<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997
REGISTRATION NO. 333-33767
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WHITE CAP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 84-1380403 5082
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) CLASSIFICATION CODE NUMBER)
</TABLE>
3120 AIRWAY AVENUE
P.O. BOX 1770
COSTA MESA, CALIFORNIA 92626
TELEPHONE: 714-850-0900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MR. GREG GROSCH
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
3120 AIRWAY AVENUE
P.O. BOX 1770
COSTA MESA, CALIFORNIA 92626
TELEPHONE: 714-850-0900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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LANCE C. BALK, ESQ. PHILIP E. COVIELLO, JR., ESQ.
KIRKLAND & ELLIS LATHAM & WATKINS
153 EAST 53RD STREET 885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
TELEPHONE: 212-446-4800 TELEPHONE: 212-906-1200
TELECOPY: 212-446-4900 TELECOPY: 212-751-4864
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1997
PROSPECTUS
, 1997
4,000,000 SHARES
[WHITE CAP INDUSTRIES LOGO]
[WHITE CAP INDUSTRIES COLOR LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $0.01 per share ("Common
Stock"), of White Cap Industries, Inc. ("White Cap" or the "Company") offered
hereby are being offered (the "Offering") by the Company.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $16.00 and $18.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price.
The Company's application to have the Common Stock quoted on the Nasdaq
National Market ("Nasdaq") under the trading symbol "WHCP" has been approved.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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================================================================================================
UNDERWRITING
PRICE TO THE DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
Per Share................................. $ $ $
- ------------------------------------------------------------------------------------------------
Total(3).................................. $ $ $
================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting estimated expenses payable by the Company of $1,250,000.
(3) The Company and certain stockholders of the Company have granted the
Underwriters a 30-day option to purchase up to an aggregate of 600,000
additional shares of Common Stock, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions, Proceeds to the Company and the
proceeds to the such stockholders will be $ , $ ,
$ and $ , respectively. See "Principal Stockholders" and
"Underwriting."
-----------------------------
The shares of Common Stock are being offered by the several Underwriters
subject to prior sale, when, as and if issued to and accepted by them, subject
to certain prior conditions, including the right of the Underwriters to reject
any order in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in New York, New York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE BANCAMERICA ROBERTSON STEPHENS
SECURITIES CORPORATION
<PAGE> 3
[PHOTOS OF COMPANY'S PRODUCTS AND/OR FACILITIES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements contained elsewhere in this Prospectus.
Certain capitalized terms used in this summary are defined elsewhere in this
Prospectus. References in this Prospectus to the Company shall, as the context
requires, refer to White Cap Industries, Inc. (formerly known as White Cap
Holdings, Inc.), together with its wholly-owned subsidiary, White Cap
Industries, Corp. (formerly known as White Cap Industries, Inc.) ("WCI"), and
their respective predecessors, and references to "pro forma" or "pro forma
basis" mean the application of the pro forma adjustments described under
"Unaudited Pro Forma Combined Financial Data." Except where otherwise indicated,
the information in this Prospectus(i) assumes that the over-allotment option
granted to the Underwriters is not exercised and (ii) has been adjusted to
reflect the conversion of all outstanding shares of the Company's Series A-1 and
Series A-2 to Common Stock and a 1.74-for-1 stock split of the Common Stock
which will be effected immediately prior to the consummation of the Offering.
All references to years, unless otherwise noted, refer to the Company's fiscal
year, which, prior to January 1, 1996 ended on December 31 of each year and
since such date ends on March 31 of each year.
THE COMPANY
White Cap is one of the leading business to business retailers to
professional contractors in the Western United States. The Company offers over
25,000 stock keeping units ("SKUs") of specialty tools and materials oriented to
professional contractors ("pro-oriented"). The Company markets its products
through 20 branch locations, its highly experienced outside sales force and
through the strategic distribution of its in-stock catalogs. The Company has
achieved substantial growth by acquiring leading contractor suppliers in new and
existing markets, expanding product offerings and opening new branch locations.
Since 1987, White Cap's net sales have increased at a compounded annual growth
rate of 23%, resulting from (i) acquisitions, (ii) same store sales growth,
which averaged 17% over the past four years, and (iii) new branch openings. The
Company's active customer base (customers that have purchased at least one item
on open credit during a given period) has grown from approximately 7,000 in 1994
to approximately 16,000 for the pro forma fiscal year ended March 31, 1997. For
the fiscal year ended March 31, 1997, the Company had pro forma net sales of
approximately $165 million.
The Company operates in a highly fragmented, multi-billion dollar industry.
Management believes that small, regional contractor suppliers, with sales of
less than $50 million, supply over two-thirds of the pro-contractor market. With
pro forma fiscal 1997 net sales of approximately $165 million, the Company
believes it is one of the largest suppliers to its market niche nationwide. The
Company targets medium- and large-sized professional contractors, including
professional concrete, framing, waterproofing, landscaping, grading, electrical,
mechanical and general contractors.
The Company sells a wide variety of pro-oriented products, including
construction materials, hand tools, fasteners, structural connectors, power
tools, light construction equipment, steel reinforcing bar (rebar), bulk and
collated gun nails and specialty cementatious products. In addition, at certain
branches the Company provides rental services on selected items such as brackets
and braces used in the construction of concrete "tilt-up" buildings, power tools
and miscellaneous light construction equipment. The Company's products are used
by professional contractors in new construction, maintenance and repair
projects.
The Company believes that it has developed a business model that differs
substantially from that of traditional contractor suppliers and large home
center retailers. The model is based on offering the Company's customers
superior customer service and convenient "one-stop" shopping at its branch
locations. Unlike traditional contractor suppliers, who typically fill orders
from warehouses not accessible to customers, the Company encourages customers to
shop at its branches where they can browse through the warehouse aisles and
adjacent outdoor yards. The Company's prototypical store format consists of
approximately 15,000 to 20,000 square feet of interior floor space with an
adjacent outdoor yard of approximately equal square footage. The Company's focus
on merchandising exposes customers to a wide range of product offerings and
promotes significant add-on sales. As a result, approximately 60% of the
Company's net sales are generated from "walk-in" and "will call" business.
Customers can also select items from the Company's in-stock catalogs,
distributed to approximately 40,000 professional contractors, listing over
11,000 of the best selling SKUs maintained in stock. Customers can order
products by phone, fax, at a sales branch or through the outside
3
<PAGE> 5
sales force. The Company's highly experienced sales force maintains frequent
customer contact, providing pro-oriented services on and off the job-site.
Through its high in-stock position and sophisticated inventory management
systems, the Company is able to fulfill approximately 95% of the items included
in each customer order and provide same-day or next-day delivery.
GROWTH STRATEGY
In order to capitalize on its unique business model and the fragmented
professional contractor supply industry, the Company has initiated an aggressive
growth strategy consisting of: (i) pursuing acquisitions of leading contractor
suppliers in new and existing markets; (ii) increasing market share within
existing markets; (iii) expanding product offerings; and (iv) opening new branch
locations. The key elements of the Company's growth strategy are as follows:
Strategic Acquisitions. The Company seeks to acquire leading
contractor suppliers in existing and new markets that will provide:
geographic diversification, product line expansion, an established customer
base of medium- and large-sized pro-contractors and a direct sales force.
The Company seeks to consolidate the operations of acquired companies and
eliminate duplicative overhead expense. White Cap has established a
successful track record for identifying and integrating acquisitions. Since
February 1997, the Company has completed three acquisitions, A-Y Supply,
Inc. ("A-Y Supply"), Stop Supply, Inc. ("Stop Supply") and Viking
Distributing Company, Inc. ("Viking Distributing"), thereby strengthening
its position as a market leader in the markets it serves and adding
approximately $63 million to pro forma fiscal 1997 net sales. The Company
believes that there are numerous attractive acquisition opportunities and
that the Company's established reputation as an industry leader, access to
capital, sophisticated management information systems and operating
expertise provide it with competitive advantages in making acquisitions.
Increased Market Share. The Company believes that its position as one
of the largest suppliers in its market niche, combined with its reputation
for providing superior customer service and a wide range of pro-oriented
product offerings, will enable the Company to increase its market share.
White Cap's direct sales force utilizes industry databases to continuously
prospect for new customers and new projects. The Company also works closely
with its suppliers and with licensed architects and engineers to ensure
that the specialty product lines it carries are specified on projects. This
effort focuses on targeting medium-and large-sized professional contractors
engaged in construction projects throughout the Western United States. The
Company believes its increased geographical presence will allow its
customers to consolidate their purchases with White Cap.
Expanded Product Offerings. The Company believes there are significant
opportunities to expand its product offerings by distributing profitable
specialty product lines sold by acquired companies but not previously
offered at White Cap locations. As a result of its three most recent
acquisitions, the Company anticipates that it will introduce at its
Southern California locations approximately 3,500 new SKUs. As an example,
the Company expects to expand A-Y Supply's rental business of brackets and
braces used in the construction of concrete "tilt-up" buildings, as well as
the sale of related products and accessories at certain of the Company's
other branches. The Company also intends to expand the product offerings at
its newly acquired branches by introducing approximately 2,500 new SKUs
which have proven successful at White Cap. The Company has introduced the
Simpson Strong-Tie line of structural connectors and fasteners to the A-Y
Supply branches and has expanded the offering of the Simpson Strong-Tie
products carried at the Viking Distributing branches. The Company
anticipates regularly adding new products to expand its existing offerings
and creating new product categories.
New Branch Openings. The Company continues to evaluate opportunities
to open new branch locations where it can service new customers and provide
better service to its existing customer base. Pursuant to this strategy,
the Company has opened three branch locations since 1994. These strategic
branch openings in Las Vegas, Phoenix and Denver targeted high growth
markets where management believed the Company could capture significant
market share or further its acquisition strategy by having a competitive
presence in the marketplace.
4
<PAGE> 6
THE OFFERING
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Offering...................... 4,000,000 shares
Common Stock to be outstanding
after the Offering.......... 10,294,028 shares(a)
Use of Proceeds............... To repay (together with borrowings under the Credit
Agreement) outstanding indebtedness, redeem Senior
Redeemable Preferred Stock and pay accrued dividends on such
stock and on the Company's Convertible Preferred Stock. See
"Use of Proceeds."
Proposed Nasdaq Trading
Symbol...................... WHCP
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- ---------------
(a) Excludes (i) 517,819 shares issuable upon the exercise of unvested options
currently held by certain employees of the Company and (ii) 104,400 shares
of Common Stock issuable upon conversion of Series B Preferred Stock held by
the former owners of Viking Distributing which are subject to a repurchase
right by the Company if certain performance targets are not achieved for the
Northern California operations of the Company. Includes: (i) currently
exercisable warrants to acquire 1,176,184 shares of Common Stock held by
certain stockholders; (ii) 39,215 shares issuable to the former shareholders
of A-Y Supply upon conversion of a subordinated convertible promissory note,
which number is determined by dividing $500,000 by 75% of the midpoint of
the range of the initial public offering price per share; (iii) 19,607
shares issuable to the former owners of Stop Supply upon exercise of a
warrant, which number is determined by dividing $250,000 by 75% of the
midpoint of the range of the initial public offering price per share; (iv)
129,454 shares issuable upon the exercise of vested options currently held
by certain employees of the Company; and (v) 91,534 shares of restricted
stock awarded to management which are not yet vested. See
"Management -- 1997 Incentive and Stock Option Plan" and "Principal and
Selling Stockholders."
The Company was incorporated in Delaware in November 1996 and acquired all
of the outstanding stock of WCI on February 28, 1997. The Company's principal
executive offices are located at 3120 Airway Avenue, Costa Mesa, California,
92626, telephone (714) 850-0900.
