voluntarily or by death, the participant's option to purchase shares
for that period will be deemed canceled and the balance of the participant's
payroll withholding account will be refunded. If a participant becomes
ineligible to participate due to a leave of absence, change to ineligible status
or discontinuance of payroll deductions, the balance of the participant's
payroll withholding account will be refunded to the
9
participant following written request or otherwise used to purchase Common Stock
on the next exercise date. Participants may elect to terminate or decrease their
participation at any time, but may only join the Purchase Plan or increase
participation during enrollment periods and may only rejoin after termination of
participation under prescribed circumstances. Participants who are directors,
executive officers or 10% or more stockholders of the Company are subject to
special requirements set forth in the Purchase Plan concerning their
participation. Members of the Compensation Committee, which committee is
responsible for administering the Purchase Plan, are ineligible to participate
under the express terms of the Purchase Plan.
The Compensation Committee has the right to amend or modify the Purchase
Plan in its sole discretion, except that the Compensation Committee cannot make
changes that would affect grants already made (unless required by law) and it
cannot materially change eligibility requirements, change the definition of
employer, increase the number of shares subject to options or materially
increase the benefits to participants under the Purchase Plan without prior
stockholder approval. The Purchase Plan may be terminated at any time in the
sole and absolute discretion of the Compensation Committee and must be
terminated by the Compensation Committee at any time the number of shares of
Common Stock authorized for purposes of the Purchase Plan is not sufficient to
meet all purchase requirements, unless a pro rata allocation can be made in
accordance with the terms of the Purchase Plan. If not approved by the
stockholders of the Company at this meeting, the Compensation Committee may be
expected to terminate the Purchase Plan because no shares will be available for
issuance.
TAX EFFECTS
The following discussion of certain federal income tax consequences
associated with participation in the Purchase Plan is based on the law as in
effect on March 31, 2000. It does not purport to cover federal employment tax or
other federal tax consequences that may be associated with the Purchase Plan,
nor does it cover state, local or non-U.S. taxes.
The Purchase 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 (the "Internal Revenue Code"), and rules and regulations promulgated
under such section. Under the Purchase Plan, no income is realized upon the
grant of an option at the beginning of an option period or upon the exercise of
the option at the end of that period. If shares of Common Stock acquired upon
exercise are disposed of within two years from the date of grant of the option,
the participant realizes ordinary income at the time of disposition equal in
general to the excess of the fair market value of the shares on the measurement
date over the exercise price. A corresponding deduction is available to the
Company. If shares acquired upon exercise are disposed of after the two-year
period described above, or if the participant dies at any time while holding the
shares, ordinary income is recognized in the year of the qualifying disposition
equal to the lesser of (i) the amount by which the market price of the shares on
the date of the qualifying disposition exceeds the purchase price of the shares
or (ii) 15% of the market price of the shares on the first business day of the
purchase period in which the shares were purchased. In addition, a capital gain
will be recognized on the excess, if any, of the amount recognized on a sale
over the employee's basis (the amount paid per share plus the ordinary income
recognized as a result of the sale). No deduction is available to the Company
for this amount.
A majority of the shares of Common Stock and Restricted Common Stock,
voting together, which are cast with respect to such proposal at the Meeting is
required to approve the Purchase Plan. Each share of Restricted Voting Common
Stock is entitled to .55 of one vote with respect to this approval. Votes cast
by proxy or in person at the Meeting will be counted by persons appointed by the
Company to act as election inspectors for the meeting. Because Proposal Number 2
must receive the affirmative vote of a majority of the outstanding Common Stock
and Restricted Common Stock represented at the Meeting, voting
together,abstentions will have no effect on Proposal Number 2. Shares
represented by proxies in the form enclosed, if properly executed and returned
and not
10
revoked, will be voted as specified, but where no specification is made, the
shares will be voted in favor of Proposal 2.
OTHER INFORMATION
Executive officers and non-executive directors are not encouraged to
participate in the Purchase Plan because the Compensation Committee believes the
Purchase Plan is primarily intended to benefit rank and file employees. Because
the actual benefits to employee participants are contingent upon, among other
things, the amount of contributions participating employees make on a voluntary
basis, it is not possible to predict what benefits eligible employees will
receive under the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF PROPOSAL NUMBER 2.
11
PROPOSAL NUMBER 3
APPROVAL OF THE ADOPTION OF THE
2000 INCENTIVE PLAN
On April 17, 2000, the Board of Directors of the Company approved, subject
to approval of the stockholders of the Company, the adoption of a 2000 Incentive
Plan (the "Incentive Plan"). Under the 2000 Incentive Plan, the Board of
Directors may grant or award stock options, restricted stock or performance
awards (collectively, the "Awards") to employees of the Company and any
subsidiary of the Company and other persons or entities who, in its opinion, are
in a position to make a significant contribution to the success of the Company.
The Board of Directors believes that the adoption of the Incentive Plan is
crucial to retaining existing key personnel and to attracting key executive and
professional talent. The Company is unable to provide a desirable level of
incentive through the current equity plan because existing options have lost
substantial value due to a recent decline in the Company's stock price. The
average exercise price for options that were granted under the existing plan is
more than double the Company's current and 180 day average stock price.
