formsc14d9.htm
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14D-9
(RULE
14d-101)
SOLICITATION/RECOMMENDATION
STATEMENT
UNDER
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
ACR
GROUP, INC.
(Name
of
Subject Company)
ACR
GROUP, INC.
(Name
of
Person Filing Statement)
Common
Stock, Par Value $0.01 Per Share
(Title
of
Class of Securities)
00087B
10 1
(CUSIP
Number of Class of Securities)
Anthony
Maresca
ACR
Group, Inc.
3200
Wilcrest Drive, Suite 440
Houston,
Texas 77042
(713)
780-8532
(Name,
Address and Telephone Number of Person Authorized to
Receive
Notice and Communications on Behalf of the Person Filing Statement)
With
a
copy to:
David
S.
Peterman
Fulbright
& Jaworski L.L.P.
Fulbright
Tower
1301
McKinney, Suite 5100
Houston,
Texas 77010
o Check
the box if the filing relates solely to preliminary communications made before
the commencement of a tender offer.
The
name
of the subject company is ACR Group, Inc., a Texas corporation (the “Company”).
The address of the principal executive offices of the Company is 3200 Wilcrest
Drive, Suite 440, Houston, Texas 77042. The telephone number of the Company
at its principal executive offices is (713) 780-8532.
The
title
of the class of equity securities to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (together with the Exhibits and Annexes hereto,
this
“Statement”) relates is the common stock, par value $0.01 per share, of the
Company (the “Common Stock”).
As
of
July 3, 2007, 12,063,765 shares of Common Stock were outstanding (the
“Shares”).
Item
2. Identity and Background of Filing
Person.
The
filing person is the subject company. The Company’s name, business address
and business telephone number are set forth in Item 1 above.
This
Statement relates to the offer by Coconut Grove Holdings, Inc., a Texas
corporation (the “Purchaser”) and wholly owned subsidiary of Watsco, Inc., a
Florida corporation (“Watsco”), to purchase all outstanding Shares of Common
Stock of the Company, other than the Committed Shares (defined below), at a
purchase price of $6.75 per Share in cash, without interest thereon, less any
required withholding taxes, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated July 9, 2007 (as amended or
supplemented from time to time, the “Offer to Purchase”), and in the related
Letter of Transmittal (which, together with the Offer to Purchase, as may be
amended or supplemented from time to time, constitute the “Offer”). The
Offer is further described in a Tender Offer Statement on Schedule TO (as
amended or supplemented from time to time, the “Schedule TO”) filed by the
Purchaser and Watsco with the Securities and Exchange Commission (the
“Commission”) on July 9, 2007. Copies of each of the Offer to
Purchase and the Letter of Transmittal are attached as Exhibit (a)(1)(i) and
Exhibit (a)(1)(ii), respectively, to the Schedule TO, and each is incorporated
herein by reference. “Committed Shares” means the 3,122,819 Shares of
Common Stock beneficially owned as of June 29, 2007 by all of the Company’s
executive officers and certain of their respective affiliates which the holders
have agreed to sell to Watsco and Purchaser for $6.75 per share following the
Offer pursuant to sale and support agreements among such shareholders, the
Purchaser and Watsco (the “Committed Shares”). The Committed Shares
represent approximately 26% of ACR’s outstanding shares of Common
Stock. There are 8,778,196 Shares eligible for tender in the
Offer.
The
Offer
is being made pursuant to the Agreement and Plan of Merger, dated as of July
3,
2007, among Watsco, the Company and the Purchaser (the “Merger
Agreement”). The Merger Agreement provides that the Purchaser will
commence a tender offer for all of our outstanding Shares of Common Stock
(other
than the Committed Shares) at a price per Share equal to $6.75. The
Purchaser’s obligation to purchase Shares in the Offer is subject to certain
conditions, including but not limited to the number of tendered Shares, together
with the Committed Shares, being at least 66⅔% of the Company’s outstanding
shares, subject to a reduction of the minimum amount in certain
circumstances. The Merger Agreement further provides that, as soon as
practicable after the consummation of the Offer and the satisfaction or waiver
of certain conditions in the Merger Agreement, the Purchaser will merge with
and
into the Company (the “Merger”), with the Company continuing as the surviving
corporation and a wholly owned subsidiary of Watsco. In the Merger,
each outstanding Share (other than 373,001 restricted Shares held by certain
officers and key employees of the Company and its subsidiaries (the “Converted
Company Restricted Shares”), Shares tendered in the Offer, the Committed Shares
and the Dissenting Shares (as defined below)) will be converted into the
right
to receive the price paid in the Offer, without interest. Under the Merger
Agreement, the obligation of Watsco or the Purchaser to consummate the Offer
and
both the Company’s and Watsco’s obligations to effect the Merger are conditioned
on regulatory approvals and other customary conditions. The Merger
Agreement contains certain termination rights and provides that, upon the
termination of the Merger Agreement under specified circumstances, the Company
would be required to pay Watsco a termination fee of $5,000,000.
Item
3. Past Contacts, Transactions, Negotiations and
Agreements.
Certain
contracts, agreements, arrangements or understandings between the Company or
its
affiliates and certain of its directors and executive officers are, except
as
noted below, described in the Information Statement (the “Information
Statement”) pursuant to Rule 14f-1 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that is attached as Annex B to this Statement and
is incorporated herein by reference. Except as described in this Statement
(including in the Exhibits hereto and in Annex B hereto) or incorporated herein
by reference, to the knowledge of the Company, as of the date of this Statement,
there is no material agreement, arrangement or understanding or any actual
or
potential conflict of interest between the Company or its affiliates and (1)
the
Company’s executive officers, directors or affiliates or (2) the Purchaser,
Watsco or their respective executive officers, directors or
affiliates.
Agreements
with Watsco
Merger
Agreement. The summary of the Merger Agreement and
the description of the conditions to the Offer contained in the Introduction
and
Section 13 of the Offer to Purchase, which was mailed to shareholders on or
about July 9, 2007, are incorporated herein by reference. Such summary and
description are qualified in their entirety by reference to the Merger
Agreement, which has been filed as Exhibit (e)(1) hereto and is incorporated
herein by reference.
Sale
and Support Agreements. The following is a summary
of the Sale and Support Agreement, a form of which has been filed as Exhibit
(d)(2) to the Schedule TO filed by Watsco on July 9, 2007, and is incorporated
herein by reference. The summary is qualified in its entirety by
reference to the Sale and Support Agreement.
Prior
to
entering into the Merger Agreement, Watsco and the Purchaser entered into a
Sale
and Support Agreement (the “Sale and Support Agreement”) with each of Messrs. A.
Stephen Trevino, Alex Trevino, Jr., and Anthony R. Maresca, who constitute
all
of the executive officers of the Company, and certain of their respective
affiliates who own shares of the Company (collectively, the “Supporting
Shareholders”). Collectively, the Supporting Shareholders
beneficially owned as of June 29, 2007, 3,122,819 Shares, representing
approximately 26% of the Company’s outstanding Shares as of June 29, 2007 (the
“Committed Shares”). The Supporting Shareholders have agreed to sell
the Committed Shares to Purchaser for $6.75 per Share following the closing
of
the Offer.
The
Sale
and Support Agreement also provides that in the event the Company’s Board of
Directors approves a Superior Proposal or a transaction contemplated by an
Alternative Proposal is consummated, each Supporting Shareholder shall pay
to
Watsco, within five business days following the receipt of proceeds in
connection with such Superior Proposal or Alternative Proposal, as the case
may
be, an amount in cash, in a manner directed by Watsco, equal to 100% of the
proceeds received by Supporting Shareholder in excess of $6.75 per Share, net
of
any applicable taxes owed by such Supporting Shareholder. To the
extent the consideration a Supporting Shareholder receives pursuant to the
transactions contemplated by a Superior Proposal or Alternative Proposal, as
the
case may be, is securities, the value of such securities shall be calculated
as
follows: (i) in the case of securities for which there is a public trading
market, the value shall be the average of the last sales price for such
securities on the five trading days immediately preceding the date the
applicable Superior Proposal or Alternative Transaction is consummated; or
(ii)
in the case of securities for which there is no public trading market, the
value
shall equal that amount which is mutually agreed to by the Supporting
Shareholder and Watsco.
Other
than with respect to the provisions described in the immediately preceding
paragraph, the Sale and Support Agreement will terminate upon the earlier to
occur of (i) the effective time of the merger, (ii) upon the withdrawal of
the
Offer by Watsco in accordance with the terms of the Merger Agreement or (iii)
termination of the Merger Agreement in accordance with its terms.
Confidentiality
Agreement. On June 1, 2005, the Company and Watsco
entered into a confidentiality agreement (the “Confidentiality
Agreement”). Under the terms of the Confidentiality Agreement, the
Company and Watsco agreed to furnish the other party on a confidential basis
certain information concerning their respective businesses in connection with
the evaluation of a possible business combination between Watsco and the
Company. This summary is qualified in its entirety by reference to
the Confidentiality Agreement, which is included as Exhibit (d)(3) to the
Schedule TO, and is incorporated herein by reference.
Effects
of the Offer and the Merger under Company Stock Plans and Agreements between
the
Company and its Directors and Executive Officers
Interests
of Certain Persons. Certain members of the Company’s
management and its Board of Directors (the “Board”) may be deemed to have
interests in the transactions contemplated by the Merger Agreement that are
different from or in addition to their interests as Company shareholders
generally. The Board was aware of these interests and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
Restricted
Stock. The Merger Agreement provides that as of the
effective time of the Merger, 39,750 outstanding restricted shares of Common
Stock held by independent directors of the Company immediately prior to the
effective time of the Merger will automatically become fully vested and
converted into the right to receive an amount equal to the Per Share Price,
without interest. In addition, by virtue of the Merger and without
any action on the part of the holders thereof except the execution and delivery
of documentation or performance of other actions required by Watsco’s 2001
Incentive Compensation Plan, 373,001 outstanding restricted shares of Common
Stock held by certain officers and key employees of the Company and its
subsidiaries immediately prior to the effective time of the Merger will be
converted automatically into a number of restricted shares of Watsco common
stock (each, an “Assumed Restricted Share Award”) on substantially the same
terms and conditions as were applicable to the restricted shares prior to such
time. The number of shares of Watsco common stock subject to each
Assumed Restricted Share Award will be equal to the product of the number of
restricted shares of Common Stock to be converted multiplied by $6.75 divided
by
the closing market price of Watsco’s common stock as reported on the New York
Stock Exchange on the trading day immediately preceding the effective time
of
the Merger (rounded down to the nearest whole share).
The
foregoing summary is qualified in its entirety by reference to the Merger
Agreement, which has been filed as Exhibit (e)(1) hereto and is
incorporated herein by reference.
Section
16 Matters. Prior to the effective time of the
Merger, the Company will take all such steps as may be required to cause any
dispositions by each officer and director who is subject to the reporting
requirements under Section 16(a) of the Exchange Act of Common Stock or options
resulting from the Merger, to be exempt from liability under Rule 16b-3
promulgated under the Exchange Act.
Indemnification;
Directors’ and Officers’
Insurance. The Merger Agreement provides that the
Company will obtain prior to the effective time of the Merger “tail”
insurance policies with a claims period of at least six years from the effective
time of the Merger with respect to directors’ and officers’ liability insurance
in amount and scope at least as favorable as the Company’s existing policies for
claims arising from facts or events that occurred on or prior to the effective
time of the Merger); provided, that, if the aggregate annual premiums for such
insurance exceeds 150% of the current aggregate annual premium, then Watsco
shall provide or cause to be provided a policy for the applicable individuals
with the best coverage as shall then be available at an annual premium equal
to
150% of the current aggregate annual premium.
