US HOME SYSTEMS INC DEF 14A 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant To Section 14(A) Of
The Securities Exchange Act Of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
U.S. HOME SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
U.S. Home Systems, Inc.
405 State Highway 121 Bypass
Building A, Suite 250
Lewisville, Texas 75067
April 21, 2009
You are invited to attend this years annual stockholders meeting which will be held at 405 State Highway 121 Bypass, Building A, Suite 250, Lewisville, Texas 75067 at 10:00 a.m., central daylight time, on Friday, June 5, 2009.
The enclosed materials include the notice of annual meeting, the proxy statement describing the business to be transacted at the meeting, a proxy card for you to complete and return to us and our annual report.
We will be reporting on the companys activities, and you will have an opportunity to ask questions about our operations. We hope you are planning to attend the annual meeting personally, and we look forward to seeing you. However, it is important that your shares be represented at the annual meeting whether or not you are able to attend in person. Accordingly, please complete, sign, date and return the enclosed proxy card in the return envelope provided as soon as possible to ensure your shares are represented. If you do attend the annual meeting, you may, of course, withdraw your proxy if you want to vote in person.
On behalf of our board of directors and our management, we would like to thank you for your continued support and confidence.
405 State Highway 121 Bypass
Building A, Suite 250
Lewisville, Texas 75067
TABLE OF CONTENTS
U.S. Home Systems, Inc.
405 State Highway 121 Bypass
Building A, Suite 250
Lewisville, Texas 75067
TO BE HELD JUNE 5, 2009
We will hold this years annual stockholders meeting on Friday, June 5, 2009, at 10:00 a.m. central daylight time at 405 State Highway 121 Bypass, Building A, Suite 250, Lewisville, Texas 75067.
At the meeting, we will ask you to consider and vote on the following proposals:
If you were a stockholder at the close of business on April 9, 2009, you are entitled to receive notice of, and vote at, the annual meeting and any postponements or adjournments thereof.
It is important that your shares be represented at the annual meeting. For that reason, we ask that you promptly complete, sign, date and mail the enclosed proxy card in the return envelope provided. If you attend the annual meeting, you may revoke your proxy and vote in person. To help us prepare properly for your attendance at the annual meeting, we ask that you indicate on your proxy card whether you plan to attend the meeting. If you want to vote via the internet, please follow the instructions on the proxy card.
April 21, 2009
Important Notice Regarding the Availability of Proxy Materials
For the Stockholder Meeting to be Held on June 5, 2009
Pursuant to new rules promulgated by the Securities and Exchange Commission, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet. This proxy statement and our 2008 Annual Report on Form 10-K are available at http://www.ushomesystems.com/proxy/.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 5, 2009
We are providing this notice of annual meeting, proxy statement and proxy card to our stockholders in connection with the solicitation of proxies by our board of directors for use at our 2009 annual meeting of stockholders to be held at 405 State Highway 121 Bypass, Building A, Suite 250, Lewisville, Texas 75067 on Friday, June 5, 2009, at 10:00 a.m. central daylight time and at any adjournments or postponements thereof. At the annual meeting, our stockholders will be asked to consider and vote on the following: (1) the election of five directors to serve until the next annual meeting or until their successors are duly elected and qualified; and (2) the transaction of such business as may properly come before the meeting or any postponements or adjournments thereof. On or about April 24, 2009, we will begin mailing the proxy materials to everyone who was a stockholder of record on April 9, 2009. If you received more than one proxy statement, your shares are probably registered differently or are in more than one account. Please vote each proxy card that you received.
Record Date and Voting Securities
All stockholders of record at the close of business on April 9, 2009 are entitled to vote on matters presented at the annual meeting or any postponements or adjournments thereof. At the close of business on April 9, 2009, there were 7,344,635 shares of our common stock issued and outstanding and entitled to vote at the annual meeting. Holders of our common stock are entitled to one vote for each share held. We will have a list of stockholders available for inspection for at least ten days prior to the annual meeting at our principal executive offices and at the annual meeting.
Election of Directors
Votes may be cast in favor of, or withheld from, a director nominee. Votes that are withheld from any director nominee will be counted in determining whether a quorum has been reached but will not affect the outcome of the vote. At least one-third of our outstanding shares of common stock and entitled to vote at the annual meeting must be represented, in person or by proxy, at the meeting for a quorum.
Assuming a quorum is present, nominees must receive the affirmative vote of a plurality of the votes cast by stockholders present, in person or by proxy, at the annual meeting and entitled to vote in order to be elected director. A plurality means receiving more affirmative votes than any opposing candidate regardless of whether that is a majority of the votes cast. Votes marked For all nominees will be counted in favor of all nominees, except to the extent the proxy withholds authority to vote for a specified nominee. Votes Withheld from a nominee also have no effect on the vote since a plurality of the votes cast at the annual meeting is required for the election of each nominee. In the election of directors, stockholders are not entitled to cumulate their votes or to vote for a greater number of persons than the number of nominees named in this proxy statement.
Any other matters that may properly come before the annual meeting will be determined by the affirmative vote of a majority of our common stock represented, in person or by proxy, at the annual meeting and entitled to vote, assuming a quorum is present.
In lieu of voting in person at the annual meeting, you may mark your selections on the enclosed proxy card, date and sign the card and return the card in the enclosed envelope. We encourage you to complete and submit the proxy card even if you plan to attend the annual meeting in person.