Insufficient shares were available under the plan to grant additional options,
and availability has been further impaired because the Company's stock
repurchase plan has decreased the shares outstanding, the factor which
determines availability under the current plan. Accordingly, the Board believes
that the existing program cannot meet the Company's needs.
PLAN ADMINISTRATION
The Incentive Plan will be administered by the Compensation Committee.
Subject to the provisions of the Incentive Plan, the Compensation Committee has
the authority to designate participants, determine the types of Awards to be
granted, the number of shares to be covered by each Award, the time at which
each Award is exercisable or may be settled, the method of payment and any other
terms and conditions of the Award. Each Award will be evidenced by a certificate
or other document issued by the Company to the participant. The aggregate number
of shares of Common Stock available for Awards under the Plan is 3,500,000. On
January 31, 2000, the last reported sale price for the Common Stock as reported
on the New York Stock Exchange was $7.00 per share. No Awards may be made under
the Incentive Plan after April 16, 2010. In order for Awards under the Incentive
Plan to qualify as performance-based for purposes of Internal Revenue Code
section 162(m), the Incentive Plan must include a limit on the number of options
awarded to a single participant. For this purpose, the Incentive Plan contains a
maximum limit of 1,000,000 shares of Common Stock per year.
Although the Compensation Committee determines the price at which options
and other Awards may be exercised under the Incentive Plan, the exercise price
of an incentive stock option ("ISO") may not be less than 100% of the fair
market value (as determined under the terms of the Incentive Plan) of a share of
Common Stock. The term of each option granted under the Incentive Plan generally
cannot exceed ten years from grant. Awards granting restricted stock to
participants generally give the participants a right to acquire a fixed number
of shares of Common Stock at a fixed price, which cannot be less than the par
value of the Common Stock.
In the case of any performance Award, the Compensation Committee shall in
writing pre-establish specific performance goals prior to the passage of 25% of
the period of time over which the attainment of such goal is to be measured. The
performance goals will take into account any one or more of the following
criteria: (1) sales; revenues, assets, expenses, earnings before or after
deduction for all or any portion of interest, taxes, depreciation or
amortization, whether or not on a continuing operations or an aggregate or per
share basis; return on equity, investment, capital or assets; inventory level or
turns; one or more operating ratios; borrowing levels, leverage ratios or credit
rating; market share; capital expenditures; cash flow; stock price; stockholder
return; or any combination of the foregoing; or (2) acquisitions and
divestitures (in whole or in part); joint ventures and strategic
12
alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity) and
refinancings; or (3) any combination of the foregoing. In addition, in order to
qualify as a performance-based award for purposes of Internal Revenue Code
section 162(m), the Incentive Plan has specified that the maximum performance
Award that may be granted in any year is $2,500,000.
Each Award will be nontransferable except upon death or pursuant to a
qualified domestic relations order. Except as otherwise determined by the
Compensation Committee, if a participant ceases to be an employee or there is a
termination of the consulting, service or similar relationship with a
non-employee participant (such termination is referred to as a "Status
Change"), in each case other than for "cause", (1) all options that are not
then exercisable will terminate, and options that are exercisable must be
exercised within three months and shall thereupon terminate, (2) Restricted
Stock which remains subject to restrictions must be transferred to the Company,
and (3) all performance Awards to which the participant was not irrevocably
entitled prior to death will be forfeited. In addition, if a participant's
Status Change is for "cause" (as determined by the Compensation Committee) all
outstanding options, whether or not exercisable, will terminate immediately.
The exercise price of an Award may be paid in cash or check, by using a
recourse promissory note, or in a "cashless" exercise through a broker.
If the Common Stock changes as a result of a merger or similar
reorganization in which the Company is the surviving corporation, the number and
kind of shares then subject to options or Awards shall be appropriately adjusted
in such manner as the Compensation Committee may equitably determine to prevent
dilution or enlargement of the rights available or granted hereunder. In the
case of certain mergers, consolidations or other transactions in which the
Company is acquired or liquidated, or its assets are sold, all outstanding
Awards will terminate unless a successor entity agrees to assume the awards.
Prior to such termination, however, the Compensation Committee may provide that
all outstanding Awards will become exercisable, in whole or in part.
The Board of Directors may discontinue granting Awards under the Incentive
Plan at any time. The Board may also amend the Incentive Plan for any purpose
permitted by law, but no amendment may adversely affect the rights of any
participant under any Award previously granted.
TAX EFFECTS
The following discussion of certain federal income tax consequences
associated with participation in the Incentive Plan is based on the law
currently in effect. It does not purport to cover federal employment tax or
other federal tax consequences that may be associated with the Incentive Plan
nor does it cover, state, local or non-U.S. taxes.
OPTIONS. An optionee realizes no ordinary taxable income upon the grant or
exercise of an ISO. Following the exercise, if the optionee does not dispose of
the shares acquired within two years from the date of grant or within one year
after the exercise, then upon sale of such shares, any amount realized in excess
of the amount paid for the shares will be long-term capital gain and any loss
allowed for tax purposes will be long-term capital loss. No deduction will be
allowed to the Company. The exercise of an ISO will, however, increase the
optionee's alternative minimum taxable income and may result in alternative
minimum tax liability.
