SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, COMFORT SYSTEMS
USA, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF HOUSTON, STATE OF TEXAS, ON MAY 19, 1997.
COMFORT SYSTEMS USA, INC.
By /s/FRED M. FERREIRA
FRED M. FERREIRA
CHIEF EXECUTIVE OFFICER
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 MAY 19, 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
*By/s/FRED M. FERREIRA
FRED M. FERREIRA
ATTORNEY-IN-FACT
II-6
6,100,000 SHARES
COMFORT SYSTEMS USA, INC.
Common Stock
UNDERWRITING AGREEMENT
_________________, 1997
ALEX. BROWN & SONS INCORPORATED
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SANDERS MORRIS MUNDY INC.
c/o Alex. Brown & Sons Incorporated
One South Street
Baltimore, Maryland 21202
Gentlemen:
Comfort Systems USA, Inc., a Delaware corporation (the "Company"),
proposes to sell to you (the "Underwriters") an aggregate of 6,100,000 shares of
the Company's Common Stock, par value $.01 per share (the "Firm Shares"). The
respective amounts of the Firm Shares to be so purchased by each of the
Underwriters are set forth opposite their names in Schedule I hereto. The
Company also proposes to sell at the Underwriters' option an aggregate of up to
915,000 additional shares of the Company's Common Stock (the "Option Shares") as
set forth below.
You have advised the Company that you are authorized to enter into this
Agreement, and (b) that you are willing, acting severally and not jointly, to
purchase the numbers of Firm Shares set forth opposite your respective names in
Schedule I, plus your pro rata portion of the Option Shares if you elect to
exercise the over-allotment option in whole or in part for the accounts of the
Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares."
Simultaneously with closing on the Firm Shares by the Underwriters, the
Company will cause each of the Founding Companies (as hereinafter defined) to be
merged with a subsidiary of the Company (collectively, the "Founding Company
Mergers"), the consideration for which will
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be a combination of cash and shares of the Company's Common Stock as described
in the Registration Statement (as hereinafter defined).
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (Reg. No. 333-24021) with
respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder
and has been filed with the Commission. Copies of such registration
statement, including any amendments thereto, the preliminary prospectuses
(meeting the requirements of the Rules and Regulations) contained therein
and the exhibits, financial statements and schedules, as finally amended
and revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462(b) under the Act, herein referred to as
the "Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and
no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of
prospectus first filed with the Commission pursuant to Rule 424(b), or (b)
the last preliminary prospectus included in the Registration Statement
filed prior to the time it becomes effective or filed pursuant to Rule
424(a) under the Act that is delivered by the Company to the Underwriters
for delivery to purchasers of the Shares, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act. Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement. Each of Quality
Air Heating and Cooling, Inc, Atlas Air Conditioning Co., Tri-City
Mechanical, Inc., S.M. Lawrence Co., Inc., Accurate Air Systems, Inc.,
Freeway Heating and Air Conditioning, Inc., Eastern Heating and Cooling
Inc., Contract Services Inc., Tech Heating and Air Conditioning, Inc.,
Seasonair, Inc., Western Building Services, Inc. and Standard Heating and
Air Conditioning Co. (collectively the "Founding Companies") has been duly
organized and is validly existing as
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a corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. As of the date hereof, the Company has no subsidiaries except
those listed in Item 16 to the Registration Statement. The Company and
each of the Founding Companies are duly qualified to transact business in
all jurisdictions in which the conduct of their respective businesses
requires such qualification, except where the failure to so qualify would
not have a materially adverse effect on the business and operations of the
Company and the Founding Companies taken as a whole. The outstanding
shares of capital stock of each of the Founding Companies have been duly
authorized and validly issued, are fully paid and non-assessable. As of
the Closing Date (as hereinafter defined), after giving effect to the
Founding Company Mergers, all of the outstanding shares of capital stock
of each of the Founding Companies will be owned by the Company free and
clear of all liens, encumbrances and equities and claims; and no options,
warrants or other rights to purchase, agreements or other obligations to
issue or other rights to convert any obligations into shares of capital
stock or ownership interests in any of the Founding Companies will be
outstanding.
(c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable;
the Shares to be issued and sold by the Company have been duly authorized
and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives
rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any shares of Common Stock. Upon
completion of the Founding Company Mergers in the manner described in the
Registration Statement, the shares of Common Stock of the Company to be
issued in such mergers will be duly authorized, validly issued and fully
paid and non-assessable.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares
nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto
will contain, all statements which are required to be stated therein by,
and will conform to the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
contain, and will not contain, any untrue statement of a material fact and
do not omit, and will not omit, to state any material fact required to be
stated therein or necessary to make
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the statements therein not misleading. The Prospectus and any supplements
thereto do not contain, and will not contain, any untrue statement of a
material fact and do not omit, and will not omit, to state any material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter, specifically for use in the preparation
thereof.
(f) All of the financial statements of the Company and the separate
financial statements of the Founding Companies, in each case together with
related notes and schedules, as set forth in the Registration Statement,
present fairly in all material respects the financial position and the
results of operations and cash flows of the Company, of each of the
Founding Companies and of the Company, respectively, at the indicated
dates and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods
involved, except as disclosed therein, and all adjustments necessary for a
fair presentation of results for such periods have been made. The summary
historical and pro forma financial and statistical data included in the
Registration Statement present fairly the information shown therein and
such data have been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company and
the Founding Companies, as applicable. The pro forma combined financial
statements of the Company and the Founding Companies (including the
supplemental pro forma information shown therein), together with the
related notes, as set forth in the Registration Statement, present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the pro forma bases
described therein, and in the opinon of the Company, the assumptions used
in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances
referred to therein.
(g) Arthur Andersen LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and
the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Founding Companies before any court or administrative agency or otherwise,
which if determined adversely to the Company or such Founding Company is
reasonably likely to result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
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Founding Companies, taken as a whole, or to prevent the consummation of
the transactions contemplated hereby except as set forth in the
Registration Statement.
(i) Each of the Company and the Founding Companies has good and
marketable title to all of its properties and assets reflected in its
financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or which are
not material in amount. Each of the Company and the Founding Companies
occupies its leased properties under valid and binding leases conforming
in all material respects to the description thereof set forth in the
Registration Statement.
(j) Each of the Company and the Founding Companies has filed all
Federal, state, local and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns and
all assessments received by it or any of them to the extent that such
taxes have become due and are not being contested in good faith. All tax
liabilities have been adequately provided for in the financial statements
of the Company and the Founding Companies, as applicable.
(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise), or prospects of the Company and the Founding
Companies, taken as a whole, whether or not occurring in the ordinary
course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered
into by the Company or the Founding Companies, other than transactions in
the ordinary course of business and changes and transactions described in
the Registration Statement, as it may be amended or supplemented. Neither
the Company nor any of the Founding Companies has any material contingent
obligations which are not disclosed in the Company's or such Founding
Company's financial statements, as applicable, included in the
Registration Statement.
(l) Neither the Company nor any of the Founding Companies is, or
with the giving of notice or lapse of time or both, will be, in violation
of or in default under its Charter or By-Laws or under any agreement,
lease, contract, indenture or other instrument or obligation to which it
is a party or by which it, or any of its properties, is bound and which
default is of material significance in respect of the condition (financial
or otherwise) of the Company and the Founding Companies, taken as a whole,
or the business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
Founding Companies, taken as a whole. The execution and delivery of this
Agreement and the consummation of the transactions
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herein contemplated and the fulfillment of the terms hereof will not
conflict with or result in a material breach of any of the terms or
provisions of, or constitute a material default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any of the Founding Companies is a party, or of the Charter or
By-Laws of the Company or any of the Founding Companies or any order, rule
or regulation applicable to the Company or any of the Founding Companies
of any court or, assuming compliance with all applicable state securities
or blue sky laws, of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(m) Each material approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such additional
steps as may be necessary to qualify the Shares for public offering by the
Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(n) The Company and each of the Founding Companies hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses; and neither the Company nor
any of the Founding Companies has infringed any patents, patent rights,
trade names, trademarks or copyrights, which infringement is material to
the business of the Company or such Founding Company. The Company knows of
no material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company or any of the
Founding Companies.
(o) Neither the Company, nor to the Company's best knowledge, any of
its affiliates or any of the Founding Companies or any of their
affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale
of the Shares.
(p) Neither the Company nor any of the Founding Companies is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the Commission
thereunder.
(q) The Company and each of the Founding Companies maintain a system
of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial
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statements in conformity with generally accepted accounting principles and
to maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(r) The Company and each of the Founding Companies carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies engaged in
similar industries.
(s) The Company and each of the Founding Companies are in compliance
in all material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company or any of the
Founding Companies would have any liability; neither the Company nor any
of the Founding Companies has incurred nor expects to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan," or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which
the Company or any of the Founding Companies would have any liability that
is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $_______ per share,
the number of Firm Shares set forth opposite the name of each Underwriter
in Schedule I hereof, subject to adjustments in accordance with Section 9
hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made
in New York Clearing House funds by certified or bank cashier's checks
drawn to the order of the Company against delivery of certificates
therefor to the Underwriters for the several accounts of the Underwriters.
Such payment and delivery are to be made at the offices of Alex. Brown &
Sons Incorporated, One South Street, Baltimore, Maryland, at 10:00 A.M.,
Baltimore time, on the third business day after the date of this Agreement
or at such
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other time and date not later than third business days thereafter as you
and the Company shall agree upon, such time and date being herein referred
to as the "Closing Date." (As used herein, "business day" means a day on
which the New York Stock Exchange is open for trading and on which banks
in New York are open for business and are not permitted by law or
executive order to be closed.) The certificates for the Firm Shares will
be delivered in such denominations and in such registrations as the
Underwriters request in writing not later than the third full business day
prior to the Closing Date, and will be made available for inspection by
the Underwriters at least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the
first paragraph of this Section 2. The option granted hereby may be
exercised in whole or in part but only once and at any time upon written
notice given within 30 days after the date of this Agreement, by you, as
Underwriters, to the Company setting forth the number of Option Shares as
to which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time
and date at which such certificates are to be delivered. The time and date
at which certificates for Option Shares are to be delivered shall be
determined by the Underwriters but shall not be earlier than three nor
later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein
referred to as the "Option Closing Date"). If the date of exercise of the
option is three or more days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The number
of Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the
number of Firm Shares being purchased by such Underwriter bears to
6,100,000, adjusted by you in such manner as to avoid fractional shares.
The option with respect to the Option Shares granted hereunder may be
exercised only to cover over-allotments in the sale of the Firm Shares by
the Underwriters. You may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date in New York
Clearing House funds by certified or bank cashier's check drawn to the
order of the Company against delivery of certificates therefor at the
offices of Alex. Brown & Sons Incorporated, One South Street, Baltimore,
Maryland.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the Underwriters are to make a public offering of
the Firm Shares as soon as they deem it advisable to do so following execution
of this Agreement. The Firm Shares are to be initially offered to the public at
the public offering price set forth on the cover of the
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Prospectus. The Underwriters may from time to time thereafter change the public
offering price and other selling terms. To the extent, if at all, that any
Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will
offer them to the public on the foregoing terms.
It is further understood that you will act in accordance with a Master
Agreement Among Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Underwriters containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Rules and Regulations, and (B)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Underwriters shall not previously have been
advised and furnished with a copy or to which the Underwriters shall have
reasonably objected in writing or which is not in compliance with the
Rules and Regulations.
(b) The Company will advise the Underwriters promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Underwriters in endeavoring
to qualify the Shares for sale under the securities laws of such
jurisdictions as the Underwriters may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided
the Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any jurisdiction where
it is not now so qualified or required to file such a consent. The Company
will, from time to time, prepare and file such statements, reports, and
other documents, as are or may be required to
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continue such qualifications in effect for so long a period as the
Underwriters may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Underwriters, from time to time, as many copies of any Preliminary
Prospectus as the Underwriters may reasonably request. The Company will
deliver to, or upon the order of, the Underwriters during the period when
delivery of a Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Underwriters may reasonably request. The Company will deliver to the
Underwriters at or before the Closing Date, three signed, xeroxed copies
of the Registration Statement and all amendments thereto including all
exhibits filed therewith, and will deliver to the Underwriters such number
of copies of the Registration Statement (including such number of copies
of the exhibits filed therewith that may reasonably be requested),
including any documents incorporated by reference therein, and of all
amendments thereto, as the Underwriters may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or,
if it is necessary at any time to amend or supplement the Prospectus to
comply with any law, the Company promptly will prepare and file with the
Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the
law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail,
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earnings statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of
the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Underwriters copies of annual reports and copies of
all other documents, reports and information furnished by the Company to
its stockholders or filed with any securities
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exchange pursuant to the requirements of such exchange or with the
Commission pursuant to the Act or the Exchange Act. The Company will
deliver to the Underwriters similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, which
are not consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 180 days
after the date of the Prospectus, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of Alex. Brown
& Sons Incorporated, except that the Company may, without such consent,
issue shares (i) upon exercise of options granted under its stock option
plans, (ii) upon exercise of warrants outstanding on the date of this
Agreement, (iii) in connection with acquisitions of businesses, (iv) in
connection with conversion of shares of Restricted Common Stock to Common
Stock or (v) pursuant to employee benefit or compensation plans existing
on the date hereof.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the New York Stock Exchange.