Please understand that voting by means of the proxy card has the effect of appointing Murray H. Gross, our chairman, president and chief executive officer, and Robert A. DeFronzo, our secretary, as your proxies. They are required to vote on the proposals described in this proxy statement exactly as you have voted. However, if any other matter requiring a stockholder vote is properly raised at the meeting, then Messrs. Gross and DeFronzo will be authorized to use their discretion to vote such issues on your behalf.
Any stockholder who is present at the annual meeting, either in person or by proxy, but who abstains from voting, will still be counted for purposes of determining whether a quorum exists. An abstention will have the effect of a vote against any matter requiring the affirmative vote of a majority of the shares entitled to vote at the annual meeting. Stockholders may not abstain from voting with respect to the election of directors.
If your shares are in a brokerage account and you do not vote, your brokerage firm could (1) vote your shares, if permitted by applicable rules, or (2) leave your shares unvoted. Under applicable rules, brokers who hold shares in street name have the authority to vote routine matters, such as the election of directors, as recommended by the board if they do not receive contrary voting instructions from the beneficial owners. However, brokers do not have the authority to vote on non-routine matters requiring approval of a majority of the shares present and entitled to vote, unless they have received voting instructions from the beneficial owners.
Such broker non-votes are considered present and are counted in determining the existence of a quorum, but will not be counted in determining the number of votes cast for a proposal. Therefore, broker non-votes will not arise in the context of the election of the nominees because the election of directors is a routine matter for which specific instructions from beneficial owners is not required.
Revocability of Proxies
You may revoke your proxy at any time before the annual meeting for any reason. To revoke your proxy before the meeting, write to our secretary, Robert A. DeFronzo, at 405 State Highway 121 Bypass, Building A, Suite 250, Lewisville, Texas 75067. You may also come to the annual meeting and change your vote in writing. Merely attending the annual meeting does not revoke your proxy.
We will bear all expenses in connection with this solicitation, including the cost of preparing, printing and mailing proxy materials. Proxies may be solicited by directors, officers and other employees, by telephone or otherwise, without additional compensation. We will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of our common stock and will reimburse those brokerage firms, nominees, custodians and fiduciaries and our transfer agent for their reasonable out-of-pocket expenses in forwarding such materials.
ELECTION OF DIRECTORS
Our board of directors consists of one class of directors. All current directors terms expire at the 2009 annual meeting. Our board has nominated each of the current directors for re-election. Our stockholders will vote on the election of five members to our board of directors at the annual meeting. Unless otherwise instructed, the proxy holders will vote their proxies for the five nominees named below. Each person will serve as a director until the next annual meeting or until a successor has been elected and qualified.
Each of the persons nominated for election to our board has agreed to stand for election, and, to the knowledge of the board, each of the nominees intends to serve the entire term for which election is sought. However, should any nominee become unable or unwilling to accept nomination or election, the proxies will be voted for a nominee designated by the present board, with the assistance of the nominating/corporate governance committee, to fill the vacancy, unless the board reduces the number of directors to eliminate the vacancy. At present, it is not anticipated that any nominee will be unable or unwilling to serve as a director. All nominees for director currently serve as directors of our company.
The board of directors recommends that stockholders vote FOR the nominees listed below.
Nominees for Director
Murray H. Gross, age 70, has served as our president since February 2009 and as our chief executive officer and the chairman of our board of directors since 2001. He was elected to the board of directors in 2001. Mr. Gross previously served as our president from 2001 to March 2007. In February 2009 he was elected president to replace Peter T. Bulger who resigned as our president and chief operating officer. Mr. Gross has over 49 years of experience in the home improvement industry.
Don A. Buchholz, age 80, was elected to our board of directors in June 2002, and serves as chairman of our compensation and nominating/corporate governance committees, and as a member of our audit committee. Mr. Buchholz is chairman of the board of directors of SWS Group, Inc., a publicly owned holding company with subsidiaries engaged in providing securities clearing, securities brokerage, investment banking and investment advisory services. He has served as director and chairman of the board of SWS Group, Inc. since 1991.
Richard W. Griner, age 71, has served as a member of our board of directors since August 2007 and is a member of our audit committee. Mr. Griner served as president of Rmax, LLC, from 1984 to December 2007 when he retired.
Larry A. Jobe, age 69, has served as a member of our board of directors since June 2003 and is chairman of our audit committee, and a member of our nominating/corporate governance and compensation committees. He is chairman of the board of Legal Network, Ltd., a company he co-founded in 1993. Legal Network, Ltd. provides litigation support, temporary support staff and contract attorneys to law firms and corporate legal departments. Mr. Jobe also serves as a director of SWS Group, Inc. and Mannatech, Inc. From 1973 to 1986, Mr. Jobe was the managing partner for the Dallas office of Grant Thornton LLP and served as its southwest regional managing partner from 1983 to 1991. He is a certified public accountant.
Kenneth W. Murphy, age 70, was elected to our board in July 2004 and serves as a member of our compensation committee. He served as president and a director of Mail Box Capital Corporation from August 1999 until September 2001 when Mail Box Capital Corporation was acquired by Alliance Data Systems, a public company. From 2001 to 2003, he served as the chief executive officer of the printing and mailing divisions of Alliance Data Systems. Since 2000, he has been the president and director of Label Source, Inc., a provider of labels and tabs for the mailing industry. Mr. Murphy has established and endowed an Entrepreneurial Scholarship and The Murphy Entrepreneurial Center at the University of North Texas.