If the optionee disposes of shares acquired upon the exercise of an ISO
prior to the expiration of the two-year or one-year holding periods described
above (a "disqualifying disposition"), generally (a) the optionee will realize
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of the shares at exercise (or, if less, the amount
realized on a sale of such shares) over the amount paid for the shares, and (b)
the Company will be entitled to deduct this amount. Any further gain recognized
will be taxed as short-term or long-term capital gain and will not result in any
deduction by the Company. Special rules may apply where all or a portion
13
of the exercise price of the ISO is paid by tendering shares of Common Stock. A
disqualifying disposition will eliminate the alternative minimum taxable income
adjustment associated with the exercise of the ISO if it occurs in the same
calendar year as the year in which the adjustment occurred.
If an ISO is exercised at a time when it no longer qualifies for the tax
treatment described above, the option is treated as a nonstatutory option.
Generally, an ISO will not be eligible for the tax treatment described above if
it is exercised more than three months following termination of employment (one
year following termination of employment, in the case of termination by reason
of permanent and total disability), except in certain cases where the ISO is
exercised after the death of the optionee. Options otherwise qualifying as ISOs
will also be treated for federal income tax purposes as nonstatutory options to
the extent they (together with other ISOs held by the optionee) first become
exercisable in any calendar year for shares having a fair market value
determined at the time of the option grant, exceeding $100,000.
With respect to nonstatutory options under the Incentive Plan, no income is
realized by the optionee at the time the option is granted. Generally, at
exercise, an optionee realizes ordinary income, subject (in the case of options
granted to an employee) to withholding, in an amount equal to the difference
between the option price and the fair market value of the shares on the date of
exercise, and a corresponding deduction will be available to the Company. Any
gain or loss recognized upon a later sale is treated as capital gain or loss,
either short-term or long-term depending on the applicable holding period for
the sale.
RESTRICTED STOCK. If an Award of restricted stock is subject to forfeiture
provisions and restrictions on transfer, neither the recipient nor the Company
will realize any federal tax consequences at the time such Award is granted
under the Incentive Plan unless he or she makes an election under Section 83(b)
of the Internal Revenue Code. If the recipient makes a Section 83(b) election
within 30 days of the date of grant, or if he or she is granted an Award that is
not subject to forfeiture provisions and restrictions on transfer, then he or
she will recognize ordinary income for the year in which the Award is received
in an amount equal to the difference between the fair market value of the Common
Stock at the time the Award is made and the purchase price paid for the Common
Stock. If such election is made and the recipient subsequently forfeits some or
all of the Common Stock, he or she will not be entitled to any tax refund. If
the Section 83(b) election is not made with respect to an Award of restricted
stock, he or she will recognize ordinary income, at the time that the forfeiture
provisions and restrictions on transfer lapse, in an amount equal to the
difference between the fair market value of the Common Stock at that time and
the original purchase price per share. The Company will be entitled to deduct,
as compensation expense, the same amount as the recipient must include as
ordinary income and such deduction shall take place in the tax year which
includes the last day (generally December 31) of the recipient's tax year in
which the income is recorded for federal tax purposes. When the recipient sells
the stock, he or she will recognize capital gain at the time of sale on the
difference between the recipient's basis (the price paid plus any amount taxed
as ordinary income) and the sale price.
PERFORMANCE AWARDS. The grant of a performance Award does not itself
result in any taxable income. The payment of the performance Award will result
in ordinary income to the participant and a corresponding deduction for the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF PROPOSAL NUMBER 3.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock and Restricted Common Stock as of
March 31, 2000 (i) individually by the Chief Executive Officer, each of the four
other most highly paid executive officers of the Company in 1999 as named in the
Summary Compensation Table (the "Named Executive Officers") and all other
executive officers and directors of the Company and (ii) by all executive
officers and directors of the Company as a group. The following table also sets
forth certain information with respect to the beneficial ownership of shares of
Common Stock as reported on schedules filed with the Securities and Exchange
Commission ("SEC") and includes each person known to the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock or
Restricted Common Stock. Except as noted below, each of the persons listed has
sole investment and voting power with respect to the shares indicated.
RESTRICTED COMMON
STOCK SHARES COMMON STOCK
BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED(1)
------------------- ----------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ------------------------------------- ------- -------- ----------- --------
Steven S. Harter (2)................. 956,218 62.4% 75,000 * %
Mark P. Shambaugh.................... 1,493,500 4.2
Robert J. Powers (3)................. 1,252,000 3.5
Salvatore P. Giardina................ 684,514 1.9
Robert R. Cook....................... 651,000 1.8
Brian S. Atlas (4)................... 608,600 1.7
Michael Nothum, Jr. (5).............. 575,500 1.6
Fred M. Ferreira (6)................. 484,620 1.3
John C. Phillips (7)................. 405,556 1.1
Thomas J. Beaty...................... 378,857 1.1
Gary E. Hess (8)..................... 359,588 *
Alfred J. Giardinelli, Jr. .......... 304,216 *
Samuel M. Lawrence III............... 300,000 *
Charles W. Klapperich................ 206,407 *
J. Gordon Beittenmiller (9).......... 157,000 *
Reagan S. Busbee (9)................. 142,500 *
William George III (10).............. 82,420 *
Larry Martin (11).................... 53,692 *
John Mercadante, Jr. (11)............ 37,692 *
Diane Day Sanders (12)............... 10,000 *
All executive officers and directors
as a group (20 persons)............ 956,218 62.4% 8,262,662 22.9%
T. Rowe Price Associates, Inc.
(13)................................. 3,149,000 8.8%
P.O. Box 17218
Baltimore, MD 21297-7218
- ------------
Except as noted, the address of each person is c/o Company, 777 Post Oak
Boulevard, Suite 500, Houston, Texas 77056.