5
<PAGE> 7
SUMMARY FINANCIAL INFORMATION, OPERATING DATA AND UNAUDITED
PRO FORMA FINANCIAL INFORMATION
The summary consolidated results of operations data set forth below for the
years ended December 31, 1994 and 1995 and March 31, 1997 and the three months
ended March 31, 1996 are derived from the Company's consolidated financial
statements included elsewhere in this Prospectus; the summary consolidated
balance sheet data as of June 30, 1997 and the summary consolidated results of
operations data for the three months ended June 30, 1996 and 1997 are derived
from the Company's interim consolidated financial statements included elsewhere
in the Prospectus; the summary consolidated balance sheet data as of June 30,
1996 is derived from the Company's interim consolidated financial statements not
included herein. The summary unaudited pro forma data for the fiscal year ended
March 31, 1997 and for the three months ended June 30, 1997 is derived from the
Unaudited Pro Forma Combined Financial Data included elsewhere in this
Prospectus. The Unaudited Pro Forma Combined Financial Data do not purport to
represent what the Company's results of operations actually would have been if
the transactions referred therein had been consummated on the date or for the
periods indicated, or what such results will be for any future date or for any
future period. The Company's business is seasonal and interim results are not
necessarily indicative of the results obtainable by the Company for a full
fiscal year or any other interim period. The data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Selected Historical Financial and Operating Data," "Unaudited Pro
Forma Combined Financial Data" and the financial statements of the Company, of
Viking Distributing and of A-Y Supply and related notes thereto (collectively,
the "Financial Statements") included elsewhere in this Prospectus.
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<CAPTION>
THREE THREE
YEAR ENDED MONTHS FISCAL YEAR ENDED MONTHS THREE MONTHS ENDED JUNE
DECEMBER 31, ENDED MARCH 31, 1997 ENDED 30, 1997
----------------- MARCH 31, ------------------------ JUNE 30, ------------------------
1994 1995 1996 ACTUAL PRO FORMA 1996 ACTUAL PRO FORMA
------- ------- --------- ---------- ----------- -------------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS
DATA(a):
Net sales................ $69,508 $77,840 $19,511 $ 101,770 $ 164,873 $ 23,509 $ 37,311 $ 46,831
Gross profit............. 20,088 23,879 5,884 32,030 52,121 7,517 11,463 14,558
Income from operations... 2,170 3,362 214 4,655 9,250 1,282 2,040 2,598
Income tax provision
(benefit)(b)........... 30 40 -- (414) 3,396 9 318 966
Net income (loss)........ 1,318 1,937 (228) 2,796 4,886 849 403 1,389
Pro forma net income..... 1,405(c) n/a n/a n/a
Pro forma net income per
common equivalent
share.................. $ 0.19 $ 0.43 $ 0.03 $ 0.12
========== =========== ========== ===========
Pro forma weighted
average common
equivalent shares
outstanding............ 7,284,332 11,284,332(d) 7,398,112 11,398,112(d)
========== =========== ========== ===========
SELECTED OPERATING DATA:
Branch locations......... 10 12 12 17 20 12 20 20
Percentage change in
comparable store
sales.................. 35.6% 6.1% 9.9% 15.3% 17.5% 13.6% 18.6% 16.2%
Number of SKUs sold
during period.......... 10,787 11,223 9,346 15,765 26,265 9,521 10,830 20,448
Active customers......... 7,023 8,735 6,892(e) 12,288 15,898 7,076(e) 8,640(e) 10,841(e)
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<CAPTION>
At June 30, 1997
-----------------------
AS
ACTUAL ADJUSTED(f)
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BALANCE SHEET DATA:
Working capital.......................................................................... $24,727 $30,496
Total assets............................................................................. 90,642 93,377
Long-term debt, net...................................................................... 60,382 10,663
Total stockholders' equity (deficit)..................................................... (2,766) 54,255(g)
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(a) The Company changed its fiscal year end to March 31, effective March 31,
1996.
(b) Reflects S Corporation status until February 28, 1997, when the Company
converted to C Corporation status and recorded a tax benefit of
approximately $500,000 to establish net deferred tax assets. However, the
March 31, 1997 pro forma income tax expense provision is presented as if the
Company was a C Corporation for the entire fiscal year.
(c) Reflects C Corporation status for the entire fiscal year.
(d) Includes 621,353 shares deemed issued in connection with the
Recapitalization (as defined). See Note 2 to the Company's consolidated
financial statements.
(e) Represents customers that have purchased at least one item on open credit
during the specified three month period.
(f) Adjusted to give effect to the Offering and the application of the net
proceeds thereof and contemplated borrowings under the Credit Agreement (as
defined).
(g) As adjusted includes the recording of interest expense of $167,000 related
to the conversion of the $500,000 of subordinated debt due the former owners
of A-Y Supply at a 75% discount to the proposed offering price, prepayment
penalties of approximately $7.8 million, approximately $800,000 in
compensation expense related to the acceleration of an employee bonus, and
the write off of deferred financing costs of approximately $1.2 million, net
of income tax benefits of approximately $4.1 million.
6
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before making an investment in the Common Stock offered hereby.
RISKS RELATED TO COMPANY'S ACQUISITION STRATEGY
In furtherance of the Company's growth strategy, the Company acquired A-Y
Supply in February 1997, Stop Supply in May 1997 and Viking Distributing in June
1997. White Cap is still in the process of completing the integration of these
acquisitions into the Company. The Company's historical operating results prior
to the acquisitions and pro forma results after giving effect to the
acquisitions are not necessarily indicative of the Company's future prospects.
There can be no assurance that these three acquisitions or any future
acquisitions will be successfully integrated into the Company and will achieve
the operating results that management expects.
There can be no assurance that the Company's management and financial
controls, personnel, computer systems and other corporate support systems will
be adequate to manage the increase in the size and scope of the Company's
operations as a result of the Company's recent acquisitions. An important part
of the Company's plans is to integrate these acquisitions into the Company's
operations and business model. There can be no assurance that the Company will
be able to integrate these acquisitions or successfully convert them to the
Company's business model in a timely manner, without delays and without
substantially higher than budgeted costs resulting from the following issues,
among others: data conversion, training, data communications, computer hardware
obsolescence, reconfiguration of facilities, building permits and independent
third party contractors. Once integrated and converted, these acquisitions may
not achieve sales, profitability and asset productivity commensurate with the
Company's original stores. In addition, acquisitions involve a number of special
risks, including adverse short-term effects on the Company's reported operating
results, the diversion of management's attention, the dependence on retention,
hiring and training of key personnel, risks associated with unanticipated
problems or legal liabilities and the amortization of acquired intangible
assets, some or all of which could have a material adverse effect on the
Company's operations and financial performance.
The Company currently finances acquisitions, and intends to finance future
acquisitions, by using cash from operations, through borrowings under its credit
facilities and, in certain cases, through the issuance of additional equity. The
Company will need additional debt or equity financing to continue its
acquisition strategy. There can be no assurance that the Company will be able to
obtain such financing if and when it is needed or that, if available, such
financing will be available on terms the Company deems acceptable. If the
Company does not have sufficient cash resources or availability under the Credit
Agreement (as defined) or if the Common Stock does not maintain sufficient value
or potential acquisition candidates are unwilling to accept equity as part of
the consideration for the sale of their businesses, the Company will be unable
to continue its acquisition strategy. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Continued growth by the Company in the future could place strains on the
Company's management, operational and financial resources. In the future, the
Company will need to continue to develop the management skills of its managers
and supervisors and to recruit, train, motivate and manage its employees. The
Company's failure to manage growth effectively could have a material adverse
effect on the Company's results. See "Business" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
DEPENDENCE ON SYSTEMS
The Company believes that its computer software programs are an integral
part of its business and growth strategies. The Company depends upon its
information systems generally to process orders, to manage inventory and
accounts receivable collections, to purchase, sell and ship products efficiently
and on a timely basis, to maintain cost-effective operations and to provide
superior service to its customers. While the Company has taken precautions
against certain events that could disrupt the operation of its information
systems, including implementation of an uninterruptable power source (UPS), a
disk drive redundancy
7
<PAGE> 9
feature, third party off site vault data storage and telecommunications
rerouting capability, there can be no assurance that such a disruption will not
occur. If any such disruption were to occur, it might result in a partial or
complete loss of data, customer service disruptions, human resources issues and
vendor/supplier disruptions, among other problems, which could have a material
adverse effect on the Company's business and results of operation. The Company
is exploring whether and to what extent the Company's computer operating systems
will be disrupted upon the turn of the century as a result of the widely known
dating system flaw inherent in most operating systems (the "Year 2000 Problem").
There can be no assurance that the Company's systems will not be disrupted by
the Year 2000 Problem. Any such disruption could have a material adverse effect
on the Company's business and results of operations.
COMPETITION
The industry in which the Company conducts its business is highly
competitive. The Company faces competition in all customer categories of the
contractor supply industry. In the small- and medium-sized professional
contractor categories, the Company competes with traditional contractor
suppliers, mail order marketers, small hardware stores and large home center
chains. Historically, the large professional contractor has been served by
traditional specialty construction supply dealers and distributors. Recently,
however, some of the large home center chains have explored competing in this
category through in-house sales efforts. Certain existing competitors of the
Company have, and future competitors of the Company could have, substantially
greater resources, including financial resources, than the Company. There can be
no assurance that the Company will continue to compete effectively against
existing competitors or new competitors that may enter the markets in which it
conducts its business. See "Business -- Industry Overview" and "-- Competition."
GEOGRAPHIC DEPENDENCE; IMPACT OF REGIONAL WEATHER CONDITIONS
All of the Company's operations are located in the Western United States
and all but three branches are located in California and, as a result, are
affected by local economic conditions, which are beyond the Company's control.
Any recession or period of slow growth in California or the Western United
States could have a material adverse effect on the Company.
In addition, the Company's operations are affected by regional wet or dry
weather conditions which are beyond the Company's control. A prolonged or wet
winter season can and usually does adversely affect the Company's sales and
earnings due to construction delays or inactivity. Unusually dry winters can
result in regional water supply shortages resulting in government restrictions
on the number and or type of building permits issued which could also adversely
affect the Company's sales and earnings. While lower sales in any given quarter
resulting from the impact of weather conditions may be recaptured to a certain
extent in future periods, no assurances can be given that weather related
factors will not adversely affect the Company's sales and earnings in any given
fiscal year or reporting period.
FLUCTUATING OPERATING RESULTS
The Company has experienced in the past and will experience in the future
quarterly variations in net sales and net income as a result of many factors,
including product cycles of suppliers that are not controlled or influenced by
the Company, product availability, supplier relationships, customer
relationships, catalog response rates, product mix, past and potential
acquisitions, the level of selling, general and administrative expenses, the
condition of the construction industry in general and shifts in demand for
contractor supplies. The construction industry which the Company supplies is
highly sensitive to economic cycles. The Company's planned operating
expenditures are based on sales forecasts. If net sales are below expectations
in any given quarter, operating results could be materially adversely affected.
In the contractor supply industry, seasonality generally affects quarterly
sales performance. Historically, the Company's quarterly sales in the fourth
fiscal quarter (January through March) are lowest and quarterly sales in the
second fiscal quarter (July through September) are highest. See
"Business -- Industry Overview" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results of
Operations; Seasonality."
8
<PAGE> 10
EFFECTIVE VOTING CONTROL BY PRINCIPAL STOCKHOLDERS
Upon the completion of the Offering, Greg Grosch, the Company's Chairman,
Chief Executive Officer and President, KRG Capital Partners, LLC ("KRG
Capital"), Apex Investment Fund, III, L.P. ("Apex"), Bayview Investors, Ltd.
("Bayview"), Argentum Capital Partners, L.P. ("Argentum") and their respective
affiliates and certain other of the Company's directors and members of
management, consisting of Richard Gagnon, Dan Tsujioka and Chris Lane (who will
together own less than 5% of combined voting power of the Company's outstanding
voting Common Stock) will beneficially own, if taken together, 58.4% of the
combined voting power of the Company's outstanding voting Common Stock (not
including unvested options held by certain employees). If the foregoing
stockholders were to vote all of their shares of Common Stock in a similar
manner, they would effectively have sufficient voting power to elect the entire
Board of Directors of the Company and, in general, to determine (without the
consent of the Company's other stockholders) the outcome of any corporate
transaction or other matter submitted to the stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets, and to prevent or cause a change in control of the
Company. Greg Grosch, KRG Capital and certain of its affiliates are parties to a
stockholders agreement relating to the voting of the Company's Common Stock,
which agreement will take effect upon the closing of the Offering. See "Certain
Relationships and Related Transaction -- Stockholders Agreement" and "Principal
and Selling Stockholders."
DEPENDENCE OF KEY PERSONNEL AND SKILLED EMPLOYEES
The Company's continued success depends to a large extent upon the efforts
and ability of key managerial and sales employees, including Greg Grosch, its
Chairman, President and Chief Executive Officer. The loss of services of certain
of these key personnel could have a material adverse effect on the Company's
results of operations. The Company maintains a key-man life insurance policy on
Mr. Grosch, of which $10 million is currently assigned to the Company's existing
lenders. The Company's business also depends upon its ability to continue to
attract and retain senior managers, an outside sales force and skilled
employees, and failure to do so could adversely affect the Company's results of
operations. See "Management."