Representation
on the Board. The Merger Agreement sets forth
certain agreements between the Company, Watsco and the Purchaser regarding
the
election or appointment of directors to the Company’s Board concurrently with
the purchase and payment for Shares pursuant to the Offer as a result of which
Watsco and the Purchaser own beneficially at least a majority of the then
outstanding Shares. The summary of these agreements is contained in
Section 13 of the Offer to Purchase, which was mailed to shareholders on or
about July 9, 2007 and filed as Exhibit (a)(1)(i) to the Schedule TO, and is
incorporated into this Statement by reference. Such summary is qualified
in its entirety by reference to the Merger Agreement, which has been filed
with
the Commission by the Company and has been filed as Exhibit (e)(1) to this
Statement and is incorporated in this Statement by reference.
Item
4. The Solicitation or
Recommendation.
Recommendation
of the Board
On
July
3, 2007, the Board unanimously, among other things, (i) declared that the Merger
Agreement and the transactions contemplated thereby, including the Offer and
the
Merger, are in the best interests of the shareholders of the Company, (ii)
approved and declared advisable the Merger Agreement and the transactions
contemplated thereby, and (iii) recommended that the shareholders of the Company
tender their Shares to the Purchaser pursuant to the Offer and, if required
by
applicable law, adopt the Merger Agreement and approve the Merger.
Background
of the Transaction
As
part
of the continuous evaluation of its businesses and plans, the Company regularly
considers a variety of strategic options and transactions. From time
to time, the Company has considered a variety of potential strategic
transactions in the wholesale distribution of air conditioning, heating and
refrigeration equipment and related parts and services.
Prior
to
March 1, 2004, Watsco had occasional contact with the Company to assess interest
in a transaction with Watsco.
On
March
1, 2004, Watsco and the Company advanced conversations and demonstrated an
interest in discussing a transaction between Watsco and the
Company.
On
April
9, 2004, a member of Watsco’s board of directors met and discussed a transaction
with the Company’s management.
On
April
13, 2004, Watsco sent the Company a letter indicating a strong interest in
a
transaction at $2.75 per share of the Company’s outstanding Common
Stock.
On
June
4, 2004, Watsco sent the Company a letter in follow up to its April 13, 2004
letter reaffirming its interest at $3.00 per share of the Company’s outstanding
Common Stock.
On
August
20, 2004, the Company retained Houlihan Lokey Howard & Zukin (“Houlihan
Lokey”) as exclusive financial advisor.
On
August
30, 2004, Watsco received a confidential information memorandum regarding the
Company from Houlihan Lokey.
During
August 2004 and September 2004, Watsco and the Company continued informal
discussions regarding a potential transaction between Watsco and the
Company.
On
February 9, 2005, one of Watsco’s officers and two of the Company’s officers met
and had informal discussions regarding a transaction with the
Company.
On
June
1, 2005, Watsco and the Company entered into a confidentiality agreement to
facilitate the sharing of information with respect to their
discussions.
From
July
6, 2005 to July 7, 2005, the CEO of Watsco and the CEO of the Company met and
had informal discussions regarding a transaction with the Company.
On
July
10, 2005, officers of Watsco met with officers of the Company and discussed
information in furtherance of a transaction with the Company.
From
July
2005 to March 2007, the Company had occasional contact with Watsco on an
informal basis.
On
March
15, 2007, Watsco contacted the CEO of the Company to express interest in a
transaction between Watsco and the Company.
On
March
16, 2007, Watsco sent a letter to the Board proposing the acquisition of the
Company’s outstanding shares of Common Stock by Watsco for $7.00 per
share.
On
March
23, 2007, the Company informed Watsco that a meeting of the Company’s Board had
been convened and that the Company had authorized the initiation of due
diligence by Watsco.
On
March
28, 2007, Watsco and the Company confirmed the use of its previously executed
Confidentiality Agreement dated June 1, 2005.
On
April
9, 2007, the Company’s Board authorized the retention of Houlihan Lokey to
provide investment banking services.
On
April
20, 2007, the Company executed an engagement letter with Houlihan Lokey for
advisory services and the rendering of a fairness opinion in connection with
a
transaction with Watsco.
On
April
30, 2007, Watsco retained Grant Thornton to perform due diligence with respect
to the Company.
On
May
25, 2007, Watsco’s board of directors unanimously authorized, subject to the
completion of satisfactory due diligence, Watsco’s officers to negotiate,
prepare and enter into a merger agreement and to execute such other and further
documents in the officers’ discretion as may be necessary or advisable to
effectuate and consummate the merger agreement and transactions contemplated
therein.
On
May
30, 2007, Grant Thornton substantially completed its due diligence procedures
and reported its findings to the management of Watsco.
On
May
31, 2007, results of Watsco’s due diligence were discussed with the
Company.
On
June
7, 2007, a revised price $6.75 per share of the Common Stock was agreed to
by
the parties.
On
June
8, 2007, Watsco’s legal advisor Moore & Van Allen PLLC (“MVA”) delivered a
draft of the Merger Agreement and the sale and support agreement for the
transaction to the Company’s legal advisor Fulbright & Jaworski L.L.P.
(“Fulbright”).
On
June
13, 2007, the Board met telephonically to discuss Watsco’s initial draft Merger
Agreement. Fulbright participated in the call. The Board’s
discussion focused on the deal protection provisions in Watsco’s initial draft
Merger Agreement, including that it provided for a traditional no-shop
provision, contemplated that the tender offer would remain open for the
statutory minimum period of 20 business days, required that the Company provide
Watsco seven business days notice before it accepted a superior proposal,
defined “superior proposal” as an offer that exceeded Watsco’s offer by more
than $1.00 per share, proposed a termination fee of $5 million, was coupled
with
a tender and support agreement to be entered into by the Company’s three
executive officers with respect to the Company shares owned by each of them,
and
a walk away date providing that either party could terminate the agreement
if
closing had not occurred within seven months provided that Watsco would have
the
unilateral right at its option to extend the termination date for an additional
three months. The Board was concerned that the combined effect of the
deal protection provisions, as proposed by Watsco, might be unduly
restrictive. After extensive discussion, the Board settled on a set
of counter-proposals to the deal protection provisions, and instructed Fulbright
to discuss with MVA the deal protection provisions and the Company’s
counter-proposals.
On
June
14, 2007, Fulbright and MVA discussed the deal protection provisions on a
conference call. Fulbright expressed the Board’s concern that the
combined effect of the deal protection provisions, as proposed by Watsco, might
be unduly restrictive, and presented orally the Company’s
counter-proposals. MVA requested that Fulbright present its concerns
in writing, including the Company’s counter-proposals with respect to the deal
protection provisions.
On
June
15, 2007, Fulbright distributed to the Company’s senior management its draft
written response to Watsco’s proposed deal protection provisions, and senior
management concluded that the draft written response was consistent with the
Board’s conclusions. On June 15, Fulbright sent its written response
to MVA. The Company’s counter-proposals included that the Company be
permitted a “go-shop” period of 45 calendar days following the execution of the
Merger Agreement to actively canvass the market, which would then be followed
by
a traditional no-shop, that the tender offer period be for a period equal to
the
period of the “go-shop,” that the notice period be shortened to three calendar
days, that the definition of “superior proposal” be modified to include any
proposal of an alternative transaction that the Board concluded it would be
required to accept in accordance with its fiduciary duties without any
requirement that a competing offer exceed Watsco’s offer by any minimum amount,
that the termination fee be bifurcated with a termination fee of 1.5% of the
Company’s equity value during the “go-shop” period and of 3.0% during the
no-shop period, that the executive officers be allowed to terminate their
personal tender and support agreements with Watsco if the Board terminated
the
agreement because of a superior proposal, and the termination date be reduced
to
three months without Watsco having the unilateral right to extend it for an
additional period.
On
June
20, 2007, Fulbright and MVA discussed by telephone the Company’s
counter-proposals regarding the deal protection provisions. Later
on June 20, 2007, MVA provided Fulbright with Watsco’s response to the
Company’s counter-proposals. MVA advised that Watsco was unwilling to
proceed with the transaction if the Company insisted on having a “go-shop”
period, was unwilling to be required to keep the tender offer open for more
than
20 business days, and was unwilling to reduce the termination fee below $5
million. However, MVA advised that Watsco was willing to reduce the
notice period to five business days, modify the definition of “superior
proposal” to be an offer that exceeded Watsco’s offer by more than $0.30 per
share, would modify the tender and support agreements with the executive
officers so that they would be terminated if the Board terminated the agreement
because of a superior proposal, provided that under such a circumstance the
executive officers would be obligated to pay to Watsco the net proceeds to
the
executive officers for such shares in excess of $6.75 a share, and would shorten
the termination date to four months but insisted that Watsco retain the
unilateral right to extend it for an additional period of one
month.
On
June
21, 2007, management advised the Board by email of Watsco’s response and the
status of the negotiations.
On
June
22, 2007, MVA delivered a revised draft of the Merger Agreement and a form
of
sale and support agreement to Fulbright, which drafts reflected Watsco’s revised
proposals.
On
June
23, 2007, Watsco talked with Houlihan Lokey several times, and expressed its
continued belief that its offer was compelling.
On
June
25, 2007, Fulbright delivered its comments to the revised Merger Agreement
to
MVA, noting that the deal protection provisions were subject to further
discussion.
On
June
26, 2007, Fulbright and MVA discussed the Company’s comments to the revised
draft Merger Agreement by telephone, and resolved substantially all of the
open
issues other than those relating to the deal protection provisions.
On
June
28, 2007, the Board met telephonically to discuss Watsco’s revised Merger
Agreement and the open issues including those regarding the deal protection
provisions. Fulbright and Houlihan Lokey participated by
telephone. The Board noted that substantially all of the open issues
on the merger agreement had been resolved other than those relating to the
deal
protection provisions. After extensive discussion, the Board
concluded that it would reiterate its position on what it believed to be were
the three most important components of the deal protection provisions, and
instructed Houilhan Lokey to present the Company’s counter-proposal to Watsco’s
revised proposals. Houlihan Lokey advised Watsco that the Company
believed the termination fee should be reduced to 3.0% of the Company’s equity
value, that the definition of “superior proposal” should be modified to include
any proposal of an alternative transaction that the Board concluded it would
be
required to accept in accordance with its fiduciary duties without any
requirement that a competing offer exceed Watsco’s offer by any minimum amount,
and that the tender offer period be extended to 40 days.
On
June
29, 2007, Watsco advised Houlihan Lokey that Watsco would be willing to agree
to
the Company’s proposal regarding the definition of “superior proposal,” but that
Watsco was unwilling to reduce the termination fee or to lengthen the
tender offer period. In addition, Watsco advised Houlihan Lokey that
this represented Watsco’s final concessions regarding the deal protection
provisions, and that Watsco was only willing to proceed with the transaction
on
those terms.
On
June
30, 2007, the Company Board met telephonically to consider the proposed
transaction. Fulbright and Houlihan Lokey participated by
telephone. The Company’s senior management reviewed
the proposed transaction with the Board. Management also updated the
Board regarding the Company’s business and recent results of operations,
including trends in the Company’s industry. The Board also reviewed
with Fulbright the material terms of the Merger Agreement, including Watsco’s
final proposals regarding the deal protection provisions. During the
meeting, Houlihan Lokey reviewed its analysis of the proposed transaction,
and
delivered its oral opinion that, as of the date of the meeting and based upon
and subject to the factors, assumptions, matters, procedures, limitations and
qualifications it summarized and as would be set forth in its written opinion,
the consideration to be received by the holders of Company common stock in
the
transaction was fair, from a financial point of view, to such
holders. The Board was also advised by Fulbright with respect to its
fiduciary obligations in connection with considering and approving the Merger
Agreement. Following further discussion and based on the totality of
the information presented and the fairness opinion issued by Houlihan Lokey,
the
Board, among other things, instructed management to undertake to finalize and
execute the definitive Merger Agreement and related documentation.
From
June
30 through the afternoon of July 3, 2007, management of the Company and Watsco,
together with Fulbright and MVA, continued to work to finalize the Merger
Agreement and conclude Watsco’s remaining due diligence inquiry.