* Less than 1%.
(1) Shares shown do not include shares that could be acquired upon exercise of
options that do not vest within 60 days. Unless otherwise indicated options
were issued pursuant to the 1997 Long Term Incentive Plan.
(2) Includes 827,034 shares of Restricted Common Stock held in a partnership as
to which Mr. Harter is a general partner, 129,184 shares of Restricted
Common Stock held in a trust for
(FOOTNOTES ON FOLLOWING PAGE)
15
Mr. Harter's minor children as to which he disclaims beneficial ownership
and 20,000 shares of Common Stock issuable upon exercise of options granted
under the Directors' Plan.
(3) Includes 210,000 shares held by the Powers Family Foundation, a charitable
entity, as to which he disclaims beneficial ownership.
(4) Includes an aggregate of 99,000 shares held in trusts for Mr. Atlas' minor
children as to which he disclaims beneficial ownership.
(5) Includes an aggregate of 20,694 shares held in irrevocable trusts for Mr.
Nothum's minor children and of which he is trustee.
(6) Includes 60,000 shares issuable upon exercise of currently exercisable
options.
(7) Includes 403,305 shares held by trust.
(8) Includes 307,788 shares held by a corporation of which Mr. Hess owns a
majority of the outstanding capital stock and 8,000 shares issuable upon
exercise of currently exercisable options.
(9) Includes 40,000 shares issuable upon exercise of currently exercisable
options.
(10) Includes 15,000 shares issuable upon exercise of currently exercisable
options.
(11) Includes 20,000 shares of Common Stock issuable upon exercise of options
granted under the Directors' Plan.
(12) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Directors' Plan.
(13) These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. ("Price Associates")
serves as investment adviser with power to direct investments and/or sole
power to vote the securities. For purposes of the reporting requirements of
the Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth information with respect to compensation
paid to or accrued on behalf of the Named Executive Officers for 1998 and 1999
and for that portion of 1997 beginning on June 27, 1997, when the Company became
a publicly held company, unless otherwise noted. Mr. Nothum is also included
because he was an executive officer for a portion of 1999. All of the Named
Executive Officers have been granted stock options.
16
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------------
NAME AND ---------------------------------------- SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) OPTIONS COMPENSATION(2)
- ------------------------------------- ----- ---------- --------- --------- ----------------------- ----------------
Fred M. Ferreira..................... 1999 $ 150,000 -- -- -- $3,571
Chairman of the Board, 1998 $ 150,000 -- -- -- --
Chief Executive Officer 1997 $ 76,154 -- -- 200,000 --
and President
Gary E. Hess......................... 1999 $ 199,167 -- $ 9,000 40,000 $4,536
Executive Vice President,
Chief Operating Officer
Michael Nothum, Jr. ................. 1999 $ 180,000 -- $ 9,000 -- $3,571
Vice President, and 1998 $ 190,000 -- $ 9,000 35,000 $4,961
Director 1997 $ 76,154 -- $ 4,500 25,000 $ 900
J. Gordon Beittenmiller.............. 1999 $ 150,000 -- -- 20,000 $3,571
Executive Vice President, 1998 $ 150,000 -- -- -- --
Chief Financial Officer, 1997 $ 76,154 -- -- 100,000 --
Treasurer and Director
William George, III.................. 1999 $ 150,000 $ 20,000 -- 15,000 $1,667
Senior Vice President 1998 $ 150,000 -- -- -- --
and General Counsel 1997 $ 76,154 -- $ 31,000 75,000 --
Reagan S. Busbee..................... 1999 $ 125,000 $ 20,000 -- 15,000 $2,895
Senior Vice President 1998 $ 125,000 -- -- -- --
1997 $ 63,462 -- -- 100,000 --
- ------------
(1) Reflects an automobile allowance of $750 per month for Mr. Nothum for each
of 1997 and 1998 and for Mr. Hess in 1999 and partial reimbursement of
moving expenses for Mr. George in 1997.
(2) Reflects matching contributions under a 401(k) plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of stock
options during the last fiscal year to each of the Named Executive Officers. No
stock appreciation rights were granted during the last fiscal year.
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION FOR
SECURITIES TOTAL OPTIONS OPTION TERM2
UNDERLYING GRANTED TO --------------------
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION 5%
NAME GRANTED(1) FISCAL YEAR PRICE DATE -- 10%
- ------------------------------------- ---------- -------------- -------- ---------- ---------
Fred M. Ferreira..................... -- -- -- -- -- --
Gary E. Hess......................... 10,000 1.3% $ 12.69 03/04/06 $ 0 $ 16,820
30,000 4.0% $ 11.75 03/23/06 $ 0 $ 78,660
Michael Nothum, Jr................... -- -- -- -- -- --
J. Gordon Beittenmiller.............. 20,000 2.6% $ 12.69 03/04/06 $ 0 $ 33,640
Reagan S. Busbee..................... 15,000 2.0% $ 12.69 03/04/06 $ 0 $ 25,230
William George, III.................. 15,000 2.0% $ 12.69 03/04/06 $ 0 $ 25,230
- ------------
(1) These stock options, which were granted pursuant to the Company's 1997 Long
Term Incentive Plan, were granted at the fair market value of the underlying
option shares on the date of grant. Each of the foregoing options has an
exercise price equal to the stock price on the date of grant.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
17
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 earliest of seven
years from the date of grant or three months following termination of
employment. In the event of a change in control of the Company, these
options would become exercisable in full. Stock options reported consist of
non-qualified stock options.