(j) The Company has caused each executive officer and director of
the Company to furnish to you, on or prior to the date of this Agreement,
a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person has agreed not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company owned by such person (or as to which such person has the right to
direct the disposition of) or request the registration for the offer or
sale of any of the foregoing for a period of 180 days after the date of
the Prospectus, directly or indirectly, except with the prior written
consent of Alex. Brown & Sons Incorporated ("Lockup Agreements").
(k) The Company will: (i) use its best efforts to satisfy all
conditions to the consummation of the Founding Company Mergers as set
forth in the agreements with respect thereto, (ii) use its best efforts to
cause each other party to such agreements to satisfy all conditions to the
consummation of the Founding Company Mergers, and (iii)
promptly notify the Underwriters of the occurence of any event which may
result in the non-consummation of any of the Founding Company Mergers on
the Closing Date.
(l) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463
under the Act.
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(m) The Company shall not invest, or otherwise use, the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Founding Companies to register as
an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act").
(n) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for
the Common Stock.
(o) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement and in
connection with the Founding Company Mergers, including, without limiting the
generality of the foregoing, the following: accounting fees of the Company; the
fees and disbursements of counsel for the Company; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this Agreement; the filing
fees of the Commission; the filing fees and expenses (including disbursements
but excluding legal fees of counsel to the Underwriters) incident to securing
any required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of The New York
Stock Exchange; and the expenses, including the fees and disbursements of
counsel for the Underwriters, incurred in connection with the qualification of
the Shares under State securities or Blue Sky laws. The Company shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification under NASD regulations and State securities or
Blue Sky laws) except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this Agreement
is terminated by the Underwriters pursuant to Section 11 hereof, or by reason of
any failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company shall reimburse the Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the Underwriters for
damages on account of loss of anticipated profits from the sale by them of the
Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
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The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Underwriters and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date or
the Option Closing Date, as the case may be, which would prevent the issuance of
the Shares.
(b) The Underwriters shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Bracewell & Patterson
L.L.P., counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters (and stating that it may
be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement; each of the Founding Companies has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with
corporate power and authority to own or lease its properties and
conduct its business; the Company and each of the Founding Companies
are duly qualified to transact business in each of the jurisdictions
set forth on a schedule to such opinion; and, upon consummation of
the Founding Company Mergers, the outstanding shares of capital
stock of each of the Founding Companies will have been duly
authorized and validly issued and will be fully paid and
non-assessable and will be owned by the Company; and, to the best of
such counsel's knowledge, the outstanding shares of capital stock of
each of the Founding Companies will be owned by the Company, free
and clear of all liens, encumbrances and equities and claims, and no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into
any shares of capital stock of
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or other ownership interests in any of the Founding Companies will
be outstanding.
(ii) The Company has authorized capital stock as set forth
under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Preferred Stock and Common Stock have been
duly authorized; the outstanding shares of the Company's Common
Stock have been duly authorized and validly issued and are fully
paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates
for the Shares, assuming they are in the form filed with the
Commission, are in due and proper form; the Firm Shares and Option
Shares, if any, to be sold by the Company pursuant to this Agreement
and the shares of Common Stock of the Company to be issued in
connection with the Founding Company Mergers have been duly
authorized and will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist under statute or under
agreements known to such counsel with respect to any of the Shares
or the shares to be issued in the Founding Company Mergers or the
issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares
of capital stock of the Company and there are no outstanding or
authorized options, warrants or rights of any character obligating
the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel, no
holder of any securities of the Company or any other person has the
right, contractual or otherwise, which has not been satisfied or
effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any shares of Common Stock or other
securities of the Company included in the Registration Statement or
the right, as a result of the filing of the Registration Statement,
to require registration under the Act of any shares of Common Stock
or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the
- 14 -
requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to
the financial statements, notes thereto and related schedules and
other financial and statistical information included therein or any
information furnished by the Underwriters for use therein).
(vi) The statements under the captions "Business-Regulation,"
"Business-Legal Proceedings," "Management- Executive Compensation;
Employment Agreements; Covenants-not-to-Compete," "Management-Long-
Term Incentive Compensation Plan," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale"
in the Prospectus, insofar as such statements constitute a summary
of documents referred to therein or matters of law, are accurate
summaries and fairly present in all material respects the
information called for with respect to such documents and matters.
(vii) Each of the Agreements and Plan or Reorganization with
respect to the Founding Company Mergers (which have been filed with
the Commission as exhibits to the Registration Statement) have been
duly authorized, executed and delivered by the Company and
constitutes the valid binding obligation of the Company; the
Certificates or Articles of Merger referred to in such Agreements
and Plans of Reorganization, assuming the due filing thereof with
the appropriate regulatory authorities, will cause the statutory
merger of each of the Founding Companies with the respective
subsidiaries of the Company that are parties thereto.
(viii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required, and the
descriptions of such contracts and documents required to be
described in the Registration Statement or the Prospectus are
correct in all material respects.
(ix) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Founding Companies except as set forth in the Prospectus.
(x) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or By-Laws
of the Company, or, in any respect material to the Company and the
Founding
- 15 -
Companies, taken as a whole, any agreement or instrument known to
such counsel to which the Company or any of the Founding Companies
is a party or by which the Company or any of the Founding Companies
may be bound.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by
the NASD or as required by State securities and Blue Sky laws as to
which such counsel need express no opinion), except such as have
been obtained or made, specifying the same.
(xiii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
In rendering such opinion, Bracewell & Patterson L.L.P. may provide
that its opinion is limited to matters governed by the laws of Texas and
the General Corporation law of the State of Delaware, and the Federal
securities laws of the United States and may rely on counsel to one or
more of the Founding Companies with respect to matters related to the
Founding Companies, provided that, in lieu of such reliance, Bracewell &
Patterson L.L.P. may provide separate opinions of such counsel so long as
such opinions are addressed to the Underwriters, and further provided,
that, in each case, Bracewell & Patterson L.L.P. shall state that they
believe that they and the Underwriters are justified in relying on such
other counsel. In addition to the matters set forth above, the opinion of
Bracewell & Patterson L.L.P. shall also include a statement of belief to
the effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, at the time it
became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements, in the
light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial statements,
schedules or other financial and statistical information therein). With
respect to such statement of belief, Bracewell & Patterson L.L.P. may
state that their
- 16 -
belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Underwriters shall have received from Piper & Marbury
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (ii), (iii), (iv), and (xi) of Paragraph (b) of
this Section 6, and that the Company is a duly organized and validly
existing corporation under the laws of the State of Delaware. In rendering
such opinion, Piper & Marbury L.L.P. may rely as to the matters relating
to the laws of the States other than Maryland and Delaware on the opinions
of counsel referred to in Paragraph (b) of this Section 6. In addition to
the matters set forth above, such opinion shall also include a statement
to the effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but
after giving effect to any modifications incorporated therein pursuant to
Rule 430A under the Act) contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant
to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact, necessary in order to
make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as
to financial statements, schedules and statistical information therein).
With respect to such statement, Piper & Marbury L.L.P. may state that
their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(d) The Underwriters shall have received at or prior to the Closing
Date from Piper & Marbury L.L.P. a memorandum or summary, in form and
substance satisfactory to the Underwriters, with respect to the
qualification for offering and sale by the Underwriters of the Shares
under the State securities or Blue Sky laws of such jurisdictions as the
Underwriters may reasonably have designated to the Company.
(e) The Underwriters shall have received, on the date hereof, the
Closing Date and the Option Closing Date, as the case may be, letters
dated the date hereof, the Closing Date or the Option Closing Date, as the
case may be, in form and substance satisfactory to the Underwriterss, of
Arthur Andersen LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating that, in their opinion, the
financial statements and schedules of the Company and the Founding
Companies examined by them and included in the Registration Statement
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations;
and containing such other statements and information as is ordinarily
included in accountants'
- 17 -
"comfort letters" to Underwriters with respect to such financial
statements and certain financial and statistical information contained in
the Registration Statement and Prospectus.
(f) The Underwriters shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the Company and signed by the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by
the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct in all material
respects as of the Closing Date or the Option Closing Date, as the
case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) As of the effective date of the Registration Statement,
the statements contained in the Registration Statement were true and
correct in all material respects, and such Registration Statement
and Prospectus did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in
a supplement to or an amendment of the Prospectus which has not been
so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not
been any material adverse change or any development involving a
prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company or any of the Subsidiaries or
the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company or any of the Subsidiaries, whether or not arising in the
ordinary course of business, except as set forth in, or contemplated
by, the Prospectus or as described in such certificate.
(g) The Company shall have furnished to the Underwriters such
further certificates and documents confirming the representations and
warranties, covenants and
- 18 -
conditions contained herein and related matters as the Underwriters may
reasonably have requested.
(h) The Firm Shares and Option Shares, if any, shall have been
approved for designation upon notice of issuance on the New York Stock
Exchange.
(i) The Lockup Agreements described in Section 4(j) shall be in full
force and effect.
(j) Each of the Founding Company Mergers shall have been completed
upon the terms set forth in the Prospectus simultaneously with the closing
of the purchase of the Firm Shares by the Underwriters.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Underwriters and to Piper & Marbury L.L.P., counsel
for the Underwriters, in their reasonable judgment.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Underwriters by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that: (a) at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened, and (b) each of the Founding Company Mergers
shall have been completed upon the terms set forth in the Prospectus
simultaneously with the closing of the purchase of the Firm Shares by the
Underwriters.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities
to which such Underwriter or any such
- 19 -
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will
reimburse each Underwriter and each such controlling person upon demand
for any legal or other expenses reasonably incurred by such Underwriter or
such controlling person in connection with investigating or defending any
such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering
of the Shares, whether or not such Underwriter or controlling person is a
party to any action or proceeding; provided, however, that the Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through
the Underwriters specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who
has signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made; and will
reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through
the Underwriters specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
- 20 -
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to
any party who shall fail to give notice as provided in this Section 8(c)
if the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than
on account of the provisions of Section 8(a) or (b). In case any such
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party and shall pay as incurred the fees
and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them
or (iii) the indemnifying party shall have failed to assume the defense
and employ counsel acceptable to the indemnified party within a reasonable
period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm for all
such indemnified parties. Such firm shall be designated in writing by you
in the case of parties indemnified pursuant to Section 8(a) and by the
Company in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or
proceeding of which indemnification may be sought hereunder (whether or
not any indemnified party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent
includes an
- 21 -
unconditional release of each indemnified party from all liability arising
out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above (other than by reason of the exceptions provided
in such paragraphs) in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on
the one hand and the Underwriters on the other in connection with the
statements, omissions or breaches of representations and warranties which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting
discounts and commissions received by the Underwriters, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d)
shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discounts and commissions applicable
to the Shares purchased by such Underwriter and (ii) no person guilty of
fraudulent misrepresentation (within the meaning
- 22 -
of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 8(d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other
contributing party and consents to the service of such process and agrees
that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is
a party.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this
Section 8 and the representations and warranties of the Company set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or any persons controlling the Company , (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, or to the
Company, its directors or officers, or any person controlling the Company,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
either Underwriter shall fail to purchase and pay for any portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), the
non-defaulting Underwriters, shall use their reasonable efforts to procure
within 36 hours thereafter one or more other underwriters to purchase from the
Company such amounts as may be agreed upon and upon the terms set forth herein,
the Firm Shares or Option Shares, as the case may be, which the defaulting
Underwriter failed to purchase. If during such 36 hours the non-defaulting
Underwriter shall not have procured such other underwriters, or any others, to
purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the
non-defaulting Underwriter shall be obligated, severally, in proportion to the
- 23 -
respective numbers of Firm Shares or Option Shares, as the case may be, which
they are obligated to purchase hereunder, to purchase the Firm Shares or Option
Shares, as the case may be, which such defaulting Underwriter failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company or the non-defaulting Underwriter will have the right, by
written notice given within the next 36-hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
non-defaulting Underwriter or of the Company except to the extent provided in
Section 8 hereof. In the event of a default by any Underwriter, as set forth in
this Section 9, the Closing Date or Option Closing Date, as the case may be, may
be postponed for such period, not exceeding seven days, as the non-defaulting
Underwriter may determine in order that the required changes in the Registration
Statement or in the Prospectus or in any other documents or arrangements may be
effected. The term "Underwriter" includes any person substituted for a
defaulting Underwriter. Any action taken under this Section 9 shall not relieve
any defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, One Street, Baltimore, Maryland 21202, Attention: Jay S. Eastman,
Principal, with a copy to Alex. Brown & Sons Incorporated, One South Street,
Baltimore, Maryland 21202 Attention: General Counsel; and if to the Company; to
Comfort Sytems USA, Inc., 4801 Woodway Drive, Suite 300E, Houston, Texas 77056,
Attention: Fred M Ferreira, Chief Executive Officer, with copies to Bracewell &
Patterson L.L.P., South Tower Pennzoil Place, 711 Louisiana Street, Suite 2900,
Houston, Texas 77002- 2718, Attention: William D. Gutermuth, Esq. and William
George III, Esq., General Counsel, Comfort Systems USA, Inc., 4801 Woodway
Drive, Suite 300E, Houston, Texas 77056.