On
July 3, 2007, the Board unanimously approved the Merger Agreement, and declared
the transaction to be in the best interests of the Company's
shareholders.
Following
the close of the market on July 3, 2007, the Company, Watsco and the Purchaser
executed the Merger Agreement and Watsco, the Purchaser and the other
signatories to the Sale and Support Agreements executed such
agreements.
On
July
5, 2007, Watsco and the Company issued a joint press release announcing the
transaction.
Reasons
for the Recommendation of the Board of Directors
In
approving the Offer, the Merger, the Merger Agreement and the transactions
contemplated thereby and recommending that all holders of Shares accept the
Offer and tender their Shares pursuant to the Offer and, if required, adopt
the
Merger Agreement and approve the Merger, the Board considered a number of
factors, including:
Company
Operations and Financial Condition. The Board considered the current
and historical financial condition and results of operations of the Company,
as
well as its prospects and objectives, including the risks involved in achieving
those prospects and objectives, and the current and expected conditions in
the
HVAC wholesale industry. The Board also considered the benefits to
the Company’s shareholders of receiving a more certain and accelerated return on
investment, in the form of the cash Offer Price at a significant premium over
recent trading prices for the Shares, in comparison with the less certain
possibility of achieving similar or greater value over time if the Company
remained independent and continued to execute its business plan. The Board
concluded that the timing, relative certainty and valuation advantages presented
by the transaction with Watsco and the Purchaser supported the
transaction.
Fairness
Opinion. The Board received and considered a presentation by
Houlihan Lokey and a written opinion of Houlihan Lokey to the effect that,
as of
the date of the opinion and based upon and subject to the various considerations
set forth in the opinion, the Offer Price to be received by the holders of
Shares in the Offer and to be received by holders of Shares in the Merger is
fair from a financial point of view to such holders. The full text
of the Houlihan Lokey written opinion dated
June 28,
2007, which sets forth, among other things,
the assumptions made, procedures followed, matters considered and limitations
on
the scope of the review undertaken by Houlihan
Lokey in rendering its opinion, is attached as Annex A and is
incorporated in its entirety herein by
reference. Company shareholders are
urged to, and should, carefully read the Houlihan
Lokey opinion in its entirety.
The Houlihan
Lokey opinion addresses only the fairness, from a financial
point of view and as of the date of the opinion, to holders of Common Stock
of
the Offer Price proposed to be paid in the
Offer and the Merger. The
Houlihan Lokey opinion
was directed solely to
the Board and was not intended to be, and does not constitute, a recommendation
to any Company shareholder as whether to tender Shares or
to how any shareholder should vote or act
on any matter
relating to the proposed Offer or Merger. The Board
considered and relied upon the experience and reputation of Houlihan Lokey
as
financial advisors in connection with mergers and acquisitions, underwritings
and secondary distributions of securities and private placements, the firm’s
knowledge of the HVAC wholesale industry, and the firm’s experience rendering
fairness opinions in merger and acquisition transactions.
Trading
Price of the Shares and Offer Price. The Board
considered the recent and historical stock price performance of the Shares
and
considered that the Offer Price represented a premium of approximately 46%
over
the closing price of the Shares on the AMEX exchange on June 29, 2007, a
premium of approximately 48% over the average of the closing prices of the
Shares on the AMEX exchange for the last 30 days of trading prior to
June 30, 2007, a premium of approximately 5% over the highest closing price
of the Shares on the AMEX exchange in the 52 weeks prior to June 30, 2007,
and a premium of approximately 67% over the lowest closing price of the Shares
on the AMEX exchange in the 52 weeks prior to June 30, 2007. The Board
considered the benefits to the Company’s shareholders of receiving the value
enhancement represented by these premiums to the recent and historical market
prices of the Company’s Common Stock and concluded that such benefits supported
the transaction with Watsco and the Purchaser.
The
Merger Agreement. The Board considered the financial and other terms
of the Offer, the Merger and the Merger Agreement, including the benefits of
the
transaction being structured as a first-step tender offer and second-step
merger, which may provide the Company’s shareholders with an opportunity to
receive cash on an accelerated basis, and the nature of the arm’s length
negotiation of the Merger Agreement.
Presentations
and Management View. The Board considered the presentations by, and
discussion of the terms of the Merger Agreement with, the Company’s senior
management, Fulbright and Houlihan Lokey. The Board also considered the
belief of the Company’s senior management that, based on its review of the
Company’s strategic alternatives and based on Houlihan Lokey's experience in the
industry, it was highly unlikely that any party would propose an alternative
transaction that would be more favorable to the Company and its shareholders
than the Offer and the Merger.
Strategic
Alternatives. The Board considered potential strategic alternatives
available to the Company and the viability and risks associated with each
alternative, including the prospects for the Company on a stand-alone basis
and
the risks associated with achieving and executing upon the Company’s business
plan, both short-term and long-term.
Financial
Alternatives. The Board considered potential financial alternatives, and
the viability and risks associated with such alternatives.
Minimum
Tender Condition. The Board considered the fact that the Offer is
conditioned on the number of tendered Shares, along with the Committed Shares,
being at least 66⅔% of all Shares of Common Stock then outstanding, subject
to reduction of the minimum amount in certain circumstances, as set forth in
the
Merger Agreement.
Other
Conditions to Consummation. The Board considered the likelihood that
the Offer and the Merger would be consummated, including the customary nature
of
the conditions to the Offer and the Merger, Watsco’s and the Purchaser’s
representation and warranty regarding the financing of the transactions
contemplated by the Merger Agreement, the experience, reputation and financial
condition of the Purchaser, the consents and approvals required to consummate
the Offer and the Merger, including regulatory clearance under the HSR Act
(as
defined below) and the favorable prospects for receiving such consents and
approvals.
Fiduciary
Out. The Board considered the fact that while the Merger Agreement
prohibits the Company from soliciting proposals concerning an acquisition of
the
Company, the Board, in the exercise of its fiduciary duties, would be able,
subject to compliance with certain requirements, to provide information to,
and
engage in negotiations with, a third party that makes an unsolicited Superior
Proposal (as defined in the Merger Agreement), and that the Board would be
able
to terminate the Merger Agreement and accept a Superior Proposal upon payment
to
the Purchaser of a termination fee of $5,000,000 and subject to compliance
with
certain other requirements.
Availability
of Dissenters’ Rights. The Board considered the fact that
shareholders of the Company who believe that the terms of the Offer and the
Merger are unfair have the right to dissent from the Merger and demand payment
of the fair value for their Shares, in lieu of the consideration to be received
in the Merger, in accordance with Texas law, if such shareholders do not tender
their shares in the Offer, do not vote in favor of the Merger and otherwise
comply with Texas law.
The
foregoing discussion of the information and factors considered by the Board
is
not intended to be exhaustive, but summarizes the material factors considered.
The members of the Board evaluated the Offer, the Merger and the Merger
Agreement in light of their knowledge of the business, financial condition
and
prospects of the Company, and based upon the advice of financial and legal
advisors. In view of the number and wide variety of factors, both positive
and
negative, considered by the Board, the Board did not find it practical to,
and
did not, quantify or otherwise assign relative or specific weights to the
factors considered or determine that any factor was of particular importance.
Rather, the Board viewed its position and recommendations as being based on
the
totality of the information presented to and considered by the Board. In
addition, individual members of the Board may have given differing weights
to
different factors and may have viewed certain factors more positively or
negatively than others.
Prior
to
entering into the Merger Agreement, Watsco and the Purchaser entered into Sale
and Support Agreements with each of the Supporting
Shareholders. Collectively, the Supporting Shareholders beneficially
owned as of June 29, 2007, 3,122,819 Committed Shares, representing
approximately 26% of the Company’s outstanding Shares as of June 29,
2007. The Supporting Shareholders have agreed to sell the Committed
Shares to Purchaser for $6.75 per Share following the closing of the
Offer. See “Item 3 - Past Contacts, Transactions, Negotiations and
Agreements - Agreements with Watsco – Sale and Support Agreements”
above.
To
the
best of the Company's knowledge, after reasonable inquiry, each other Section
16
officer, director, affiliate and subsidiary of the Company currently intends,
subject to compliance with applicable law, including Section 16(b) of the
Exchange Act, to tender to the Purchaser all Shares held of record or
beneficially owned by such person or entity that are eligible to be tendered
in
the Offer.
Item
5. Persons/Assets Retained, Employed, Compensated or
Used.
The
Company engaged Houlihan Lokey to act as investment banker for the Company.
Pursuant to the engagement letter between the Company and Houlihan Lokey,
dated as of April 20, 2007, Houlihan Lokey is entitled to the following
fees:
● a
cash
retainer in the amount of $50,000, payable upon retention of the
firm;
● a
cash
fee in the amount of $250,000, payable upon closing of the transactions
contemplated by the Merger Agreement;
● an
opinion fee in the amount of $400,000, less the amount of
the
cash retainer, which was payable at the time Houlihan Lokey delivered its
fairness opinion; and
● reimbursement
of certain out-of-pocket expenses.
The
Company has also agreed to indemnify Houlihan Lokey and Houlihan Lokey’s
directors, officers, agents, employees and controlling persons for certain
costs, expenses and liabilities, including certain liabilities under the federal
securities laws. In the ordinary course of business, Houlihan Lokey
may actively trade Shares and other securities of the Company, as well as
securities of the Purchaser, for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
The
Company may engage a proxy solicitation or similar firm to assist in the
solicitation of tenders of Shares and will pay any such firm fees at market
rates.
Except
as
set forth above, neither the Company nor any person acting on its behalf has
or
currently intends to employ, retain or compensate any person to make
solicitations or recommendations to the shareholders of the Company on its
behalf with respect to the Offer, except that such solicitations or
recommendations may be made by directors, officers or employees of the Company,
for which services no additional compensation will be paid.
Item
6. Interest in Securities of the Subject
Company.
No
transactions in Shares have been effected during the past 60 days by the Company
or any subsidiary of the Company or, to the knowledge of the Company, by any
executive officer, director or affiliate of the Company, other than the
execution and delivery of the Merger Agreement and the Sale and Support
Agreements.
Item
7. Purposes of the Transaction and Plans or
Proposals.
Except
as
set forth in this Statement, the Company is not currently undertaking or engaged
in any negotiations in response to the Offer that relate to (1) a tender offer
for or other acquisition of the Company’s securities by the Company, any
subsidiary of the Company or any other person; (2) an extraordinary transaction,
such as a merger, reorganization or liquidation, involving the Company or any
subsidiary of the Company; (3) a purchase, sale or transfer of a material amount
of assets of the Company or any subsidiary of the Company; or (4) any material
change in the present dividend rate or policy, or indebtedness or capitalization
of the Company.
Except
as
set forth in this Statement, there are no transactions, resolutions of the
Board, agreements in principle, or signed contracts in response to the Offer
that relate to one or more of the events referred to in the preceding
paragraph.
Item
8. Additional Information.
Texas
Business Corporation Act
We
are
subject to Part Thirteen (the “Business Combination Law”) of the Texas Business
Corporation Act (the “TBCA”). In general, the Business Combination Law
prevents an “affiliated shareholder” or its affiliates or associates from
entering into or engaging in a “business combination” with an “issuing public
corporation” during the three-year period immediately following the affiliated
shareholder’s acquisition of shares unless: (1) before the date the person
became an affiliated shareholder, the board of directors of the issuing public
corporation approved the business combination or the acquisition of shares
made
by the affiliated shareholder on that date; or (2) not less than six months
after the date the person became an affiliated shareholder, the business
combination is approved by the affirmative vote of holders of at least
two-thirds of the issuing public corporation’s outstanding voting shares not
beneficially owned by the affiliated shareholder or its affiliates or
associates.