IMMEDIATE AND SUBSTANTIAL DILUTION
The Offering will result in immediate and substantial dilution of $14.25
per share of Common Stock to investors purchasing shares of Common Stock
(assuming the midpoint of the range of the initial public offering price). See
"Dilution."
ANTI-TAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation and Bylaws and the Delaware
General Corporation Law (the "DGCL") contain certain provisions that may have
the effect of inhibiting a non-negotiated merger or other business combination.
In addition, the Board of Directors will have the authority, without further
action by the stockholders, to fix the rights and preferences and issue shares
of preferred stock. These provisions, and other provisions of the Company's
Certification of Incorporation, may have the effect of deterring hostile
takeovers or delaying or preventing changes of control or management of the
Company, including transactions in which stockholders might otherwise receive a
premium for their shares over the then-current market prices. In addition, these
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests. See "Description of Capital Stock."
RESTRICTIONS ON PAYMENT OF DIVIDENDS ON COMMON STOCK
In the past, the Company has not declared or paid any regular cash or other
dividends on the Common Stock and does not expect to pay dividends for the
foreseeable future. The Company is a holding company with limited assets and no
operations of its own. Consequently, the Company is dependent upon dividends and
other advances from WCI as its predominant source of cash flow. The Credit
Agreement is expected to contain restrictive covenants that restrain the ability
of the Company to pay dividends. If these restrictions are subsequently lifted,
any future cash dividends will depend upon the Company's results of operations,
financial
9
<PAGE> 11
conditions, cash requirements and other factors. See "Dividend Policy" and
"Description of Certain Indebtedness."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has applied to have the Common Stock quoted on
Nasdaq, there can be no assurance that an active trading market for the Common
Stock will develop or be sustained. The initial public offering price of the
Common Stock offered hereby will be determined by negotiations among the Company
and the representatives of the Underwriters and may not be indicative of the
market price for the Common Stock after the Offering. See "Underwriting." After
the Offering, the market price for shares of the Common Stock may be volatile
and may fluctuate based upon a number of factors, including many which are
beyond the control of the Company, such as business performance, general
industry trends, news announcements by competitors of the Company or changes in
the regulatory environment or in general political, market and economic
conditions. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 10,294,028 shares of
Common Stock outstanding. The shares of Common Stock sold in the Offering will
be freely tradeable without restriction or further registration under the
Securities Act unless held by an "affiliate" of the Company, as that term is
defined under Rule 144 of the Securities Act, which shares will be subject to
the resale limitations of Rule 144. In addition, certain existing stockholders,
including holders of restricted Common Stock, have registration rights with
respect to Common Stock held by them. In connection with the Offering, existing
stockholders holding in the aggregate 6,118,314 shares (or 59.4% of total
outstanding shares) (5,863,314 shares or 55.1% of total outstanding shares if
the Underwriters' over-allotment option is exercised in full) have agreed not to
dispose of any shares for a period of 180 days from the date of this Prospectus,
and the Company has agreed not to dispose of any shares (other than shares sold
by the Company in the Offering or issuances by the Company of certain employee
stock options and shares covered thereby) for a period of 180 days from the date
of this Prospectus, without the prior written consent of representatives of the
Underwriters. Upon expiration of such 180-day period, all of such shares of
Common Stock will be eligible for sale subject to certain volume and other
limitations of Rule 144 under the Securities Act applicable to "affiliates" of
the Company. No prediction can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares of Common Stock
for sale will have on the market price of the Common Stock from time to time.
The sale of a substantial number of shares held by the existing stockholders,
whether pursuant to a subsequent public offering or otherwise, or the perception
that such sales could occur, could adversely affect the market price of the
Common Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities. See "Shares Eligible for
Future Sale" and "Underwriting."
10
<PAGE> 12
RECENT TRANSACTIONS
THE RECAPITALIZATION
In February 1997, KRG Capital formed the Company, which acquired all of the
outstanding stock of WCI from Greg Grosch, the then sole stockholder, Chairman,
President and Chief Executive Officer of WCI, through a leveraged
recapitalization (the "Recapitalization"). The Company acquired the stock of WCI
for: (i) $10 million in cash; (ii) a $1.5 million subordinated note; (iii)
87,000 shares of Common Stock; and (iv) Convertible Preferred Stock which will
automatically convert into 2,795,390 shares of Common Stock upon consummation of
the Offering. In connection with the Recapitalization, shares of redeemable
preferred stock and warrants to purchase Common Stock were purchased by three
investment funds. Such shares of redeemable preferred stock will be redeemed
upon consummation of the Offering. See "Use of Proceeds," "Principal and Selling
Stockholders" and "Certain Relationships and Related Transactions."
RECENT ACQUISITIONS
The Company has recently acquired three contractor suppliers for an
aggregate purchase price of approximately $37 million. In February 1997,
simultaneously with the Recapitalization, the Company acquired 100% of the stock
of A-Y Supply, which has stores located in Sacramento, Stockton, San Leandro,
Santa Rosa and Fresno, California. A-Y Supply generated net sales of
approximately $25.7 million for its fiscal year ended December 31, 1996. The
acquisition of A-Y Supply was effective as of January 1, 1997. Effective May 1,
1997, the Company acquired 100% of the stock of Stop Supply, located in Fresno,
California. Stop Supply generated net sales of approximately $6.2 million for
its fiscal year ended January 31, 1997. In June 1997, the Company acquired 100%
of the stock of Viking Distributing, which has stores located in San Francisco,
Dublin and San Jose, California. Viking Distributing generated approximately
$35.2 million in net sales for its fiscal year ended March 31, 1997.
PROPOSED ACQUISITIONS
The Company has entered into an agreement to acquire the assets of Burke
Concrete Accessories, L.P. ("Burke") for a total purchase price of $8.5 million,
subject to working capital adjustments as of the closing date (the "Burke
Acquisition"). Burke, with fiscal 1996 revenues of $24.9 million, is a full line
distributor of concrete accessories, construction chemicals and rental equipment
used in pour-in-place, precast and tilt-up concrete construction, renovation and
maintenance. Burke operates nine branch locations in the Western United States
(six of which are located in existing White Cap markets and three of which are
located in the Pacific Northwest). In addition, the Company has entered into a
letter of intent to acquire the stock of a one-branch contractor supplier, with
fiscal 1996 revenues of $5.4 million, which specializes in braces, inserts and
accessories for tilt-up concrete construction (together with the Burke
Acquisition, the "Proposed Acquisitions"). Completion of the Proposed
Acquisitions is expected to occur after the completion of the Offering and is
contingent upon satisfactory completion of due diligence and satisfaction of
customary closing conditions. The Offering is not contingent upon completion of
the Proposed Acquisitions.
The Company continues to evaluate potential acquisitions and negotiates
with potential acquisition candidates from time to time. The Company is
currently in discussions with several acquisition candidates, but, other than
with respect to the Proposed Acquisitions, has not entered into binding
commitments or understandings with any of such candidates.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to be received from the sale of the 4,000,000 shares of
Common Stock by the Company in the Offering (after deducting the underwriting
discounts and estimated expenses of the Offering payable by the Company) are
estimated to be approximately $62.4 million ($71.9 million if the Underwriters'
over-allotment option is exercised in full), based on an assumed initial public
offering price of $17.00 per share (the midpoint of the price range set forth on
the cover page of this Prospectus). The Company intends to use all of such
proceeds plus such amounts as may be necessary to borrow under the Credit
Agreement to repay approximately $58.5 million of outstanding indebtedness,
consisting of (i) revolving loans of approximately $28.9 million outstanding
under WCI's existing credit agreement, bearing interest at 0.25% over the bank's
prime rate and providing for a LIBOR option of 2.5% over the LIBOR rate (the
effective interest rates ranged from 8.22% to 8.75% at June 30, 1997) and
maturing on February 1, 2002; (ii) term loans of approximately $10.6 million
outstanding under WCI's existing credit agreement, bearing interest at 0.75%
over the bank's prime rate and providing for a LIBOR option of 3.0% over the
LIBOR rate (the effective interest rates ranged from 8.72% to 9.25% at June 30,
1997) and maturing on February 1, 2002; (iii) senior subordinated notes in an
aggregate principal amount of $15.0 million held by an institutional investor
and maturing on February 28, 2005, consisting of an aggregate principal amount
of $13.0 million accruing interest at a rate of 13.0% plus an additional
deferred rate of 6.25% and an aggregate principal amount of $2.0 million
accruing interest at a rate of 11.5%; (iv) a subordinated note in an aggregate
principal amount of $1.5 million issued to the Company's Chairman, Chief
Executive Officer and President in connection with the Recapitalization,
accruing interest at a current rate of 13.0% and maturing on February 28, 2005;
and (v) subordinated notes in an aggregate principal amount of $2.5 million held
by the former owners of A-Y Supply, accruing interest at a rate of 10.0% and
maturing on February 25, 2000. In addition, the Company expects to pay
approximately $7.8 million in deferred interest and prepayment penalties
incurred in connection with the repayment of the indebtedness described above.
An affiliate of BancAmerica Robertson Stephens, one of the Representatives, is a
lender under both the Credit Agreement and WCI's existing credit agreement.
Approximately $3.0 million will be used to redeem the Company's Redeemable
Preferred Stock held by institutional investors consisting of Apex, Bayview and
Agentum and their respective affiliates and pay accrued dividends on such stock
and on the Company's Convertible Preferred Stock outstanding prior to the
completion of the Offering. See "Certain Relationships and Related
Transactions." Pending such uses, the Company intends to invest the net proceeds
of the Offering in short-term, interest-bearing investment-grade securities.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and has no current
plans to pay cash dividends in the foreseeable future. The payment of future
dividends will be determined by the Board of Directors of the Company in light
of conditions then existing, including the Company's financial condition and
requirements, future prospects, restrictions in financing agreements, business
conditions and other factors deemed relevant by the Board of Directors. There
can be no assurance that the Company will determine to pay any cash dividends in
the future. The proposed terms of the Credit Agreement will limit the payment of
dividends on the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
12
<PAGE> 14
DILUTION
The net tangible book value (deficit) of the Company as of June 30, 1997
was $(28,748,000), or $(4.57) per share. "Net tangible book value (deficit) per
share" is determined by dividing the number of shares of Common Stock
outstanding into the net tangible book value of the Company (tangible assets
less liabilities). After giving effect to the Offering and use of proceeds
described herein, the pro forma net tangible book value of the Company at June
30, 1997 would have been approximately $28,273,000 or $2.75 per share based on
an initial public offering price of $17.00 per share (the midpoint of the price
range set forth on the cover page of this Prospectus). This represents an
immediate increase in the net tangible book value per share of $7.32 to present
stockholders and an immediate dilution of $14.25 per share to new investors
purchasing shares of Common Stock at the assumed public offering price.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................ $17.00
Net tangible book value (deficit) per share before the
Offering...................................................... $(4.57)
Increase resulting from the offering............................. 7.32
------
Pro forma net tangible book value (deficit) per share after the
Offering......................................................... 2.75
------
Dilution per share to new investors................................ $14.25
======
</TABLE>
The following table summarizes the difference between existing stockholders
and new investors with respect to the number of shares of Common Stock purchased
from the Company, the total cash consideration paid, and the average price paid
per share (before deducting underwriting discounts and offering expenses):
<TABLE>
<CAPTION>
PERCENT PERCENT OF AVERAGE
SHARES OF TOTAL TOTAL CASH TOTAL PRICE
PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE
---------- -------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 6,294,028(a) 61.1%(b) $ 3,338,679 4.7% $ 0.53
New investors.................. 4,000,000 38.9 68,000,000 95.3 $ 17.00
---------- ----- ----------- -----
Total................ 10,294,028 100.0% $ 71,338,679 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(a) Excludes (i) 517,819 shares issuable upon the exercise of unvested options
currently held by certain employees of the Company and (ii) 104,400 shares
of Common Stock issuable upon conversion of Series B Preferred Stock held by
the former owners of Viking Distributing which are subject to a repurchase
right by the Company if certain performance targets are not achieved for the
Northern California operations of the Company. Includes: (i) currently
exercisable warrants to acquire 1,176,184 shares of Common Stock held by
certain stockholders; (ii) 39,215 shares issuable to the former shareholders
of A-Y Supply upon conversion of a subordinated convertible promissory note,
which number is determined by dividing $500,000 by 75% of the midpoint of
the range of the initial public offering price per share; (iii) 19,607
shares issuable to the former owners of Stop Supply upon exercise of a
warrant, which number is determined by dividing $250,000 by 75% of the
midpoint of the range of the initial public offering price are per share;
(iv) 129,454 shares issuable upon exercise of vested options currently held
by certain employees of the Company; and (v) 91,534 shares of restricted
stock awarded to management which are not yet vested. See
"Management -- 1997 Incentive and Stock Option Plan" and "Principal and
Selling Stockholders."