Our Board and Board Meetings
We manage our business under the direction of our board of directors. Our directors generally serve one-year terms from the time of their election until the next annual meeting of stockholders or until their successors are duly elected and qualified. The size of our board is set at five members, and we currently have five directors including four non-employee directors. The board meets at least quarterly during the year to review significant developments and to act on matters requiring board approval. The board held five in-person meetings and two meetings with the written consent of all directors during fiscal year 2008. Each director attended at least three-fourths of the total number of meetings of our board of directors sitting as a whole and all committees of our board on which such director served during 2008. Our board of directors has not adopted a policy on attendance by board members at our annual meeting of stockholders. However, we expect that a majority of the members of the board will attend the 2009 annual meeting.
The board has long been committed to sound and effective corporate governance practices. Four of the five nominees for election as directors of our board qualify as independent as defined by applicable Nasdaq Stock Market and SEC rules. Our key committees are and will continue to be comprised solely of independent directors. We formed a nominating/corporate governance committee in 2003 to consider and recommend candidates for board vacancies, actively recruit qualified candidates, review and make recommendations regarding committee assignments and committee structure, and assist the board in developing and implementing corporate governance practices and policies.
The board adopted a comprehensive set of corporate governance guidelines, which addresses a number of important governance issues, including director independence, criteria for board membership, expectations regarding attendance and participation in meetings, committee responsibilities and authority of the board and certain committees to engage outside independent advisors as they deem appropriate.
The board has also adopted and implemented formal charters setting forth the powers and responsibilities of the audit, compensation and nominating/corporate governance committees. All three of our charters and corporate governance guidelines may be viewed on the corporate governance page of our web site, www.ushomesystems.com.
The current members of the committees are identified below:
Our audit committee is comprised of three directors who are responsible for
Each of the members of the committee qualified as independent under the provisions of Section 10A of the Securities Exchange Act of 1934 and the rules of the SEC promulgated thereunder, as well as the Nasdaq Stock Markets independence rules relating to audit committees. Our audit committee is comprised of Larry A. Jobe (chairman), Don A. Buchholz and Richard W. Griner. Our board has determined that all members of the audit committee are financially literate pursuant to the Nasdaq Stock Market rules and that Larry A. Jobe is an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K. The audit committee held four meetings during fiscal year 2008. Each audit committee member participated in person or by telephone in all of the meetings.
In discharging its oversight responsibility as to the audit process, the audit committee obtained from the independent registered public accounting firm a formal written statement confirming the absence of any relationships between the auditor and the company that might bear on the auditors independence consistent with applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants communications with the audit committee concerning independence. The audit committee discussed with the independent registered public accounting firm any activities that may impact their objectivity and independence, including fees for non-audit services, and satisfied itself as to the registered public accounting firms independence. The audit committee also discussed with management and the independent registered public accounting firm the quality and adequacy of the companys internal controls over financial reporting. The committee reviewed with the independent registered public accounting firm their audit plan and audit scope and the independent registered public accounting firms examination of the financial statements. The audit committee is also responsible for reviewing compliance with the companys code of ethics and business conduct policy, and for administering and enforcing the companys accounting and auditing complaint procedures adopted in accordance with Section 301 of the Sarbanes-Oxley Act of 2002.
In August 2008, the audit committee approved the engagement of Grant Thornton LLP as the companys independent registered public accounting firm for 2008.
Audit Committee Charter
On March 31, 2009, our board approved technical amendments to our audit committee charter primarily to reflect changes to the applicable requirements of the Public Company Accounting Oversight Board, or the PCAOB, regarding our independent auditors communications with our audit committee concerning its independence. A copy of our audit committee charter, as amended, is attached hereto as Appendix A and is available on the corporate governance page of our internet website at www.ushomesystems.com.
Our compensation committee, which is comprised of three independent directors, determines the salaries of our executive officers, assists in determining the salaries of other personnel, administers the grant of awards under our 2000 Stock Compensation Plan and 2004 Restricted Stock Plan, and performs other similar functions. Our compensation committee is comprised of Don A. Buchholz (chairman), Kenneth W. Murphy and Larry A. Jobe. The compensation committee held two meetings during fiscal year 2008. All committee members participated in person or by telephone in all of the meetings. Our board of directors has adopted a charter for the compensation committee, which is available on the corporate governance page of our website at www.ushomesystems.com.
The compensation committee sets performance goals and objectives for the chief executive officer and the other executive officers, evaluates their performance with respect to those goals and sets their compensation based upon the evaluation of their performance. In evaluating executive officer pay, the compensation committee may retain the services of a compensation consultant and consider recommendations from our chief executive
officer with respect to goals and compensation of the other executive officers. The compensation committee assesses the information it receives in accordance with its business judgment. The compensation committee also periodically reviews director compensation. All decisions with respect to executive and director compensation are approved by the compensation committee and recommended to the full board for ratification.
The compensation committee is responsible for administering all of our equity-based plans. The compensation committee also periodically reviews compensation and equity-based plans and makes its recommendation to the board with respect to these matters.
Nominating/Corporate Governance Committee
Our nominating/corporate governance committee is comprised of two non-employee directors who meet the independence requirements of the Nasdaq Stock Market and is responsible for identifying individuals qualified to become members of the board, recommending to the board qualified director nominees to be proposed for election at the annual meeting of stockholders, recommending to the board directors to be appointed to the various committees of the board, and assisting the board in developing and implementing effective corporate governance practices and policies. Our nominating/corporate governance committee is comprised of Don A. Buchholz (chairman) and Larry A. Jobe. The nominating/corporate governance committee held one meeting during fiscal year 2008. All committee members were present at each meeting.