- 24 -
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
on the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the
Company and the Founding Companies taken as a whole or the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the Founding
Companies taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration
of war or national emergency or other national or international calamity
or crisis or change in economic or political conditions if the effect of
such outbreak, escalation, declaration, emergency, calamity, crisis or
change on the financial markets of the United States would, in your
reasonable judgment, make it impracticable to market the Shares or to
enforce contracts for the sale of the Shares, (iii) suspension of trading
in securities generally on the New York Stock Exchange or the American
Stock Exchange or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on either such Exchange, (iv)
the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects or may materially
and adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension of trading of the Company's Common Stock
by the Commission on the New York Stock Exchange, or (vii) the taking of
any action by any governmental body or agency in respect of its monetary
or fiscal affairs which in your reasonable opinion has a material adverse
effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any
- 25 -
right or obligation hereunder. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnity and contribution agreements contained in this
Agreement and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware.
- 26 -
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
Underwriters in accordance with its terms.
Very truly yours,
COMFORT SYSTEMS USA, INC.
By: __________________________________
Fred M. Ferreira,
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
ALEX. BROWN & SONS INCORPORATED
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SANDERS MORRIS MUNDY INC.
By: Alex. Brown & Sons Incorporated
By _____________________________
Authorized Officer
- 27 -
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
Alex. Brown & Sons Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Sanders Morris Mundy Inc.
Total...........................................
- 28 -
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMFORT SYSTEMS USA, INC.
The undersigned, Fred M. Ferreira, President, and Reagan Busbee, Assistant
Secretary of Comfort Systems USA, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), do hereby certify
as follows:
FIRST: The name of the Corporation is
Comfort Systems USA, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed in
the Office of the Secretary of State of the State of Delaware on December 12,
1996.
THIRD: The Amended and Restated Certificate of Incorporation of the
Corporation was filed in the Office of the Secretary of State of the State of
Delaware on March 20, 1997.
FOURTH: A Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Corporation was filed in the Office of the Secretary of
State of the State of Delaware on May 19, 1997.
FIFTH: This Second Amended and Restated Certificate of Incorporation of
the Corporation (the "Second Restatement") was duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law, the Board
of Directors having duly adopted resolutions setting forth and declaring
advisable this Second Restatement, and in lieu of a meeting of the stockholders,
written consent to this Second Restatement having been given by the holders of a
majority of the outstanding stock of the Corporation in accordance with Section
228 of the General Corporation Law of the state of Delaware.
SIXTH: The Amended and Restated Certificate of Incorporation of the
Corporation, as amended, is hereby replaced by the Second Restatement, which
reads in its entirety as follows:
ARTICLE ONE
The name of the corporation is:
Comfort Systems USA, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Fifty Seven Million, Nine Hundred Sixty Nine
Thousand, Nine Hundred Twelve (57,969,912) shares, of which Five Million
(5,000,000) shares, designated as Preferred Stock, shall have a par value of One
Cent ($.01) per share (the "Preferred Stock"), Fifty Million (50,000,000)
shares, designated as Common Stock, shall have a par value of One Cent ($.01)
per share (the "Common Stock"), and Two Million, Nine Hundred Sixty Nine
Thousand, Nine Hundred Twelve (2,969,912) shares, designated as Restricted
Voting Common Stock, shall have a par value of One Cent ($.01) per share (the
"Restricted Voting Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Certificate of Incorporation and the limitations prescribed by law, the
Board of Directors is expressly authorized by adopting resolutions to issue the
shares, fix the number of shares and 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
(and whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), a redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, without any further action or vote by the
stockholders.
-2-
COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
60 days preceding the dividend payment dates, as shall be fixed for such purpose
by the Board of Directors in advance of payment of each particular dividend. All
dividends on Common Stock shall be paid PARI PASSU with dividends on Restricted
Voting Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
and Restricted Voting Common Stock ratably in proportion to the number of shares
of Common Stock and Restricted Voting Common Stock held by them respectively.
3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
holder's name of the books of the Corporation.
RESTRICTED VOTING COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Restricted
Voting Common Stock shall be entitled to receive, as and when declared by the
Board of Directors out of the funds of the Corporation legally available
therefor, such dividends (payable in cash, stock or otherwise) as the Board of
Directors may from time to time
-3-
determine, payable to stockholders of record on such dates, not exceeding 60
days preceding the dividend payment dates, as shall be fixed for such purpose by
the Board of Directors in advance of payment of each particular dividend. All
dividends on Restricted Voting Common Stock shall be paid PARI PASSU with
dividends on Common Stock.
2 LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Restricted
Voting Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Voting Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Voting Common Stock voting as a class shall be
entitled to elect one member of the Board of Directors, but shall not otherwise
be entitled to vote in the election of directors of the Corporation. Subject to
the foregoing, and except as otherwise required by law, each holder of shares of
Restricted Voting Common Stock shall be entitled to fifty five one-hundredths
(0.55) of one vote for each share of Restricted Voting Common Stock standing in
such holder's name of the books of the Corporation.
4. CONVERSION OF THE RESTRICTED VOTING COMMON STOCK.
Each share of Restricted Voting Common Stock will automatically convert
into Common Stock on a share-for-share basis (a) in the event of a disposition
of such share of Restricted Voting Common Stock by the holder thereof (other
than a disposition which is a distribution by a holder to its partners or
beneficial owners or a transfer to a related party of such holder (as defined in
Sections 267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986, as
amended)), (b) in the event any person acquires beneficial ownership of 15% or
more of the outstanding shares of Common Stock of the Corporation, or (c) in the
event any person offers to acquire 15% or more of the outstanding shares of
Common Stock of the Corporation.
After July 1, 1998, the Corporation may elect to convert any outstanding
shares of Restricted Voting Common Stock into shares of Common Stock in the
event 80% or more of the outstanding shares of Restricted Voting Common Stock
have been converted into shares of Common Stock.
-4-
ARTICLE FIVE
1. BOARD OF DIRECTORS.
The Directors shall be classified with respect to the time for which they
shall severally hold office into three classes as nearly equal in number as
possible. The Class I directors shall be elected to hold office for an initial
term expiring at the 1998 annual meeting of stockholders, the Class II Directors
shall be elected to hold office for an initial term expiring at the 1999 annual
meeting of stockholders and the Class III Directors shall be elected to hold
office for an initial term expiring at the 2000 annual meeting of stockholders,
with the members of each class of directors to hold office until their
successors have been duly elected and qualified. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a quorum is present, the persons
receiving a plurality of the votes cast shall be directors. No director or class
of directors may be removed from office by a vote of the stockholders at any
time except for cause. Election of directors need not be by written ballot
unless the Bylaws of the Corporation so provide.
Notwithstanding the foregoing, the holders of Restricted Voting Common
Stock voting as a class shall be entitled to elect one member of the Board of
Directors, and only the holders of the Restricted Voting Common Stock shall be
entitled to remove such member from the Board of Directors.
2. VACANCIES.
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well as
any vacancy resulting from an increase in the number of directors which occurs
between annual meetings of the stockholders at which directors are elected,
shall be filled only by a majority vote of the remaining directors then in
office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. If the
vacancy on the Board of Directors results from the death, retirement,
resignation, disqualification or removal from office of the director elected by
the holders of the Restricted Voting Common Stock, only the holders of the
Restricted Voting Common Stock shall be entitled to fill such vacancy.
-5-
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately, as a class
or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
3. POWER TO MAKE, ALTER AND REPEAL BYLAWS.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
Bylaws of the Corporation.
4. AMENDMENT AND REPEAL OF ARTICLE FIVE.
Notwithstanding any provision of this Certificate of Incorporation and of
the Bylaws, and notwithstanding the fact that a lesser percentage may be
specified by Delaware law, unless such action has been approved by a majority
vote of the full Board of Directors, the affirmative vote of 66 2/3 percent of
the votes which all stockholders of the then outstanding shares of capital stock
of the Corporation would be entitled to cast thereon, voting together as a
single class, shall be required to amend or repeal any provisions of this
ARTICLE FIVE or to adopt any provision inconsistent with this ARTICLE FIVE. In
the event such action has been previously approved by a majority vote of the
full Board of Directors, the affirmative vote of a majority of the outstanding
stock entitled to vote thereon shall be sufficient to amend or repeal any
provision of this ARTICLE FIVE or adopt any provision inconsistent with this
ARTICLE FIVE.
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit.
-6-
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders, vote of disinterested
directors or otherwise, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such persons and the Corporation may purchase and maintain
insurance on behalf of any director or officer to the extent permitted by
Section 145 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Second Amended and
Restated Certificate of Incorporation on behalf of the Corporation and have
attested such execution and do verify and affirm, under penalty of perjury, that
this Second Amended and Restated Certificate of Incorporation is the act and
deed of the Corporation and that the facts stated herein are true as of this
2nd day of June, 1997.
COMFORT SYSTEMS USA, INC.
By:/s/FRED M. FERREIRA
Fred M. Ferreira
President
Attest:
/s/REAGAN BUSBEE
Reagan Busbee
Assistant Secretary
-7-
[vignette]
COMMON STOCK COMMON STOCK
NUMBER NUMBER
THIS CERTIFICATE TRANSFERABLE INCORPORATED UNDER THE LAWS OF
IN NEW YORK, NEW YORK THE STATE OF DELAWARE
CUSIP 199908 10 4
SEE REVERSE FOR CERTAIN DEFINITIONS
COMFORT SYSTEMS USA, INC.
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE
PAR VALUE OF $.01 EACH OF
[CERTIFICATE OF STOCK]
COMFORT SYSTEMS USA, INC. transferable only on the books of the Corporation by
the holder hereof or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
[SEAL]
Dated
/s/ WILLIAM GEORGE /s/ FRED M. FERREIRA
SECRETARY PRESIDENT
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, New York) Transfer Agent and Registrar
By
Authorized Signature
COMFORT SYSTEMS USA, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF TRANS MIN ACT- Custodian
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with right under Uniform Transfers to Minors
of survivorship and not as Act
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For Value received,_______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
----------------------------------------------------------
- -------------------------------------------------------------- Attorney to
transfer the said shares on the books of the within named Corporation with full
power of substitution.
Dated,
X_______________________________
X_______________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
SIGNATURE(S) GUARANTEED:_______________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, OR DESTROYED, THE
CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
_____________, 1997
Comfort Systems USA, Inc.
4801 Woodway Drive, Suite 300E
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 (Registration No. 333-24021) (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 7,015,000 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.
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.
Comfort Systems USA, Inc.
____________, 1997
Page 2
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 10.1
COMFORT SYSTEMS USA, INC.
1997 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this 1997 Long-Term Incentive Plan (the"Plan")
of Comfort Systems USA, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company and its stockholders by providing a means
to attract, retain and reward executive officers and other key employees and
consultants of and service providers to the Company and its subsidiaries
(including consultants and others providing services of substantial value) and
to enable such persons to acquire or increase a proprietary interest in the
Company, thereby promoting a closer identity of interests between such persons
and the Company's stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, acquires directly or indirectly the Beneficial Ownership (as
defined in Section 13(d) of the Exchange Act) of any voting security of the
Company and immediately after such acquisition such Person is, directly or
indirectly, the Beneficial Owner of voting securities representing 50 percent or
more of the total voting power of all of the then-outstanding voting securities
of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board: (A) the individuals who, as of the closing date of the
Initial Public Offering, constitute the Board (the "Original Directors"); (B)
the individuals who thereafter are elected to the Board and whose election, or
nomination for election, to the Board was approved by a vote of at least
two-thirds (2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their election);
and (C) the individuals who are elected to the Board and whose election, or
nomination for election, to the Board was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional Original Directors
then still in office (such directors also becoming "Additional Original
Directors" immediately following their election);
(iii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75 percent of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least 75
percent of the holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders not substantially
altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e., 50
percent or more of the total assets of the Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, PROVIDED, HOWEVER, that (i) if the
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Stock is listed on a national securities exchange or quoted in an interdealer
quotation system, the Fair Market Value of such Stock on a given date shall be
based upon the last sales price or, if unavailable, the average of the closing
bid and asked prices per share of the Stock on such date (or, if there was no
trading or quotation in the Stock on such date, on the next preceding date on
which there was trading or quotation) as reported in the WALL STREET JOURNAL (or
other reporting service approved by the Committee), (ii) the "Fair Market Value"
of Stock subject to Options granted effective upon commencement of the Initial
Public Offering shall be the Initial Public Offering price of the shares so
issued and sold in the Initial Public Offering, as set forth in the first final
prospectus used in such offering (the provisions of clause (i) notwithstanding)
and (iii) the "Fair Market Value" of Stock prior to the date of the Initial
Public Offering shall be as determined by the Board of Directors.
(i) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the Securities Act
of 1933, as amended.
