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EXHIBIT 2.2
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT dated as of October 26, 1999 (this
"Agreement"), between Service Experts, Inc., a Delaware corporation ("Issuer"),
and Lennox International Inc., a Delaware corporation (the "Grantee").
RECITALS
WHEREAS, Grantee and the Issuer are concurrently with the execution and
delivery of this Agreement entering into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which, among other things, LII Acquisition
Corporation, a Delaware corporation, will merge with and into the Issuer on the
terms and subject to the conditions stated therein; and
WHEREAS, in order to induce Grantee to enter into the Merger Agreement
and as a condition for Grantee's agreeing to do so, the Issuer has granted to
Grantee the Stock Option (as hereinafter defined), on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and in the Merger Agreement, and for other good and valuable
consideration, the adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. Capitalized terms used and not defined herein have the
respective meanings assigned to them in the Merger Agreement.
2. Grant of Stock Option. The Issuer hereby grants to Grantee an
irrevocable option (the "Stock Option") to purchase, on the terms and subject to
the conditions hereof, for $8.94 per share (the "Exercise Price") in cash, up to
3,618,491 fully paid and non-assessable shares (the "Option Shares") of the
Issuer's common stock, par value $0.01 per share (the "Common Stock"). The
Exercise Price and number of Option Shares shall be subject to adjustment as
provided in Section 5 below.
3. Exercise of Stock Option.
(a) Grantee may, subject to the provisions of this Section 3,
exercise the Stock Option, in whole or in part, at any time or from time to
time, after the occurrence of a Triggering Event (defined below) and prior to
the Termination Date. "Termination Date" shall mean, subject to Section 9(a),
the earliest of (i) the Effective Time of the Merger or (ii) the first
anniversary of the date of termination of the Merger Agreement. The Issuer shall
notify Grantee in writing as promptly as practicable following its becoming
aware of the occurrence of any Triggering Event, it being understood that the
giving of such notice by the Issuer shall not be a condition to the right of
Grantee to exercise the Option or for a Triggering Event to have occurred.
Notwithstanding the occurrence of the Termination Date, Grantee shall be
entitled to purchase Option Shares pursuant to any exercise of the Stock Option,
on the terms and subject to the conditions hereof, to the extent Grantee
exercised the Stock Option prior to the occurrence of the Termination Date. A
"Triggering Event" shall mean an event the result of which is that a
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termination fee is required to be paid by the Issuer to Grantee pursuant to
Section 7.2(b) or (c) of the Merger Agreement.
(b) Grantee may purchase Option Shares pursuant to the Stock Option
only if all of the following conditions are satisfied: (i) no preliminary or
permanent injunction or other order issued by any federal or state court of
competent jurisdiction in the United States shall be in effect prohibiting
delivery of the Option Shares, (ii) any waiting period applicable to the
purchase of the Option Shares under the HSR Act shall have expired or been
terminated, and (iii) any prior notification to or approval of any other
regulatory authority in the United States or elsewhere required in connection
with such purchase shall have been made or obtained, other than those which if
not made or obtained would not reasonably be expected to result in a significant
detriment to the Issuer and its Subsidiaries, taken as a whole.
(c) If Grantee shall be entitled to and wishes to exercise the Stock
Option, it shall do so by giving the Issuer written notice (the "Stock Exercise
Notice") to such effect, specifying the number of Option Shares to be purchased,
the denominations of the certificate or certificates evidencing the Option
Shares Grantee wishes to purchase pursuant to this Section 3(c) and a place and
closing date not earlier than three business days nor later than 20 business
days from the date of such Stock Exercise Notice. If the closing cannot be
consummated on such date because any condition to the purchase of Option Shares
set forth in Section 3(b) has not been satisfied or as a result of any
restriction arising under any applicable law or regulation, the closing shall
occur five days (or such earlier time as Grantee may specify) after satisfaction
of all such conditions and the cessation of all such restrictions.