Director Qualifications and Nominating Procedures
The companys corporate governance guidelines provide that a substantial majority of our directors must qualify as independent directors under the listing standards of the Nasdaq Stock Market. The nominating/corporate governance committee is not currently seeking additional candidates to serve on the board and believes that the proposed five-member board is able to provide the necessary oversight and assistance to management of the company. Criteria for board membership takes into account skills, expertise, integrity, diversity and other qualities that are expected to enhance the boards ability to manage and direct the business and affairs of the company. In general, nominees for director should have an understanding of the workings of business organizations such as the company and senior level executive experience, as well as the ability to make independent, analytical judgments, the ability to be an effective communicator, and the ability and willingness to devote the time and effort to be an effective and contributing member of the board.
The nominating/corporate governance committee may, from time to time, seek to identify potential candidates for director nominees to sustain and enhance the composition of the board with the appropriate balance of knowledge, experience, skills, expertise and diversity. In this process, the committee will consider potential candidates proposed by other members of the board, by management or by stockholders, and the committee has the sole authority to retain a search firm to assist in this process, at the expense of the company. In considering candidates submitted by stockholders, the nominating/corporate governance committee will take into consideration the needs of the board and the qualifications of the candidate. Our nominating/corporate governance committee does not have a specific policy with respect to the consideration of any director candidates recommended by stockholders. Our board and the nominating/corporate governance committee believe that such a policy is unnecessary because they will consider all recommended director candidates without regard to the source of the recommendation.
Once a person has been identified by the nominating/corporate governance committee as a potential candidate, the committee, as an initial matter, may collect and review publicly available information regarding the person to assess whether the person should be considered further. Thereafter, if the committee determines that the candidate has potential, a more in-depth consideration would be undertaken. Generally, if the person expresses a willingness to be considered and to serve on the board and the committee believes that the candidate has the potential to be a good candidate, the committee would seek to gather information from or about the candidate, review the persons accomplishments and qualifications, including in light of any other candidates that the committee might be considering, and, as appropriate, conduct one or more interviews with the candidate. In
certain instances, committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidates accomplishments. The nominating/corporate governance committees evaluation process does not vary based on whether or not a candidate is recommended by a stockholder. Since the last annual meeting, the nominating/corporate governance committee has not received a recommended nominee from a stockholder owning 5% or more of our common stock.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct relating to the conduct of our business by our employees, officers and directors. We intend to maintain the highest standards of ethical business practices and compliance with all laws and regulations applicable to our business. During the fiscal year ended December 31, 2008, there were no amendments to or waivers of our Code of Ethics and Business Conduct. If we effect an amendment to, or waiver from, a provision of our Code of Ethics and Business Conduct we intend to satisfy our disclosure requirements by posting a description of such amendment or waiver on the corporate governance page of our internet website at www.ushomesystems.com or via a current report on Form 8-K. A current copy of our Code of Ethics and Business Conduct is posted on our internet website at www.ushomesystems.com.
Stockholder Communications with Directors
The board has established a process to receive communications from stockholders and other interested parties. Stockholders and other interested parties may contact any member (or all members) of the board, any board committee or any chair of any such committee by mail or electronically. To communicate with the board of directors, any individual director or any group or committee of directors, correspondence should be addressed to the board of directors or any such individual director or group or committee of directors by either name or title. All such correspondence should be sent to the company c/o Corporate Secretary at 405 State Highway 121 Bypass, Building A, Suite 250, Lewisville, Texas 75067. To communicate with any of our directors electronically, stockholders should use the following email address of our general counsel, Richard B. Goodner: email@example.com.
The following table sets forth the name, age and positions of each of our executive officers as of the record date:
Steven L. Gross serves as our executive vice president and chief marketing officer, positions he has held since February 2001. He has 23 years experience in the home improvement industry. He is the son of Murray H. Gross.
Robert A. DeFronzo serves as our secretary, treasurer and chief financial officer, positions he has held since February 2001. He has 18 years of experience in the home improvement industry.
Richard B. Goodner has served as our general counsel since June 2003 and as our vice presidentlegal affairs since August 2003. From 1970 to 2003, Mr. Goodner was engaged in the practice of law in Dallas, Texas.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at April 9, 2009, regarding the beneficial ownership of our common stock of each person or group known by us to beneficially own 5% or more of our outstanding shares of common stock; each of our directors; named executive officers as identified in the Summary Compensation Table; and all our executive officers and directors, as a group.
Unless otherwise noted, the persons named below have sole voting and investment power with respect to the shares shown as beneficially owned by them.
Changes in Control
There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the company.
Interest of Officers and Directors in Matters to Be Acted Upon
None of the companys officers or directors since the beginning of the last fiscal year, or any of their associates, have any interest in any of the matters to be acted upon, except to the extent that a director is named as a nominee for election to the board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, and regulations of the SEC require our executive officers and directors and persons who own more than 10% of our common stock, as well as certain affiliates of such persons, to file initial reports of ownership and timely file transaction reports covering any changes in ownership with the SEC. Executive officers, directors and persons owning more than 10% of our common stock are required by SEC regulations to furnish us with all such reports they file.
Based solely on review of the copies of such reports that we have received and written representations that no other reports were required for such persons, we believe that all filing requirements applicable to our executive officers, directors and owners of more than 10% of our common stock were complied with.
Certain Relationships and Related Transactions
Our companys Code of Ethics and Business Conduct provides that employees, officers and directors must act in the best interests of the company and refrain from engaging in any activity or having a personal interest that presents a conflict of interest. In addition, under applicable Securities and Exchange Commission rules, the company is required to disclose related person transactions as defined in the Securities and Exchange Commissions rules. Our Code of Ethics and Business Conduct may be accessed on the corporate governance page of our companys website at www.ushomesystems.com.