(b) If the Underwriters' over-allotment option is exercised in full, the
percentage of shares retained by the existing stockholders would be reduced
to 56.8% of the total shares of Common Stock outstanding after the Offering.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997 and as adjusted to give effect to the Offering and
the application of the net proceeds thereof and contemplated borrowings under
the Credit Agreement. See "Use of Proceeds." This table should be read in
conjunction with "Selected Historical Financial and Operating Data," "Unaudited
Pro Forma Combined Financial Data" and the Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Short-term debt.......................................................... $ 3,106 $ 706
======= =======
Long-term debt:
Senior revolving debt.................................................. $28,330 $ --
Senior term debt....................................................... 9,000 7,111
Subordinated debt...................................................... 19,500 --
Other long-term debt................................................... 3,552 3,552
------- -------
Total long-term debt........................................... 60,382 10,663
------- -------
Redeemable preferred stock............................................... 2,650 --
------- -------
Stockholders' equity:
Common stock........................................................... 11 90
Convertible preferred stock............................................ 2,256 --
Additional paid-in capital(a).......................................... -- 65,367
Accumulated deficit(b)................................................. (5,033) (11,202)
------- -------
Total stockholders' equity (deficit)(c)........................ (2,766) 54,255
------- -------
Total capitalization................................................... $60,266 $64,918
======= =======
</TABLE>
- ---------------
(a) As adjusted includes $83,000 related to the exercise of warrants by the
former owners of Stop Supply at a 75% discount to the proposed offering
price.
(b) As adjusted includes the recording of interest expense of $167,000 related
to the conversion of the $500,000 of subordinated debt due the former owners
of A-Y Supply at a 75% discount to the proposed offering price, prepayment
penalties of approximately $7.8 million, approximately $800,000 in
compensation expense related to the acceleration of an employee bonus, and
the write off of deferred financing costs of approximately $1.2 million, net
of income tax benefits of approximately $4.1 million.
(c) Following the consummation of the Offering, the authorized capitalization of
the Company will consist of (i) 20,000,000 shares of Common Stock, of which
10,294,028 shares will be outstanding and (ii) 1,000,000 shares of Preferred
Stock, par value $1.00 per share, of which 60,000 shares of Series B
Preferred Stock will be outstanding. Options to purchase 647,273 shares of
Common Stock will be outstanding immediately following consummation of the
Offering.
14
<PAGE> 16
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data for the year
ended March 31, 1997 and the three months ended June 30, 1997 (the "Unaudited
Pro Forma Combined Financial Data") give effect to (i) the 1997 acquisitions of
A-Y Supply, Stop Supply and Viking Distributing and (ii) the Offering and the
use of proceeds described herein to repay certain indebtedness and redeem
outstanding Senior Redeemable Preferred Stock. The Unaudited Pro Forma Combined
Financial Data are based on the historical financial statements of the Company,
A-Y Supply, Stop Supply and Viking Distributing and the assumptions and
adjustments described in the accompanying notes to the Unaudited Pro Forma
Combined Financial Data. The pro forma combined statements of operations were
prepared as if such transactions had occurred on April 1, 1996. The Unaudited
Pro Forma Combined Financial Data are not necessarily indicative of the results
which actually would have occurred if such transactions had occurred on the
dates indicated or which may occur in the future. The Unaudited Pro Forma
Combined Financial Data should be read in conjunction with the Financial
Statements contained elsewhere in this Prospectus.
15
<PAGE> 17
WHITE CAP INDUSTRIES, INC.
PRO FORMA COMBINED INCOME STATEMENT
(UNAUDITED)
FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO
A-Y STOP VIKING PRO FORMA FORMA OFFERING PRO FORMA
WHITE CAP(a) SUPPLY(a) SUPPLY(b) DISTRIBUTING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
------------ --------- --------- ------------ ----------- -------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $101,770 $21,689 $ 6,222 $ 35,192 $ -- $164,873 $ -- $164,873
Cost of goods
sold.............. 69,740 14,952 3,532 24,528 -- 112,752 -- 112,752
-------- ------- ------ ------- ------- -------- ------- ----------
Gross profit...... 32,030 6,737 2,690 10,664 -- 52,121 -- 52,121
-------- ------- ------ ------- ------- -------- ------- ----------
Selling, general and
administrative
expenses.......... 27,375 4,416 2,294 9,446 (660)(c) 42,871 -- 42,871
-------- ------- ------ ------- ------- -------- ------- ----------
Income from
operations...... 4,655 2,321 396 1,218 660 9,250 -- 9,250
Interest expense,
net............... 2,273 -- 182 280 -- 2,735 (1,767)(e) 968
-------- ------- ------ ------- ------- -------- ------- ----------
Income before
provision
(benefit) for
income taxes...... 2,382 2,321 214 938 660 6,515 1,767 8,282
Provision (benefit)
for income
taxes............. (414) 51 2 402 2,630(d) 2,671 725(f) 3,396
-------- ------- ------ ------- ------- -------- ------- ----------
Net income.......... $ 2,796 $ 2,270 $ 212 $ 536 $(1,970) $ 3,844 $ 1,042 $4,886
======== ======= ====== ======= ======= ======== ======= ==========
Pro forma net income
per common
equivalent
share............. $0.43
==========
Pro forma weighted
average common
equivalent shares
outstanding....... 11,284,332
==========
</TABLE>
16
<PAGE> 18
WHITE CAP INDUSTRIES, INC.
PRO FORMA COMBINED INCOME STATEMENT
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO
STOP VIKING PRO FORMA FORMA OFFERING PRO FORMA
WHITE CAP(a) SUPPLY(b) DISTRIBUTING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
------------ --------- ------------ ----------- -------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales..................... $ 37,311 $ 538 $8,982 $ -- $46,831 $ -- $ 46,831
Cost of goods sold............ 25,848 287 6,138 -- 32,273 -- 32,273
-------- ------ ------- ----- -------- ------- ----------
Gross profit................ 11,463 251 2,844 -- 14,558 -- 14,558
Selling, general and
administrative expenses..... 9,423 185 2,198 154(c) 11,960 -- 11,960
-------- ------ ------- ----- -------- ------- ----------
Income from operations...... 2,040 66 646 (154) 2,598 -- 2,598
Interest expense, net......... 1,319 18 20 -- 1,357 (1,114)(e) 243
-------- ------ ------- ----- -------- ------- ----------
Income before provision
(benefit) for income
taxes....................... 721 48 626 (154) 1,241 1,114 2,355
Provision (benefit) for income
taxes....................... 318 20 257 (64) 531 435(f) 966
-------- ------ ------- ----- -------- ------- ----------
Net income.................... $ 403 $ 28 $ 369 $ (90) $ 710 $ 679 $ 1,389
======== ====== ======= ===== ======== ======= ==========
Pro forma net income per
common equivalent share..... $ 0.12
==========
Pro forma weighted average
common equivalent shares
outstanding................. 11,398,112
==========
</TABLE>
17
<PAGE> 19
WHITE CAP INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT ADJUSTMENTS
(a) A-Y Supply's results of operations are included in White Cap's income
statement from January 1, 1997 (acquisition date) forward. The A-Y Supply column
only includes the results of operations for the period April 1, 1996 through
December 31, 1996.
(b) Stop Supply's fiscal year ended January 31, 1997. Stop Supply was
acquired effective May 1, 1997. Hence, the Stop Supply information only includes
the results of operations for the one month period ended April 30, 1997.
(c) Adjustment to reflect the reduction of acquired companies' prior owners
compensation to a normalized ongoing amount reflecting current employment
agreements, which is offset, in part, by the amortization of goodwill and
covenants not to compete associated with the recent acquisitions.
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED ENDED JUNE
MARCH 31, 1997 30, 1997
-------------- ------------
<S> <C> <C>
Reduction in compensation:
A-Y Supply............................... $ 300 $ --
Stop Supply.............................. 170 --
Viking Distributing...................... 1,024 54
----- -----
1,494 54
Goodwill amortization:
A-Y Supply............................... (278) (69)
Stop Supply.............................. (48) (12)
Viking Distributing...................... (308) (77)
----- -----
(634) (158)
Covenant not to compete amortization:
A-Y Supply............................... (200) (50)
----- -----
Net expense (increase) reduction........... $ 660 $ (154)
===== =====
</TABLE>
(d) Adjustment to record a tax provision at a combined federal and state
rate of 41% for the entire period presented. A-Y Supply and Stop Supply were S
Corporations prior to being acquired by White Cap. White Cap converted from S
Corporation to C Corporation status in February 1997.
(e) Adjustment to reflect the change in interest expense upon repayment of
outstanding bank and subordinated debt.
(f) Adjustment to reflect the elimination of the tax benefit associated
with the reduction of interest expense due to debt retirement.
18
<PAGE> 20
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The selected consolidated results of operations set forth for the years
ended December 31, 1994 and 1995 and March 31, 1997 and the three months ended
March 31, 1996 and the selected balance sheet data set forth below as of
December 31, 1995 and March 31, 1996 and 1997 are derived from the Company's
consolidated financial statements included elsewhere in this Prospectus; such
data as of December 31, 1992 and 1993 and for the years then ended and as of
December 31, 1994 are derived from the Company's consolidated financial
statements not included herein; such data as of March 31, 1995 and for the three
months then ended and the selected balance sheet data as of June 30, 1996 are
derived from the Company's interim consolidated financial statements not
included herein; the selected balance sheet data as of June 30, 1997 and the
selected consolidated results of operations data for the three months ended June
30, 1996 and 1997 are derived from the Company's interim consolidated financial
statements included elsewhere in this Prospectus. The Company's business is
seasonal and interim results are not necessarily indicative of the results
obtainable by the Company for a full fiscal year or any other interim period.
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED FISCAL YEAR ENDED
YEAR ENDED DECEMBER 31, MARCH 31, ENDED JUNE 30,
------------------------------------- ----------------- MARCH 31, -----------------
1992 1993 1994 1995 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- ----------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(A):
Net sales........................ $45,125 $49,438 $69,508 $77,840 $15,841 $19,511 $ 101,770 $23,509 $37,311
Cost of sales.................... 31,119 34,373 49,420 53,961 11,246 13,627 69,740 15,992 25,848
------- ------- ------- ------- ------- ------- -------- ------- -------
Gross profit..................... 14,006 15,065 20,088 23,879 4,595 5,884 32,030 7,517 11,463
Selling, general and
administrative expenses........ 13,530 14,342 17,918 20,517 4,259 5,670 27,375 6,235 9,423
------- ------- ------- ------- ------- ------- -------- ------- -------
Income from operations........... 476 723 2,170 3,362 336 214 4,655 1,282 2,040
Interest expense, net............ 486 487 822 1,385 274 442 2,273 424 1,319
------- ------- ------- ------- ------- ------- -------- ------- -------
Income (loss) before income
tax............................ (10) 236 1,348 1,977 62 (228) 2,382 858 721
Income tax provision
(benefit)(b)................... 2 10 30 40 6 -- (414) 9 318
------- ------- ------- ------- ------- ------- -------- ------- -------
Net income (loss)................ $ (12) $ 226 $ 1,318 $ 1,937 $ 56 $ (228) $ 2,796 $ 849 $ 403
======= ======= ======= ======= ======= ======= ======== ======= =======
SELECTED OPERATING DATA:
Branch locations................. 9 9 10 12 11 12 17 12 20
Percentage change in comparable
store sales.................... 0.7% 9.8% 35.6% 6.1% 4.0% 9.9% 15.3% 13.6% 18.6%
Number of SKUs sold during
period......................... N/A N/A 10,787 11,223 8,763 9,346 15,765 9,521 10,830
Active customers................. N/A N/A 7,023 8,735 6,116(c) 6,892(c) 12,288 7,076(c) 8,640(c)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31, AT JUNE 30,
------------------------------------- ------------------------------- -----------------
1992 1993 1994 1995 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $ 8,201 $ 8,104 $10,840 $12,712 $10,875 $14,566 $ 17,410 $14,293 $24,727
Total assets..................... 18,200 18,087 26,750 36,192 26,211 35,287 62,292 37,613 90,642
Long-term debt, net.............. 7,620 7,550 10,472 15,815 9,860 18,095 38,888 16,580 60,382
Total stockholders' equity
(deficit)...................... 2,763 2,905 3,639 4,528 4,007 3,945 (3,030) 5,203 (2,766)
</TABLE>
- ---------------
(a) The Company changed its fiscal year end to March 31, effective March 31,
1996.