(d) So long as the Stock Option is exercisable pursuant to the terms
of Section 3(a), Grantee may elect to send a written notice to the Issuer (the
"Cash Exercise Notice") specifying a date not later than 20 business days and
not earlier than five business days following the date such notice is given on
which date the Issuer shall pay to Grantee in exchange for the cancellation of
the relevant portion of the Stock Option an amount in cash equal to the Spread
(as hereinafter defined) multiplied by all or such relevant portion of the
Option Shares subject to the Stock Option as Grantee shall specify. As used
herein, "Spread" shall mean the excess, if any, over the Exercise Price of the
higher of (x) if applicable, the highest price per share of Common Stock paid by
any Person pursuant to any Acquisition Proposal relating to Grantee or agreed to
be paid in any Acquisition Proposal approved by the Board of Directors of Issuer
(the "Proposed Alternative Transaction Price") or (y) the average of the closing
prices of the shares of Common Stock on the principal securities exchange or
quotation system on which the Common Stock is then listed or traded as reported
in The Wall Street Journal (Central edition) (but subject to correction for
typographical or other manifest errors in such reporting) for the five
consecutive trading days immediately preceding the date on which the Cash
Exercise Notice is given (the "Average Market Price"). If the Proposed
Alternative Transaction Price includes any property other than cash, the
Proposed Alternative Transaction Price shall be the sum of (i) the fixed cash
amount, if any, included in the Proposed Alternative Transaction Price plus (ii)
the fair market value of such other property. If such other property consists of
securities with an existing public trading market, the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending five days prior to the date on which the Cash Exercise
Notice is
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given shall be deemed to equal the fair market value of such property. If such
other property includes anything other than cash or securities with an existing
public trading market, the Proposed Alternative Transaction Price shall be
deemed to equal the Average Market Price. Upon exercise of its right pursuant to
this Section 3(d) and the receipt by Grantee of the applicable cash amount with
respect to the Option Shares or the applicable portion thereof, the obligations
of the Issuer to deliver Option Shares pursuant to Section 3(e) shall be
terminated with respect to the number of Option Shares specified in the Cash
Exercise Notice. The Spread shall be appropriately adjusted, if applicable, to
give effect to Section 5.
(e) (i) At any closing pursuant to Section 3(c) hereof,
Grantee shall make payment to the Issuer of the aggregate purchase price for the
Option Shares to be purchased and the Issuer shall deliver to Grantee a
certificate or certificates, as applicable, representing the purchased Option
Shares, registered in the name of Grantee or its designee and (ii) at any
closing pursuant to Section 3(d) hereof, the Issuer will deliver to Grantee cash
in an amount determined pursuant to Section 3(d) hereof. Any payment made by
Grantee to the Issuer, or by the Issuer to Grantee, pursuant to this Agreement
shall be made by wire transfer of immediately available funds to a bank
designated by the party receiving such funds, provided that the failure or
refusal by the Issuer to designate such a bank account shall not preclude
Grantee from exercising the Stock Option. If at the time of the issuance of
Options Shares pursuant to the exercise of the Stock Option, Issuer shall have
issued any securities similar to rights under a shareholder rights plan, then
the Option Shares issued pursuant to such exercise shall be accompanied by a
corresponding right with terms substantially the same as and at least as
favorable to Issuer as are provided under any Issuer shareholder rights
agreement or any similar agreement then in effect.
(f) Certificates for Common Stock delivered at the closing
described in Section 3(c) hereof shall be endorsed with a restrictive legend
that shall read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR
IF ANY EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
It is understood and agreed that the reference to restrictions arising under the
Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option Shares have been registered
pursuant to the Securities Act, such Option Shares have been sold in reliance on
and in accordance with Rule 144 under the Securities Act or Grantee has
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
4. Representations of Grantee. Grantee hereby represents and warrants
to the Issuer that any Option Shares acquired by Grantee upon the exercise of
the Stock Option will not be, and the Stock Option is not being, acquired by
Grantee with the intention of making a public
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distribution thereof, other than pursuant to an effective registration statement
under the Securities Act or otherwise in compliance with the Securities Act.