(j) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(k) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(l) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(m) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
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(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of any
Award granted under the Plan (including, but not limited to, any exercise price,
grant price or purchase price, any restriction or condition, any schedule for
lapse of restrictions or conditions relating to transferability or forfeiture,
exercisability or settlement of an Award, and waivers or accelerations thereof,
performance conditions relating to an Award (including performance conditions
relating to Awards not intended to be governed by Section 7(f) and waivers and
modifications thereof), based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in connection
with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an Award may be
paid, in cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with respect
to an Award will be deferred either automatically, at the election of the
Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement or other instrument hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action
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not consistent with, its prior action. If not specified in the Plan, the time at
which the Committee must or may make any determination shall be determined by
the Committee, and any such determination may thereafter by modified by the
Committee (subject to Section 8(e)). The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Company or any subsidiary of the Company
the authority, subject to such terms as the Committee shall determine, to
perform administrative functions and, with respect to Participants not subject
to Section 16 of the Exchange Act, to perform such other functions as the
Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may be
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed the greater of 2,500,000 shares of Stock or 13% of the
total number of shares of Stock outstanding at the time of such grant.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall not exceed 500,000, subject in each case to
adjustment as provided in Section 4(c), and the number of shares that may be
delivered as Restricted Stock and Deferred Stock (other than pursuant to an
Award granted under Section 7(f)) shall not in the aggregate exceed 500,000,
provided, however, that shares subject to ISOs, Restricted Stock or Deferred
Stock Awards shall not be deemed delivered if such Awards are forfeited, expire
or otherwise terminate without delivery of shares to the Participant. To the
extent that an Award is only to be paid in cash or is paid in cash, any shares
of Stock subject to such Award shall again be available for the grant of an
Award. Any shares of Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
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(b) ANNUAL PER-PARTICIPANT LIMITATIONS. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
250,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of Award. This provision sets forth two separate limitations,
so that Awards that may be settled solely by delivery of Stock will not operate
to reduce the amount of cash-only Awards, and vice versa; nevertheless, Awards
that may be settled in Stock or cash must not exceed either limitation.
(c) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, liquidation, dissolution, or other similar corporate transaction or
event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Participants under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of Stock reserved and available for
Awards under Section 4(a), including shares reserved for the ISOs and Restricted
and Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and kind
of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards and (v) the
exercise price, grant price or purchase price relating to any Award (or, if
deemed appropriate, the Committee may make provision for a cash payment with
respect to any outstanding Award). In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence) affecting the Company or
any subsidiary or the financial statements of the Company or any subsidiary, or
in response to changes in applicable laws, regulations, or accounting
principles. The foregoing notwithstanding, no adjustments shall be authorized
under this Section 4(c) with respect to ISOs or SARs in tandem therewith to the
extent that such authority would cause the Plan to fail to comply with Section
422(b)(1) of the Code, and no such adjustment shall be authorized with respect
to Options, SARs or other Awards subject to Section 7(f) to the extent that such
authority would cause such Awards to fail to qualify as "qualified
performance-based compensation" under Section 162(m)(4)(C) of the Code.
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries, including any director or officer who is also such an
employee, and persons who provide consulting or other services to the Company
deemed by the Committee to be of substantial value to the Company, are eligible
to be granted Awards under the Plan. In addition, a person who
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has been offered employment by the Company or its subsidiaries is eligible to be
granted an Award under the Plan, provided that such Award shall be cancelled if
such person fails to commence such employment, and no payment of value may be
made in connection with such Award until such person has commenced such
employment. The foregoing notwithstanding, no member of the Committee shall be
eligible to be granted Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Section 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Stock, only services may
be required as consideration for the grant (but not the exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; PROVIDED,
HOWEVER, that, except as provided in Section 7(a), such exercise price shall be
not less than the Fair Market Value of a share on the date of grant of such
Option.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other Company plans or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that no ISO shall be granted more than ten years
after the effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be interpreted,
-7-
amended, or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Section
422 of the Code, unless requested by the affected Participant.
(iv) TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the Company and
its subsidiaries, such Participant may exercise any Options during the
three-month period following such termination of employment, but only to the
extent such Option was exercisable immediately prior to such termination of
employment. Notwithstanding the foregoing, if the Committee determines that such
termination is for cause, all Options held by the Participant shall terminate as
of the termination of employment.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant SARs
on the following terms and conditions ("SARs"):
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant price
of the SAR as determined by the Committee as of the date of grant of the SAR,
which, except as provided in Section 7(a), shall be not less than the Fair
Market Value of one share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants, whether
or not an SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised upon the
occurrence of a Change in Control may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. Limited SARs may be
either freestanding or in tandem with other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in combination
at such times, under such circumstances, in such
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installments, or otherwise, as the Committee may determine. Except to the extent
restricted under the terms of the Plan and any Award Agreement relating to the
Restricted Stock, a Participant granted Restricted Stock shall have all of the
rights of a stockholder including, without limitation, the right to vote
Restricted Stock or the right to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of termination
resulting from specified causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock, the
Company may retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank, relating
to the Restricted Stock.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends, or the payment
of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed, unless otherwise
determined by the Committee.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such restrictions
as the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times, separately or
in combination, in installments or otherwise, as the Committee may determine.
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(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award Agreement
evidencing the Deferred Stock), all Deferred Stock that is at that time subject
to such forfeiture conditions shall be forfeited; PROVIDED, HOWEVER, that the
Committee may provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Deferred Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of Company obligations to pay cash under other plans or
compensatory arrangements. Stock or Awards granted hereunder shall be subject to
such other terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
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7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with or in substitution for
any other Award granted under the Plan or any award granted under any other plan
of the Company, any subsidiary or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive payment
from the Company or any subsidiary. Awards granted in addition to or in tandem
with other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as may
be determined by the Committee; PROVIDED, HOWEVER, that in no event shall the
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant, exercise or settlement of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) LOAN PROVISIONS. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(e) PERFORMANCE-BASED AWARDS. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of
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performance conditions as a performance-based Award subject to this Section
7(f), in order to qualify such Award as "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. The performance objectives for an Award subject to this Section 7(f)
shall consist of one or more business criteria and a targeted level or levels of
performance with respect to such criteria, as specified by the Committee but
subject to this Section 7(f). Performance objectives shall be objective and
shall otherwise meet the requirements of Section 162(m)(4)(C) of the Code.
Business criteria used by the Committee in establishing performance objectives
for Awards subject to this Section 7(f) shall be selected exclusively from among
the following:
(1) Annual return on capital;
(2) Annual earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market penetration, geographic
business expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The levels of performance required with respect to such business criteria
may be expressed in absolute or relative levels. Achievement of performance
objectives with respect to such Awards shall be measured over a period of not
less than one year nor more than five years, as the Committee may specify.
Performance objectives may differ for such Awards to different Participants. The
Committee shall specify the weighting to be given to each performance objective
for purposes of determining the final amount payable with respect to any such
Award. The Committee may, in its discretion, reduce the amount of a payout
otherwise to be made in connection with an Award subject to this Section 7(f),
but may not exercise discretion to increase such amount, and the Committee may
consider other performance criteria in exercising such discretion. All
determinations by the Committee as to the achievement of performance objectives
shall be in writing. The Committee may not delegate any responsibility with
respect to an Award subject to this Section 7(f).
(f) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and restrictions relating to an Award,
including limitations on exercisability, risks of forfeiture and conditions and
restrictions requiring the continued performance
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of services or the achievement of performance objectives with respect to the
exercisability or settlement of such Award, shall immediately lapse upon a
Change in Control.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
and, if exercisable, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; PROVIDED,
HOWEVER, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant, and may be exercised by such transferees in accordance with the
terms of such Award consistent with the registration of the offer and sale of
Stock on Form S-8 or Form S-3 or a successor registration form of the Securities
and Exchange Commission, and permitted by the Committee. Awards and other rights
under the Plan may not be pledged, mortgaged, hypothecated or otherwise
encumbered, and shall not be subject to the claims of creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee or
other person the right to be retained in the employ or service of the Company or
any of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any employee's employment or
other person's service at any time.
(d) TAXES. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
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Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants and employees. No
Award shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor of
the Company; PROVIDED, HOWEVER, that the Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Stock, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating
-14-
any limitations on the power of the Board to adopt such other compensatory
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such arrangements
may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the Company
that employee Options, SARs and other Awards designated as Awards subject to
Section 7(f) shall constitute "qualified performance-based compensation" within
the meaning of Code Section 162(m). Accordingly, if any provision of the Plan or
any Award Agreement relating to such an Award does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the performance objectives.
(k) GOVERNING LAW. The validity, construction and effect of the Plan, any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective as
of the date of its adoption by the Board, subject to stockholder approval prior
to the commencement of the Initial Public Offering, and shall continue in effect
until terminated by the Board.
-15-
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and among Comfort Systems USA,
Inc., a Delaware corporation ("Company"), and Fred M. Ferreira ("Employee") is
hereby entered into and effective as of the _____ day of ___________________,
1997, the date of the consummation of the initial public offering of the common
stock of the Company. This Agreement hereby supersedes any other employment
agreements or understandings, written or oral, between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, has and will
continue to become familiar with and aware of information as to the Company's
customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the Company, this information is a trade secret and constitutes
the valuable good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Chief Executive Officer and
President of the Company. As such, Employee shall have responsibilities, duties
and authority reasonably accorded to and expected of a Chief Executive Officer
and President of the Company and will report directly to the Board of Directors
of the Company. Employee hereby accepts this employment upon the terms and
conditions herein contained and, subject to paragraph 1(c), agrees to devote his
time, attention and efforts to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by the Company.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. COMPENSATION. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Employee's performance and may make
increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from the Company in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Employee under this clause (i) to
be at least equal to such benefits provided to other Company executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
2
3. NON-COMPETITION AGREEMENT.
(a) Employee will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC, plumbing or electrical services business in
direct competition with the Company within 100 miles of where the Company
or any of its subsidiaries conducts business, including any territory
serviced by the Company or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by the
Company (including the respective subsidiaries thereof) or for which the
Company made an acquisition analysis, for the purpose of acquiring such
entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to the Company for which they would
have no other adequate remedy, Employee agrees that the foregoing covenant may
be enforced by the Company in the event of breach by him, by injunctions and
restraining orders.
3
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company (including the Company's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years following termination of employment
stated at the beginning of this paragraph 3, during which the agreements and
covenants of Employee made in this paragraph 3 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this paragraph 3.
4
4. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested by the Board to relocate
from his present residence to another geographic location in order to more
efficiently carry out his duties and responsibilities under this Agreement or as
part of a promotion or other increase in duties and responsibilities. In such
event, if Employee agrees to relocate, the Company will pay all relocation costs
to move Employee, his immediate family and their personal property and effects.
Such costs may include, by way of example, but are not limited to, pre-move
visits to search for a new residence, investigate schools or for other purposes;
temporary lodging and living costs prior to moving into a new permanent
residence; duplicate home carrying costs; all closing costs on the sale of
Employee's present residence and on the purchase of a comparable residence in
the new location; and added income taxes that Employee may incur if any
relocation costs are not deductible for tax purposes. The general intent of the
foregoing is that Employee shall not personally bear any out-of-pocket cost as a
result of the relocation, with an understanding that Employee will use his best
efforts to incur only those costs which are reasonable and necessary to effect a
smooth, efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for three (3) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal . This Agreement and Employee's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume his full-time duties at the
conclusion of such notice period. Also, Employee may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request
5
made within thirty (30) days of the date of such written statement, Employee
shall submit to an examination by a doctor selected by the Company who is
reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Initial Term of this Agreement or
for one (1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1) Employee's
willful, material and irreparable breach of this Agreement; (2) Employee's gross
negligence in the performance or intentional nonperformance (continuing for ten
(10) days after receipt of written notice of need to cure) of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of the
Company which materially and adversely affects the operations or reputation of
the Company; (4) Employee's conviction of a felony crime; or (5) confirmed
positive drug and/or alcohol test result. In the event of a termination for good
cause, as enumerated above, Employee shall have no right to any severance
compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least eighty percent (80%) of the
members of the Board. Should Employee be terminated by the Company without cause
during the first three (3) years of the Term (the "Initial Term"), Employee
shall receive from the Company, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one (1)
year, whichever amount is greater. Should Employee be terminated by the Company
without cause during the final two (2) year period of the Term, Employee shall
receive from the Company, in a lump-sum payment due on the effective date of
termination, the base salary rate then in effect equivalent to one (1) year of
salary. Further, any termination without cause by the Company shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms of
paragraph 3 apply to one (1) year from the date of termination of employment. If
Employee resigns or otherwise terminates his employment without cause, rather
than the Company terminating his employment pursuant to this paragraph 5(d),
Employee shall receive no severance compensation.
(e) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Initial Term, refer to paragraph
12 below.
Upon termination of this Agreement for any reason provided above, Employee shall
be entitled to receive all compensation earned and all benefits and
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable
6
to Employee only to the extent and in the manner expressly provided above or in
paragraph 12. All other rights and obligations of the Company and Employee under
this Agreement shall cease as of the effective date of termination, except that
the Company's obligations under paragraph 9 herein and Employee's obligations
under paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in
accordance with their terms.