(b) Reflects S Corporation status until February 28, 1997, when the Company
converted to C Corporation status and recorded a tax benefit of
approximately $500,000 to establish net deferred tax assets.
(c) Reflects customers that have purchased at least one item on open credit
during the specified three month period.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. When used herein, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions as they relate to the Company
or its management are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors."
GENERAL
The Company's revenues are generated by providing a wide variety of
specialty tools and construction materials to professional contractors. The
Company is executing an aggressive acquisition strategy, acquiring companies in
related lines of business. These acquisitions may change the Company's products,
product mix and operating margins. While the Company's management strategy,
operating efficiencies and economies of scale may present opportunities to
reduce costs, such benefits may initially be partially or completely offset by
the cost of integration such as transitional, management and administrative
costs. These various costs and possible cost savings may make historical
operating results not indicative of future performance. In connection with the
Company's rapid expansion, the Company expects to focus significant attention
and resources on technological investments that will increase productivity.
The Company expects to incur significant one-time charges in the fiscal
quarter in which the Offering is consummated. These one time charges will
include approximately $7.8 million related to prepayment penalties on the
retirement of existing debt, the charge-off of approximately $1.2 million
associated with capitalized debt issuance costs, approximately $800,000 related
to the acceleration of an employee bonus, and imputed interest charges of
approximately $167,000 associated with the issuance of Common Stock at a
discount to the initial public offering price per share in order to retire a
note held by the sellers of an acquired entity.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of net sales
or pro forma net sales, as applicable, for the actual fiscal years ended
December 31, 1994 and 1995, the actual and pro forma fiscal years ended March
31, 1997 and the actual three months ended March 31, 1995 and 1996 and June 30,
1996 and 1997 and the pro forma three months ended June 30, 1997. The pro forma
data were prepared as if the acquisitions of A-Y Supply, Stop Supply and Viking
Distributing had occurred on April 1, 1996.
20
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED FISCAL YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31, 1997 JUNE 30, JUNE 30, 1997
------------- ------------- ------------------ ------------ -----------------
1994 1995 1995 1996 ACTUAL PRO FORMA 1996 ACTUAL PRO FORMA
----- ----- ----- ----- ------ --------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........ 71.1 69.3 71.0 69.8 68.5 68.4 68.0 69.3 68.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross Profit....... 28.9 30.7 29.0 30.2 31.5 31.6 32.0 30.7 31.1
Selling, general and
administrative
expenses........... 25.8 26.4 26.9 29.1 26.9 26.0 26.5 25.3 25.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from
operations...... 3.1 4.3 2.1 1.1 4.6 5.6 5.5 5.5 5.5
Interest expense,
net................ 1.2 1.8 1.7 2.3 2.2 0.6 1.8 3.5 0.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss)
before income
tax............. 1.9 2.5 0.4 (1.2) 2.3 5.0 3.7 1.9 5.0
Income tax provision
(benefit).......... -- -- -- -- (0.4) 2.1 0.0 0.9 2.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income
(loss).......... 1.9% 2.5% 0.4% (1.2%) 2.7% 3.0% 3.6% 1.1% 3.0%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The pro forma results of operations for the fiscal year ended March 31,
1997, as compared to the actual results for such fiscal year, reflect an
increase in gross margin from 31.5% to 31.6% due to the increased margins
associated with the rental businesses of A-Y Supply and Stop Supply. Pro forma
operating expenses as a percentage of net sales for the fiscal year ended March
31, 1997, as compared to the actual results for such fiscal year, were 26.0%
versus 26.9%. The lower selling, general and administrative expenses reflect
reduced annual compensation for the Company's Chief Executive Officer and
reduced or eliminated compensation to the selling shareholders of the acquired
entities. The change in interest expense, net reflects the impact of paying off
the Company's outstanding bank and subordinated debt. The increase in the tax
provision reflects the elimination of the benefit of reinstating deferred income
taxes for the Company due to the conversion from S Corporation status to C
Corporation status in February 1997 and the recording of a 41% tax provision.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996
Net Sales. Net sales increased $13.8 million, or 58.7%, to $37.3 million
for the three month period ended June 30, 1997 from $23.5 million for the three
month period ended June 30, 1996. The growth in net sales for the 1997 period
was the result of a 18.6% increase in same store sales during the quarter ended
June 30, 1997, the expansion of product lines, sales growth at the new branch
stores and the acquisitions of A-Y Supply, Stop Supply and Viking Distributing.
Gross Profit. Gross profit increased $3.9 million, or 52.5%, to $11.5
million for the three month period ended June 30, 1997 from $7.5 million for the
three month period ended June 30, 1996. The increase in gross profit was a
result of the increased net sales offset in part by a decrease in gross profit
margin. The gross profit margin for the three months ended June 30, 1997 was
30.7%, compared to 32.0% in the three months ended June 30, 1996. The decrease
in gross profit margin was primarily due to an aggressive promotion of certain
products in order to initiate relationships with new customers in Northern
California.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.2 million, or 51.1%, to $9.4 million in the
quarter ended June 30, 1997 from $6.2 million in the quarter ended June 30,
1996. Selling expenses increased $2.1 million, or 51.2%, to $6.2 million for the
three month period ended June 30, 1997 from $4.1 million for the three month
period ended June 30, 1996. The increase in selling expenses was due to
increased advertising, increased commissions to the outside sales force due to
the sales growth and increased costs of customer service, principally the
addition of branch personnel. Selling expenses as a percent of net sales for the
three month period ended June 30, 1997 was 16.6%, as compared to 17.4% for the
three month period ended June 30, 1996.
21
<PAGE> 23
General and administrative expenses increased $1.1 million, or 52.4%, to
$3.2 million for the three month period ended June 30, 1997 from $2.1 million
for the three month period ended June 30, 1996. General and administrative
expenses as a percentage of net sales for the three months ended June 30, 1997
was 8.6%, as compared to 8.9% for the three months ended June 30, 1996. The
increase in general and administrative expense was primarily due to increased
distribution costs to process the increased sales volume and a planned increase
in corporate functions to position the Company for future growth.
Income from Operations. Income from operations increased $0.8 million, or
59.1%, to $2.0 million for the three month period ended June 30, 1997 from $1.3
million for the three month period ended June 30, 1996. Income from operations
as a percentage of net sales remained constant at 5.5%. This reflects the
cumulative effects of the decrease in gross profit offset, in part, by the
increase in selling, general and administrative expenses as a percentage of net
sales.
Interest Expense, Net. Interest expense, net of interest income, increased
$0.9 million, or 211.1%, to $1.3 million for the three month period ended June
30, 1997 from $0.4 million for the three month period ended June 30, 1996.
Interest expense as a percentage of net sales increased to 3.5% from 1.8% in the
three month period ended June 30, 1996. This increase was due to increased
levels of debt to support the Company's growth.
Net Income. Net income decreased to $0.4 million, as compared to $0.8
million for the three month period ended June 30, 1996. The decrease in net
income was primarily related to a decrease in gross profit margins, the increase
in interest expense and the increase in the tax provision.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased $23.9 million, or 30.7%, to $101.8 million
in the fiscal year ended March 31, 1997 from $77.8 million in the year ended
December 31, 1995. The growth in net sales for 1997 was the result of the
acquisition of A-Y Supply in January 1997, an approximately 15% increase in same
store sales for the rest of the year, expansion of product lines and sales
growth at the new branch stores opened in 1995.
Gross Profit. Gross profit increased $8.2 million, or 34.1%, to $32.0
million in the fiscal year ended March 31, 1997 from $23.9 million in the year
ended December 31, 1995. The increase in gross profit was a result of the net
sales increase combined with an increase in gross profit margin as a percentage
of net sales. The gross profit margin as a percentage of net sales for the
fiscal year ended March 31, 1997 was 31.5%, compared to 30.7% in the year ended
December 31, 1995. The increase in gross profit margin as a percentage of net
sales was a result of White Cap's improved purchasing of products throughout the
fiscal year ended March 31, 1997. This improvement was offset by lower margins
at A-Y Supply during the fourth quarter due to the aggressive promotion of
certain products in order to initiate relationships with new customers in
Northern California.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.9 million, or 33.4%, to $27.4 million in
the fiscal year ended March 31, 1997 from $20.5 million in the year ended
December 31, 1995. Selling expenses increased $4.3 million, or 31.9%, to $17.8
million in the fiscal year ended March 31, 1997 from $13.5 million in the year
ended December 31, 1995. The increase in selling expenses was due to increased
advertising, increased commissions to the outside sales force due to the sales
growth and increased costs of customer service, principally the addition of
branch personnel. Selling expenses as a percentage of net sales for the fiscal
year ended March 31, 1997 increased to 17.5%, as compared to 17.3% in the year
ended December 31, 1995, as a result of the greater percentage growth than in
net sales.
General and administrative expenses include corporate administrative costs
and the costs of operating the Company's central distribution center in Costa
Mesa, California. General and administrative expenses increased $2.6 million, or
37.1%, to $9.6 million in the fiscal year ended March 31, 1997 from $7.0 million
in the year ended December 31, 1995. General and administrative expenses as a
percentage of net sales for the year ended March 31, 1997 increased to 9.4%, as
compared to 9.0% in the year ended December 31, 1995. The increase in general
and administrative expense was primarily due to increased distribution costs to
process the
22
<PAGE> 24
increased sales volume and a planned increase in corporate functions to position
the Company for future growth.
Income from Operations. Income from operations increased $1.3 million, or
38.5%, to $4.7 million in the fiscal year ended March 31, 1997 from $3.4 million
in the year ended December 31, 1995. Income from operations as a percentage of
net sales was 4.6%, as compared to 4.3% for the year ended December 31, 1995.
This increase reflects the cumulative effects of the increase in gross profit,
partially offset by the increase in selling, general and administrative
expenses.
Interest Expense, Net. Interest expense, net of interest income, increased
$0.9 million, or 64.1%, to $2.3 million in the fiscal year ended March 31, 1997
from $1.4 million in the year ended December 31, 1995. Interest expense as a
percentage of net sales increased to 2.2% from 1.8% in the year ended December
31, 1995. This increase was due to increased levels of debt to support the
Company's growth and the new debt associated with the acquisition of A-Y Supply,
combined with the higher interest rate associated with the debt utilized to
acquire A-Y Supply.
Net Income. Net income increased $0.9 million, or 44.3%, to $2.8 million in
the fiscal year ended March 31, 1997 from $1.9 million in the year ended
December 31, 1995. Net income as a percentage of net sales was 2.7%, as compared
to 2.5% for the year ended December 31, 1995. This increase reflects the
cumulative effects of the increase in gross profit and the increase in the
benefit for income taxes, offset by the increase in operating expenses and the
increase in net interest expense.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
Net Sales. Net sales increased $3.7 million, or 23.2%, to $19.5 million for
the three month period ended March 31, 1996 from $15.8 million for the three
month period ended March 31, 1995. The growth in net sales for the 1996 period
was the result of a 9.9% increase in same store sales during the quarter ended
March 31, 1996, the expansion of product lines and sales growth at the new
branch stores opened in 1994 and 1995.
Gross Profit. Gross profit increased $1.3 million, or 28.1%, to $5.9
million for the three month period ended March 31, 1996 from $4.6 million for
the three month period ended March 31, 1995. The increase in gross profit was a
result of the increased net sales combined with an increase in gross profit
margin. The gross profit margin for the three months ended March 31, 1996 was
30.2%, compared to 29.0% in the three months ended March 31, 1995. The increase
in gross profit margin was a result of White Cap's improved purchasing of
products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.4 million, or 33.1%, to $5.7 million in the
quarter ended March 31, 1996 from $4.3 million in the quarter ended March 31,
1995. Selling expenses increased $0.7 million, or 24.1%, to $3.6 million for the
three month period ended March 31, 1996 from $2.9 million for the three month
period ended March 31, 1995. The increase in selling expenses was due to
increased advertising, increased commissions to the outside sales force due to
the sales growth and increased costs of customer service, principally the
addition of branch personnel. Selling expenses as a percent of net sales for the
three month period ended March 31, 1996 was 18.5%, as compared to 18.4% for the
three month period ended March 31, 1995.