For
the
purposes of the Business Combination Law, an “affiliated shareholder” is defined
generally as a person who is or was within the preceding three-year period
the
beneficial owner of 20% or more of a corporation’s outstanding voting shares. A
“business combination” is defined generally to include: (1) mergers or share
exchanges; (2) dispositions of assets having an aggregate value equal to 10%
or
more of the market value of the assets or of the outstanding common stock
representing 10% or more of the earning power or net income of the corporation;
(3) certain issuances or transaction by the corporation that would increase
the
affiliated shareholder’s number of shares of the corporation; (4) certain
liquidations or dissolutions; and (5) the receipt of tax, guarantee, loan or
other financial benefits by an affiliated shareholder of the
corporation.
An
“issuing public corporation” is defined generally as a Texas corporation with
100 or more shareholders, any voting shares registered under the Exchange Act,
or any voting shares qualified for trading in a national market
system.
In
accordance with the provisions of Article 13.03 of the TBCA, the Board has
approved the Merger Agreement and the transactions contemplated thereby, as
described in Item 4 above and, therefore, the restrictions of Part Thirteen
of
the TBCA are inapplicable to the Merger and the transactions contemplated by
the
Merger Agreement.
Dissenters’
Appraisal Rights. No appraisal rights are available
in connection with the Offer. Upon completion of the Offer, however, Watsco
and
the Purchaser will cause the Merger to be effected, subject to the closing
conditions contained in the Merger Agreement, and each holder of Shares who
has
not tendered such holder’s Shares in the Offer and who validly exercises such
holder’s appraisal rights in connection with the Merger by properly complying
with the requirements of Articles 5.12, 5.13 and 5.16, as applicable, of the
TBCA will have the right to have the “fair value” of such holder’s Shares
determined by a court and paid to them in cash. Under Texas law, if shareholders
are given an opportunity to vote on the merger at a shareholders’ meeting, the
fair value of shares for purposes of the exercise of dissenters’ appraisal
rights in connection with the Merger is defined as the value of the Shares
as of
the day immediately preceding the shareholders’ meeting, excluding any
appreciation or depreciation in anticipation of the Merger. Alternatively,
if
shareholders are not given an opportunity to vote on the Merger because the
Purchaser owns at least 90% of the Shares following the tender offer, the fair
value of Shares for purposes of the exercise of dissenters’ appraisal rights in
connection with the Merger is defined as the value of the Shares as of the
day
before the effective date of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger. This value may be determined to
be
more or less than or the same as the Offer Price to be received either in the
Offer or pursuant to the terms of the Merger.
Failure
to follow the steps required by Articles 5.12, 5.13 and 5.16 of the TBCA for
validly exercising dissenters’ appraisal rights may result in the loss of
dissenters’ appraisal rights, in which event a record holder will be entitled to
receive the consideration with respect to such holder’s shares in accordance
with the Merger. In view of the complexity of Articles 5.11, 5.12, 5.13 and
5.16
of the TBCA, if you are considering dissenting from the Merger and pursuing
appraisal rights, you are urged to consult your own legal counsel.
Appraisal
rights cannot be exercised at this time. The information set forth above
is for informational purposes only with respect to alternatives available to
shareholders if the Merger is consummated. Shareholders who will be entitled
to
appraisal rights in connection with the Merger will receive additional
information concerning appraisal rights and the procedures to be followed in
connection therewith before such shareholders have to take any action relating
thereto.
Shareholders
who sell shares in the Offer will not be entitled to exercise appraisal rights
with respect to their Shares but, rather, will receive the Offer
Price.
The
foregoing summary of the rights of objecting shareholders under the TBCA does
not purport to be a complete statement of the procedures to be followed by
shareholders of the Company desiring to exercise any available dissenters’
appraisal rights. The foregoing discussion is qualified in its entirety by
Articles 5.11, 5.12, 5.13 and 5.16 of the TBCA.
Short-form
Merger. Under the TBCA and the Texas Business
Organizations Code (the “TBOC”), if the Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the outstanding shares of the Common Stock,
the Purchaser will be able to effect the Merger after consummation of the Offer
without a vote of the Company’s shareholders. If the Purchaser does not
acquire at least 90% of the outstanding Shares of Common Stock pursuant to
the
Offer or otherwise and a vote of the Company’s shareholders of the Company is
required under the TBCA or the TBOC, a longer period of time will be required
to
effect the Merger.
Regulatory
Approvals
United
States. Under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules
that have been promulgated thereunder by the Federal Trade Commission (the
“FTC”), certain acquisition transactions may not be consummated unless certain
information has been furnished to the Antitrust Division of the Department
of
Justice and the FTC and certain waiting period requirements have been satisfied.
The purchase of Shares pursuant to the Offer is subject to such
requirements.
Pursuant
to the requirements of the HSR Act, the Purchaser has informed the Company
that
it filed a Notification and Report Form with respect to the Offer and Merger
with the Antitrust Division and the FTC on July 10, 2007. The waiting
period applicable to the purchase of Shares pursuant to the Offer is scheduled
to expire at 11:59 p.m., New York City time, 15 days after such filing.
Prior to such time, the Antitrust Division or the FTC may extend the
waiting period by requesting additional information or documentary material
relevant to the Offer from the Purchaser. If such a request is made, the waiting
period will be extended until 11:59 p.m., New York City time, on the tenth
day
after substantial compliance by the Purchaser with such request. Thereafter,
consummation of the Merger may be legally delayed only by court order. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the Antitrust Division
or the FTC raises substantive issues in connection with a proposed transaction,
the parties frequently engage in negotiations with the relevant governmental
agency concerning possible means of addressing those issues and may agree to
delay consummation of the transaction while such negotiations continue.
Expiration or termination of the applicable waiting period under the HSR
Act is a condition to the Purchaser’s obligation to accept for payment and pay
for Shares tendered pursuant to the Offer.
The
Merger will not require an additional filing under the HSR Act if the Purchaser
owns 50% or more of the outstanding Shares at the time of the Merger or if
the
Merger occurs within one year after the HSR Act waiting period applicable to
the
Offer expires or is terminated.
The
Antitrust Division and the FTC frequently scrutinize the legality under the
antitrust laws of transactions such as the Purchaser’s proposed acquisition of
the Company. At any time before or after the Purchaser’s acquisition of Shares
pursuant to the Offer, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or the consummation of the Merger or seeking the divestiture of Shares
acquired by the Purchaser or the divestiture of substantial assets of the
Company or its subsidiaries or Watsco or its subsidiaries. Private parties,
including state Attorneys General, may also bring legal action under the
antitrust laws under certain circumstances. There can be no assurance that
a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, of the result thereof.
Item
9. Exhibits.
The
following Exhibits are filed herewith:
|
Exhibit
Number
|
|
Description
|
| |
|
|
|
(a)(1)
|
|
Offer
to Purchase, dated July 9, 2007 (incorporated by reference to Exhibit
(a)(1)(i) to the Schedule TO filed with the Securities and Exchange
Commission by Watsco, Inc. and Coconut Grove Holdings, Inc. on July
9,
2007).
|
| |
|
|
|
(a)(2)
|
|
Form
of Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(ii)
to the Schedule TO filed with the Securities and Exchange Commission
by
Watsco, Inc. and Coconut Grove Holdings, Inc. on July 9,
2007).
|
| |
|
|
|
(a)(3)
|
|
Form
of Notice of Guaranteed Delivery (incorporated by reference to Exhibit
(a)(1)(iii) to the Schedule TO filed with the Securities and Exchange
Commission by Watsco, Inc. and Coconut Grove Holdings, Inc. on July
9,
2007).
|
| |
|
|
|
(a)(4)
|
|
Form
of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other
Nominees (incorporated by reference to Exhibit (a)(1)(iv) to the
Schedule
TO filed with the Securities and Exchange Commission by Watsco, Inc. and
Coconut Grove Holdings, Inc. on July 9, 2007).
|
| |
|
|
|
(a)(5)
|
|
Form
of Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust
Companies and Other Nominees (incorporated by reference to Exhibit
(a)(1)(v) to the Schedule TO filed with the Securities and Exchange
Commission by Watsco, Inc. and Coconut Grove Holdings, Inc. on July
9,
2007).
|
| |
|
|
|
(a)(6)
|
|
Guidelines
for Certification of Taxpayer Identification Number on Substitute
Form W-9
(incorporated by reference to Exhibit (a)(1)(vi) to the Schedule
TO filed
with the Securities and Exchange Commission by Watsco, Inc. and Coconut
Grove Holdings, Inc. on July 9, 2007).
|
| |
|
|
|
(a)(7)
|
|
Form
of Summary Advertisement as published in The New York Times (incorporated
by reference to Exhibit (a)(1)(vii) to the Schedule TO filed with
the
Securities and Exchange Commission by Watsco, Inc. and Coconut Grove
Holdings, Inc. on July 9, 2007).
|
| |
|
|
|
(a)(8)
|
|
Joint
Press Release issued by the Company and Watsco, Inc. on July 5, 2007
(incorporated by reference to Exhibit 99.1 of the Form 8-K filed
by the
Company on July 6, 2007).
|
| |
|
|
|
(a)(9)
|
|
Opinion
of Houlihan Lokey, dated as of June 28, 2007 (included as Annex A
to this
Statement).
|
| |
|
|
|
(e)(1)
|
|
Agreement
and Plan of Merger, dated as of July 3, 2007, among Watsco, Inc.,
Coconut
Grove Holdings, Inc. and the Company (incorporated by reference to
Exhibit
2.1 to the Form 8-K filed by the Company on July 6,
2007).
|
|
Exhibit
Number
|
|
Description
|
| |
|
|
|
(e)(2)
|
|
Form
of Sale and Support Agreement (incorporated by reference to Exhibit
(d)(2)
to the Schedule TO filed with the Securities and Exchange Commission
by
Watsco, Inc. and Coconut Grove Holdings, Inc. on July 9,
2007).
|
| |
|
|
|
(e)(3)
|
|
Confidentiality
Agreement, dated June 1, 2005, between Watsco, Inc. and the Company
(incorporated by reference to Exhibit (d)(3) to the Schedule TO filed
with
the Securities and Exchange Commission by Watsco, Inc. and Coconut
Grove
Holdings, Inc. on July 9, 2007).
|
| |
|
|
|
(e)(4)
|
|
Information
Statement of the Company pursuant to Section 14(f) of the Securities
Exchange Act of 1934, as amended, and Rule 14f-1 thereunder (included
as
Annex B to this Statement).
|
SIGNATURE
After
due
inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this Statement is true, complete and
correct.
|
|
ACR
Group, Inc. |
|
| |
|
|
|
| |
|
|
|
|
|
By:
|
|
|
|
|
Name: |
Anthony
R. Maresca |
|
|
|
Title: |
Senior
Vice President, Chief Financial Officer and Treasurer |
|
ANNEX
A
HOULIHAN
LOKEY
INVESTMENT
BANKING SERVICES
June
28,
2007
The
Board
of Directors of ACR Group, Inc.
3200
Wilcrest Drive, Suite 400
Houston,
TX 77042
Dear
Members of the Board of Directors:
We
understand that ACR Group, Inc. (“ACR” or the “Company”) is considering whether
to enter into an Agreement and Plan of Merger (the “Merger Agreement”) by and
among ACR, Watsco, Inc. (“Watsco” or “Parent”) and Coconut Grove Holdings, Inc.
(“Merger Sub”). The Merger Agreement provides that (i) Merger Sub
shall promptly commence a tender offer (the “Offer”) to purchase all of the
outstanding shares of common stock, par value $0.01 per share, of the Company
(“Company Common Stock”) at a price of $6.75 per share (the “Offer Price”), and
(ii) following the completion of the Offer, Merger Sub will merge with and
into
the Company (the “Merger”), pursuant to which each outstanding share of the
Company’s common stock will be converted into the right to receive $6.75 per
share. The Offer and the Merger are collectively referred to herein
as the “Transaction.” The reference to “Consideration” shall mean the
right for a shareholder to receive $6.75 per share in cash either in connection
with the Offer or the Merger.