(2) These numbers are based upon the fair market value of one share of the
Common Stock on December 31, 1999 ($7.375), less the exercise price of
in-the-money options at the end of 1999. The dollar amounts under these
columns are the result of calculations at the 5% and 10% annual appreciation
rates set by the SEC for illustrative purposes and are not intended to
forecast future financial performance or possible future appreciation in the
price of the Common Stock.
OPTION EXERCISES IN LAST FISCAL YEAR
There were no option exercises by Named Executive Officers during 1999.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the fiscal year-end
value of unexercised stock options held by the Named Executive Officers during
the last fiscal year.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ----------- -------------
Fred M. Ferreira..................... 80,000 120,000 $ 0 $ 0
Gary E. Hess......................... 8,000 32,000 $ 0 $ 0
Michael Nothum, Jr................... 24,000 36,000 $ 0 $ 0
J. Gordon Beittenmiller.............. 40,000 80,000 $ 0 $ 0
Reagan S. Busbee..................... 40,000 75,000 $ 0 $ 0
William George, III.................. 30,000 60,000 $ 0 $ 0
- ------------
(1) These numbers are based upon the fair market value of one share of the
Common Stock on December 31, 1999 ($7.375), less the exercise price of
in-the-money options at the end of 1999.
EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE; CHANGE OF CONTROL;
INDEMNIFICATION
During 1999, the Company's five most highly compensated executive officers
were Messrs. Ferreira, Hess, Beittenmiller, George, and Busbee. Mr. Nothum was
also included because he was an executive officer during a portion of 1999.
On June 27, 1997, each of Messrs. Ferreira, Beittenmiller, George and
Busbee entered into an employment agreement with the Company providing for an
annual base salary of $150,000, except for Mr. Busbee, whose annual base salary
is $125,000. 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. The agreement 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 the greater of
salary for the remaining term or 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 employment agreement) during the initial three-year
term, if the employee is not given at least five days' notice, of the
successor's intent to continue the employee's employment after 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 the successor's intent
to continue the employee's employment after such change in control, the employee
may elect to
18
terminate his employment and receive in one lump sum two 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 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.
On June 27, 1997, Mr. Nothum entered into an employment agreement with
Tri-City Mechanical providing for an annual base salary of $150,000. His
employment agreement is for a term of five years, and unless terminated or not
renewed by Tri-City Mechanical or nor renewed by him, the term will continue
thereafter on a year-to-year basis on the same terms and conditions existing at
the time of renewal. The agreement provides that, in the event of a termination
of employment by Tri-City Mechanical without cause during the first three years
of the employment term (the "Initial Term"), Mr. Nothum will be entitled to
receive from Tri-City Mechanical 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, Mr. Nothum 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. Mr. Nothum's employment agreement also contains change of control
and competition provisions identical to those described for the other Named
Executive Officers listed above.
On April 1, 1998 Mr. Hess entered into an employment agreement with Hess
Mechanical providing for a minimum annual base salary of $150,000. His
employment agreement is for a term of three years. The agreement provides that
in the event of a termination by the Company without cause Mr. Hess would be
entitled to receive from Hess Mechanical an amount equal to his then current
salary for the lesser of the term remaining under the agreement or one year. In
either case payment is due in accordance with the Company's standard pay
practices, not in a lump sum. The agreement contains a covenant not to compete
with the Company for two years immediately following termination.
Each executive officer and director of the Company who was in office at the
time of the initial public offering has entered into an Indemnification
Agreement with the Company whereby the Company indemnifies each against actions
taken in good faith on behalf of the Company.
19
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee, which is responsible for setting compensation
relating to officers of the Company and administering the Company's stock
benefit plans, makes the following report on executive compensation during 1999:
The Company was founded by entrepreneurs who pooled their talents and
resources to form the Company. From the time of its founding, the Company's
executive compensation philosophy was to rely principally on enterprise
value as the primary motivating factor for executive performance.
Compensation for executive officers in 1999 consisted of three
components: annual salary, stock-based incentives and bonuses.
Substantially all current executive officers have employment agreements
that establish a minimum annual salary. Salaries were initially set at what
the Company believes are relatively modest levels for companies of similar
size and characteristics. The salary scale was set at the time of the
initial public offering and reflects the fact that each of the founding
executive officers was a stockholder of the Company. For several of the
founding executive officers, their salary level represented a significant
reduction from the compensation they had previously received. This
entrepreneurial philosophy established the annual salary scale and salaries
for executive officers who have joined the Company since the time of the
initial public offering have been fit into that structure, depending on the
individual's responsibilities within the Company. At the time of the
initial public offering, the Company's executive officers were also given
stock options.
After the close of 1999, the Company awarded year-end bonuses to Mr.