If termination of Employee's employment arises out of the Company's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by the Company,
as determined by a court of competent jurisdiction or pursuant to the provisions
of paragraph 16 below, the Company shall pay all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce his rights hereunder. Further, none of the provisions of paragraph 3
shall apply in the event this Agreement is terminated as a result of a breach by
the Company.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with their respective significant vendors
or customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
7
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. In the event that both Employee and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Initial Term, then the provisions of this paragraph 12 shall be
applicable.
8
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Initial Term and the
applicable portions of paragraph 5(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be triple the amount calculated under the terms of paragraph 5(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by the
Company at or prior to such closing. Further, Employee will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase the Company's Common Stock, including any options with
accelerated vesting under the provisions of the Comfort's 1997 Long-Term
Incentive Plan, such that he may convert the options to shares of the Company's
Common Stock at or prior to the closing of the transaction giving rise to the
Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
9
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of the Company and whose election, or
nomination for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding voting securities of the
Company immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Employee shall be reimbursed by the Company or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement
10
between the Company and Employee and of all the terms of this Agreement, and it
cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Employee, and no term of this Agreement may be waived except
by writing signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Comfort Systems USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
To Employee: --------------------
--------------------
--------------------
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 8, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(b) and 5(c), respectively, or that the Company
has otherwise materially
11
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The direct expense of any arbitration proceeding
shall be borne by the Company.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
COMFORT SYSTEMS USA, INC.
By:
Name:
Title:
EMPLOYEE:
- --------------------
Fred M. Ferreira
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and among Comfort Systems USA,
Inc., a Delaware corporation ("Company"), and J. Gordon Beittenmiller
("Employee") is hereby entered into and effective as of the _____ day of
___________________, 1997, the date of the consummation of the initial public
offering of the common stock of the Company. This Agreement hereby supersedes
any other employment agreements or understandings, written or oral, between the
Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, has and will
continue to become familiar with and aware of information as to the Company's
customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the Company, this information is a trade secret and constitutes
the valuable good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Senior Vice President and Chief
Financial Officer of the Company. As such, Employee shall have responsibilities,
duties and authority reasonably accorded to and expected of a Senior Vice
President and Chief Financial Officer of the Company and will report directly to
the Board of Directors of the Company. Employee hereby accepts this employment
upon the terms and conditions herein contained and, subject to
paragraph 1(c), agrees to devote his time, attention and efforts to promote and
further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by the Company.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. COMPENSATION. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Employee's performance and may make
increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from the Company in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Employee under this clause (i) to
be at least equal to such benefits provided to other Company executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
2
3. NON-COMPETITION AGREEMENT.
(a) Employee will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC, plumbing or electrical services business in
direct competition with the Company within 100 miles of where the Company
or any of its subsidiaries conducts business, including any territory
serviced by the Company or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by the
Company (including the respective subsidiaries thereof) or for which the
Company made an acquisition analysis, for the purpose of acquiring such
entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to the Company for which they would
have no other adequate remedy, Employee agrees that the foregoing covenant may
be enforced by the Company in the event of breach by him, by injunctions and
restraining orders.
3
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company (including the Company's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years following termination of employment
stated at the beginning of this paragraph 3, during which the agreements and
covenants of Employee made in this paragraph 3 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
4
(a) Employee understands that he may be requested by the Board to relocate
from his present residence to another geographic location in order to more
efficiently carry out his duties and responsibilities under this Agreement or as
part of a promotion or other increase in duties and responsibilities. In such
event, if Employee agrees to relocate, the Company will pay all relocation costs
to move Employee, his immediate family and their personal property and effects.
Such costs may include, by way of example, but are not limited to, pre-move
visits to search for a new residence, investigate schools or for other purposes;
temporary lodging and living costs prior to moving into a new permanent
residence; duplicate home carrying costs; all closing costs on the sale of
Employee's present residence and on the purchase of a comparable residence in
the new location; and added income taxes that Employee may incur if any
relocation costs are not deductible for tax purposes. The general intent of the
foregoing is that Employee shall not personally bear any out-of-pocket cost as a
result of the relocation, with an understanding that Employee will use his best
efforts to incur only those costs which are reasonable and necessary to effect a
smooth, efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for three (3) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal . This Agreement and Employee's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume his full-time duties at the
conclusion of such notice period. Also, Employee may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Employee shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the conclusion of
Employee's doctor. In
5
the event this Agreement is terminated as a result of Employee's disability,
Employee shall receive from the Company, in a lump-sum payment due within ten
(10) days of the effective date of termination, the base salary at the rate then
in effect for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1) Employee's
willful, material and irreparable breach of this Agreement; (2) Employee's gross
negligence in the performance or intentional nonperformance (continuing for ten
(10) days after receipt of written notice of need to cure) of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of the
Company which materially and adversely affects the operations or reputation of
the Company; (4) Employee's conviction of a felony crime; or (5) confirmed
positive drug and/or alcohol test result. In the event of a termination for good
cause, as enumerated above, Employee shall have no right to any severance
compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least eighty percent (80%) of the
members of the Board. Should Employee be terminated by the Company without cause
during the first three (3) years of the Term (the "Initial Term"), Employee
shall receive from the Company, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one (1)
year, whichever amount is greater. Should Employee be terminated by the Company
without cause during the final two (2) year period of the Term, Employee shall
receive from the Company, in a lump-sum payment due on the effective date of
termination, the base salary rate then in effect equivalent to one (1) year of
salary. Further, any termination without cause by the Company shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms of
paragraph 3 apply to one (1) year from the date of termination of employment. If
Employee resigns or otherwise terminates his employment without cause, rather
than the Company terminating his employment pursuant to this paragraph 5(d),
Employee shall receive no severance compensation.
(e) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Initial Term, refer to paragraph
12 below.
Upon termination of this Agreement for any reason provided above, Employee shall
be entitled to receive all compensation earned and all benefits and
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12. All other rights and obligations of the Company and Employee under
this Agreement shall cease as of the effective date of termination, except that
the Company's obligations under paragraph 9 herein and
6
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by the Company,
as determined by a court of competent jurisdiction or pursuant to the provisions
of paragraph 16 below, the Company shall pay all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce his rights hereunder. Further, none of the provisions of paragraph 3
shall apply in the event this Agreement is terminated as a result of a breach by
the Company.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with their respective significant vendors
or customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Employee against all
expenses
7
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Initial Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner
8
and to the same extent that the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by the
Company without cause during the Initial Term and the applicable portions of
paragraph 5(d) will apply; however, under such circumstances, the amount of the
lump-sum severance payment due to Employee shall be triple the amount calculated
under the terms of paragraph 5(d) and the non-competition provisions of
paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by the
Company at or prior to such closing. Further, Employee will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase the Company's Common Stock, including any options with
accelerated vesting under the provisions of the Comfort's 1997 Long-Term
Incentive Plan, such that he may convert the options to shares of the Company's
Common Stock at or prior to the closing of the transaction giving rise to the
Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately
9
following their election); and (C) the individuals who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors and Additional
Original Directors then still in office (such directors also becoming
"Additional Original Directors" immediately following their election).
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding voting securities of the
Company immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Employee shall be reimbursed by the Company or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
10
To the Company: Comfort Systems USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
To Employee: --------------------
--------------------
--------------------
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 8, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
11
18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
COMFORT SYSTEMS USA, INC.
By:
Name:
Title:
EMPLOYEE:
- -----------------------
J. Gordon Beittenmiller
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and among Comfort Systems USA,
Inc., a Delaware corporation ("Company"), and William George, III ("Employee")
is hereby entered into and effective as of the _____ day of ___________________,
1997, the date of the consummation of the initial public offering of the common
stock of the Company. This Agreement hereby supersedes any other employment
agreements or understandings, written or oral, between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, has and will
continue to become familiar with and aware of information as to the Company's
customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the Company, this information is a trade secret and constitutes
the valuable good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Vice President, General Counsel
and Secretary of the Company. As such, Employee shall have responsibilities,
duties and authority reasonably accorded to and expected of a Vice President,
General Counsel and Secretary of the Company and will report directly to the
Board of Directors of the Company. Employee hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph 1(c), agrees
to devote his time, attention and efforts to promote and further the business of
the Company.
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(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by the Company.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. COMPENSATION. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Employee's performance and may make
increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from the Company in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Employee under this clause (i) to
be at least equal to such benefits provided to other Company executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
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3. NON-COMPETITION AGREEMENT.
(a) Employee will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC, plumbing or electrical services business in
direct competition with the Company within 100 miles of where the Company
or any of its subsidiaries conducts business, including any territory
serviced by the Company or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by the
Company (including the respective subsidiaries thereof) or for which the
Company made an acquisition analysis, for the purpose of acquiring such
entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to the Company for which they would
have no other adequate remedy, Employee agrees that the foregoing covenant may
be enforced by the Company in the event of breach by him, by injunctions and
restraining orders.
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(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company (including the Company's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years following termination of employment
stated at the beginning of this paragraph 3, during which the agreements and
covenants of Employee made in this paragraph 3 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
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(a) Employee understands that he may be requested by the Board to relocate
from his present residence to another geographic location in order to more
efficiently carry out his duties and responsibilities under this Agreement or as
part of a promotion or other increase in duties and responsibilities. In such
event, if Employee agrees to relocate, the Company will pay all relocation costs
to move Employee, his immediate family and their personal property and effects.
Such costs may include, by way of example, but are not limited to, pre-move
visits to search for a new residence, investigate schools or for other purposes;
temporary lodging and living costs prior to moving into a new permanent
residence; duplicate home carrying costs; all closing costs on the sale of
Employee's present residence and on the purchase of a comparable residence in
the new location; and added income taxes that Employee may incur if any
relocation costs are not deductible for tax purposes. The general intent of the
foregoing is that Employee shall not personally bear any out-of-pocket cost as a
result of the relocation, with an understanding that Employee will use his best
efforts to incur only those costs which are reasonable and necessary to effect a
smooth, efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for three (3) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal . This Agreement and Employee's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume his full-time duties at the
conclusion of such notice period. Also, Employee may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Employee shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the conclusion of
Employee's doctor. In
5
the event this Agreement is terminated as a result of Employee's disability,
Employee shall receive from the Company, in a lump-sum payment due within ten
(10) days of the effective date of termination, the base salary at the rate then
in effect for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1) Employee's
willful, material and irreparable breach of this Agreement; (2) Employee's gross
negligence in the performance or intentional nonperformance (continuing for ten
(10) days after receipt of written notice of need to cure) of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of the
Company which materially and adversely affects the operations or reputation of
the Company; (4) Employee's conviction of a felony crime; or (5) confirmed
positive drug and/or alcohol test result. In the event of a termination for good
cause, as enumerated above, Employee shall have no right to any severance
compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least eighty percent (80%) of the
members of the Board. Should Employee be terminated by the Company without cause
during the first three (3) years of the Term (the "Initial Term"), Employee
shall receive from the Company, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one (1)
year, whichever amount is greater. Should Employee be terminated by the Company
without cause during the final two (2) year period of the Term, Employee shall
receive from the Company, in a lump-sum payment due on the effective date of
termination, the base salary rate then in effect equivalent to one (1) year of
salary. Further, any termination without cause by the Company shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms of
paragraph 3 apply to one (1) year from the date of termination of employment. If
Employee resigns or otherwise terminates his employment without cause, rather
than the Company terminating his employment pursuant to this paragraph 5(d),
Employee shall receive no severance compensation.
(e) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Initial Term, refer to paragraph
12 below.
Upon termination of this Agreement for any reason provided above, Employee shall
be entitled to receive all compensation earned and all benefits and
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12. All other rights and obligations of the Company and Employee under
this Agreement shall cease as of the effective date of termination, except that
the Company's obligations under paragraph 9 herein and
6
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by the Company,
as determined by a court of competent jurisdiction or pursuant to the provisions
of paragraph 16 below, the Company shall pay all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce his rights hereunder. Further, none of the provisions of paragraph 3
shall apply in the event this Agreement is terminated as a result of a breach by
the Company.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with their respective significant vendors
or customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Employee against all
expenses
7
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Initial Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner
8
and to the same extent that the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by the
Company without cause during the Initial Term and the applicable portions of
paragraph 5(d) will apply; however, under such circumstances, the amount of the
lump-sum severance payment due to Employee shall be triple the amount calculated
under the terms of paragraph 5(d) and the non-competition provisions of
paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by the
Company at or prior to such closing. Further, Employee will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase the Company's Common Stock, including any options with
accelerated vesting under the provisions of the Comfort's 1997 Long-Term
Incentive Plan, such that he may convert the options to shares of the Company's
Common Stock at or prior to the closing of the transaction giving rise to the
Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately
9
following their election); and (C) the individuals who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors and Additional
Original Directors then still in office (such directors also becoming
"Additional Original Directors" immediately following their election).