You
have
requested that Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
(“Houlihan Lokey” or “we”) provide an opinion (the “Opinion”) as to whether, as
of the date hereof, the Offer Price and Consideration to be
received by the holders of the Company’s common stock
other than those holders who serve as an executive officer or on the Board
of
Directors of the Company and their respective affiliates (“Unaffiliated
Stockholders”) in connection with the Transaction is fair to them from a
financial point of view.
In
connection with this Opinion, we have made such reviews, analyses and inquiries
as we have deemed necessary and appropriate under the
circumstances. Among other things, we have:
|
|
1.
|
reviewed
the Company’s annual reports to shareholders on Form 10-K for the fiscal
years ended February 28, 2005, February 28, 2006, and February
28, 2007,
and Company-prepared interim financial statements for the period
ended
April 30, 2007, which the Company’s management has identified as being the
most current financial statements
available;
|
|
|
2.
|
spoken
with certain members of the management of the Company regarding
the
operations, financial condition, future prospects and projected
operations
and performance of the Company and regarding the
Transaction;
|
|
|
3.
|
reviewed
copies of the following agreements and
documents:
|
|
|
a.
|
the
Merger Agreement (in draft form as of June 22,
2007);
|
|
|
b.
|
the
Sale and Support Agreement (in draft form as of June 22,
2007);
|
|
|
4.
|
reviewed
financial forecasts and projections prepared by the management
of the
Company with respect to the years ended February 28, 2008 through
2012;
|
|
|
5.
|
reviewed
the historical market prices and trading volume for the Company’s publicly
traded securities for the past three years and those of certain
other
publicly traded companies which we deemed
relevant;
|
|
|
6.
|
reviewed
certain other publicly available financial data for certain other
companies that we deemed relevant and publicly available transaction
prices and premiums paid in other transactions that we deemed relevant
and
similar to the Transaction;
|
|
|
7.
|
reviewed
the Company’s certificate regarding projections addressed to Houlihan
Lokey; and
|
|
|
8.
|
conducted
such other financial studies, analyses and inquiries as we have
deemed
appropriate.
|
We
have
relied upon and assumed, without independent verification, the accuracy and
completeness of all data, material and other information furnished, or otherwise
made available, to us, discussed with or reviewed by us, or publicly available,
and do not assume any responsibility with respect to such data, material and
other information. In addition, management of
the Company has advised us, and we have assumed, that the
financial forecasts and projections reviewed by us have
been reasonably prepared in good faith on bases reflecting the best currently
available estimates and judgments of such management as to the future financial
results and condition of the Company, and we express no opinion with respect
to
such forecasts and projections or the assumptions on which they are
based. We have relied upon and assumed, without independent
verification, that there has been no material change in the assets, liabilities,
financial condition, results of operations, business or prospects of the Company
since the date of the most recent financial statements provided to us, and
that
there are not any facts or other information that would make any of the
information reviewed by us incomplete or misleading.
We
have
relied upon and assumed, without independent verification, that (a) the
representations and warranties of all parties to the agreements identified
in
item 3 above and all other related documents and
instruments that are referred to therein are true and correct, (b) each party
to
all such agreements will fully and timely perform all of the covenants and
agreements required to be performed by such party, (c) all conditions to the
consummation of the Transaction will be satisfied without waiver thereof, and
(d) the Transaction will be consummated in a timely manner in accordance with
the terms described in the agreements and documents
provided to us, without any amendments or modifications thereto or any
adjustment to the aggregate consideration (through offset, reduction, indemnity
claims, post-closing purchase price adjustments or otherwise) or any other
financial term of the Transaction. We also have relied upon and assumed, without
independent verification, that (i) the Transaction will be consummated in a
manner that complies in all respects with all applicable federal and state
statutes, rules and regulations and (ii) all governmental, regulatory, and
other
consents and approvals necessary for the consummation of the Transaction will
be
obtained and that no delay, limitations, restrictions or conditions will be
imposed or amendments, modifications or waivers made that would result in the
disposition of any material portion of the assets of the Company, or otherwise
have an adverse effect on the Company or any expected benefits of the
Transaction. In addition, we have relied upon and assumed, without independent
verification, that the final forms of the draft documents identified in item
3
above will not differ in any material respect from such draft
documents.
Furthermore,
in connection with this Opinion, we have not been requested to make, and have
not made, any physical inspection or independent appraisal of any of the assets,
properties or liabilities (fixed, contingent, derivative, off-balance-sheet
or
otherwise) of the Company or any other
party. We have undertaken no independent analysis of any potential or
actual litigation, regulatory action, possible unasserted claims or other
contingent liabilities, to which the Company is or may be a party or is or
may
be subject, or of any governmental investigation of any possible unasserted
claims or other contingent liabilities to which the Company is or may be a
party
or is or may be subject and, at your direction and with your consent, this
Opinion makes no assumption concerning, and therefore does not consider, the
potential effects of any such litigation, claims or investigations or possible
assertion of claims, outcomes or damages arising out of any such
matters.
We
have
not been requested to, and did not, initiate any discussions with, or solicit
any indications of interest from, third parties with respect to the Transaction,
the assets, businesses or operations of the Company, or any alternatives to
the
Transaction. This Opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
This
Opinion is furnished solely for the use and benefit of the Board of
Directors of the Company in connection with its consideration of the Transaction
and is not intended to, and does not, confer any rights or remedies upon any
other person, and is not intended to be used, and may not be used, for any
other
purpose, without our prior written consent. This Opinion should not be construed
as creating any fiduciary duty on Houlihan Lokey’s part to any party. This
Opinion is not intended to be, and does not constitute, a recommendation to
the
Board of Directors of the Company, any security holder or any other person
as to
how to act with respect to, or whether to tender their shares of Company common
stock with respect to the Transaction. This Opinion may not be disclosed,
reproduced, disseminated, quoted, summarized or referred to at any time, in
any
manner or for any purpose, nor shall any references to Houlihan Lokey or any
of
its affiliates be made by any recipient of this Opinion, without the prior
written consent of Houlihan Lokey. Notwithstanding the preceding
sentence, this Opinion may be included in its entirety in any proxy, information
statement or Schedule 14D-9 furnished to shareholders of the Company in
connection with the Transaction if such inclusion is required by applicable
law.
In
the
ordinary course of business, certain of our affiliates, as well as investment
funds in which they may have financial interests, may acquire, hold or sell,
long or short positions, or trade or otherwise effect transactions, in debt,
equity, and other securities and financial instruments (including loans and
other obligations) of, or investments in, the Company or Watsco and its
respective affiliates. The Company has agreed to indemnify us for certain
liabilities arising out of our engagement.
The
Company acknowledges that Houlihan Lokey and/or its affiliates may have rendered
services in the past and may be requested to render services in the future
to
Watsco and its affiliates, and that such services do not and will not constitute
any actual or potential conflict of interest on the part of Houlihan
Lokey.
Houlihan
Lokey Howard & Zukin Capital, Inc. (“HLHZ”), an affiliate of Houlihan Lokey,
has acted as financial advisor to the Company in connection with the Transaction
and will receive a fee for such services, a
substantial portion of which is contingent upon the
consummation of the Transaction. In addition, we will receive a fee
for rendering this Opinion, which is not contingent upon
the successful completion of the Transaction.
We
have
not been requested to opine as to, and this Opinion does not address: (i) the
underlying business decision of the Company, its security holders or any other
party to proceed with or effect the Transaction, (ii) the terms of any
arrangements, understandings, agreements or documents related to, or the form
or
any other portion or aspect of, the Transaction or otherwise, except as
expressly addressed in this Opinion, (iii) the fairness of any portion or aspect
of the Transaction to the holders of any class of securities, creditors or
other
constituencies of the Company, or any other party, other than those set forth
in
this Opinion, (iv) the relative merits of the Transaction as compared to any
alternative business strategies that might exist for the Company or any other
party or the effect of any other transaction in which the Company or any other
party might engage, (v) the tax or legal consequences of
the Transaction to the Company, its security holders, or any other party, (vi)
the fairness of any portion or aspect of the Transaction to any one class or
group of the Company’s or any other party’s security holders vis-à-vis any other
class or group of the Company’s or such other party’s security holders
(including without limitation the allocation of any consideration amongst or
within such classes or groups of security holders), (vii) whether or not the
Company, its security holders or any other party is
receiving or paying reasonably equivalent value in the
Transaction, or (viii) the solvency, creditworthiness or
fair value of the Company or any other participant in the Transaction under
any
applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or
similar matters. Furthermore, no opinion, counsel or interpretation is intended
in matters that require legal, regulatory, accounting, insurance, tax or other
similar professional advice. It is assumed that such opinions,
counsel or interpretations have been or will be obtained from the appropriate
professional sources. Furthermore, we have relied, with your consent, on the
assessment by the Company and its advisers, as to all legal, regulatory,
accounting, insurance and tax matters with respect to the Company and the
Transaction.
Based
upon and subject to the foregoing, and in reliance thereon, it is our opinion
that, as of the date hereof, the Consideration to be received by the
Unaffiliated Stockholders of the Company in the Transaction is fair to them
from
a financial point of view.
Very
truly yours,
HOULIHAN
LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
ANNEX
B
INFORMATION
STATEMENT PURSUANT TO
SECTION
14(F) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND
RULE 14F-1 THEREUNDER
This
Information Statement is being mailed on or about July 18, 2007 as part of
the
Solicitation/Recommendation Statement on Schedule 14D-9 (the “Recommendation
Statement”) of ACR Group, Inc., a Texas corporation (the “Company”). You
are receiving this Information Statement in connection with the possible
appointment of persons designated by Watsco, Inc., a Florida corporation
(“Watsco”) to a majority of seats on the Board of Directors (the “Board of
Directors” or the “Board”) of the Company. On July 3, 2007, the Company
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
Watsco and Coconut Grove Holdings, Inc., Inc., a Texas corporation and a wholly
owned subsidiary of Watsco (the “Purchaser”), pursuant to which the Purchaser
has commenced a tender offer to purchase each issued and outstanding share
of
common stock of the Company, par value $.01 per share (collectively, the “Common
Stock” and each, a “Share”) other than the Committed Shares (as defined in the
Recommendation Statement) at a purchase price of $6.75 in cash, without
interest thereon, less any required withholding taxes, upon the terms and
subject to the conditions set forth in the Merger Agreement, the Offer to
Purchase dated July 9, 2007 (as amended or supplemented from time to time,
the
“Offer to Purchase”) and the related Letter of Transmittal (the “Letter of
Transmittal,” which, together with the Offer to Purchase, as amended or
supplemented from time to time, constitute the “Offer”). Copies of the
Offer to Purchase and the Letter of Transmittal have been mailed to shareholders
of the Company and are filed as Exhibits (a)(1)(i) and (a)(1)(ii), respectively,
to the Tender Offer Statement on Schedule TO (as amended or supplemented from
time to time, the “Schedule TO”) filed by Watsco and the Purchaser with the
Securities and Exchange Commission (the “Commission”) on July 9,
2007.
The
Merger Agreement provides that, as soon as practicable after consummation of
the
Offer and the satisfaction or waiver of certain conditions, and in accordance
with the Texas Business Corporation Act (the “TBCA”) and the Texas Business
Organizations Code, the Purchaser will be merged with and into the Company,
with
the Company surviving the Merger (such surviving corporation is sometimes
referred to as the “Surviving Corporation” and such merger is referred to as the
“Merger”). At the effective time of the Merger (the “Effective Time”),
each outstanding Share (other than 373,001 restricted Shares held by certain
officers and key employees of the Company and its subsidiaries (the “Converted
Company Restricted Shares”), Shares tendered in the Offer, the Committed Shares
and the Dissenting Shares (as defined below)) will be converted into the right
to receive the price paid in the Offer, without interest. Shares held by
shareholders who have not voted in favor of the Merger or consented thereto
in
writing and who have properly demanded appraisal and complied with the
provisions of Articles 5.12, 5.13 and 5.16 of the TBCA relating to dissenters’
rights of appraisal (the “Dissenting Shares”) will not be converted into a right
to receive the price paid in the Offer, unless such holder fails to perfect
or
withdraws or otherwise loses his, her or its right to appraisal.