Busbee and Mr. George. These bonuses were intended to reward their
performance during the year. Although the Compensation Committee believes
that the performance of the other executive officers was distinguished, it
accepted the recommendation of management that given stock performance it
was appropriate not to award bonuses to the three top executive officers.
The Compensation Committee believes that in order for the Company to
be successful in the future it must attract and retain top quality
management. The Compensation Committee expects to retain the advisory
services of compensation experts during 2000 to assist it in beginning to
implement compensation that will closely reflect performance and will be
competitive with other companies of similar size and characteristics.
Submitted by the
COMPENSATION COMMITTEE
John Mercadante, Jr., CHAIRMAN
Diane Day Sanders
Steven S. Harter
20
STOCK PERFORMANCE GRAPH
The following stock price performance graph compares the cumulative total
return on the Common Stock with the cumulative total return of the Standard &
Poor's Composite 500 Index and of a peer group consisting of the companies in
the Russell 2000, from June 27, 1997, the date of the Company's initial public
offering, through December 31, 1999, assuming a $100 initial investment in each
case.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
CUMULATIVE TOTAL RETURN
6/27/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99
------- ------- ------- -------- ------- ------- ------- -------- -------
Comfort Systems USA, Inc. FIX........ 100.00 120.19 147.12 151.92 166.35 179.81 154.81 137.50 112.50
S & P 500............................ 100.00 99.75 107.23 110.30 125.69 129.84 116.92 141.82 148.89
RUSSELL 2000......................... 100.00 100.69 115.67 111.80 123.03 119.58 95.49 111.06 97.64
6/30/99 9/30/99 12/31/99
------- ------- --------
Comfort Systems USA, Inc. FIX........ 138.46 90.87 56.73
S & P 500............................ 159.39 149.44 171.67
RUSSELL 2000......................... 113.80 104.90 106.51
NOTE: Performance is reported monthly, assumes $100 invested on June 27, 1997,
and includes reinvestment of dividends through the end of fiscal year 1999. The
stock price performance on the graph above is not necessarily indicative of
future price performance.
21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Mercadante, Harter and Martin and Ms. Sanders, none of whom is or was an
executive officer or employee of the Company during 1997, 1998 or 1999, other
than Mr. Harter who served as President of the Company for the first six days of
January 1997 when the Company had no operations, served on the Compensation
Committee during 1999. Mr. Martin stepped down from the Compensation Committee
in the second quarter of 1999 and was at that time replaced by Ms. Sanders.
During 1999, Mr. Harter was a member of the compensation committee of the Board
of Directors of Coach USA, Inc., and Mr. Mercadante was an executive officer of
that company. The Board of Directors has constituted an Options Approval
Committee composed of Mr. Mercadante and Ms. Sanders.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater-than-ten-percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
In reviewing the various reports filed with respect to beneficial ownership
under Section 16(a), it was determined that Mr. Harter's Form 4 for November,
1999 was not prepared and delivered in a timely manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASES OF REAL PROPERTY BY SUBSIDIARIES
Atlas Air Conditioning Company, L.P., a Texas limited partnership which is
successor-in-interest to Atlas Comfort Services USA, Inc., a Texas corporation
("Atlas"), leases its office space in Houston, Texas, as well as single family
residences located in Austin, Texas; Phoenix, Arizona; and Antioch, Tennessee.
These properties are owned by M & B Interest, 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 real property in Houston consists of an office
and warehouse facility recently constructed by M & B, which Atlas leases from M
& B for a current rental of $250,604, increasing annually. The lease expires
September 1, 2017 but has options to renew. The three single family residences
are leased on a month-to-month basis, at an annual aggregate rental of $36,780.
The Company believes that the rent for these properties does not exceed fair
market value.
Tri-City Mechanical has entered into an agreement with a limited liability
corporation owned by Mr. Nothum, the Chief Operating Officer and a director of
the Company, and his father to lease office, operations and warehouse facilities
for a ten year term at annual rental of $530,100. Tri-City Mechanical provides
liability insurance on the property and is responsible for any increase in real
property taxes due to its improvement of the leased property. The lease will
expire in April 2007. During construction of the new facility, and also during
1998 in connection with conversion of certain warehouse areas into office space,
Tri-City Mechanical performed HVAC installation services at prices comparable to
those charged to other customers. The Company believes that the rent for these
properties does not and will not exceed fair market value.
S.M. Lawrence Company, Inc., a Tennessee corporation ("Lawrence"), leases
its office space, warehouse and fabrication facility in Jackson, Tennessee from
the father of Mr. Samuel M. Lawrence III, which is Lawrence's Chief Executive
Officer and a director of the Company. The lease expired on December 31, 1998
and provides for an annual rental of $138,000 and the Company continues to lease
the property on the same terms. Additionally, Lawrence provides liability
insurance
22
on the property and pays ad valorem taxes, utilities and maintenance costs. The
Company believes that the rent for this property does not exceed fair market
value.
Accurate Air Systems, L.P., a Texas limited partnership which is
successor-in-interest to Accurate Air Systems, Inc., a Texas corporation
("Accurate"), leased until March 31, 1999 two parcels of real property in
Houston, Texas which until September 1, 1998 were owned by Mr. Beaty, who is a
director of the Company. One of the leased premises was used by Accurate for
office and warehouse space and provided for a 1998 annual rental of $38,000. The
other leased premise was used by Accurate as a sheet metal shop under a lease
that provided for a 1998 annual rental of $46,700. The leases required that
Accurate pay all utility, taxes and insurance costs on both leased premises.