Since the beginning of fiscal 2008, we were not a party to any transaction, or any currently proposed transaction, that involved more than $120,000 with a related person (executive officer, director, nominee for director or 5% stockholder or any of their immediate family members) or that involved indebtedness to or payments from us, other than for compensation paid in connection with employment or board service as described under the caption Executive Compensation and Other Information.
Our policy with regard to related party transactions is that all material transactions are to be reviewed by the audit committee for any possible conflicts of interest. The committee will generally evaluate the transaction in terms of: (1) the benefits to the company; (2) the terms of the transaction; and (3) the terms available to unrelated third parties or to employees generally. The audit committee will seek consensus of the transaction from the independent directors. Related party transactions are required to be approved by the audit committee.
Summary Compensation Table
The following table contains summary information concerning the total compensation earned during 2007 and 2008 by our chief executive officer, and our two other most highly compensated executive officers, including our former president and chief operating officer, Peter T. Bulger, who resigned in February 2009, whose total compensation exceeded $100,000, our named executive officers.
On December 11, 2008, the compensation committee of the board of directors of our company approved the amended and restated employment agreements, to be effective as of January 1, 2009, our chief executive officer (Murray H. Gross) and other named executives. The primary purpose for amending the employment agreements was to address issues raised by Section 409A of the Internal Revenue Code and related interpretations and guidance of the Internal Revenue Service (collectively IRC Section 409A). Additional revisions were made to Murray H. Gross employment agreement as noted below.
Chief Executive Officer. The term of our initial employment agreement with Murray H. Gross, our chief executive officer, was scheduled to end on December 31, 2006. On June 2, 2006, our compensation committee approved the extension of the initial term of Mr. Grosss employment agreement for an additional three year period through December 31, 2009. The compensation committee also agreed that we will provide Mr. Gross
with long term care insurance coverage until June 2, 2016, provided that the annual premium we would pay does not exceed $25,000. Mr. Gross was also granted 21,000 restricted stock awards pursuant to our 2004 Restricted Stock Plan. One-third of the awarded shares vested on January 1, 2007, January 1, 2008, and January 1, 2009. The employment agreement provided it would automatically be extended for an additional one year term unless on or before November 30, 2009 either party notifies the other of its intent not to renew the agreement.
Prior to amending Mr. Gross employment agreement the term was scheduled to end on December 31, 2009. The amended and restated employment agreement extends the term to December 31, 2011. His annual salary remains at the 2008 level. The employment agreement, as amended, will automatically be extended for an additional three year term unless on or before November 30, 2010 either party notifies the other of its intent not to renew the agreement or prior to such date the agreement has been terminated. The provision in Mr. Gross employment agreement allowing him to resign his employment and convert his employment agreement into a two year consulting agreement has been deleted in the amended and restated employment agreement.
If the employment agreement is terminated by the company for just cause, Mr. Gross will not be entitled to severance pay. Mr. Gross will receive a lump sum payment upon his termination by the company without just cause or his resignation with or without good reason in an amount equal to the greater of his annual salary for the remainder of the term or two years (Severance Payment). The Severance Payment upon voluntary or involuntary termination of employment will be delayed for six months and one day following the date of termination if necessary to comply with the provisions of IRC Section 409A.
Upon a change in control of the company, Mr. Gross is entitled to the Severance Payment regardless of whether his employment is terminated or not in connection with the change in control.
If Mr. Gross employment is terminated as a result of his disability, he will be entitled to receive the Severance Payment.
In any event, Mr. Gross shall only be entitled to receive one Severance Payment under the employment agreement.
If, at the time of Mr. Gross death, his employment agreement is in effect and if he is married, the company is obligated to pay his widow in a lump sum, an amount of cash equal to Mr. Gross annual salary.
An interpretation and savings provision has been included in the employment agreement which requires the terms of the employment agreement, including the payment terms of compensation upon separation from service, to be interpreted consistent with the provisions of IRC Section 409A.
We also pay the annual premiums to provide Mr. Gross beneficiaries with $1,250,000 of life insurance benefits.
Mr. Gross is entitled to receive bonuses and other incentive compensation as determined by our compensation committee. The employment agreement contains provisions related to confidentiality and non-competition.
Other Named Executive Officers. At December 31, 2008 we also had employment agreements with Peter T. Bulger and Steven L. Gross, our two other most highly compensated named executives. The terms of each of these employment agreements are similar with the exception of the base salary and bonus received by each named executive officer.
Effective January 1, 2009, the employment agreements of Peter T. Bulger, our president and chief operating officer and Steven L. Gross, our executive vice president and chief marketing officer (the Executives) were amended and restated to ensure compliance with IRC Section 409A. On February 2, 2009 Mr. Bulger resigned as
our president and chief operating officer. Murray H. Gross, our chief executive officer, was elected by the board as president to replace Mr. Bulger.
The terms of the Executives employment agreements are similar with the exception of base salary and bonuses received by each executive officer. The amended Executives employment agreements are for a one year term, provided that six months prior to the anniversary date of the agreement, and each anniversary date thereafter, the employment will automatically be extended for an additional year unless the company notifies the Executive of its intent not to extend the agreement. Additionally, if within one year after a change in control Executive resigns for any reason or the company terminates Executives employment for any reason, other than just cause, the company shall pay to Executive a lump sum payment in cash equal to the Executives annual salary then in effect. The amended employment agreements provide that Messrs. Bulger and Gross shall receive the same salary in 2009 as paid to the Executives in 2008.