General and administrative expenses increased $0.7 million, or 50.0%, to
$2.0 million for the three month period ended March 31, 1996 from $1.4 million
for the three month period ended March 31, 1995. General and administrative
expenses as a percentage of net sales for the three months ended March 31, 1996
increased to 10.6%, as compared to 8.9% for the three months ended March 31,
1995. The increase in general and administrative expense was primarily due to
increased distribution costs to process the increased sales volume and a planned
increase in corporate functions to position the Company for future growth.
Income from Operations. Income from operations was nominal for the three
month periods ended March 31, 1996 and March 31, 1995. Income from operations as
a percentage of net sales was 1.1%, as compared to 2.1% for the three months
ended March 31, 1995. This decrease reflects the cumulative effects of the
increase in gross profit offset by the increase in selling, general and
administrative expenses.
23
<PAGE> 25
Interest Expense, Net. Interest expense, net of interest income, increased
$0.2 million, or 61.3%, to $0.4 million for the three month period ended March
31, 1996 from $0.3 million for the three month period ended March 31, 1995.
Interest expense as a percentage of net sales increased to 2.3% from 1.7% in the
three month period ended March 31, 1995. This increase was due to increased
levels of debt to support the Company's growth.
Net Loss. Net loss increased to $0.2 million, as compared to net income of
$0.1 million for the three month period ended March 31, 1995. The decrease in
net income was primarily related to increased general and administrative
expenses and increased interest expense.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased $8.3 million, or 12.0%, to $77.8 million in
the year ended December 31, 1995 from $69.5 million in the year ended December
31, 1994. The growth in net sales for 1995 was the result of a 6.1% increase in
same store sales during 1995, expansion of product lines and the opening of new
branch stores in 1994 and 1995.
Gross Profit. Gross profit increased $3.8 million, or 18.9%, to $23.9
million in the fiscal year ended December 31, 1995 from $20.1 million in the
fiscal year ended December 31, 1994. The increase in gross profit was a result
of the increase in net sales combined with an increase in gross profit margins
as a percentage of net sales. The gross profit margin as a percentage of net
sales in the year ended December 31, 1995 was 30.7%, as compared to 28.9% in the
year ended December 31, 1994. The increase in gross profit margin as a
percentage of net sales was a result of White Cap's improved purchasing of
products throughout the year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.6 million, or 14.5%, to $20.5 million in
the year ended December 31, 1995 from $17.9 million in the year ended December
31, 1994. Selling expenses increased $1.5 million, or 12.5%, to $13.5 million in
the year ended December 31, 1995 from $12.0 million in the year ended December
31, 1994. The increase in selling expenses was due to increased advertising,
increased commissions to the outside sales force due to the sales growth and
increased costs of customer service, primarily the addition of branch personnel.
Selling expenses as a percentage of net sales for the years ended December 31,
1995 and 1994 was constant at 17.3%.
General and administrative expenses increased $1.1 million, or 18.6%, to
$7.0 million in the year ended December 31, 1995 from $5.9 million in the year
ended December 31, 1994. General and administrative expenses as a percentage of
net sales for the year ended December 31, 1995 was 9.0%, as compared to 8.4% in
the year ended December 31, 1994. The increase in general and administrative
expense was primarily due to increased distribution costs to process the
increased sales volume, a planned increase in corporate functions to position
the Company for future growth and the costs associated with opening three new
branches during 1994 and 1995.
Income from Operations. Income from operations increased $1.2 million, or
54.9%, to $3.4 million in the year ended December 31, 1995 from $2.2 million in
the year ended December 31, 1994. Income from operations as a percentage of net
sales was 4.3%, as compared to the 3.1% for the year ended December 31, 1995.
This increase reflects the effect of the increase in gross profit margins offset
by the increase in selling, general and administrative expenses.
Interest Expense, Net. Interest expense, net of interest income, increased
$0.6 million, or 68.5%, to $1.4 million in the year ended December 31, 1995 from
$0.8 million in the year ended December 31, 1994. Interest expense as a
percentage of net sales increased to 1.8% from 1.2% in the year ended December
31, 1994. This was due to increased levels of debt to support the Company's
growth.
Net Income. Net income increased $0.6 million, or 47.0%, to $1.9 million in
the year ended December 31, 1995 from $1.3 million in the year ended December
31, 1994. Net income as a percentage of net sales was 2.5%, as compared to 1.9%
for the year ended December 31, 1994. This increase reflects the effect of the
increase in gross profit margins, offset by the increases in operating expenses
and interest expense.
24
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS; SEASONALITY
The following table sets forth certain unaudited quarterly consolidated
financial data for each of the nine consecutive quarters beginning April 1,
1995. This information was derived from unaudited consolidated financial
statements that include, in the opinion of the Company, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
when read in conjunction with the consolidated financial statements of the
Company and notes thereto included elsewhere in this Prospectus. In the
contractor supply industry, seasonality generally affects quarterly sales
performance. Historically, the Company's quarterly sales in the fourth fiscal
quarter (January through March) are lowest and quarterly sales in the second
fiscal quarter (July through September) are highest. This variance is primarily
due to uncontrollable weather conditions and a somewhat predictable annual
construction cycle. White Cap manages the impact of seasonality trends by
focusing on such critical issues as staffing requirements and trends in
inventory turns.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, June 30,
1995 1995 1995 1996 1996 1996 1996 1997(a) 1997(a)(b)
-------- ------------- ------------ --------- -------- ------------- ------------ --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $ 20,081 $21,564 $ 20,354 $19,511 $ 23,509 $24,999 $ 22,383 $30,880 $ 37,311
Gross profit...... 6,240 6,560 6,484 5,884 7,517 8,044 6,987 9,482 11,463
Income from
operations...... 1,160 942 924 214 1,282 1,592 498 1,283 2,040
Net income
(loss).......... 816 582 483 (228) 849 1,206 215 525 403
</TABLE>
- ---------------
(a) Includes the results of operations for A-Y Supply, which was acquired
effective January 1, 1997.
(b) Includes the results of operations for Stop Supply and Viking Distributing,
which were acquired effective May 1, 1997 and June 25, 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have historically been to fund (i) the
working capital requirements necessitated by its sales growth, (ii) acquiring
and operating acquired companies and (iii) distributions to the prior sole
shareholder, primarily to satisfy tax liabilities resulting from the prior S
Corporation status. The Company's primary sources of financing have been senior
and subordinated debt, cash from operations and the sale of preferred equity.
After completion of the Offering, the Company anticipates that its cash flows
from operations and available lines of credit will be adequate to support its
operations and strategic acquisition plan for the immediate future and for at
least the next 24 months.
The Company's existing credit facility will be retired upon closing of the
Offering. A new credit facility will be entered into upon closing of the
Offering. The terms of the existing and new credit facilities are described
below.
Existing Credit Facilities
Under the terms of the existing credit facility, the Company has available
secured revolving borrowings of up to $35 million (seasonal sublimit of $38
million) and has an outstanding secured term loan of $10.6 million. Revolving
loans under the existing credit facility bear interest at 0.25% over the agent
bank's prime rate and provides a LIBOR option of 2.5% over the LIBOR rate. Term
loans under the existing credit facility bear interest at 0.75% over the agent
bank's prime rate and provide for a LIBOR option of 3.0% over the LIBOR rate.
The interest rate ranged from 8.1% to 8.75% on revolving loans and 8.6% to 9.3%
on term loans at March 31, 1997. The existing credit facility also contains
certain financial covenants which require the Company to maintain a minimum net
worth, ratio of current assets to current liabilities, ratio of liabilities to
effective net worth, minimum interest coverage ratio and positive net income, to
refrain from capital expenditures in excess of certain amounts and to limit the
payment of dividends. The Company expects to be in compliance with these
covenants upon completion of the Offering and will repay and terminate the above
described credit facility.
25
<PAGE> 27
Post Offering Credit Facilities
Under the terms of the Credit Agreement (as defined), which the Company
expects will take effect upon the consummation of the Offering, the Company will
have available borrowings of up to $100 million (including a $75 million delayed
draw term facility for acquisitions and a $25 million revolving credit
facility). Interest on amounts borrowed may be paid at the option of the Company
at a rate per annum equal to the lead bank's prime or reference rate, or
alternatively at bankers' acceptance rate or LIBOR rate plus margins, in each
case based upon the Company's ratio of total debt to operating cash flow. The
Credit Agreement is expected to contain certain restrictive covenants limiting
mergers, use of proceeds, indebtedness, liens, investments, sale of assets and
acquisitions. The Credit Agreement is also expected to contain certain financial
covenants which will require the Company to maintain a minimum net worth,
leverage ratio, fixed charge coverage ratio and asset coverage ratio. The
Company expects to be in compliance with these covenants upon completion of the
Offering.
The Company provided net cash from operating activities of $3.6 million for
the fiscal year ending March 31, 1997 compared to net cash provided by operating
activities of $1.4 million and net cash used in operating activities of $0.8
million for the years ended December 31, 1995 and December 31, 1994,
respectively. The increase in cash provided by operating activities was
primarily due to increases in net income and accounts payable and a decrease in
prepaid expenses, together with a continued reduction in the annual increase of
inventory. The increase in cash provided by operating activities was reduced by
a 67% increase in accounts receivable from March 31, 1996 to March 31, 1997.
Such increase was primarily due to a 58% increase in net sales for the
respective quarters.
Cash used in investing activities was $18.0 million, $4.9 million and $1.3
million in the fiscal year ended March 31, 1997, and the years ended December
31, 1995 and December 31, 1994, respectively. The cash used in investing
activities was primarily for capital expenditures and, in the fiscal year ended
March 31, 1997, the purchase of A-Y Supply.
Cash provided by financing activities was $14.4 million, $3.6 million and
$2.1 million in the fiscal years ending March 31, 1997, December 31, 1995 and
December 31, 1994, respectively, primarily from increased borrowings.
Capital expenditures (other than acquisitions) were $2.1 million, $4.5
million and $1.3 million in the fiscal years ended March 31, 1997, December 31,
1995 and December 31, 1994, respectively. The Company expects to spend
approximately $2.8 million on capital expenditures for its existing operations
in the fiscal year ending March 31, 1998, primarily for office and computer
equipment, and branch remodeling and related equipment.
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<PAGE> 28
BUSINESS
GENERAL
White Cap is one of the leading business to business retailers to
professional contractors in the Western United States. The Company offers over
25,000 stock keeping units ("SKUs") of pro-oriented specialty tools and
materials. In addition, the Company can access the full product lines of most of
its suppliers for drop-shipment to its customers. The Company markets its
products through 20 branch locations, its highly experienced outside sales force
and through the strategic distribution of its in-stock catalogs. The Company has
achieved substantial growth by acquiring leading contractor suppliers in new and
existing markets, expanding product offerings and opening new branch locations.
Since 1987, White Cap's net sales have increased at a compounded annual growth
rate of 23%, resulting from (i) acquisitions (5%), (ii) same store sales growth,
which averaged 17% over the past four years (16%), and (iii) new branch openings
(2%). The Company's active customer base (customers that have purchased at least
one item on open credit during the past 12 months) has grown from approximately
7,000 in 1994 to approximately 16,000 for the pro forma year ended March 31,
1997. For the fiscal year ended March 31, 1997, the Company had pro forma net
sales of approximately $165 million.
The Company operates in a highly fragmented, multi-billion dollar industry.
Management estimates that the total U.S. market for products sold by the Company
is several billion annually and that small, regional contractor suppliers, with
sales of less than $50 million, supply over two-thirds of the pro-contractor
market. With pro forma fiscal 1997 net sales of approximately $165 million, the
Company believes it is one of the largest suppliers to its market niche
nationwide. The Company targets medium- and large-sized professional
contractors, including professional concrete, framing, waterproofing,
landscaping, grading, electrical, mechanical and general contractors.