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding voting securities of the
Company immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Employee shall be reimbursed by the Company or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
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To the Company: Comfort Systems USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
To Employee: --------------------
--------------------
--------------------
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 8, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
11
18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
COMFORT SYSTEMS USA, INC.
By:
Name:
Title:
EMPLOYEE:
- --------------------
William George, III
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and among Comfort Systems USA,
Inc., a Delaware corporation ("Company"), and Reagan S. Busbee ("Employee") is
hereby entered into and effective as of the _____ day of ___________________,
1997, the date of the consummation of the initial public offering of the common
stock of the Company. This Agreement hereby supersedes any other employment
agreements or understandings, written or oral, between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, has and will
continue to become familiar with and aware of information as to the Company's
customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the Company, this information is a trade secret and constitutes
the valuable good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Senior Vice President of the
Company. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a Senior Vice President of the Company
and will report directly to the Board of Directors of the Company. Employee
hereby accepts this employment upon the terms and conditions herein contained
and, subject to paragraph 1(c), agrees to devote his time, attention and efforts
to promote and further the business of the Company.
1
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by the Company.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. COMPENSATION. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Employee shall be $125,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Employee's performance and may make
increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from the Company in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Employee under this clause (i) to
be at least equal to such benefits provided to other Company executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
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3. NON-COMPETITION AGREEMENT.
(a) Employee will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC, plumbing or electrical services business in
direct competition with the Company within 100 miles of where the Company
or any of its subsidiaries conducts business, including any territory
serviced by the Company or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by the
Company (including the respective subsidiaries thereof) or for which the
Company made an acquisition analysis, for the purpose of acquiring such
entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to the Company for which they would
have no other adequate remedy, Employee agrees that the foregoing covenant may
be enforced by the Company in the event of breach by him, by injunctions and
restraining orders.
3
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company (including the Company's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years following termination of employment
stated at the beginning of this paragraph 3, during which the agreements and
covenants of Employee made in this paragraph 3 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
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(a) Employee understands that he may be requested by the Board to relocate
from his present residence to another geographic location in order to more
efficiently carry out his duties and responsibilities under this Agreement or as
part of a promotion or other increase in duties and responsibilities. In such
event, if Employee agrees to relocate, the Company will pay all relocation costs
to move Employee, his immediate family and their personal property and effects.
Such costs may include, by way of example, but are not limited to, pre-move
visits to search for a new residence, investigate schools or for other purposes;
temporary lodging and living costs prior to moving into a new permanent
residence; duplicate home carrying costs; all closing costs on the sale of
Employee's present residence and on the purchase of a comparable residence in
the new location; and added income taxes that Employee may incur if any
relocation costs are not deductible for tax purposes. The general intent of the
foregoing is that Employee shall not personally bear any out-of-pocket cost as a
result of the relocation, with an understanding that Employee will use his best
efforts to incur only those costs which are reasonable and necessary to effect a
smooth, efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for three (3) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal . This Agreement and Employee's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume his full-time duties at the
conclusion of such notice period. Also, Employee may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Employee shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the conclusion of
Employee's doctor. In
5
the event this Agreement is terminated as a result of Employee's disability,
Employee shall receive from the Company, in a lump-sum payment due within ten
(10) days of the effective date of termination, the base salary at the rate then
in effect for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1) Employee's
willful, material and irreparable breach of this Agreement; (2) Employee's gross
negligence in the performance or intentional nonperformance (continuing for ten
(10) days after receipt of written notice of need to cure) of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of the
Company which materially and adversely affects the operations or reputation of
the Company; (4) Employee's conviction of a felony crime; or (5) confirmed
positive drug and/or alcohol test result. In the event of a termination for good
cause, as enumerated above, Employee shall have no right to any severance
compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least eighty percent (80%) of the
members of the Board. Should Employee be terminated by the Company without cause
during the first three (3) years of the Term (the "Initial Term"), Employee
shall receive from the Company, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one (1)
year, whichever amount is greater. Should Employee be terminated by the Company
without cause during the final two (2) year period of the Term, Employee shall
receive from the Company, in a lump-sum payment due on the effective date of
termination, the base salary rate then in effect equivalent to one (1) year of
salary. Further, any termination without cause by the Company shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms of
paragraph 3 apply to one (1) year from the date of termination of employment. If
Employee resigns or otherwise terminates his employment without cause, rather
than the Company terminating his employment pursuant to this paragraph 5(d),
Employee shall receive no severance compensation.
(e) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Initial Term, refer to paragraph
12 below.
Upon termination of this Agreement for any reason provided above, Employee shall
be entitled to receive all compensation earned and all benefits and
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12. All other rights and obligations of the Company and Employee under
this Agreement shall cease as of the effective date of termination, except that
the Company's obligations under paragraph 9 herein and
6
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by the Company,
as determined by a court of competent jurisdiction or pursuant to the provisions
of paragraph 16 below, the Company shall pay all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce his rights hereunder. Further, none of the provisions of paragraph 3
shall apply in the event this Agreement is terminated as a result of a breach by
the Company.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with their respective significant vendors
or customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Employee against all
expenses
7
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Initial Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner
8
and to the same extent that the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by the
Company without cause during the Initial Term and the applicable portions of
paragraph 5(d) will apply; however, under such circumstances, the amount of the
lump-sum severance payment due to Employee shall be triple the amount calculated
under the terms of paragraph 5(d) and the non-competition provisions of
paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by the
Company at or prior to such closing. Further, Employee will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase the Company's Common Stock, including any options with
accelerated vesting under the provisions of the Comfort's 1997 Long-Term
Incentive Plan, such that he may convert the options to shares of the Company's
Common Stock at or prior to the closing of the transaction giving rise to the
Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately
9
following their election); and (C) the individuals who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors and Additional
Original Directors then still in office (such directors also becoming
"Additional Original Directors" immediately following their election).
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding voting securities of the
Company immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Employee shall be reimbursed by the Company or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
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To the Company: Comfort Systems USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
To Employee: --------------------
--------------------
--------------------
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 8, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
11
18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
COMFORT SYSTEMS USA, INC.
By:
Name:
Title:
EMPLOYEE:
- --------------------
Reagan S. Busbee
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Accurate Air
Systems, Inc. (the "Company"), a Texas corporation and a wholly-owned subsidiary
of Comfort Systems USA, Inc., a Delaware corporation ("Comfort"), and Thomas J.
Beaty ("Executive") is hereby entered into and effective as of the _____ day of
___________________, 1997, the date of the consummation of the initial public
offering of the common stock of Comfort. This Agreement hereby supersedes any
other employment agreements or understandings, written or oral, between the
Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Houston, Texas.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $100,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $100,000, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
2
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable
3
damage that could be caused to the Company and Comfort for which they would have
no other adequate remedy, Executive agrees that the foregoing covenant may be
enforced by Comfort or the Company in the event of breach by him, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants
4
of Executive made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which materially and adversely affects the
operations or reputation of the Company or Comfort; (4) Executive's conviction
of a felony crime; or (5) confirmed positive illegal drug test result. In the
event of a termination for good cause, as enumerated above, Executive shall have
no right to any severance compensation.
5
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 8 herein and Executive's
obligations under paragraphs 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent
6
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
7
than an action by the Company or Comfort against Executive), by reason of the
fact that he is or was performing services under this Agreement, then the
Company shall indemnify Executive against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In
the event that both Executive and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Executive cannot be held liable to the Company or Comfort for errors or
omissions made in good faith where Executive has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
8
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of
9
Comfort's initial public offering, constitute the Board of Directors of
Comfort (the "Original Directors"); (B) the individuals who thereafter are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed
10
by a duly authorized officer of the Company and Executive, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Accurate Air Systems, Inc.
8505 Rannie Road
Houston, TX 77080
To Executive --------------------
--------------------
--------------------
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award
11
in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACCURATE AIR SYSTEMS, INC.
By:
Name:
Title:
EXECUTIVE:
Thomas J. Beaty
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Atlas Comfort
Services USA, Inc. (the "Company"), a Texas corporation and a wholly-owned
subsidiary of Comfort Systems USA, Inc., a Delaware corporation ("Comfort"), and
Brian S. Atlas ("Executive") is hereby entered into and effective as of the
_____ day of ___________________, 1997, the date of the consummation of the
initial public offering of the common stock of Comfort. This Agreement hereby
supersedes any other employment agreements or understandings, written or oral,
between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Houston, Texas.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $100,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $100,000, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
2
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable
3
damage that could be caused to the Company and Comfort for which they would have
no other adequate remedy, Executive agrees that the foregoing covenant may be
enforced by Comfort or the Company in the event of breach by him, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants
4
of Executive made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which materially and adversely affects the
operations or reputation of the Company or Comfort; (4) Executive's conviction
of a felony crime; or (5) confirmed positive illegal drug test result. In the
event of a termination for good cause, as enumerated above, Executive shall have
no right to any severance compensation.
5
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 8 herein and Executive's
obligations under paragraphs 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent
6
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
7
than an action by the Company or Comfort against Executive), by reason of the
fact that he is or was performing services under this Agreement, then the
Company shall indemnify Executive against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In
the event that both Executive and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Executive cannot be held liable to the Company or Comfort for errors or
omissions made in good faith where Executive has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
8
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of
9
Comfort's initial public offering, constitute the Board of Directors of
Comfort (the "Original Directors"); (B) the individuals who thereafter are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed
10
by a duly authorized officer of the Company and Executive, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Atlas Comfort Services USA, Inc.
4125 Southerland
Houston, TX 77092-4416
To Executive --------------------
--------------------
--------------------
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award
11
in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ATLAS COMFORT SERVICES USA, INC.
By:
Name:
Title:
EXECUTIVE:
Brian S. Atlas
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Contract
Service, Inc. (the "Company"), a Utah corporation and a wholly-owned subsidiary
of Comfort Systems USA, Inc., a Delaware corporation ("Comfort"), and John C.
Phillips ("Executive") is hereby entered into and effective as of the _____ day
of ___________________, 1997, the date of the consummation of the initial public
offering of the common stock of Comfort. This Agreement hereby supersedes any
other employment agreements or understandings, written or oral, between the
Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained and, subject to paragraph 1(c), agrees to devote substantially all of
his business time, attention and efforts to promote and further the business of
the Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Salt Lake City, Utah.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $105,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $105,000, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable
2
detail by Executive upon submission of any request for reimbursement, and
in a format and manner consistent with the Company's expense reporting
policy.
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing
3
business, whose stock is traded on a national securities exchange or on an
over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company and
Comfort for which they would have no other adequate remedy, Executive agrees
that the foregoing covenant may be enforced by Comfort or the Company in the
event of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
4
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Executive made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Executive is in violation of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty,
5
fraud or misconduct with respect to the business or affairs of the Company or
Comfort which materially and adversely affects the operations or reputation of
the Company or Comfort; (4) Executive's conviction of a felony crime; or (5)
confirmed positive illegal drug test result. In the event of a termination for
good cause, as enumerated above, Executive shall have no right to any severance
compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement
6
shall cease as of the effective date of termination, except that the Company's
obligations under paragraph 8 herein and Executive's obligations under
paragraphs 3, 5, 6, 7 and 9 herein shall survive such termination in accordance
with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 15 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Comfort against Executive), by reason of the fact that he is or was
performing services under this Agreement, then the Company shall indemnify
Executive against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory. In the event that both Executive and
the Company are made a party to the same third-party action, complaint, suit or
proceeding, the Company agrees to engage competent legal representation, and
Executive agrees to use the same representation, provided that if counsel
selected by the Company shall have a conflict of interest that prevents such
counsel from representing Executive, Executive may engage separate counsel and
the Company shall pay all attorneys' fees of such separate counsel. Further,
while Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company or Comfort for errors or omissions made in good faith where
Executive has not exhibited gross, willful and wanton negligence and misconduct
or performed criminal and fraudulent acts which materially damage the business
of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
8
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
9
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of Comfort's initial public offering, constitute
the Board of Directors of Comfort (the "Original Directors"); (B) the
individuals who thereafter are elected to the Board of Directors of
Comfort and whose election, or nomination for election, to the Board of
Directors of Comfort was approved by a vote of at least two-thirds (2/3)
of the Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election); and
(C) the individuals who are elected to the Board of Directors of Comfort
and whose election, or nomination for election, to the Board of Directors
of Comfort was approved by a vote of at least two-thirds (2/3) of the
Original Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors" immediately
following their election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any
10
Change in Control. Such amount will be due and payable by the Company or its
successor within ten (10) days after Executive delivers a written request for
reimbursement accompanied by a copy of his tax return(s) showing the excise tax
actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Executive, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Contract Service, Inc.
3222 S. Washington Street
Salt Lake City, Utah 84165
To Executive: John C. Phillips
2030 Maple Hollow Way
Bountiful, UT 84010
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with
11
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association ("AAA") then in effect provided that the parties may
agree to use arbitrators other than those provided by the AAA. The arbitrators
shall not have the authority to add to, detract from, or modify any provision
hereof nor to award punitive damages to any injured party. The arbitrators shall
have the authority to order back-pay, severance compensation, vesting of options
(or cash compensation in lieu of vesting of options), reimbursement of costs,
including those incurred to enforce this Agreement, and interest thereon in the
event the arbitrators determine that Executive was terminated without disability
or good cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the
Company has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
CONTRACT SERVICE, INC.