5. Adjustment upon Changes in Capitalization or Merger.
(a) In the event of any change in the outstanding shares of Common
Stock by reason of a stock dividend, stock split, reverse stock split, split-up,
merger, consolidation, recapitalization, combination, conversion, exchange of
shares, extraordinary or liquidating dividend or similar transaction that would
effect Grantee's rights hereunder, the type and number of shares or securities
purchasable upon the exercise of the Stock Option and the Exercise Price shall
be adjusted appropriately, and proper provision will be made in the agreements
governing such transaction, so that Grantee will receive upon exercise of the
Stock Option a number and class of shares or amount of other securities or
property that Grantee would have received in respect of the Option Shares had
the Stock Option been exercised immediately prior to such event or the record
date therefor, as applicable. In no event shall the number of shares of Common
Stock subject to the Stock Option exceed 19.9% of the number of shares of Common
Stock issued and outstanding at the time of exercise (without giving effect to
any shares subject or issued pursuant to the Stock Option).
(b) Without limiting the foregoing, whenever the number of Option
Shares purchasable upon exercise of the Stock Option is adjusted as provided in
this Section 5, the Exercise Price shall be adjusted by multiplying the Exercise
Price by a fraction, the numerator of which is equal to the number of Option
Shares purchasable prior to the adjustment and the denominator of which is equal
to the number of Option Shares purchasable after the adjustment.
(c) Without limiting or altering the parties' rights and obligations
under the Merger Agreement, in the event that the Issuer enters into an
agreement (i) to consolidate with or merge into any Person, other than Grantee
or one of its Subsidiaries, and the Issuer will not be the continuing or
surviving corporation in such consolidation or merger, (ii) to permit any
Person, other than Grantee or one of its Subsidiaries, to merge into the Issuer
and the Issuer will be the continuing or surviving corporation, but in
connection with this merger, the shares of Common Stock outstanding immediately
prior to the consummation of this merger will be changed into or exchanged for
stock or other securities of the Issuer or any other Person or cash or any other
property, or the shares of Common Stock outstanding immediately prior to the
consummation of such merger will, after such merger, represent less than 50% of
the outstanding voting securities of the merged Issuer, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any Person, other
than Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing this transaction shall make proper provision so that the
Stock Option will, upon the consummation of any such transaction and upon the
terms and conditions set forth herein, be converted into, or exchanged for, an
option with identical terms appropriately adjusted to acquire the number and
class of shares or other securities or property that Grantee would have received
in respect of Option Shares had the Stock Option been exercised immediately
prior to such consolidation, merger, sale or transfer or the record date
therefor, as applicable, and will make any other necessary adjustments. The
Issuer shall take such steps in connection with such consolidation, merger,
liquidation or other transaction as may be
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reasonably necessary to assure that the provisions hereof shall thereafter apply
as nearly as possible to any securities or property thereafter deliverable upon
exercise of the Stock Option.
(d) Without limiting or altering the parties' relative rights and
obligations under the Merger Agreement, if any additional shares of Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in Section 5(a)), the number of shares of Common Stock subject to the
Option will be adjusted so that, after such issuance, it (together with any
Option Shares previously issued) equals 19.9% of the number of shares of Common
Stock then issued and outstanding, without giving effect to any shares subject
to or issued pursuant to the Option.
6. Further Assurances; Remedies.
(a) The Issuer agrees to maintain, free from preemptive rights,
sufficient authorized but unissued or treasury shares of Common Stock so that
the Stock Option may be fully exercised without additional authorization of
Common Stock after giving effect to all other options, warrants, convertible
securities and other rights of third parties to purchase shares of Common Stock
from the Issuer, and to issue the appropriate number of shares of Common Stock
pursuant to the terms of this Agreement. All of the Option Shares to be issued
pursuant to the Stock Option, upon issuance and delivery thereof pursuant to
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all claims, liens,
charges, encumbrances and security interests (other than those created by this
Agreement).
(b) The Issuer agrees not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger, issuance of
rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions to
be observed or performed hereunder by the Issuer.
(c) The Issuer agrees that promptly after the occurrence of a
Triggering Event it shall take all actions as may from time to time be required
(including (i) complying with all applicable premerger notification, reporting
and waiting period requirements under the HSR Act and (ii) in the event that
prior notification to or approval of any other regulatory authority in the
United States or elsewhere is necessary before the Stock Option may be
exercised, complying with its obligations thereunder and cooperating with
Grantee in Grantee's preparing and processing the required notices or
applications) in order to permit Grantee to exercise the Stock Option and
purchase Option Shares pursuant to such exercise.