When Mr. Beaty sold both parcels in September 1998 to a third party, Accurate
continued to pay rent to the new owner at the 1998 rates until Accurate
terminated both leases and moved to a new location in March 1999. The Company
believes that the rent paid to Mr. Beaty in 1998 for these properties did not
exceed fair market value.
Eastern Heating & Cooling, Inc., a New York corporation ("Eastern"),
leased its office and warehouse space during 1999 in Albany, New York from 60
Loudonville Road Associates ("Loudonville"), a partnership of Mr. Alfred J.
Giardinelli Jr., who is a director of the Company, and his brother. The lease
provided for annual rental of $55,000 and payment by Eastern of maintenance,
repairs, utilities, insurance costs and excess taxes on the leased premises. The
Company believes that the rent for this property does not exceed the fair market
value. The lease was scheduled to expire on December 31, 1999. During 1999,
Eastern entered into a new lease for a different property from a third party,
and Loudonville and Eastern terminated the prior lease without additional
payment.
Contract Service Inc., a Utah corporation ("CSI/Bonneville"), leases its
offices 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 a current annual rental
of $129,779, 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 determined by an appraisal. On November
1, 1998, CSI/Bonneville leased from J & J Investments an additional 3300 square
feet of space located on the adjacent property for an annual rental of $19,800.
The Company believes that the rent for this property does not exceed fair market
value.
Tech Heating and Air Conditioning, Inc., an Ohio corporation ("Tech"),
leases its office space in Solon, Ohio from Mr. Cook, who is a director of the
Company. The lease expired 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 costs 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.
F&G Mechanical Corporation, a Delaware corporation ("F&G"), leases its
office and warehouse space in Secaucus, New Jersey from Salpat Realty, Inc., a
corporation which is owned in part by Mr. Giardina. The lease expires on
December 31, 2002, and provides for an annual rental of $146,790. F&G is
responsible for taxes, maintenance and insurance related thereto. The Company
believes that the rent for such property does not exceed fair market value.
Hess Mechanical Corporation, a Delaware corporation ("Hess"), leases its
office and warehouse space in Upper Marlboro, Maryland from Gary E. Hess. The
lease expires on April 1, 2003, and provides for an annual rental of $200,000.
Hess is responsible for taxes, maintenance and insurance related thereto. The
Company believes that the rent for such property does not exceed fair market
value.
Shambaugh & Son, Inc., an Indiana corporation ("Shambaugh"), leases its
principal offices and warehouse space in Fort Wayne, Indiana from Mr. Shambaugh,
who is a director of the Company. The lease expires on October 31, 2008, and
provides for an annual rental of $660,000 with annual
23
consumer price index increases. The Company also leases from Mr. Shambaugh two
additional facilities in Fort Wayne, Indiana, and one additional facility in
each of South Bend, Indiana and Lafayette, Indiana. The additional leases also
expire on October 31, 2008 and provide for annual rentals of $130,000, $12,000,
$43,500 and $26,500, respectively, with annual consumer price index increases.
Shambaugh is responsible for taxes, maintenance and insurance related thereto.
Shambaugh also leases from Shambaugh Private Carrier Corporation, an Indiana
corporation owned by Mr. Shambaugh, semi-tractors at an annual rate of $90,000
per year. The Company believes that the rent for such properties does not exceed
fair market value.
OTHER TRANSACTIONS
Prior to its purchase by the Company, F&G had advanced an aggregate of $5.6
million to Sorce Properties LLC, a corporation that is owned in part by Mr.
Giardina. At the time of the acquisition of F&G, Sorce Properties LLC agreed
that it would repay the debt within three years, and Mr. Giardina pledged to F&G
180,262 shares of Company common stock received in the transaction, as part of a
pledge of an aggregate total of 360,524 shares of Company common stock to secure
repayment of the indebtedness. A note bearing 6% interest evidences the
underlying indebtedness, and the Company has agreed that it will only have
recourse to the stock in the event that the debt is not paid. The pledge
agreement further provides that the pledged shares may be released under certain
circumstances if Mr. Giardina gives F&G an unlimited personal guarantee of the
indebtedness.
During 1999 the Company permitted Frontier Waste, Inc. to lease certain
unused office space that the Company leases in Houston, Texas. Larry Martin, a
director of the Company, is a principal of Frontier Waste, Inc. Frontier Waste,
Inc. made payments for the space totaling approximately $50,000 during 1999, and
continues to use the space on a month-to-month basis. The Company believes that
the terms of this sublease are fair to the Company and represent fair market
value. The Company believes the month-to-month nature of this sublease gives the
Company the flexibility it needs to grow into the subleased space if and when
necessary.
Beginning in April 2000 the Company sublet unused space to Uhookemup.com,
Inc., an entity owned in part by Brian S. Atlas, a director of the Company. The
sublease has a minimum term of six months and is expected to result in payments
of approximately $60,000 to the Company. The Company believes that the terms of
this sublease are fair to the Company and represent fair market value. The
Company believes the short-term nature of this sublease gives the Company the
flexibility it needs to grow into the subleased space if and when necessary.