By:
Name:
Title:
EXECUTIVE:
John C. Phillips
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Eastern Heating
& Cooling, Inc. (the "Company"), a New York corporation and a wholly-owned
subsidiary of Comfort Systems USA, Inc., a Delaware corporation ("Comfort"), and
Alfred J. Giardenelli, Jr. ("Executive") is hereby entered into and effective as
of the _____ day of ___________________, 1997, the date of the consummation of
the initial public offering of the common stock of Comfort. This Agreement
hereby supersedes any other employment agreements or understandings, written or
oral, between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Albany, New York.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $100,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $100,000, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
2
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable
3
damage that could be caused to the Company and Comfort for which they would have
no other adequate remedy, Executive agrees that the foregoing covenant may be
enforced by Comfort or the Company in the event of breach by him, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants
4
of Executive made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which materially and adversely affects the
operations or reputation of the Company or Comfort; (4) Executive's conviction
of a felony crime; or (5) confirmed positive illegal drug test result. In the
event of a termination for good cause, as enumerated above, Executive shall have
no right to any severance compensation.
5
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 8 herein and Executive's
obligations under paragraphs 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent
6
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
7
than an action by the Company or Comfort against Executive), by reason of the
fact that he is or was performing services under this Agreement, then the
Company shall indemnify Executive against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In
the event that both Executive and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Executive cannot be held liable to the Company or Comfort for errors or
omissions made in good faith where Executive has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
8
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of Comfort,
acquires directly or indirectly the beneficial ownership (as defined in Section
13(d) of the Securities Exchange Act of 1934, as amended) of any voting security
of the Company and immediately after such acquisition such Person is, directly
or indirectly, the Beneficial Owner of voting securities representing 50% or
more of the total voting power of all of the then-outstanding voting securities
of the Company;
(ii) the following individuals no longer constitute a majority of the
members of the Board of Directors of Comfort: (A) the individuals who, as of the
closing date of
9
Comfort's initial public offering, constitute the Board of Directors of Comfort
(the "Original Directors"); (B) the individuals who thereafter are elected to
the Board of Directors of Comfort and whose election, or nomination for
election, to the Board of Directors of Comfort was approved by a vote of at
least two-thirds (2/3) of the Original Directors then still in office (such
directors becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of Directors of
Comfort and whose election, or nomination for election, to the Board of
Directors of Comfort was approved by a vote of at least two-thirds (2/3) of the
Original Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately following
their election).
(iii) the stockholders of Comfort shall approve a merger, consolidation,
recapitalization, or reorganization of Comfort, a reverse stock split of
outstanding voting securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such transaction which
would result in at least 75% of the total voting power represented by the voting
securities of the surviving entity outstanding immediately after such
transaction being Beneficially Owned by at least 75% of the holders of
outstanding voting securities of Comfort immediately prior to the transaction,
with the voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by Comfort of
all or a substantial portion of Comfort's assets (i.e., 50% or more of the total
assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed
10
by a duly authorized officer of the Company and Executive, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Eastern Heating & Cooling, Inc.
60 Loudonville Road
Albany, NY 12204
To Executive: Alfred J. Giardenelli, Jr.
1240 Milton Keynes Dr.
Niskayuna, NY 12309
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award
11
in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
EASTERN HEATING & COOLING, INC.
By:
Name:
Title:
EXECUTIVE:
Alfred J. Giardenelli, Jr.
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Quality Air
Heating & Cooling, Inc. (the "Company"), a Michigan corporation and a
wholly-owned subsidiary of Comfort Systems USA, Inc., a Delaware corporation
("Comfort"), and Robert J. Powers ("Executive") is hereby entered into and
effective as of the _____ day of ___________________, 1997, the date of the
consummation of the initial public offering of the common stock of Comfort. This
Agreement hereby supersedes any other employment agreements or understandings,
written or oral, between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Grand Rapids, Michigan.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $150,000, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
2
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable
3
damage that could be caused to the Company and Comfort for which they would have
no other adequate remedy, Executive agrees that the foregoing covenant may be
enforced by Comfort or the Company in the event of breach by him, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants
4
of Executive made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which materially and adversely affects the
operations or reputation of the Company or Comfort; (4) Executive's conviction
of a felony crime; or (5) confirmed positive illegal drug test result. In the
event of a termination for good cause, as enumerated above, Executive shall have
no right to any severance compensation.
5
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 8 herein and Executive's
obligations under paragraphs 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent
6
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
7
than an action by the Company or Comfort against Executive), by reason of the
fact that he is or was performing services under this Agreement, then the
Company shall indemnify Executive against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In
the event that both Executive and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Executive cannot be held liable to the Company or Comfort for errors or
omissions made in good faith where Executive has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
8
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of
9
Comfort's initial public offering, constitute the Board of Directors of
Comfort (the "Original Directors"); (B) the individuals who thereafter are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed
10
by a duly authorized officer of the Company and Executive, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Quality Air Heating & Cooling, Inc.
3395 Kraft Ave., SE
Grand Rapids, MI 49512
To Executive: ____________________
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award
11
in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
QUALITY AIR HEATING & COOLING, INC.
By:
Name:
Title:
EXECUTIVE:
Robert J. Powers
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between S. M. Lawrence
Company, Inc. (the "Company"), a Tennessee corporation and a wholly-owned
subsidiary of Comfort Systems USA, Inc., a Delaware corporation ("Comfort"), and
Samuel M. Lawrence III ("Executive") is hereby entered into and effective as of
the _____ day of ___________________, 1997, the date of the consummation of the
initial public offering of the common stock of Comfort. This Agreement hereby
supersedes any other employment agreements or understandings, written or oral,
between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as Chief Executive Officer of the
Company. As such, Executive shall have responsibilities, duties and authority
reasonably accorded to, expected of, and consistent with Executive's position
as, Chief Executive Officer of the Company and will report directly to the Board
of Directors of the Company (the "Board"). Executive hereby accepts this
employment upon the terms and conditions herein contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Jackson, Tennessee.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $125,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $125,000, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
2
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable
3
damage that could be caused to the Company and Comfort for which they would have
no other adequate remedy, Executive agrees that the foregoing covenant may be
enforced by Comfort or the Company in the event of breach by him, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants
4
of Executive made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which materially and adversely affects the
operations or reputation of the Company or Comfort; (4) Executive's conviction
of a felony crime; or (5) confirmed positive illegal drug test result. In the
event of a termination for good cause, as enumerated above, Executive shall have
no right to any severance compensation.
5
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 8 herein and Executive's
obligations under paragraphs 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent
6
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
7
than an action by the Company or Comfort against Executive), by reason of the
fact that he is or was performing services under this Agreement, then the
Company shall indemnify Executive against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In
the event that both Executive and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Executive cannot be held liable to the Company or Comfort for errors or
omissions made in good faith where Executive has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
8
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of
9
Comfort's initial public offering, constitute the Board of Directors of
Comfort (the "Original Directors"); (B) the individuals who thereafter are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed
10
by a duly authorized officer of the Company and Executive, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: S. M. Lawrence Company, Inc.
245 Preston Street
Jackson, Tennessee 38302-0638
To Executive: Samuel M. Lawrence III
4525 Bells Hwy
Jackson TN 38305
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award
11
in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
S. M. LAWRENCE COMPANY, INC.
By:
Name:
Title:
EXECUTIVE:
Samuel M. Lawrence III
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Tech Heating
and Air Conditioning, Inc. (the "Company"), an Ohio corporation and a
wholly-owned subsidiary of Comfort Systems USA, Inc., a Delaware corporation
("Comfort"), and Robert R. Cook ("Executive") is hereby entered into and
effective as of the _____ day of ___________________, 1997, the date of the
consummation of the initial public offering of the common stock of Comfort. This
Agreement hereby supersedes any other employment agreements or understandings,
written or oral, between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Solon, Ohio.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $150,000, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
2
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable
3
damage that could be caused to the Company and Comfort for which they would have
no other adequate remedy, Executive agrees that the foregoing covenant may be
enforced by Comfort or the Company in the event of breach by him, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants
4
of Executive made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which materially and adversely affects the
operations or reputation of the Company or Comfort; (4) Executive's conviction
of a felony crime; or (5) confirmed positive illegal drug test result. In the
event of a termination for good cause, as enumerated above, Executive shall have
no right to any severance compensation.
5
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 8 herein and Executive's
obligations under paragraphs 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent
6
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
7
than an action by the Company or Comfort against Executive), by reason of the
fact that he is or was performing services under this Agreement, then the
Company shall indemnify Executive against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In
the event that both Executive and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Executive cannot be held liable to the Company or Comfort for errors or
omissions made in good faith where Executive has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
8
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of
9
Comfort's initial public offering, constitute the Board of Directors of
Comfort (the "Original Directors"); (B) the individuals who thereafter are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed
10
by a duly authorized officer of the Company and Executive, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Tech Heating and Air Conditioning, Inc.
30300 Bruce Industrial Parkway
Solon, Ohio 44139
To Executive: ____________________
====================
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award
11
in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TECH HEATING AND AIR CONDITIONING, INC.
By:
Name:
Title:
EXECUTIVE:
Robert R. Cook
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Tri-City
Mechanical, Inc., (the "Company") an Arizona corporation and a wholly-owned
subsidiary of Comfort Systems USA, Inc., a Delaware corporation ("Comfort"), and
Michael Nothum, Jr. ("Executive") is hereby entered into and effective as of the
_____ day of ___________________, 1997, the date of the consummation of the
initial public offering of the common stock of Comfort. This Agreement hereby
supersedes any other employment agreements or understandings, written or oral,
between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall only be required to perform his duties in ___________
unless otherwise agreed by Executive. Executive shall not be required by the
Company or the performance of his duties to relocate from ______________ unless
otherwise agreed by Executive.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $150,000 per year, payable on a regular basis in
accordance with the Company's standard payroll procedures but not less than
monthly. On at least an annual basis, the Board will review Executive's
performance and may make increases to such base salary if, in its discretion,
any such increase is warranted. Such recommended increase would, in all
likelihood, require approval by the Board or a duly constituted committee
thereof. In no event shall Executive's base salary be reduced to a level below
the greater of $150,000, or 90% of Executive's base salary during the prior
contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable
2
detail by Executive upon submission of any request for reimbursement, and
in a format and manner consistent with the Company's expense reporting
policy.
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Subject to, and so long as the Company is not in violation of its
obligations under this Agreement, Executive will not, during the period of his
employment by or with the Company, and for a period of two (2) years immediately
following the termination of his employment under this Agreement, for any reason
whatsoever, other than a termination by the Company without cause or by
Executive for Good Reason, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing
3
business, whose stock is traded on a national securities exchange or on an
over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company and
Comfort for which they would have no other adequate remedy, Executive agrees
that the foregoing covenant may be enforced by Comfort or the Company in the
event of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
4
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Executive made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Executive is in violation of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which
5
materially and adversely affects the operations or reputation of the Company or
Comfort; (4) Executive's conviction of a felony crime; or (5) confirmed positive
illegal drug test result. In the event of a termination for good cause, as
enumerated above, Executive shall have no right to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during the prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction; or (c) Executive is required to relocate from __________ without his
prior approval.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under
6
paragraph 8 herein and Executive's obligations under paragraphs 3, 5, 6, 7 and 9
herein shall survive such termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 15 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all of
Executive's options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's
7
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
Comfort, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Comfort against Executive), by reason of the fact that he is or was
performing services under this Agreement, then the Company shall indemnify
Executive against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory. In the event that both Executive and
the Company are made a party to the same third-party action, complaint, suit or
proceeding, the Company agrees to engage competent legal representation, and
Executive agrees to use the same representation, provided that if counsel
selected by the Company shall have a conflict of interest that prevents such
counsel from representing Executive, Executive may engage separate counsel and
the Company shall pay all attorneys' fees of such separate counsel. Further,
while Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company or Comfort for errors or omissions made in good faith where
Executive has not exhibited gross, willful and wanton negligence and misconduct
or performed criminal and fraudulent acts which materially damage the business
of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and
8
obligations of Comfort and/or the Company hereunder or that the Company may
undergo another type of Change in Control. In the event such a merger or
consolidation or other Change in Control is initiated prior to the end of the
Initial Term, then the provisions of this paragraph 11 shall be applicable.
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
9
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of Comfort's initial public offering, constitute
the Board of Directors of Comfort (the "Original Directors"); (B) the
individuals who thereafter are elected to the Board of Directors of
Comfort and whose election, or nomination for election, to the Board of
Directors of Comfort was approved by a vote of at least two-thirds (2/3)
of the Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election); and
(C) the individuals who are elected to the Board of Directors of Comfort
and whose election, or nomination for election, to the Board of Directors
of Comfort was approved by a vote of at least two-thirds (2/3) of the
Original Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors" immediately
following their election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This
10
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Tri-City Mechanical, Inc.