The named executives amended and restated employment agreements also provide:
If an Executives employment is terminated as a result of disability, he will be entitled to receive in a lump sum an amount of cash equal to one years salary.
If, at the time of the Executives death, his employment agreement is in effect and he is married, the company is obligated to pay his widow in a lump sum, an amount equal to his annual salary.
An interpretation and saving provision has been included in the Executives amended and restated employment agreements which requires the terms of the employment agreements, including the payment terms of compensation upon separation from service, to be interpreted consistent with the provisions of IRC Section 409A.
If an executives employment agreement is terminated by us for cause or by the executive without good reason, the executive will not be entitled to severance pay. If we terminate the executive without cause, the executive will be entitled to severance pay equal to one years salary. Our named executives are entitled to receive bonuses and other incentive compensation as determined by our compensation committee. The employment agreements contain provisions related to confidentiality and non-competition.
Separation Agreement with Former Executive Officer
On February 17, 2009 (effective as of February 24, 2009) the company and Peter T. Bulger, who resigned as our president and chief operating officer on February 2, 2009, entered into a Separation Agreement and General Release of Claims (Separation Agreement).
The material terms of the Separation Agreement provide that we shall pay Mr. Bulger a total of $383,250 payable as follows:
Mr. Bulger will be engaged by us as a consultant until February 2, 2010 to assist us with litigation matters, to provide assistance with the transition of his duties and responsibilities to other company employees and to provide information and advice as requested by the company relating to his former position with the company and its ongoing business operations. If Mr. Bulgers consulting services exceed 120 hours during the one year consulting period the company will pay him $200 per hour for each additional hour over the 120 hour maximum.
Mr. Bulger has agreed that he will not engage in any activities which are in competition with the business of the company during the period from February 2, 2009 to February 2, 2010. Mr. Bulger is also subject to confidentiality, non-solicitation and non-disparagement restrictions. The company will reimburse Mr. Bulger for health insurance premiums he pays under COBRA for up to 12 months. The companys reimbursement obligation shall end upon his coverage under a new employers insurance plan.
Cash Bonus Plan
We have an executive cash bonus plan which recognizes and rewards contributions made to us by our named and other executive officers and key management. The bonus plan is administered by our compensation committee, who, each fiscal year selects the executive officers and key management eligible to receive bonus awards under the plan for the current or subsequent fiscal years. The compensation committee determines the amount of the cash bonus pool available for distribution for the fiscal year. The cash bonus pool available for distribution is an amount equal to a percentage (as determined by the compensation committee) of the pre-tax profit of our operating subsidiaries and on a consolidated basis for the applicable fiscal year. Each participant in the bonus plan shall receive a quarterly draw against his awarded annual bonus. The bonus plan contains provisions that address the availability of bonuses and payment procedures for eligible participants in the plan whose employment with us is terminated during a given fiscal year.
Stock Option and Stock Awards Programs
We currently have two equity based programs, our 2000 Stock Compensation Plan and 2004 Restricted Stock Plan. We intend that our restricted stock and option award programs are the primary vehicle for offering long-term incentives and rewarding our executive officers and key employees. We also regard our restricted stock and option award programs as a key retention tool. This is a very important factor in our determination of the type of award to grant and the number of underlying shares that are granted in connection with that award. Because of the direct relationship between the value of an option and the market price of our common stock, we have always believed that granting stock options is the best method of motivating the executive officers to manage our company in a manner that is consistent with the interests of our company and our stockholders. However, because of the evolution of regulatory, tax and accounting treatment of equity incentive programs and because it is important to us to retain our executive officers and key employees, we realize that it is important that we utilize other forms of equity awards as and when we may deem necessary.
In March 2007, the compensation committee approved a long-term incentive plan, or Incentive Plan for our named and other executive officers. The Incentive Plan provides for the granting of restricted stock awards to our named and other executive officers based on our long-term performance and earnings per share results. Earnings per share represent our stock performance throughout the year which will directly correlate to increased stockholder earnings and value. The plan design consists of earnings per share targets for each fiscal year beginning in 2007 in which restricted stock awards are directly related to our performance. The compensation committee is responsible for setting the earnings per share threshold, target and maximum levels as well as the number and vesting of restricted stock awards.
To activate restricted stock awards under the Incentive Plan, we must obtain a threshold of 80% of the targeted annual earnings per share as determined by the compensation committee. The maximum threshold under the plan is equal to 120% of the target earnings per share. The restricted stock awards to be granted to executive officers under the Incentive Plan are equal to a cash equivalent percentage of each executive officers annual salary. Since the company did not achieve the targeted annual earnings per share for the fiscal year ended December 31, 2008, no stock awards were made under this program in 2008.
Outstanding Equity Awards at December 31, 2008
The following table provides information on the stock option and restricted stock awards held by our named executive officers as of December 31, 2008. Each equity grant is shown separately for each named executive officer. The vesting schedule for each grant is shown following this table, based on the stock option or restricted stock award grant date. The market value of the restricted stock awards is based on the closing market price of our common stock as of December 31, 2008, which was $2.59.
Equity Compensation Plans
The following table provides information as of December 31, 2008 with respect to our common shares issuable under equity compensation plans:
We have employment agreements with each of our named executive officers. Each of the named executive officers employment agreements have similar provisions regarding just cause, good reason, disability and change in control.