The Company sells a wide variety of pro-oriented products, including
construction materials, hand tools, fasteners, structural connectors, power
tools, light construction equipment, rebar, bulk and collated gun nails and
specialty cementatious products. In addition, at certain branches the Company
provides rental services on selected items such as brackets and braces used in
the construction of concrete "tilt-up" buildings, power tools and miscellaneous
light construction equipment. The Company's products are used by professional
contractors in new construction, maintenance and repair projects.
The Company believes that it has developed a business model that differs
substantially from that of traditional contractor suppliers and large home
center retailers. The model is based on offering the Company's customers
superior customer service and convenient "one-stop" shopping at its branch
locations. Unlike traditional contractor suppliers, who typically fill orders
from warehouses not accessible to customers, the Company encourages customers to
shop at its branches where they can browse through the warehouse aisles and
adjacent outdoor yards. The Company's prototypical store format consists of
approximately 15,000 to 20,000 square feet of interior floor space with an
adjacent outdoor yard of approximately equal square footage. The Company's focus
on merchandising exposes customers to a wide range of product offerings and
promotes significant add-on sales. As a result, approximately 60% of the
Company's net sales are generated from "walk-in" and "will call" business.
Customers can also select items from the Company's in-stock catalogs,
distributed to approximately 40,000 professional contractors, listing over
11,000 of the best selling SKUs maintained in stock. Customers can order
products by phone, fax, at a sales branch or through the outside sales force.
The Company's highly experienced sales force maintains frequent customer
contact, providing pro-oriented services on and off the job-site. Through its
high in-stock position and sophisticated inventory management systems, the
Company is able to fulfill approximately 95% of the items included in each
customer order and provide same-day or next-day delivery.
GROWTH STRATEGY
In order to capitalize on its unique business model and the fragmented
professional contractor supply industry, the Company has initiated an aggressive
growth strategy consisting of: (i) pursuing acquisitions of leading contractor
suppliers in new and existing markets; (ii) increasing market share within
existing markets;
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<PAGE> 29
(iii) expanding product offerings; and (iv) opening new branch locations. The
key elements of the Company's growth strategy are as follows:
Strategic Acquisitions. The Company seeks to acquire leading contractor
suppliers in existing and new markets that will provide geographic
diversification, product line expansion, an established customer base of medium-
and large-sized pro-contractors and a direct sales force. The Company seeks to
consolidate the operations of such acquired companies and eliminate duplicative
overhead expense. White Cap has established a successful track record for
identifying and integrating acquisitions.
Since February 1997, the Company has completed three acquisitions, A-Y
Supply, Stop Supply and Viking Distributing, thereby strengthening its position
as a market leader in the Western United States and adding approximately $63
million to pro forma fiscal 1997 net sales. The Company believes that there are
numerous attractive acquisition opportunities and that the Company's established
reputation as an industry leader, access to capital, sophisticated management
information systems and operating expertise provide it with competitive
advantages in making acquisitions. The initial focus of the Company's
acquisition strategy will be on acquiring specialty contractor suppliers in the
Western United States. The Company initially plans to finance future
acquisitions through borrowings under the Credit Agreement and cash flow from
operations.
In 1991, prior to its recent acquisitions, White Cap acquired seven branch
locations of Abco Hardware Inc. ("Abco"), its then largest competitor in
Southern California. Following this acquisition, White Cap successfully
consolidated four Abco branches with existing White Cap branches and converted
the remaining three Abco branches into the White Cap business model.
Increased Market Share. The Company believes that its position as one of
the largest suppliers in its market niche to pro-contractors in the Western
United States, combined with its established reputation for providing superior
customer service and a wide range of specialty product offerings, will enable
the Company to increase its market share. White Cap's direct sales force
utilizes industry databases to continuously prospect for new customers and new
projects. The Company also works closely with its suppliers and with licensed
architects and engineers to ensure that the specialty product lines it carries
are specified on projects. This effort focuses on targeting medium- and
large-sized professional contractors engaged in construction projects throughout
the Western United States. The Company believes its increased geographical
presence will also allow its customers to consolidate their purchases with White
Cap.
Expanded Product Offerings. The Company believes there are significant
opportunities to further expand its product offerings by distributing profitable
specialty product lines sold by acquired companies but not previously offered at
White Cap locations. As a result of its three most recent acquisitions, the
Company anticipates that it will introduce at its other Southern California
locations approximately 3,500 new SKUs. As an example, the Company expects to
expand A-Y Supply's rental business of brackets and braces used in the
construction of concrete "tilt-up" buildings, as well as the sale of related
products and accessories at certain of the Company's other branches. The Company
also intends to expand the product offerings at its newly acquired branches by
introducing approximately 2,500 new SKUs which have proven successful at White
Cap. The Company has introduced the Simpson Strong-Tie line of structural
connectors and fasteners to the A-Y Supply branches and has expanded the
offering of the Simpson Strong-Tie products carried at the Viking Distributing
branches. The Company anticipates regularly adding new products to its existing
offerings and creating new product categories.
New Branch Openings. The Company continues to evaluate opportunities to
open new branch locations where it can service new customers and provide better
service to its existing customer base. Pursuant to this strategy, the Company
has opened three branch locations since 1994. In 1994, the Company expanded
operations by opening a new branch location to service the rapidly growing Las
Vegas market. In 1995, to capitalize on the improvement in the economy in the
Western United States, the Company further expanded by opening new branch
locations in Denver and Phoenix. These strategic branch openings targeted high
growth markets where management believed the Company could capture significant
market share or further its acquisition strategy by having a competitive
presence in the marketplace.
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INDUSTRY OVERVIEW
The Company operates in a highly fragmented, multi-billion dollar industry.
The Company believes that traditional suppliers, i.e. small regional contractor
suppliers, substantially all which have sales less than $50 million, supply over
two-thirds of the professional contractor market.
The Company believes that the customer base it serves can be classified by
customer type into the following three categories:
Small Professional Contractors. This customer category consists mostly
of home-office based contractors with approximately five or fewer
employees. Small professional contractors typically conduct home
improvement and small commercial projects, such as room additions, patios,
tenant improvements, masonry walls and landscaping. Most purchases are made
directly by the owner/contractor and approximately 90% of their work is
completed without hiring sub-contractors. Purchases by contractors in this
category consist of smaller quantities of many of the SKUs stocked by the
Company. This "multi-trade" category of customer is made up mostly of
professionals doing concrete, masonry, electrical, plumbing and wood
framing projects. Most projects are located within one hour driving
distance from the contractor's base of operations. Small professional
contractors historically have purchased construction supplies from
traditional specialty contractor suppliers, mail order catalogs, hardware
stores and home centers. A relatively small percentage of White Cap's
current net sales are from this customer category.
Medium-Sized Professional Contractors. This customer category is
comprised of contractors with approximately 6 to 50 employees who typically
operate within a relatively small geographical area. Medium-sized
professional contractors may act as general contractors, but usually act as
sub-contractors. The scope of their projects typically includes municipal
projects, retail strip centers, concrete "tilt-up" buildings and
residential construction. This category of customer depends heavily on
customer service, high same-day or next-day order fill rates and same-day
or next-day job-site or yard delivery. White Cap's outside sales force,
with its product knowledge and mobility, is perceived by these customers to
add value. Medium-sized professional contractors historically have been
primarily served by traditional specialty contractor suppliers and, to a
much lesser extent, by mail order marketers, hardware stores and home
centers.
Large Professional Contractors. This customer category is comprised
mostly of companies with over 50 employees that purchase large quantities
of specialty construction products. The large professional contractor bids
on multiple multi-million dollar projects simultaneously. This customer
category completes the major portions of a project acting as a general or
major sub-contractor. Large professional contractors can be bonded for
hundreds of millions of dollars which qualifies them for projects such as
highway bridges, sewage treatment plants, oil refineries, high rise
buildings, hotels, rapid transit projects and other major construction
projects. The large professional contractor is generally located in
multiple states and may have ten or more projects under way at any given
time. Large professional contractors often negotiate contract pricing on
many of the products they routinely purchase and demand a high level of
service. These services include same-day or next-day job-site or yard
delivery, a professional outside sales force and special credit terms.
These customers have historically been served by traditional contractor
suppliers.
The Company's focus on one-stop shopping and "business-to-business"
retailing to medium- and large-sized professional contractors distinguishes it
from many of the traditional specialty contractor suppliers with whom it
competes, as well as from large home centers, whose primary emphasis is on the
"do-it-yourself" ("DIY") consumer market and small maintenance and home
improvement contractors. Management believes that home centers can achieve only
limited market penetration among medium- and large-sized professional
contractors. The Company believes that home centers do not provide the necessary
full range of services required by these customers and lack the sales force to
establish the critical relationships necessary to service this category. The
Company believes it has a competitive advantage over home centers because it is
able to provide the professional contractor a wider range of specialty product
lines; high same-day or next-day order fill rates; same-day or next-day
delivery; a highly experienced technical sales force to provide service on
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<PAGE> 31
and off the job site; and in-house credit facilities tailored for the
professional contractor. See "-- Competition."
There are numerous traditional contractor suppliers (most with
significantly lower revenues than the Company) in the United States that, to
varying degrees, serve small-, medium- and large-sized professional contractors
in the Company's product offering niche. Most of these contractor suppliers
operate in only one or two metropolitan areas or states. The Company believes
there are only a limited number of suppliers to medium- and large-sized
professional contractors nationwide which have annual sales in excess of $100
million, and these suppliers tend to offer a significantly narrower focused
product line than the Company.
White Cap's management believes that a period of rapid consolidation is
about to commence among traditional contractor suppliers. The Company believes
it is well positioned to capitalize on this consolidation trend and has several
competitive advantages relative to smaller competitors, including access to
capital, a wide range of product offerings and customer services, superior
purchasing power, sophisticated management information systems and an
experienced management team. The Company continues to evaluate potential
acquisitions and negotiates with potential acquisition candidates from time to
time. The Company is currently in discussions with several acquisition
candidates, but, other than with respect to the Proposed Acquisitions, has not
entered into binding commitments or understandings with any of such candidates.
See "Recent Transactions -- Proposed Acquisitions."
THE WHITE CAP BUSINESS MODEL
The Company believes that it has developed a business model that differs
substantially from that of traditional contractor suppliers in the United
States. The key elements of the Company's business model include the following:
Breadth and Depth of Products. The Company has distinguished itself from
the traditional contractor suppliers in the United States by providing the
professional contractor with a "one-stop shopping" alternative. Historically,
pro-contractors have made purchases from multiple suppliers for their specialty
tools and materials. The Company believes that its success has resulted from the
superior range of the specialty merchandise it offers to the professional
contractor. To better serve its customers' needs, the Company offers over 25,000
SKUs in selected pro-oriented product lines, which the Company believes is
substantially more than its competitors. In addition, the Company can access the
full product lines of most of its suppliers for drop-shipment to its customers.
Further, the Company maintains sufficient inventories of products necessary to
satisfy the professional contractor's large project requirements. Through its
high in-stock position and inventory management systems, the Company is able to
fulfill approximately 95% of the items included in each customer order and
provide same-day or next-day delivery.
Innovative Retail Merchandising Techniques. Management believes that White
Cap's continued growth has been the result of the implementation of innovative
retail merchandising techniques not previously utilized in marketing to medium-
and large-sized professional contractors. The Company believes its ratio of
"walk-in" and "will call" business, which is approximately 60% of net sales, is
among the highest in the industry. Traditional contractor suppliers have
historically operated on the basis of filling orders from a "closed warehouse"
with a limited display or showroom area. White Cap was among the first in its
industry to utilize "business-to-business" retail marketing techniques and the
"open warehouse" merchandising concept in the Company's sales branches,
providing the customer complete access to the products in stock both inside its
branches and in the adjacent outdoor storage yards. The typical White Cap branch
utilizes such merchandising techniques as strategic placement of product groups,
innovative product displays and video monitors showing product demonstration
tapes. Frequent in-store promotional events, such as power tool demo days,
product seminars and customer appreciation days, are examples of a few of the
retail marketing techniques employed by the Company. Through its merchandising
orientation and its innovative and aggressive marketing, including catalogs,
monthly mailings, radio advertising and trade show attendance, the Company
attracts customers to its sales branches to expose them to the wide range of
White Cap's specialty product offerings and to promote in-store purchases.