(d) The parties agree that Grantee would be irreparably damaged if
for any reason the Issuer failed, in breach of its obligations hereunder, to
issue any of the Option Shares (or other securities or property deliverable
pursuant to Section 5 hereof) upon exercise of the Stock Option or to perform
any of its other obligations under this Agreement, and that Grantee would not
have an adequate remedy at law for money damages in such event. Accordingly,
Grantee shall be entitled to specific performance and injunctive and other
equitable relief to enforce the performance of this Agreement by the Issuer.
Accordingly, if Grantee should institute an action or proceeding seeking
specific enforcement of the provisions hereof, the Issuer
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hereby waives the claim or defense that Grantee has an adequate remedy at law
and hereby agrees not to assert in any such action or proceeding the claim or
defense that such a remedy at law exists. The Issuer further agrees to waive any
requirements for the securing or posting of any bond in connection with
obtaining any such equitable relief. This provision is without prejudice to any
other rights that Grantee may have against the Issuer for any failure to perform
its obligations under this Agreement.
7. Listing of Option Shares. Promptly after the occurrence of a
Triggering Event and from time to time thereafter if necessary, the Issuer will
apply to list all of the Option Shares subject to the Stock Option on the NYSE
and will use its reasonable best efforts to obtain approval of such listing as
soon as practicable.
8. Registration of the Option Shares.
(a) If, within two years of the exercise of the Stock Option,
Grantee requests the Issuer in writing to register under the Securities Act at
least twenty-five percent (25%) of the Option Shares received by Grantee
hereunder (or, in the event that Grantee then holds less than twenty-five
percent (25%) of the Option Shares received by Grantee hereunder, all of the
Option Shares then held by Grantee), the Issuer will use its reasonable best
efforts to cause the offering of the Option Shares so specified in such request
to be registered as soon as practicable so as to permit the sale or other
distribution by Grantee of the Option Shares specified in its request (and to
keep such registration in effect for a period of at least 90 days), and in
connection therewith the Issuer shall prepare and file as promptly as reasonably
possible (but in no event later than 60 days from receipt of Grantee's request)
a registration statement under the Securities Act to effect such registration on
an appropriate form, which would permit the sale of the Option Shares by Grantee
in accordance with the plan of disposition specified by Grantee in its request.
The Issuer shall not be obligated to make effective more than two registration
statements pursuant to the foregoing sentence. The obligations of Issuer
hereunder to file a registration statement and to maintain its effectiveness may
be suspended for up to 90 calendar days in the aggregate if the Board of
Directors of Issuer shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require premature
disclosure of material nonpublic information that would materially and adversely
affect Issuer or otherwise interfere with or adversely affect any pending or
proposed offering of securities of Issuer or any other material transaction
involving Issuer.
(b) If, within five years of the exercise of the Stock Option, the
Issuer shall propose to file a registration statement under the Securities Act
(other than a filing on Form S-4 or S-8 or any successor form) with respect to
any shares of Common Stock, the Issuer shall notify Grantee in writing not less
than ten days prior to filing such registration statement. If Grantee wishes to
have any portion of its Option Shares included in such registration statement,
it shall advise the Issuer in writing to that effect within two business days
following receipt of such notice, and the Issuer will thereupon include the
number of Option Shares indicated by Grantee under such Registration Statement;
provided that if the managing underwriter(s) of the offering pursuant to such
registration statement advise the Issuer that in their opinion the number of
shares of Common Stock requested to be included in such registration exceeds the
number which can be sold in such offering on a commercially reasonable basis,
priority shall be given to
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securities intended to be registered by the Issuer for its own account and,
thereafter, the Issuer shall include in such registration Option Shares
requested by Grantee to be included therein pro rata with the shares of Common
Stock intended to be included therein by other shareholders of the Issuer.
(c) All expenses relating to or in connection with any registration
contemplated under this Section 8 and the transactions contemplated thereby
(including all filing, printing, reasonable professional, roadshow and other
fees and expenses relating thereto) will be at the Issuer's expense except for
underwriting discounts or commissions and brokers' fees. The Issuer and Grantee
agree to enter into a customary underwriting agreement with underwriters upon
such terms and conditions as are customarily contained in underwriting
agreements with respect to secondary distributions. The Issuer shall indemnify
Grantee, its officers, directors, agents, other controlling persons and any
underwriters retained by Grantee in connection with such sale of such Option
Shares in the customary way, and shall agree to customary contribution
provisions with such persons, with respect to claims, damages, losses and
liabilities (and any expenses relating thereto) arising (or to which Grantee,
its officers, directors, agents, other controlling persons or underwriters may
be subject) in connection with any such offer or sale under the federal
securities laws or otherwise, except for information furnished in writing by
Grantee or its underwriters to the Issuer. Grantee and its underwriters,
respectively, shall indemnify the Issuer to the same extent with respect to
information furnished in writing to the Issuer by Grantee and such underwriters,
respectively.