The tables below reflect the amount of compensation payable to each of the named executive in the event of termination of such executives employment. The amount of compensation payable to each named executive officer upon termination for cause, voluntary termination, termination without cause or for good reason and termination in connection with a change of controls and change of control without termination and in the event of disability or death of the executive is shown below. The amounts shown in the following tables assume that a change in control occurred during fiscal 2008 and that termination occurred on December 31, 2008 and include amounts earned but not paid as of that date. The actual amounts to be paid out can only be determined at the time of such executives separation from our company. See Executive Compensation and Other InformationEmployment Agreements.
Murray H. Gross. Termination payments are payable pursuant to his employment agreement in effect on December 31, 2008.
Peter T. Bulger. Termination payments are payable pursuant to his employment agreement in effect on December 31, 2008.
Steven L. Gross. Termination payments are payable pursuant to his employment agreement in effect on December 31, 2008.
The company at its expense maintains a $300,000 life insurance policy on each of the named executive officers to fund (in whole or in part) the companys obligation to pay the executives spouse a lump sum payment equal to the executives annual base salary upon the death of the executive. The company also maintains at its expense a long-term disability policy for each of its named executives.
Compensation of Directors
All of our directors, except for Murray H. Gross, are non-employee directors. Each of our non-employee directors receives an annual retainer of $15,000. The chairman of our audit committee receives an additional annual retainer of $5,000. The annual compensation is payment for each directors attendance of up to eight meetings per year, including board and committee meetings. For each meeting attended by the non-employee directors over the annual eight meetings, each director will be paid $500. We reimburse our directors for expenses relating to attendance of meetings. We do not compensate employee directors for attendance at board of directors meetings or committee meetings. From time to time our directors have received stock option grants and restricted stock awards.
Each non-employee director is required to receive at least $5,000 of his annual retainer in the form of shares of our common stock to be issued under our 2004 Restricted Stock Plan. Twenty-five percent of the cash compensation is paid each quarter. The $5,000 of restricted stock awards shall be granted to each non-employee director on the first business day of each January, and the number of the restricted stock awards shall be determined based on the closing sales price of our common stock on the grant date as quoted by the Nasdaq Global Market System. The restricted stock awards shall be granted with no restrictions except for restrictions specified under applicable state and federal securities laws for the issuance of unregistered securities.
Each director, at his option, may receive such additional restricted stock awards in lieu of the cash compensation as he shall elect. If a director elects to receive additional restricted stock awards in lieu of cash, we will grant to the director additional restricted stock awards with a fair market value equal to the amount of cash compensation that the director elected to receive in restricted stock awards plus an additional restricted stock award equal to 25% of the amount of the restricted stock awards granted to the director. This provision also applies to the additional $5,000 to be received by the audit committee chairman.
On November 11, 2008 the companys compensation committee and board of directors approved granting each of our non-employee directors options to purchase 2,000 shares of our common stock as additional compensation for their services. The options were granted on November 11, 2008 at an exercise price of $1.85 per share, the closing price of our common stock as quoted on the Nasdaq Global Market system on that date. One-third of the options vested on the grant date and one-third will vest on each anniversary of the grant date in 2010 and 2011. The options expire in 2018. Additionally, each non-employee director will be granted options to purchase 2000 shares of common stock on the date of his re-election as a director of the company at the annual meeting of the stockholders.
The following table sets forth certain information concerning the compensation of our directors for the year ended December 31, 2008.
AUDIT COMMITTEE REPORT
The audit committee of the board is comprised of three non-employee directors, each of whom has been determined by the board to be independent under the meaning of Rule 10-A-3(b)(1) under the Exchange Act. Larry Jobe, the chair of the audit committee, is an audit committee financial expert within the meaning of Item 407(d)(5)(ii) of SEC Regulation S-K. The audit committee assists the boards oversight of the integrity of the companys financial reports, compliance with legal and regulatory requirements, the qualifications and independence of the companys independent registered public accounting firm, the audit process, and internal controls. The audit committee operates pursuant to a written charter adopted by the board. The audit committee is responsible for overseeing the corporate accounting and financial reporting practices, recommending the selection of the companys registered public accounting firm, reviewing the extent of non-audit services to be performed by the auditors, and reviewing the disclosures made in the companys periodic financial reports. The audit committee also reviews and recommends to the board that the audited financial statements be included in the companys Annual Report on Form 10-K.
During fiscal year 2008, the audit committee (1) reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2008, with the company management; (2) discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the PCAOB in Rule 3200T; and (3) received the written disclosures and the letters from the independent accountants required by applicable requirements of the PCAOB regarding the independent accountants communications with the audit committee concerning independence, and has discussed with the independent accountants their independence.
Based on the review and discussions referred to above, the audit committee had recommended to the board of directors that the audited financial statements be included in the companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with the SEC.
Submitted by the audit committee
of the board of directors
Larry A. Jobe, Chairman
Don A. Buchholz
Richard W. Griner
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee pre-approves the audit fees and services provided by our independent registered public accounting firm. This committee also reviews any factors that could impact the independence of our independent registered public accounting firm in conducting the audit and receives certain representations from our independent registered public accounting firm towards that end.
Grant Thornton LLP audited our financial statements for the fiscal years ended December 31, 2007 and 2008. Representatives of Grant Thornton LLP, our independent registered public accounting firm, will be present at the annual meeting. They will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
The following table summarizes the fees paid or payable to Grant Thornton LLP for services rendered for the fiscal years ended December 31, 2007 and 2008.