Pursuant
to the Merger Agreement, the Purchaser commenced the Offer on July 9,
2007. The Offer is currently scheduled to expire at 12:00 midnight, New
York City time, on Friday, August 3, 2007 unless the Purchaser extends
it.
Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Recommendation Statement.
GENERAL
The
Common Stock is the only class of equity securities of the Company outstanding
that is entitled to vote at a meeting of the shareholders of the Company. Each
share has one vote. As of the close of business on July 3, 2007, there
were 12,063,765 outstanding shares of Common Stock. As of such date,
Watsco and the Purchaser did not own any shares of Common Stock. See
“Ownership of Common Stock by Certain Beneficial Owners and Management”
below.
RIGHT
TO DESIGNATE DIRECTORS AND THE PURCHASER DESIGNEES
The
Board of Directors of the Company
The
Merger Agreement provides that upon the acceptance for payment of, and payment
by the Purchaser for, the number of Shares constituting the Minimum Condition,
Watsco will be entitled to designate such number of directors on the Board
as
will give Watsco representation on the Board equal to at least that number
of
directors, rounded up to the next whole number, that equals the product of
(a)
the total number of directors on the Board (giving effect to the directors
elected pursuant to this sentence) multiplied by (b) the percentage that (i)
such number of the Shares so accepted for payment and paid for by the Purchaser
plus the number of the Shares otherwise owned by the Purchaser or Watsco bears
to (ii) the number of such Shares then outstanding.
Watsco
has advised the Company that Watsco currently intends, promptly after
consummation of the Offer, to exercise this right and to designate certain
of
its executive officers or executive officers of its subsidiaries to serve as
directors of the Company. The Company has agreed to take all action
necessary to cause Watsco’s designees to be elected or appointed to the Board as
provided above, including increasing the size of the Board or obtaining the
resignation of current directors. The Company has also agreed to use take
all action necessary to cause Watsco’s designees to be proportionately
represented on each committee of the Board and each board of directors of each
subsidiary of the Company and each committee thereof designated by Watsco.
Until Watsco and/or the Purchaser acquires a majority of the outstanding Shares
on a fully-diluted basis, the Company has agreed to use its reasonable best
efforts to ensure that all of the members of the Board and such committees
and
boards who are not employees of the Company will remain members of the Board
and
such committees and boards. Subject to applicable law, the Company has
agreed promptly to take all action requested by Watsco necessary to effect
any
such election or appointment, including mailing to its shareholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder.
Following
the election or appointment of Watsco’s designees pursuant to provisions
described in the preceding paragraphs until the effective time of the Merger,
the approval of a majority of the directors of the Company then in office who
were not designated by Watsco shall be required to authorize (and such
authorization shall constitute the authorization of the Board and no other
action on the part of the Company, including any action by any other director
of
the Company, shall be required to authorize) any termination of the Merger
Agreement by the Company, any amendment of the Merger Agreement, including
any
decrease in or change of form of the price paid in the Offer or the Merger,
any
extension of time for performance of any obligation or action hereunder by
Watsco or the Purchaser, any waiver of compliance with any of the agreements
or
conditions contained in the Merger Agreement for the benefit of the Company,
and
any amendment or change to the “tail” liability insurance for directors and
officers.
The
Watsco designees will be selected by Watsco or the Purchaser from among the
individuals listed below. Watsco has advised the Company that each of
the following individuals has consented to serve as a director of the Company
if
appointed or elected. If necessary, Watsco may choose additional or other
Watsco designees, subject to the requirements of Rule 14f-1 under the
Exchange Act. None of the Watsco designees currently is a director
of, or holds any positions with, the Company. Watsco has advised the
Company that, to the best of Watsco’s knowledge, except as set forth below, none
of the Watsco designees or any of their affiliates beneficially owns any
equity securities or rights to acquire any such securities of the Company,
nor
has any such person been involved in any transaction with the Company or any
of
its directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the Commission other than with respect
to transactions between Watsco and the Company that have been described in
the
Offer to Purchase or the Recommendation Statement.
Name,
Age, and Principal Occupation and Employment History of the Watsco
Designees
The
name,
age, present principal occupation or employment and five-year employment history
of each of the individuals who may be selected as the Watsco designees are
set
forth below. Unless otherwise indicated, the business address of each such
person is c/o Watsco, Inc., 2665 South Bayshore Drive, Suite 901, Coconut Grove,
Florida 33133.
|
Name
|
|
Principal
Occupation
or
Employment During the Past Five Years
|
|
Age
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Barry
S. Logan
|
|
Mr.
Logan has served as Senior Vice President of Watsco since November
2003
and as Secretary since 1997. Mr. Logan served as Vice President –
Finance and Chief Financial Officer of Watsco from 1997 to October
2003
and as Treasurer from 1996 to 1998. Mr. Logan is a certified public
accountant.
|
|
44
|
|
| |
|
|
|
|
|
|
Carole
J. Poindexter
|
|
Ms.
Poindexter has served as President of Baker Distributing Company,
LLC, a
subsidiary of Watsco, since 1999. She served as Executive Vice President
of Watsco from 1996 to 1999, Vice President Finance and Chief Financial
Officer of Watsco from 1984 to 1996, Treasurer of Watsco from 1981
to 1984
and Controller of Watsco from 1979 to 1981.
|
|
51
|
|
| |
|
|
|
|
|
|
Ana
M. Menendez
|
|
Ms.
Mendez has served as Chief Financial Officer of Watsco since November
2003, as Treasurer of Watsco since 1998 and as Assistant Secretary
of
Watsco since 1999. Ms. Menendez is a certified public
accountant.
|
|
42
|
|
| |
|
|
|
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information concerning beneficial ownership
of the Common Stock as of April 30, 2007, by (i) each shareholder who is known
by the Company to own beneficially more than 5% of the outstanding Shares,
(ii)
each director, (iii) the President and Chief Executive Officer, and other
executive officers of the Company, and (iv) all directors and executive officers
as a group. Except as otherwise indicated, the shareholders listed in the table
have sole voting and investment power with respect to the shares indicated.
All
information with respect to beneficial ownership has been furnished by the
shareholders to the Company.
|
Name
and Address of Beneficial
Owner
|
|
Amount
Of Beneficial Ownership
(1)
|
|
Percent
of Class
|
|
DST
Investments
1100
Uptown Park Blvd., No. 72
Houston,
Texas 77056
|
|
1,268,394
|
|
10.5%
|
|
|
|
|
|
|
|
Alan
D. Feinsilver (2)
4400
Post Oak Parkway, Suite 2250
Houston,
Texas 77027
|
|
196,684
|
|
1.6%
|
|
|
|
|
|
|
|
Anthony
R. Maresca (3)
3200
Wilcrest Drive, Suite 440
Houston,
Texas 77042
|
|
768,566
|
|
6.4%
|
|
|
|
|
|
|
|
Thomas
J. Reno (4)
2010
Roanwood
Houston,
Texas 77090
|
|
25,000
|
|
0.2%
|
|
|
|
|
|
|
|
Jo
E. Shaw, Jr.
9
High Ridge Road
Santa
Fe, New Mexico 87506
|
|
-
|
|
0.0%
|
|
|
|
|
|
|
|
Roland
H. St. Cyr (5)
3151
Lake Island Dr.
Montgomery,
Texas 77356
|
|
51,000
|
|
0.4%
|
|
|
|
|
|
|
|
A.
Stephen Trevino (6)
3200
Wilcrest Drive, Suite 440
Houston,
Texas 77042
|
|
1,749,800
|
|
14.5%
|
|
|
|
|
|
|
|
Alex
Trevino, Jr. (7)
3200
Wilcrest Drive, Suite 440
Houston,
Texas 77042
|
|
1,874,847
|
|
15.5%
|
|
|
|
|
|
|
|
Marshall
G. Webb
6110
Inwood Drive
Houston,
Texas 77057
|
|
-
|
|
0.0%
|
|
|
|
|
|
|
|
All
Directors and Executive Officers
as
a group (8 persons) (8)
|
|
3,397,503
|
|
28.2%
|
|
(1)
|
For
each beneficial owner, the number of shares outstanding and their
percentage of stock ownership includes the number of common and all
common
equivalent shares (including options exercisable within 60 days)
owned by
such individual at May 31, 2007.
|
|
(2)
|
Includes
104,684 shares owned by a family limited partnership in which Mr.
Feinsilver is the general partner, 25,000 shares owned by a trust of
which Mr. Feinsilver is the trustee, and 10,500 restricted shares
which
are subject to vesting requirements set forth in an agreement with
the
Company dated March 1, 2004.
|
|
(3)
|
Includes
250,001 restricted shares which are subject to vesting requirements
set
forth in an employment agreement with the Company dated March 1,
2004.
|
|
(4)
|
Includes
18,750 restricted shares which are subject to vesting requirements
set
forth in an agreement with the Company dated October 26,
2005.
|
|
(5)
|
Includes
10,500 restricted shares which are subject to vesting requirements
set
forth in an agreement with the Company dated March 1,
2004.
|
|
(6)
|
Includes
1,268,394 shares owned by DST Investments, a partnership in which
Mr. A.S.
Trevino, his mother and his sister are partners, and 11,259 shares
owned
by the wife and children of Mr. A.S. Trevino. The beneficial
ownership of all of such shares is disclaimed by Mr. A.S.
Trevino. Includes 250,001 restricted shares which are subject
to vesting requirements set forth in an employment agreement with
the
Company dated March 1, 2004.
|
|
(7)
|
Includes
1,268,394 shares owned by DST Investments, a partnership whose partners
are Henrietta Trevino, wife of Mr. A. Trevino, and his two adult
children,
and 2,000 shares owned by Henrietta Trevino. The beneficial
ownership of all of such shares is disclaimed by Mr. A.
Trevino.
|
|
(8)
|
Includes
all shares as to which directors and executive officers disclaim
beneficial ownership.
|
BOARD
OF DIRECTORS
The
following information sets forth the principal occupation, or employment and
principal business of the employer, if any, of each director, as well as his
age, business experience, other directorships held by him, and the period during
which he has previously served as director of the Company.
Alex
Trevino, Jr., age 71, has served as President and Chief Executive Officer of
the
Company since 1990. Mr. Trevino earned a BA from Rice University
in 1958, and a BS in Mechanical Engineering in 1959. Mr. Trevino has
owned and managed wholesale businesses in the HVAC industry for over 40
years. Mr. Trevino has been a member of the Board since
1982, serving as Chairman since 1988.
Alan
D.
Feinsilver, age 59, is the President of The Overbrook Company, a private company
with emphasis on real estate and other investments. Mr. Feinsilver
also serves as Vice President of HGG Investments, Inc, a private investment
entity. Mr. Feinsilver is also a member of the Board of Directors and
serves as Chairman of the Audit Committee of Equus II, Incorporated, a publicly
traded company listed on the New York Stock Exchange. None of these
entities is related to the Company. Mr. Feinsilver has been a member
of the Board since 2001.
Anthony
R. Maresca, age 56, has been employed by the Company since 1985, serving as
Controller until 1985 when he became Senior Vice President, Chief Financial
Officer and Treasurer. Mr. Maresca earned a BA from
Rice University in 1972, and is a certified public accountant, and has been
a member of the Board since 1986.
Thomas
J.
Reno, age 65, is the President of Thomas J. Reno & Associates,
Inc. Mr. Reno provides consulting services to client
organizations in all aspects of human resource management, compensation and
benefits. Prior to starting Thomas J. Reno & Associates, Mr. Reno
served with KPMG, LLP, as Partner-in-Charge of the Central Region Compensation
& Benefits Consulting Practice. Neither of these entities is
related to the Company. Mr. Reno has been a member of the Board since
August, 2005.