9. Miscellaneous.
(a) Extension of Exercise Periods. The periods during which Grantee
may exercise its rights under Sections 2 and 3 hereof shall be extended in each
such case at the request of Grantee to the extent necessary to avoid liability
by Grantee under Section 16(b) of the Exchange Act by reason of such exercise.
(b) Amendments; Entire Agreement. This Agreement may not be
modified, amended, altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties hereto. This Agreement,
the Merger Agreement (including the documents and instruments attached thereto
as exhibits or schedules or delivered in connection therewith) and the
Confidentiality Agreements (i) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement, and (ii) except as
provided in Section 8.6 of the Merger Agreement, are not intended to confer upon
any person other than the parties any rights or remedies.
(c) Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received (i) when so delivered personally, (ii)
upon receipt of an appropriate electronic answerback or confirmation when so
delivered by telegraph or telecopy (to such number specified below or another
number or numbers as such person may subsequently designate by notice given
hereunder) or, (iii) five business days after the date of mailing to the
following address or to such other address or
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addresses as such person may subsequently designate by notice given hereunder,
if so delivered by mail:
If to Grantee, to:
Lennox International Inc.
2100 Lake Park Blvd.
Richardson, Texas 75080
Telecopy: (972) 497-5440
Attention: Chief Executive Officer
with a copy to:
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, TX 75201
Telecopy: (214) 953-6503
Attention: Andrew M. Baker
If to Issuer, to:
Service Experts, Inc.
Six Cadillac Drive, Suite 400
Brentwood, TN 37027
Telecopy: (615) 221-4131
Attention: Chief Executive Officer
with copies to:
Cleary, Gottlieb, Steen & Hamilton
1 Liberty Plaza
New York, NY 10006
Telecopy: (212) 225-3999
Attention: Victor I. Lewkow, Esq.
and
Waller Lansden Dortch & Davis,
A Professional Limited Liability Company
511 Union Street
Suite 2100, Nashville City Center
Nashville, TN 37219
Telecopy: (615) 244-6804
Attention: J. Chase Cole, Esq.
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(d) Expenses. Except as otherwise specifically provided herein and
without limiting anything contained in the Merger Agreement, each party hereto
shall pay its own expenses incurred in connection with this Agreement, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(e) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to
principles of conflicts of law.
(g) Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby or thereby shall be
brought in any federal or state court located in the State of Delaware, and each
of the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 9(c) shall be deemed
effective service of process on such party.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement.
(i) Headings. The section headings herein are for convenience only
and shall not affect the construction hereof.
(j) Assignment. This Agreement shall be binding upon each party
hereto and such party's successors and assigns. This Agreement shall not be
assignable by the Issuer, but may be assigned by Grantee in whole or in part to
any direct or indirect wholly-owned subsidiary of Grantee, provided that Grantee
shall remain liable for any obligations so assigned.
(k) Survival. All representations, warranties and covenants
contained herein shall survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
(l) Time of the Essence. The parties agree that time shall be of the
essence in the performance of obligations hereunder.
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(m) Public Announcement. Grantee and the Issuer will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and shall not
issue any press release or make any public statement without the prior consent
of the other party, which shall not be unreasonably withheld. Notwithstanding
the foregoing, any such press release or public statement as may be required by
applicable law or any listing Agreement with any national securities exchange,
may be issued prior to such consultation, if the party making the release or
statement has used its reasonable efforts to consult with the other party.