1741 S. Holbrook Lane
Tempe, AZ 85281
To Executive --------------------
--------------------
--------------------
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was
11
terminated without disability or good cause, as defined in paragraphs 4(b) and
4(c), respectively, or that the Company has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne by
the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRI-CITY MECHANICAL, INC.
By:
Name:
Title:
EXECUTIVE:
Michael Nothum, Jr.
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Western
Building Services, Inc. (the "Company"), a Colorado corporation and a
wholly-owned subsidiary of Comfort Systems USA, Inc., a Delaware corporation
("Comfort"), and Charles W. Klapperich ("Executive") is hereby entered into and
effective as of the _____ day of ___________________, 1997, the date of the
consummation of the initial public offering of the common stock of Comfort. This
Agreement hereby supersedes any other employment agreements or understandings,
written or oral, between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing commercial and residential heating, ventilation and air
conditioning ("HVAC"), plumbing and electrical services (collectively, "HVAC
Business").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and Comfort's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and Comfort, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and Comfort;
this information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as President and Chief Executive
Officer of the Company. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of, and consistent with
Executive's position as, President and Chief Executive Officer of the Company
and will report directly to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained
1
and, subject to paragraph 1(c), agrees to devote substantially all of his
business time, attention and efforts to promote and further the business of the
Company.
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making personal investments
in such form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall not be required by the Company or the performance of
his duties to relocate from Denver, Colorado.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Effective ____________, 1997, the base salary payable to
Executive shall be $107,082 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would, in all likelihood, require approval
by the Board or a duly constituted committee thereof. In no event shall
Executive's base salary be reduced to a level below the greater of $107,082, or
90% of Executive's base salary during the prior contract year.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Executive and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in effect
from time to time, benefits provided to Executive under this clause (i) to
be at least equal to such benefits provided to Comfort executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Executive upon submission
of any request for reimbursement, and in a format and manner consistent
with the Company's expense reporting policy.
2
(iii) The Company shall provide Executive with other executive
perquisites as may be available to or deemed appropriate for Executive by
the Board and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive will not, during the period of his employment by or with the
Company, and for a period of two (2) years immediately following the termination
of his employment under this Agreement, for any reason whatsoever, other than a
termination by the Company without cause or by Executive for Good Reason,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any HVAC Business in direct competition with the
Company or Comfort, within 100 miles of where the Company or any of
Comfort's subsidiaries conducts business, including any territory serviced
by the Company or Comfort or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Comfort (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company or Comfort (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company or Comfort (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or Comfort within the
Territory;
(iv) call upon any prospective acquisition candidate, on Executive's
own behalf or on behalf of any competitor, which candidate was, to
Executive's actual knowledge after due inquiry, either called upon by the
Company or Comfort (including the respective subsidiaries thereof) or for
which the Company or Comfort made an acquisition analysis, for the purpose
of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
(b) Because of the difficulty of measuring economic losses to the Company
and Comfort as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable
3
damage that could be caused to the Company and Comfort for which they would have
no other adequate remedy, Executive agrees that the foregoing covenant may be
enforced by Comfort or the Company in the event of breach by him, by injunctions
and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) on the date of the execution of this Agreement and
the current plans of Comfort (including Comfort's other subsidiaries); but it is
also the intent of the Company and Executive that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company and Comfort, as the case may be (including Comfort's other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Comfort, as the case may be (including
Comfort's other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Comfort, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Comfort or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants
4
of Executive made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five (5) years (the "Term"),
and, unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Executive shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Executive's employment
hereunder provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Executive shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Executive or
Executive's doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Executive for good cause, which shall be: (1)
Executive's willful, material and irreparable breach of this Agreement; (2)
Executive's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities hereunder; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company or Comfort which materially and adversely affects the
operations or reputation of the Company or Comfort; (4) Executive's conviction
of a felony crime; or (5) confirmed positive illegal drug test result. In the
event of a termination for good cause, as enumerated above, Executive shall have
no right to any severance compensation.
5
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Executive may, without cause, and without Good Reason (as hereinafter defined)
terminate this Agreement and Executive's employment, effective thirty (30) days
after written notice is provided to the Company. Executive may only be
terminated without cause by the Company during the Term hereof if such
termination is approved by at least eighty percent (80%) of the members of the
Board of Directors of Comfort. Should Executive be terminated by the Company
without cause or should Executive terminate with Good Reason during the first
three (3) years of the Term (the "Initial Term"), Executive shall receive from
the Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for one (1) year, whichever amount
is greater. Should Executive be terminated by the Company without cause or
should Executive terminate with Good Reason during the final two (2) year period
of the Term, Executive shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
the Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without cause, rather than the Company terminating his employment
pursuant to this paragraph 5(d), Executive shall receive no severance
compensation.
Executive shall have "Good Reason" to terminate this Agreement and his
employment hereunder upon the occurrence of any of the following events: (a)
Executive is demoted by means of a reduction in authority, responsibilities or
duties to a position of less stature or importance within the Company than the
position described in Section 1 hereof; or (b) Executive's annual base salary as
determined pursuant to Section 2 hereof is reduced to a level that is less than
90% of the base salary paid to Executive during any prior contract year under
this Agreement, unless Executive has agreed in writing to that demotion or
reduction.
(e) CHANGE IN CONTROL OF COMFORT. In the event of a "Change in Control of
Comfort" (as defined below) during the Initial Term, refer to paragraph 11
below.
Upon termination of this Agreement for any reason provided above,
Executive shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under paragraph 8 herein and Executive's
obligations under paragraphs 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent
6
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
If Executive is terminated without cause or terminates his employment
hereunder with Good Reason, (a) the Company shall make the insurance premium
payments contemplated by COBRA for a period of 18 months after such termination,
(b) the Executive shall be entitled to receive a pro rated portion of any annual
bonus to which the Executive would have been entitled for the year during which
the termination occured had the Executive not been terminated and (c) all
options to purchase CSI stock shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Comfort or
their representatives, vendors or customers which pertain to the business of the
Company or Comfort shall be and remain the property of the Company or Comfort,
as the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Comfort which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's or Comfort's relationships or agreements with their respective
significant vendors or customers or any other significant and material trade
secret of the Company or Comfort, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
7
than an action by the Company or Comfort against Executive), by reason of the
fact that he is or was performing services under this Agreement, then the
Company shall indemnify Executive against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In
the event that both Executive and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Executive cannot be held liable to the Company or Comfort for errors or
omissions made in good faith where Executive has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company or Comfort.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Executive understands and acknowledges that Comfort and/or the Company may be
merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Comfort and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated prior to the end of the Initial Term, then the provisions of this
paragraph 11 shall be applicable.
8
(b) In the event of a pending Change in Control wherein Comfort and/or the
Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Comfort's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Comfort's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Comfort and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Comfort and/or the Company without cause during the Initial Term and the
applicable portions of paragraph 4(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be triple the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(d) and the
non-competition provisions of paragraph 3 shall all apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Comfort Common Stock, such that he may convert the options
to shares of Comfort Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Comfort or an employee benefit plan of
Comfort, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Comfort: (A) the individuals who,
as of the closing date of
9
Comfort's initial public offering, constitute the Board of Directors of
Comfort (the "Original Directors"); (B) the individuals who thereafter are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of Comfort and whose election, or
nomination for election, to the Board of Directors of Comfort was approved
by a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of Comfort shall approve a merger,
consolidation, recapitalization, or reorganization of Comfort, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Comfort immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Comfort shall approve a plan of complete
liquidation of Comfort or an agreement for the sale or disposition by
Comfort of all or a substantial portion of Comfort's assets (i.e., 50% or
more of the total assets of Comfort).
(f) Executive must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control may
take place.
(g) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Executive.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Executive has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed
10
by a duly authorized officer of the Company and Executive, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Western Building Services, Inc.
6820 N. Broadway, #G
Denver, CO 80221-2850
To Executive: Charles W. Klapperich
9650 W. 92nd Pl.
Arvada, CO 80005
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect provided that the parties may agree to use arbitrators
other than those provided by the AAA. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in paragraphs 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award
11
in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
WESTERN BUILDING SERVICES, INC.
By:
Name:
Title:
EXECUTIVE:
Charles W. Klapperich
12
Comfort Systems USA, Inc.
4801 Woodway -Suite 300E
Houston, Texas 77056
May 8, 1997
To the Stockholders of the Companies
Reference is made to those certain Agreements and Plans of Organization (the
"Agreements"), each dated as of March 18, 1997, by and among the parties as
reflected on Exhibit A attached hereto. Each of the undersigned hereby agrees,
and Comfort Systems USA, Inc., a Delaware corporation ("Comfort"), hereby agrees
with respect to Section 5, as follows:
1. NONCOMPETITION. Each of the undersigned hereby agrees to adhere to and
be bound by the terms, covenants, restrictions, prohibitions and limitations of
Section 13 of the Agreements as if each of the undersigned was a STOCKHOLDER as
defined therein.
2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Each of the undersigned
hereby agrees to adhere to and be bound by the terms, covenants, restrictions,
prohibitions and limitations of Section 14.1, 14.3 and 14.4 of the Agreements as
if each of the undersigned was a STOCKHOLDER as defined therein, and agrees to
adhere to and be bound by the terms, covenants, restrictions, prohibitions and
limitations of Sections 14.2, 14.3 and 14.4 of the Agreements as if each was
COMFORT and NEWCO as defined therein.
3. TRANSFER RESTRICTIONS. Each of the undersigned hereby agrees to adhere
to and be bound by the terms, covenants, restrictions, prohibitions and
limitations of Section 15 of the Agreements with respect to all of the shares of
Comfort Common Stock owned of record by each of the undersigned as of the
Funding and Consummation Date (as defined in the Agreements) as if each of the
undesigned was a STOCKHOLDER as defined therein. Each of the undersigned
expressly acknowledges and agrees that the stock certificates evidencing
Stockholders of the Companies
May 8, 1997
Page 2
all of such shares shall bear the restrictive legend contained in Section 15.1
of the Agreements.
4. FEDERAL SECURITIES ACT REPRESENTATIONS. Each of the undersigned hereby
agrees to adhere to and be bound by the terms, covenants, restrictions,
prohibitions and limitations of Section 16 of the Agreements with respect to all
of the shares of Comfort Common Stock owned of record by the undersigned as of
the Funding and Consummation Date as if each of the undesigned was a STOCKHOLDER
as defined therein. Further, each of the undersigned expressly acknowledges and
agrees that the stock certificates evidencing all of such shares shall bear the
restrictive legend contained in Section 16.1 of the Agreements.
5. REGISTRATION RIGHTS. Comfort hereby grants each of the undersigned the
same piggyback registration rights set forth in Section 17.1 of the agreements
granted to the STOCKHOLDERS (as defined in the Agreements), subject to the
terms, covenants, restrictions, prohibitions and limitations of Sections 17.3,
17.4 and 17.5 of the Agreements, which the undersigned agree to adhere to and to
be bound by.
6. COUNTERPARTS. This letter may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first above written.
--------------------------------------
Fred M. Ferreira
--------------------------------------
J. Gordon Beittenmiller
Stockholders of the Companies
May 8, 1997
Page 3
-------------------------------------
Reagan S. Busbee
Notre Capital Ventures, II L.L.C.
By:__________________________________
Name: Steven S. Harter
Title: President
-------------------------------------
S. Craig Lemmon
-------------------------------------
Milburn E. Honeycutt
--------------------------------------
William George, III
------------------------------------
Brian Vensel
--------------------------------------
Emmett E. Moore
Stockholders of the Companies
May 8, 1997
Page 4
--------------------------------------
John W. Boulabasis
-------------------------------------
Stephen R. Baur
--------------------------------------
Shellie LePori
-------------------------------------
Constance Drew
--------------------------------------
John Mercandante, Jr.
-------------------------------------
Lawrence Martin
-------------------------------------
Norton Family Trust, Carl L. Norton, Trustee
Stockholders of the Companies
May 8, 1997
Page 5
-------------------------------------
Larry E. Jacobs
-------------------------------------
Richard T. Howell
-------------------------------------
Rod Crosby
-------------------------------------
Jennifer Summerford
--------------------------------------
Infoscope Partners, Inc.
--------------------------------------
Melinda Malik
-------------------------------------
Steven T. Zellers
Stockholders of the Companies
May 8, 1997
Page 6
ACCEPTED AND AGREED, as of the day and year first above written as to Section 5.
COMFORT SYSTEMS USA, INC.
By:___________________________________
Stockholders of the Companies
May 8, 1997
Page 7
EXHIBIT A
Quality Air Heating and Cooling, Inc.
Tri-City Mechanical, Inc.
Atlas Air Conditioning Co.
S.M. Lawrence Co., Inc.
Accurate Air Systems, Inc.
Contract Service Inc.
Tech Heating and Air Conditioning, Inc.
Western Building Services, Inc.
Eastern Heating and Cooling, Inc.
Seasonair, Inc.
Standard Heating and Air Conditioning Co.
Freeway Heating and Air Conditioning, 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
May 27, 1997
5
1,000
12-MOS
DEC-31-1996
DEC-31-1996
1
0
0
0
0
1
0
0
178
177
0
0
0
1
0
178
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0