Jo
E.
Shaw, Jr., age 73, is an attorney and has practiced law continuously since
1959. He was President of Shaw & Associates, a law firm
specializing in the practice of real estate, mortgage lending and bankruptcy
law, where he represented many national mortgage companies. He also
is a former director, major shareholder and legal counsel for a small bank
in
Texas. For many years, Mr. Shaw also held leadership positions, as
mayor, councilman, city attorney and municipal judge, in two small, incorporated
cities in the immediate Houston area. Mr. Shaw has been a member of
the Board since January, 2006.
Roland
H.
St. Cyr, age 77, owned and managed Hallmark Air Conditioning, Inc. ("Hallmark"),
an HVAC service company based in Houston, Texas from 1974 to 1997, at which
time
he sold and became a consultant to the business. Hallmark is not
related to the Company. Mr. St. Cyr has been a member of the Board
since 1998.
A.
Stephen Trevino, age 44, has been employed by the Company as General Counsel
since March 1999, was elected Vice President and Secretary in 2000, and Senior
Vice President in 2003. Mr. Trevino is the son of Alex Trevino, Jr.,
Chairman of the Board and Chief Executive Officer of the Company. Mr.
Trevino earned a BBA from The University of Texas in 1984 and a JD from The
University of Texas School of Law in 1987. Mr. Trevino is licensed to
practice law in the State of Texas, and has been a member of the Board since
1997.
Marshall
G. Webb, age 64, is founder and President of Polaris Group, which he organized
in 1999 to provide financial advisory and merger and acquisition services to
public and private companies. Prior to founding Polaris, he founded,
was CEO and led the IPO of a global provider of information technology solutions
to government and business. Mr. Webb was an owner and executive
officer for 18 years of several major staff augmentation and outsourcing
companies. He also is a director of Isolagen, Inc. and Teletouch
Communications, Inc., two other publicly traded companies that are listed on
the
American Stock Exchange. Mr. Webb is a certified public accountant
and holds a Certificate of Director Education, a nationally recognized
designation for corporate directors. Mr. Webb has been a member of
the Board since January, 2006.
Michael
F. Knoop, age 63, has been employed by the Company since 1998 and serves as
the
President of the Florida Cooling Supply, Inc. business unit.
Ronnie
G.
Floyd, age 62, has been employed by the Company since 1991 and serves as the
President of the Total Supply Inc. business unit.
Meetings
and Committees of the Board
Board
Meetings
The
Board
met four times during fiscal 2007. All members of the Board attended
each meeting, including the Board’s annual meeting. No director
attended less than 75% of the total number of meetings held by the committees
of
the Board on which the director served.
Audit
Committee
The
Audit
Committee (i) reviews the independence, qualifications and performance of the
Company’s independent public accountants, recommends their retention to the
entire board, and reviews the final report of the independent accountants;
(ii)
reviews the procedures employed by the Company in the preparation of its
financial statements; (iii) reviews known or suspected violations of policies
and procedures set forth in the Code of Business Conduct and Ethics and
applicable laws and regulations; (iv) pre-approves all audit and non-audit
services provided by the independent accountants; (v) reviews with the Chief
Financial Officer and independent accountants corporate accounting practices
and
policies and financial controls; and (vi) performs all other duties as the
Board
may from time to time designate.
The
Audit
Committee is comprised of Messrs. Webb (Chairman), Feinsilver, and St. Cyr,
each
of whom is an independent director as defined under the listing requirements
of
the American Stock Exchange (the “AMEX”). The Board has determined
that Messrs. Webb and Feinsilver each qualify as an “audit committee financial
expert” under federal securities laws. The Audit Committee members
are not professional accountants or auditors, and their role is not intended
to
duplicate or certify the activities of management and the independent
accountants. The Audit Committee held four meetings during fiscal
2007, at which all members were present.
The
Audit
Committee has a written charter adopted by the Board of Directors in fiscal
2006
that can be found on the Company’s website, www.acrgroup.com.
Compensation
Committee
The
Compensation Committee is comprised of Messrs. St. Cyr (Chairman), Feinsilver
and Reno, each of whom is an independent director as defined under the listing
requirements of the AMEX. The Compensation Committee is responsible
for overseeing the Company’s executive compensation programs and making
recommendations to the entire Board regarding compensation of the Company’s
executive officers in order to ensure the attraction and retention of talented
senior corporate executives, to motivate and reward their performance in the
achievement of the Company’s business objectives, and to align their interests
with the long-term interests of the Company’s shareholders. The Company’s
compensation strategy has increasingly linked compensation to performance of
the
Company and the creation of shareholder value tied to the long-term performance
of the Company. The Compensation Committee held
three meetings during fiscal 2006, at which all members were
present.
The
Compensation Committee has a written charter that can be found on the Company’s
website, www.acrgroup.com.
Nominating
Committee
The
Nominating Committee is comprised of Messrs. Shaw (Chairman), Reno and St.
Cyr,
each of whom is an independent director as defined under the listing
requirements of the AMEX. The Nominating Committee is responsible for
evaluating and nominating potential candidates to become members of the Board,
and evaluating current members of the Board. The Nominating Committee
does not yet have a written policy that governs the consideration of
shareholder-recommended director candidates, but will consider candidates
recommended by shareholders on a case-by-case basis. Shareholders who
desire to recommend a candidate for service on the Board should provide such
recommendation to the Chairman of the Nominating Committee in accordance with
applicable securities laws. A candidate for consideration must have
an educational background and business experience that would likely result
in a
meaningful contribution being made by such candidate to the
Board. Candidates must possess unquestionable integrity and have a
strong reputation in the community. The Committee will evaluate
candidates submitted by shareholders with the same criteria that it uses for
all
other candidates.
The
Nominating Committee has a written charter that can be found on the Company’s
website, www.acrgroup.com.
Section
16(a) Beneficial Ownership Reporting Compliance
Each
director, and certain officers and shareholders of the Company are required
to
report to the Securities and Exchange Commission, by a specified date, his
transactions related to common stock of the Company. Based solely on a review
of
the copies of reports furnished to the Company or written representations that
no other reports were required, the Company believes that during fiscal 2007
all
filing requirements were met in all material respects.
Code
of Ethics and Business Conduct
The
Company has prepared and adopted a written code of ethics applicable to all
of
the Company’s officers and employees. The code restates the Company’s
practices of requiring honest and ethical conduct, including handling of
apparent and actual conflicts of interest, full, fair, accurate, timely, and
understandable disclosure in reports and documents filed or submitted,
compliance with all applicable laws, rules and regulations, prompt reporting
of
violations of the code and accountability for adherence to the
code. The Code of Business Conduct and Ethics can be found on the
Company’s website, www.acrgroup.com.
Communications
with the Board
Shareholders
may communicate with the Board, Board committees, non-management directors
as a
group and individual directors by submitting their communications in writing
to
the Company’s Corporate Secretary. All communications must identify the author,
state that the author is a shareholder of the Company and be forwarded to the
following address:
ACR
Group, Inc.
3200
Wilcrest Drive, Suite 440
Houston,
Texas 77042
Attn:
Corporate Secretary
Re:
Shareholder Communication
The
Company’s Corporate Secretary will distribute all shareholder communications to
the intended recipient upon receipt.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
None
of
the executive officers of the Company has served on the board or on the
compensation committee of any other entity, any of whose officers served either
on the Board or on the Compensation Committee of the Company.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
This
compensation discussion and analysis explains the Company’s policies and
philosophies regarding executive compensation and the material elements of
the
compensation earned by, and paid to each of the Company’s executive officers and
two other most highly compensated employees during the last completed fiscal
year.
Compensation
Policies and Philosophy
The
Compensation Committee currently oversees the design and administration of
the
Company’s executive compensation program. The Compensation
Committee’s primary objectives in structuring and administering our executive
officer compensation program are to: attract, reward and retain executive
officers who contribute to the Company’s success; provide economic incentives
for executive officers to achieve the Company’s business and financial
objectives by linking the executive officers’ compensation to the performance of
the Company; strengthen the relationship between executive pay and stockholder
value; and reward individual performance.
To
achieve these objectives, the Compensation Committee endeavors to implement
and
maintain compensation packages that are performance-oriented and designed to
link the Company’s strategic business objectives, specific financial performance
objectives and the enhancement of shareholder returns with the compensation
of
the Company’s executives, including the Named Executive Officers, using a
combination of base salary, cash bonuses and restricted stock
awards. The Compensation Committee evaluates, among other things, the
following factors for each of the executives; (1) specialized education and
training, and work experience; (2) the individual’s work ethic and ability to
perform required tasks; (3) the individual’s knowledge of his or her job; and
(4) the individual’s ability to work with others toward the achievement of the
Company’s goals. The Compensation Committee also evaluates corporate
performance by considering factors such as the Company’s performance relative to
the business environment and the success of the Company in meeting its business
and financial objectives. In reviewing the above listed factors
regarding both individual and corporate performance, the Compensation Committee
relies on its subjective evaluation. The Company believe that
it is important to reward excellence, leadership and outstanding long-term
company performance in a form designed to retain and motivate executives while
aligning their incentives with continued high levels of
performance.
The
Compensation Committee’s practice is to establish the annual compensation
packages for our executive officers near the start of the fiscal
year. The Compensation Committee may conduct additional analyses of
compensation trends and assessments of the Company’s competitive position at
other times during the year to address changes in the market for executive
services or special circumstances affecting the Company.
Components
of Compensation
The
compensation of executive officers consists of three principal components:
base
salary, cash incentive bonuses and grants of restricted stock. The Compensation
Committee believes that the combination of these elements is essential to
attracting and retaining talented and hard-working individuals and aligning
their incentives with the interests of our stockholders. The Compensation
Committee does not adopt express formulae for weighting different elements
of
compensation or for allocating between long-term and short-term compensation
but
strives to develop comprehensive packages that are competitive with those
offered by other companies with which the Company competes to attract and retain
talented executives.
Base
Salary
The
Compensation Committee conducts an annual review of the base salary for each
senior executive officers. Each year after the completion of the
Company’s fiscal year end, the Compensation Committee meets with the Chief
Executive Officer to consider the individual and corporate performance factors
outlined above, the success of the Company in meeting its business and financial
objectives, and the overall contribution of each executive officer in helping
to
attain those objectives. The Compensation Committee also considers
each executive officer’s qualifications, duties and
responsibilities.
Cash
Bonuses
The
Company’s executives are eligible to receive cash incentive bonuses on an annual
basis. This element of compensation is designed to motivate the
Company’s employees to meet the business and financial objectives of the Company
because it is tied to the profitability of the Company. The formula
for calculating the annual cash bonus is determined at the beginning of each
fiscal year. The Board retains the authority to award discretionary
cash bonuses to the executive officers.
Equity
Compensation
The
Compensation Committee makes recommendations to the Board for the awarding
of
equity-based, long-term incentive compensation. The Compensation
Committee believes that stock grants to executive officers provide incentives
for executive officers to build stockholder value and thereby align the
interests of the executive officers with the stockholders. The Compensation
Committee also believes that these grants, which vest over a period of years,
provide incentives for executive officers to remain with the
Company. In determining the number of shares granted in any fiscal
year, the Compensation Committee considers such factors as the seniority of
the
executive officer, the contribution that the executive officer is expected
to
make to the Company in the coming years and has made to the Company in the
past,
and the size of prior grants to the executive officer.
Perquisites
The
Company annually reviews the perquisites that senior executives
receive. Executive officers are provided with the use of a vehicle,
and in some instances, reimbursement for club dues, and executive life
insurance.
Other
Benefits
The
Company maintains broad-based benefits that are provided to all employees,
including health and dental insurance, life and disability insurance, and a
401(k) plan. Participants in the 401(k) plan are permitted to contribute to
the
plan through payroll deductions within statutory and plan limits. The
Company provides a matching contribution of up to 3% of each eligible employee’s
salary per year. Participants may select from a variety of investment
options. At this time, investment options do not include the
Company’s common stock.