Gant/Shambaugh Group LLC, a construction management company in which Mark
Shambaugh, a director of the Company, owns a 49% interest, subcontracted work
totaling $6.8 million during 1999 to Shambaugh. Mark Shambaugh also owns CH
Krause L.L.C., a sheetmetal fabricator that sold sheetmetal fabrication products
and services to Shambaugh totaling $3.8 million during 1999. Shambaugh also
leases from Shambaugh Private Carrier Corporation, an Indiana corporation owned
by Mr. Shambaugh, semi-tractors at an annual rate of $90,000 per year. The
Company believes these transactions were entered into at fair market value.
See the previous section entitled "COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION" for other information required to be disclosed here.
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.
24
AUDIT MATTERS
The Board of Directors selected the firm of Arthur Andersen LLP, certified
public accountants, as auditors for the Company for the fiscal year ending
December 31, 2000. A representative of Arthur Andersen LLP is expected to be
present at the Meeting with the opportunity to make a statement if he or she
desires and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders submitted for consideration at the 2001 Annual
Meeting of Stockholders must be received by the Company at its principal
executive offices not later than December 1, 2000 in order to be considered for
inclusion in the Company's proxy material for that meeting.
The Company's Bylaws establish procedures, including advance notice
procedures, with regard to the nomination other than by or at the direction of
the Board of Directors, of candidates for election as directors and with regard
to certain matters to be brought before meetings of stockholders of the Company.
In accordance with the Company's Bylaws, a proposal submitted for consideration
at the 2000 Annual Meeting of Stockholders will be considered untimely if it has
not been received by the Company at its principal executive offices by the close
of business on the 60th day prior to the first anniversary of the Meeting. The
Bylaws also contain procedures for regulation of the order of business and
conduct of stockholder meetings, the authority of the presiding officer and
attendance at such meetings.
OTHER BUSINESS
The Board of Directors knows of no business to be brought before the
Meeting which is not referred to in the accompanying Notice of Annual Meeting.
Should any such matters be presented, the persons named in the proxy intend to
take such action in regard to such matters as in their judgment seems advisable.
FORM 10-K AND ANNUAL REPORT TO STOCKHOLDERS
A copy of the Company's Annual Report to Stockholders, which includes the
Company's Form 10-K filed with the SEC, accompanies this proxy statement.
25
- --------------------------------------------------------------------------------
COMFORT SYSTEMS USA, INC.
ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS OF COMFORT SYSTEMS USA, INC.
The undersigned hereby appoints Fred M. Ferreira and William George III, and
each of them individually, as proxies with full power of substitution, to vote,
as designated on the reverse, all shares of Common Stock and Restricted Common
Stock of Comfort Systems USA, Inc. that the undersigned is entitled to vote at
the Annual Meeting of Stockholders thereof to be held on May 18, 2000, or at any
adjournment or postponement thereof.
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED, WILL
BE VOTED "FOR" PROPOSAL 1 (ALL NOMINEES) AND "FOR" PROPOSALS 2 AND 3 AND IN
ACCORDANCE WITH THE DISCRETION OF THE PERSON VOTING THIS PROXY WITH RESPECT TO
ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING. ANY EXECUTED PROXY WHICH
DOES NOT DESIGNATE A VOTE SHALL BE DEEMED TO GRANT AUTHORITY FOR ANY ITEM NOT
DESIGNATED.
(To be signed on reverse side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please mark your
A [X] votes as in this
example.
PROPOSAL 1: ELECTION OF FIVE NOMINEES:
CLASS III DIRECTORS FOR TERMS ALFRED J. GIARDENELLI
EXPIRING IN 2003 STEVEN S. HARTER+
SAMUEL M. LAWRENCE
FOR all nominees listed at right (except ROBERT M. POWERS
as marked to the contrary below)* [ ] DIANE D. SANDERS
+Stephen S. Harter is a nominee for
WITHHOLD AUTHORITY for all nominees election by the holders of
listed at right [ ] Restricted Voting Common Stock
only.
* INSTRUCTION: To withhold authority to vote for one
or more nominees, write the nominee's name on the
line provided below.
____________________________________
FOR AGAINST ABSTAIN
PROPOSAL 2. APPROVAL OF THE AMENDMENT [ ] [ ] [ ]
OF THE 1999 EMPLOYEE STOCK
PURCHASE PLAN TO INCREASE
THE NUMBER OF SHARES
ISSUABLE BY 600,000 SHARES.
PROPOSAL 3. APPROVAL OF THE ADOPTION [ ] [ ] [ ]
OF THE 2000 INCENTIVE PLAN,
TO AUTHORIZE THE ISSUANCE
OF UP TO 3,500,000 OPTIONS TO
PURCHASE SHARES.
You hereby revoke all previous proxies given. You may revoke this proxy at any
time prior to a vote thereon. Receipt of the accompanying Proxy Statement and
the Annual Report of Comfort Systems USA, Inc., for the fiscal year ended
December 31, 1999 is hereby acknowledged.
Please check the following box if you plan to attend
the annual meeting of stockholders in person. [ ]
PLEASE COMPLETE, SIGN, AND PROMPTLY MAIL IN THE ENCLOSED ENVELOPE.
Signature ________________________________________________ Dated:_______________________ 2000
Note: Please sign exactly as your name appears on this card. Joint owners should each sign,
Executors, administrators, trustees and similar persons should give their full titles.