Audit Fees include fees for financial statement audits, comfort letters, attest services, consents, and review of filings with SEC. Audit-Related Fees include fees for due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, internal control reviews and consultation on financial accounting and reporting standards. Tax Fees include fees for preparation of original and amended tax returns, claims for refunds and tax payment-planning services. All Other Fees include due diligence related to mergers and acquisitions and consultation on tax related matters.
STOCKHOLDER PROPOSALS FOR 2010 ANNUAL MEETING
Rule 14a-8 under the Securities Exchange Act of 1934 addresses when a company must include a stockholder proposal in its proxy statement for the purpose of an annual or special meeting. Pursuant to the rule, in order for a stockholder proposal to be considered for inclusion in the proxy statement for the 2010 annual meeting of stockholders of the company, a proposal must be received at our principal executive offices on the date in the year 2010 that corresponds to the date that is not less than 120 calendar days before the date that this proxy statement was released to stockholders in connection with the 2009 annual meeting. However, if the date of the 2010 annual meeting of stockholders changes by more than 30 days from the date of the 2009 meeting, the deadline is a reasonable time before we begin to print and mail proxy materials. Any such proposal must meet the applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder.
At the date of this proxy statement, we know of no other matters, other than those described above, that will be presented for consideration at the annual meeting. If any other business should come before the meeting, it is intended that the proxy holders will vote all proxies using their best judgment in the interest of our company and our stockholders.
The Annual Report to Stockholders of the company for the fiscal year ended December 31, 2008 is being mailed to stockholders of record on the record date concurrently with the mailing of this proxy statement. The
Annual Report, which includes audited financial statements, does not form any part of the material for the solicitation of proxies.
If you would like a copy of our 2008 Annual Report on Form 10-K, including the financial statements and schedules thereto, please send a written request to:
Richard B. Goodner, Vice PresidentLegal Affairs
U.S. Home Systems, Inc.
405 State Highway 121 Bypass
Building A, Suite 250
Lewisville, Texas 75067
In order to ensure timely delivery of the Annual Report, we should receive your request no later than five business days prior to the annual meeting.
You are urged to sign and return your proxy promptly in the enclosed envelope to make certain your shares will be represented at the annual meeting.
April 21, 2009
U.S. HOME SYSTEMS, INC.
AUDIT COMMITTEE CHARTER
This Audit Committee Charter replaces and supersedes the Audit Committee Charter adopted by the Board of Directors on August 7, 2003. The Audit Committee is appointed by the Board to assist the Board in monitoring (1) the integrity of the financial statements of the Company, (2) the independent auditors qualifications and independence, (3) the performance of the Companys internal audit function and independent auditors, and (4) the compliance by the Company with legal and regulatory requirements. The Audit Committee shall also prepare the report required by the rules of the Securities and Exchange Commission (the Commission) to be included in the Companys annual proxy statement.
The Audit Committee shall consist of at least three members. The members of the Audit Committee shall meet the independence and experience requirements of the NASDAQ Stock Market, Section 10A of the Securities Exchange Act of 1934 (the Exchange Act) and the rules and regulations of the Commission. At least one member of the Audit Committee shall be a financial expert as defined by the rules and regulations of the Commission. Audit committee members shall not simultaneously serve on the audit committees of more than two other public companies.
The members of the Audit Committee shall be appointed by the Board on the recommendation of the Nominating/Corporate Governance Committee. Audit Committee members may be replaced by the Board.
The Audit Committee shall meet as often as it determines, but not less frequently than quarterly. The Audit Committee shall meet periodically with management, the internal auditors and the independent auditor in separate executive sessions. The Audit Committee may request any officer or employee of the Company or the Companys outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
The Audit Committee shall have the sole authority to appoint or replace the independent auditor (subject, if applicable, to shareholder ratification). The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Audit Committee.
The Committee shall ensure that it receives from the independent auditors all written disclosures, statements and letters required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants communications with the audit committee concerning independence delineating all relationships between the independent auditors and the Company. The Committee shall discuss with the Companys independent auditors their independence, including any disclosed relationships or services that may impact the auditors objectivity and independence.
The Audit Committee shall preapprove all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor.
The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant preapprovals shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The Audit Committee shall annually review the Audit Committees own performance.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
Regarding Financial Statement and Disclosure Matters
Regarding Oversight of the Companys Relationship with the Independent Auditor
Regarding Compliance Oversight Responsibilities
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Companys financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.
This Charter will be made available on the Companys website at www.ushomesystems.com.
Approved by the Board of Directors on March 31, 2009.
U.S. Home Systems, Inc.
June 5, 2009
The undersigned hereby (i) acknowledges receipt of the Notice of Annual Meeting of Stockholders dated April 21, 2009 of U.S. Home Systems, Inc. (the Company) to be held at 405 State Highway 121 Bypass, Building A, Suite 250, Lewisville, Texas 75067 at 10:00 a.m., central daylight time on Friday, June 5, 2009; and (ii) appoints Murray H. Gross and Robert A. DeFronzo, with full power of substitution, for and in the name, place and stead of the undersigned, to vote upon and act with respect to all of the shares of common stock of the Company standing in the name of the undersigned or with respect to which the undersigned is entitled to vote and act at the meeting and at any adjournment thereof, and the undersigned directs that the shares represented by this proxy be voted as shown on the reverse side of this card.
P R O X Y
U.S. Home Systems, Inc.
June 5, 2009
The shares represented by this Proxy, when properly executed, will be voted in the manner described herein by the executing stockholder.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby revokes any proxy or proxies heretofore given to vote or act with respect to such common stock and hereby ratifies and confirms all that the proxies appointed herein, their substitutes, or any of them, may lawfully do by virtue hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
P R O X Y