Employment
Agreements; Potential Payments Upon Termination of Employment and
Change-in-Control
Employment
Contracts
Mr.
Alex
Trevino, Jr. serves as President and Chief Executive Officer of the Company
under an employment agreement effective March 1, 1998. In the absence
of notice of termination, the term of the agreement is automatically extended
for additional two-year terms. Under the agreement, Mr. Trevino
receives an annual base salary, certain benefits, and an annual incentive bonus
based on a formula recommended by the Board’s Compensation Committee and
approved by the Board.
Effective
March 1, 2004, Mr. Anthony R. Maresca who serves as Senior Vice President and
Chief Financial Officer of the Company, and Mr. A. Stephen Trevino, who serves
as Senior Vice President and General Counsel of the Company, entered into
employment agreements with the Company. Each agreement provides for
an annual base salary, certain benefits, and an annual incentive bonus based
on
a formula recommended by the Compensation Committee and approved by the
Board. The agreements provided for the grants of restricted shares of
common stock of the Company outlined above, and contain change of control
provisions.
No
Other Agreements
There
are
no other employment agreements between the Company and other executive officers
or employees of the Company and no other executive officers are entitled to
any
payments upon termination or a change of control that are not generally
available to all of the Company’s employees.
162(m)
Tax Deductibility
Section
162(m) of the Internal Revenue Code limits the deductibility of certain
otherwise deductible compensation in excess of $1.0 million paid to the Named
Executive Officers. It is the policy of the Compensation Committee to attempt
to
have all executive compensation treated as tax-deductible compensation wherever,
in the judgment of the Compensation Committee, to do so would be consistent
with
the objectives of the compensation plan under which the compensation is paid.
However, this policy does not rule out the ability to make awards or to approve
compensation that may not qualify for the compensation deduction. The
Compensation Committee may elect to approve awards or grant compensation to
executive officers which are not deductible by the Company under Section 162(m)
of the Internal Revenue Code.
Report
of the Compensation Committee
The
Compensation Committee is committed to achieving the stated objectives by
acknowledging and rewarding contributions made by the Company’s executive
officers to the overall performance of the Company. Compensation
arrangements for executive officers generally consist of a combination of fixed
base salary, performance-based cash bonuses, and long-term incentives utilizing
common stock of the Company.
The
Committee considers competitive compensation offered for similar
responsibilities by other organizations, including the compensation offered
by a
peer group of companies. The Committee compares the Company’s total
compensation, as well as each major component of compensation, with the peer
group for overall competitiveness. Although the Committee reviews peer group
information for guidance, it does not exclusively target executive compensation
to specific compensation levels at other companies. The Committee uses a variety
of resources, including publicly available data and published compensation
surveys, in order to establish compensation levels in a highly competitive
environment for executive leadership. Additionally, the committee may
utilize the services of outside compensation experts.
The
Committee met a total of four times in fiscal 2007 and continued its practice
of
reviewing total compensation for the Company’s executive officers. Total
compensation includes base salary, annual cash bonus, long-term incentive
compensation, perquisites and other benefits.
Summary
Compensation Table
The
following table sets forth the compensation earned by the named executive
officers during fiscal 2007. Earned bonuses are generally paid in the fiscal
year following the year in which the bonus is earned.
|
Name
and Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Restricted Stock
Awards ($)
|
|
All
Other
Compensation ($)
|
|
Total ($)
|
|
|
Alex
Trevino, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman
of the Board,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| President |
|
2007
|
|
|
400,000
|
|
|
214,224
|
|
|
–
|
|
|
22,673
|
|
|
636,897
|
|
|
and
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACR
Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
R. Maresca
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Vice President, Treasurer
|
|
2007
|
|
|
250,000
|
|
|
214,224
|
|
|
–
|
|
|
14,014
|
|
|
478,238
|
|
|
and
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACR
Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
Stephen Trevino
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Vice President, Secretary
|
|
2007
|
|
|
250,000
|
|
|
214,224
|
|
|
–
|
|
|
12,455
|
|
|
476,679
|
|
|
and
General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACR
Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
F. Knoop
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
Florida Cooling
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supply, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronnie
G. Floyd
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
Total Supply, Inc.
|
|
2007
|
|
|
125,000
|
|
|
79,698
|
|
|
117,000
|
|
|
6,733
|
|
|
328,431
|
|
(1) Messrs.
Maresca and S. Trevino each were awarded 500,000 restricted shares of common
stock of the Company which vest ratably over a six year period contingent upon
future service to the Company, with the first vesting date occurring on March
1,
2005. At February 28, 2007, the unvested restricted shares for each officer
had
a cumulative value of $1,536,670. Unvested restricted shares have voting rights
but are not entitled to dividends.
(2) Other
annual compensation includes Company contributions to the Company’s 401(k) Plan,
the value of insurance premiums paid by the Company during the fiscal year
with
respect to term life insurance for the benefit of the named executive officer,
and other perquisites.
|
FISCAL
YEAR 2007 ALL OTHER COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Year
|
|
Perquisites
and Other Personal Benefits ($)
|
|
Insurance
Premiums ($)
|
|
Company
Contributions to Retirement and 401(k) Plans
($)
|
|
Change
in Control Payments / Accruals ($)
|
|
Total ($)
|
|
|
Alex
Trevino, Jr.
|
|
2007
|
|
|
5,043
|
|
|
11,030
|
|
|
6,600
|
|
|
–
|
|
|
22,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
R. Maresca
|
|
2007
|
|
|
7,414
|
|
|
–
|
|
|
6,600
|
|
|
–
|
|
|
14,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
Stephen Trevino
|
|
2007
|
|
|
8,705
|
|
|
–
|
|
|
3,750
|
|
|
–
|
|
|
12,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
F. Knoop
|
|
2007
|
|
|
–
|
|
|
–
|
|
|
6,283
|
|
|
–
|
|
|
6,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronnie
G. Floyd
|
|
2007
|
|
|
2,083
|
|
|
–
|
|
|
4,650
|
|
|
–
|
|
|
6,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The Company did not pay for any tax reimbursements or accrue or pay
for
any severance payments in fiscal 2007.
|
|
|
FISCAL
YEAR 2007 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
TABLE
|
|
|
Name
|
|
Benefit
|
|
Before Change in
Control Termination w/o Cause or for Good Reason
($)
|
|
After Change in
Control Termination w/o Cause or for Good Reason
($)
|
|
Change in
Control ($)
|
|
|
Alex
Trevino, Jr.1
|
|
Termination
|
|
|
800,000
|
|
|
800,000
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
R. Maresca2
|
|
Termination
/
Change in
Control
|
|
|
754,000
|
|
|
754,000
|
|
|
754,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
Stephen Trevino2
|
|
Termination
/
Change in
Control
|
|
|
754,000
|
|
|
754,000
|
|
|
754,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
F. Knoop
|
|
None
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronnie
G. Floyd
|
|
None
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Upon termination the Company is obligated to pay 2.0 times the current
base salary.
|
|
|
(2)
Upon a change in control the Company is obligated to pay 2.9 times
the sum
of the base salary plus medical insurance for the prior twelve months.
Additionally, the named officers would receive the amount of bonus
earned,
if any, through the termination or change in control date for the
current
fiscal year.
|
|
(3) There
are no payments due for Voluntary Termination, Death, or
Disability.
Option
Grants in Last Fiscal Year
There
were no stock options granted by the Company to the Company’s executive officers
during the fiscal year ended February 28, 2007.
Aggregated
Option Values
There
are
no unexpired stock options owned by any of the executive officers at February
28, 2007.
GRANTS
OF PLAN-BASED AWARDS
The
following table sets forth certain information concerning grants of awards
made
to each Named Executive Officer during Fiscal 2007:
|
Name
|
|
Grant
Date
|
|
Approval
Date
|
|
(#)
of Restricted Shares
|
|
Exercise or
Base Price of Restricted Stock Awards
($ / Sh)
|
|
Grant
Date Fair Value of Restricted Stock Award
($)
(2)
|
|
Alex
Trevino, Jr.
|
|
–
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
R. Maresca
|
|
–
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
Stephen Trevino
|
|
–
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micahel
F. Knoop 1
|
|
4/15/2006
|
|
4/13/2006
|
|
|
30,000
|
|
|
3.90
|
|
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronnie
G. Floyd 1
|
|
4/15/2006
|
|
4/13/2006
|
|
|
30,000
|
|
|
3.90
|
|
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Consists
of restricted stock that vest ratably over a 5-year period, beginning
on
the first anniversary of the date of grant. Vesting is contingent on
continued employment.
|
|
(2) Amounts
reflect the dollar amount recognized by the Company for financial
statement reporting purposes in accordance with Statement of Financial
Accounting Standards No. 123(R), or SFAS 123(R), for all outstanding
awards received by each Named Executive Officer during fiscal
2007.
|
|
FISCAL
YEAR 2007 OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Awards
|
|
|
Name
|
|
Number of
Shares or Units of Stock That Have Not Vested
(#)
|
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
|
Alex
Trevino, Jr.
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
R. Maresca
|
|
|
333,334
|
|
|
1,536,670
|
|
|
|
|
|
|
|
|
|
|
|
A.
Stephen Trevino
|
|
|
333,334
|
|
|
1,536,670
|
|
|
|
|
|
|
|
|
|
|
|
Michael
F. Knoop 1
|
|
|
30,000
|
|
|
138,300
|
|
|
|
|
|
|
|
|
|
|
|
Ronnie
G. Floyd 1
|
|
|
30,000
|
|
|
138,300
|
|
(1)
All
of the awards to Messrs. Knoop and Floyd represents restricted shares of the
Company's common stock that were granted in fiscal 2007. Such shares vest in
equal annual increments over five years, contingent on continued
employment.
|
FISCAL
YEAR 2007 STOCK VESTED TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Awards
|
|
|
Name
|
|
Number of Shares
Acquired on Vesting (#)
|
|
|
Value Realized
on Vesting ($)
|
|
|
Alex
Trevino, Jr.
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
R. Maresca
|
|
|
83,333
|
|
|
|
296,665
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
Stephen Trevino
|
|
|
83,333
|
|
|
|
296,665
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
F. Knoop
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronnie
G. Floyd
|
|
|
–
|
|
|
|
–
|
|
Directors’
Remuneration and Stock Grants
For
fiscal 2007, independent directors were paid $24,000 per year, payable monthly,
for service on the Board. In addition, they are reimbursed for actual
expenses incurred for attendance at meetings. Effective March 1,
2004, Messrs. Feinsilver and St. Cyr, the Company’s independent directors at
that time, entered into agreements with the Company each providing for awards
of
42,000 restricted shares of common stock of the Company which vest ratably
over
a four year period upon future service to the Board. Unvested
restricted shares have voting rights but are not entitled to
dividends. In August, 2005, Mr. Reno entered into a similar agreement
with the Company for 25,000 restricted shares of common stock of the
Company. Directors who are employed by the Company receive no
compensation for serving on the Board.
Directors’
Remuneration for Fiscal 2007
The
following table sets forth certain information concerning the compensation
of
the Company’s directors for Fiscal 2007:
|
Name
|
|
Fees Earned or
Paid in Cash ($)
|
|
|
Total
($)
|
|
|
Alan
D. Feinsilver
|
|
|
24,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Roland
H. St. Cyr
|
|
|
24,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Reno
|
|
|
24,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Marshall
G. Webb
|
|
|
24,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Jo.
E. Shaw
|
|
|
24,000
|
|
|
|
24,000
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
No
Related Party Transactions
During
fiscal 2007, there were no transactions with related parties.
Board
Member Independence
The
Board
of Directors has determined that Messrs. Feinsilver, Reno, Shaw, St. Cyr and
Webb, the non-employee members of the Board, are “independent” as defined by
AMEX.