(n) Extension; Waiver. Any agreement on the part of a party to waive
any provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(o) Further Assurances. In the event of any exercise of the Option
by Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
10. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement or the
Merger Agreement, in no event shall Grantee's Total Profit (as defined below)
exceed $7.0 million (the "Maximum Amount") and, if it otherwise would exceed
such Maximum Amount, Grantee at its sole election may (i) pay cash to the
Issuer, (ii) deliver to the Issuer for cancellation Option Shares previously
purchased by Grantee, or (iii) any combination thereof, so that Grantee's
actually realized Total Profit (as defined below) shall not exceed the Maximum
Amount after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Stock
Option may not be exercised for a number of Option Shares as would, as of the
date of the Stock Exercise Notice or Cash Exercise Notice, as applicable, result
in a Notional Total Profit (as defined below) of more than the Maximum Amount
and, if exercise of the Stock Option otherwise would result in the Notional
Total Profit exceeding such amount, Grantee, at its discretion, may (in addition
to any of the actions specified in Section 10(a) above) increase the Exercise
Price for that number of Option Shares set forth in the Stock Exercise Notice or
Cash Exercise Notice, as applicable, so that the Notional Total Profit shall not
exceed the Maximum Amount; provided, that nothing in this sentence shall
restrict any exercise of the Stock Option permitted hereby on any subsequent
date at the Exercise Price set forth in Section 2 hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the cash amount actually received by
Grantee pursuant to Section 7.2 of the Merger Agreement less any repayment by
Grantee to the Issuer pursuant to Section 10(a)(i) hereof, (ii) (x) the net cash
amounts or the fair market value of any property received by Grantee pursuant to
the sale of Option Shares (or of any other securities into or for
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which such Option Shares are converted or exchanged), less (y) Grantee's
purchase price for such Option Shares (or other securities) plus (iii) the
aggregate amounts received by Grantee pursuant to Section 3(d).
(d) As used herein, the term "Notional Total Profit" with respect to
any number of Option Shares as to which Grantee may propose to exercise the
Stock Option shall mean the Total Profit determined as of the date of the Stock
Exercise Notice or Cash Exercise Notice, as applicable, assuming that the Stock
Option was exercised on such date for such number of Option Shares and assuming
that such Option Shares, together with all other Option Shares previously
acquired upon exercise of the Stock Option and held by Grantee and its
affiliates as of such date, were sold for cash at the closing price on the NYSE
for the Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
11. Restrictions on Certain Actions; Covenants of Grantee. From and
after the date of exercise of the Stock Option (other than an exercise
contemplated by Section 3(d) hereof), in whole or in part with respect to more
than ten percent (10%) of the then outstanding shares of Common Stock, and until
the earlier of (x) two years from the date of exercise or (y) the date Grantee
beneficially owns less than five percent (5%) of the then outstanding shares of
Common Stock:
(a) Without the prior consent of the Board of Directors of the
Issuer, Grantee will not, and will not permit any of its affiliates to:
(i) acquire or agree, offer or propose to acquire, beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 15% of
any class of Voting Securities (as defined below), or any rights or options to
acquire such ownership (including from a third party);
(ii) propose a merger, consolidation or similar transaction
involving the Issuer;
(iii) offer or propose to purchase, lease or otherwise acquire
all or a substantial portion of the assets of the Issuer;
(iv) solicit or participate in the solicitation of any proxies
or consents with respect to the securities of the Issuer;
(v) enter into any agreements or arrangements with any third
party with respect to any of the foregoing; or
(vi) publicly disclose that it requested the consent of the
Board of Directors of the Issuer to do any of the foregoing except as required
by law.
(b) The provisions of this Section 11 shall terminate at such time
as the Stock Option granted hereby expires without having been exercised in
whole or in part. The
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provisions of this Section 11 shall not apply to actions taken pursuant to the
Merger Agreement. "Voting Securities" means the shares of Common Stock,
preferred stock and any other securities of the Issuer entitled to vote
generally for the election of directors or any other securities (including,
without limitation, rights and options), convertible into, exchangeable into or
exercisable for, any of the foregoing (whether or not presently exercisable,
convertible or exchangeable).
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IN WITNESS WHEREOF, each party has caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
SERVICE EXPERTS, INC.
By: /s/ Alan Sielbeck
Name: Alan Sielbeck
Title: Chief Executive Officer
LENNOX INTERNATIONAL INC.
By: /s/ John W. Norris, Jr.
Name: John W. Norris, Jr.
Title: Chairman of the Board and
Chief Executive Officer
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