Sales Force/Customer Service. The Company's sales force consists of
approximately 178 salespersons committed to providing the highest level of
customer service. The highly skilled and knowledgeable sales force
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is of crucial importance to the Company's success as the salespersons'
relationships with their customers and their emphasis on customer service are
the factors which result in customer loyalty and repeat business The Company's
operating model includes one inside salesperson for approximately every two
outside salespeople. Inside salespeople are responsible for telemarketing,
processing orders and providing timely follow-up to customers' questions. The
Company's inside sales force also has the ability to locate hard-to-find
products and process special orders. White Cap's outside sales force generates
sales by making office sales calls and/or making direct sales calls to actual
job sites. In addition, the outside sales force utilizes sales leads generated
from industry databases, trade shows, vendors/suppliers, the inside counter
sales force and telemarketing. The Company's highly experienced outside sales
force is integral to the Company's efforts to add new customers and generate
additional revenue from existing customers. White Cap's outside sales force has
an average of 15 years industry experience and an average tenure of over six
years with the Company and sells the Company's products on an exclusive basis.
The Company's salespersons regularly receive product training both from internal
and external sources to ensure they are current on all product developments. As
a result the sales force is able to provide product recommendations as well as
job-site assistance and instruction. Approximately 80% of the Company's outside
sales force is paid on a 100% commission basis. The Company believes that its
increased geographic presence will more effectively allow its sales force to
serve medium- and large-sized professional contractors with projects in multiple
regions throughout California and in other targeted states.
In-Stock Catalogs and Publications. The Company provides its customers with
in-stock catalogs displaying and listing over 11,000 of the best-selling SKUs
maintained in stock. The in-stock catalogs are distributed in the branches and
by the outside sales force to approximately 40,000 professional contractors. In
addition, the Company publishes monthly the Contractor Trader which features
selected items which are on sale, as well as technical information and articles
of interest to the industry. The Contractor Trader is distributed via direct
mail to over 75,000 contractors and other industry professionals. As a result of
its consistent focus on this type of marketing, a high percentage of White Cap's
customers shop at its well stocked branches or order desired products from the
Company's in-stock catalogs. Orders are also placed directly with the outside
sales force, by telephone or facsimile. The Company is also implementing
electronic data interchange ("EDI") to better serve the ordering and invoicing
needs of its customers.
Job-Site/Yard Delivery. The Company's customers ordinarily receive next
business day delivery via the Company's fleet of delivery trucks. The Company
believes this is of crucial importance to professional contractors who rely on
the Company's reputation for on-time delivery in order to meet their critical
"just-in-time" ordering requirements and strict job production schedules. In
addition, the majority of the Company's branch managers and outside sales force
are provided with Company vehicles, usually standard pickup trucks which may be
used to supplement the Company's fleet of delivery trucks and to provide "rush"
or special delivery services.
Credit Facilities Designed for the Professional Contractor. The Company
offers its customers credit options including in-house credit lines, job-based
credit lines, revolving private label third party charge accounts and third
party equipment leasing lines. Approximately 80% of White Cap's sales are on
open account with the credit managed by White Cap's in-house credit department.
Historically, White Cap has experienced a net accounts receivable bad debt
write-off rate averaging 0.3% of net sales of the period from January 1992 to
March 31, 1997.
Strong Supplier Relationships. The Company purchases from more than 1,200
suppliers, 98% of which are manufacturers. This focus on making purchases
directly from manufacturers provides it a substantial cost advantage over
traditional contractor suppliers who historically relied more heavily on higher
cost purchases from wholesalers. Management believes that the Company's
increasing volume purchasing power as a leading contractor supplier in the
Western United States will allow it to obtain even lower prices, more favorable
credit terms, increased co-op advertising support and increased freight
allowances. White Cap enjoys excellent relationships with all of its key
suppliers and is one of the largest customers in its channel. In some of the
markets that it serves, the Company has exclusive or semi-exclusive product
distribution agreements.
Commitment to Systems Innovation. The Company has made substantial
investments in computer hardware and the development of computer software
applications which it believes allow it to achieve cost
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savings, deliver superior customer service and centrally manage its operations.
White Cap's software applications are continually being enhanced and new
applications are continually being developed. The Company has recently installed
a customized integrated software package that provides order entry, purchasing,
inventory control, accounts receivable, accounts payable and financial statement
reporting. Among other applications, White Cap's new software is specifically
designed to track on a real-time basis the inventory level of each SKU by
branch, forecast demand by SKU and calculate appropriate reorder quantities and
lead times to maximize fill rates while minimizing inventory carrying costs. As
part of the integration of the White Cap business model at acquired companies,
branches are linked to White Cap's central computer system and are converted
over to the Company's management information systems.
OPERATIONS
Products
White Cap offers its customers over 25,000 SKUs through its 20 branch
locations. The Company sells a wide selection of brand name specialty products
for professional contractors, including: building materials, specialty
cementatious products, hand tools, fasteners, structural connectors, power
tools, light construction equipment, rebar and bulk and collated gun nails. In
addition, the Company sells certain products, including waterproofing products,
construction adhesives and collated nails, under its own private label. Such
products accounted for approximately 8% of sales in fiscal 1996 and serve to
increase recognition of the White Cap name. In addition, in certain branches the
Company provides rental services on selected items such as brackets and braces
used in the construction of concrete "tilt-up" buildings, power tools and light
construction equipment. The Company's products are used by professional
contractors in new construction, maintenance and repair projects.
The following table sets forth the Company's major product groups and the
key products offered in each category.
<TABLE>
<CAPTION>
PRODUCT CATEGORY TYPES OF PRODUCTS SOLD
- ---------------------------------------- ---------------------------------------------------
<S> <C>
Construction Materials.................. rebar, wire mesh, specialty cementatious products,
concrete adhesives, concrete curing compounds,
sealers, coatings, sealants, expansion joints
Hand Tools.............................. trowels, hammers, shovels, levels, screwdrivers,
rakes, wrenches, tape measures, ratchets and
sockets, boltcutters, wheelbarrows
Fasteners............................... machine bolts, allthread, bulk nails, gun nails,
anchor bolts, nuts, bolts, screws, mechanical
anchoring systems, staples used for roofing and
packaging
Structural Connectors................... embedded truss anchors, beam seats, holddowns,
purlin anchors, foundation anchors, post bases,
column caps, joist hangers, strap ties, framing
anchors, seismic and hurricane ties
Power Tools............................. hammer drills, rotary hammers, grinders, breaker
hammers, demolition hammers, saws, routers,
cordless drills and saws
Waterproofing Materials................. negative side water proofing products, coatings and
sealers, hydraulic cement, membrane protection
systems, bentonite waterproof systems
Light Construction Equipment............ brick and block saws, power trowels, concrete saws
and coring equipment, compactors, concrete mixers,
generators, pumps, compressors, concrete screeds
and material spreaders, surveying instruments,
pipe/conduit cutting, bending and threading
equipment
Cutting Tools........................... diamond concrete cutting blades, diamond
brick/block cutting blades, diamond coring bits,
saw blades for cutting wood, plastics and metal,
abrasive blades for cutting masonry, concrete and
metal
Rental Tools, Equipment and Braces...... tilt-up braces, compressors, generators, man-lifts,
concrete finishing machines and saws, pressure
washers, sprayers
</TABLE>
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<TABLE>
<CAPTION>
PRODUCT CATEGORY TYPES OF PRODUCTS SOLD
- ---------------------------------------- ---------------------------------------------------
<S> <C>
Drainage Materials...................... surface drainage systems, plastic drainage pipe,
ground stabilization fabric, subsurface drainage
systems, filter fabric
Landscape Lighting...................... wire and cable, transformers, outdoor fixtures,
pathway lights, step and deck lights, underwater
lights, bulbs and connectors
Accessories............................. safety equipment and barricades, welding equipment
and supplies, brooms, mops, buckets, water coolers,
boots, gloves, hard hats, lubricants
</TABLE>
Store Design
All of the Company's branches are well-stocked and staffed by highly
trained sales personnel. The Company's prototypical store format consists of
approximately 15,000 to 20,000 square feet of interior floor space, plus an
adjacent outdoor storage yard of approximately equal square footage. The
majority of the Company's original branches are designed as open warehouses
providing the customer complete access to the products in stock both inside the
store and in the adjacent outdoor storage yards. The Company believes that the
open warehouse design of its branches, where its customers can browse through
the aisles, gives the Company a competitive advantage over most traditional
contractor suppliers whose branches have small showrooms and sales counters.
The Company expects to convert the eight branches acquired since February
1997 to the Company's business model over the next year. This conversion process
is being scheduled to avoid the disruption of day-to-day operations during busy
quarters.
Customers
White Cap sells to a variety of professional general and specialty building
trade contractors in all three of the customer categories described above. The
Company's primary customers include general, concrete, framing, waterproofing,
landscape, grading, electrical and mechanical contractors. The Company believes
that the professional relationships maintained through its outside sales force
with its customers are of critical importance. The Company's revenues are
divided approximately equally between contractors engaged in residential
construction and contractors engaged in commercial or infrastructure
construction and maintenance projects.
As of June 30, 1997, White Cap had over 16,000 customers that have
purchased at least one item on open account during the past 12 months, in
addition to customers that do not have established credit accounts and pay upon
purchase. No one customer generates more than 1% of pro forma net sales. For the
fiscal year ended March 31, 1997, the Company's top ten customers in the
aggregate generated less than 7% of sales.
Marketing
The Company has implemented innovative retail merchandising techniques not
previously utilized in marketing to medium- and large-sized professional
contractors. White Cap was among the first in its industry to utilize
"business-to-business" retail marketing techniques and the "open warehouse"
merchandising concept in the Company's sales branches. Because of its
merchandising and marketing orientation, including innovative catalogs and
monthly mailings, creative radio advertising spots and trade show booths, the
Company believes, based on a review of sales information of its acquired
businesses and potential acquisition candidates, that it attracts three to four
times as many customers to its sales branches than most of its competitors. The
typical branch implements retail merchandising techniques such as the strategic
placement of product groups, innovative product displays and video monitors
showing product demonstration tapes. Frequent in-store promotional events, such
as power tool demo days, product seminars and customer appreciation days, are
examples of a few of the marketing techniques employed by the Company.
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White Cap and its recently acquired companies, Viking Distributing, A-Y
Supply and Stop Supply, publish in-stock catalogs, the most recent editions of
which list over 11,000 of the best selling SKUs maintained in stock. The 1998
edition of the White Cap in-stock catalog will include SKUs not previously
carried by White Cap, many of which were previously carried by the recently
acquired companies. The Company's professionally prepared catalog has over 400
pages creatively displaying the broad array of products carried by the Company.
The combined catalogs are distributed in the branches and by the outside sales
force to approximately 40,000 professional contractors. In addition, the Company
publishes monthly the Contractor Trader which features sale pricing on selected
products as well as tips and articles of interest to the industry. The
Contractor Trader is distributed to over 75,000 professional contractors and
other industry participants. The Company has expanded its distribution of the
Contractor Trader to cover all customers of A-Y Supply, Stop Supply and Viking
Distributing since their acquisition.
Suppliers
White Cap enjoys well established relationships with all of its key
suppliers and has maintained many of these relationships for over 10 years. The
Company is one of the primary distributors for many industry brand names. In
some of the markets that the Company serves, it has exclusive or semi-exclusive
product distribution agreements, which gives it a competitive advantage on
specific product lines. Management believes that outstanding supplier
relationships and White Cap's position in the marketplace allow the Company to
have one of the lowest inventory costs in the industry. Many of the products
carried by the Company are not carried by its competitors, because they cannot
provide technical assistance in the field. In addition, many of White Cap's
products are specified by architects for particular projects because of the
efforts of the Company's professional outside sales force working in conjunction
with the manufacturer's architectural sales representatives. Many of its top
suppliers differentiate the Company as an "industrial distributor" as opposed to
a "DIY retailer." In some instances this gives the Company access to a
manufacturer's "full product line," lower prices and more favorable credit
terms.
The Company purchases from more than 1,200 suppliers, 98% of which are
manufacturers. The fact that no one supplier accounts for more than 10% of its
purchases minimizes the effects of supplier-related product shortages. The
Company carries major brands such as those identified in the following table.
Air Nail Company
American Honda Motor
Company, Inc.
Black and Decker (U.S.), Inc.
Davis Wire Corporation
Dayton Superior Corp.
Diamond Products
Electricord/A Leviton Company
Hitachi Power Tools U.S.A., Ltd.
Itochu Building Products
Company, Inc.
ITW Ramset/Red Head
Knaack Manufacturing Company
L.M. Scofield Company
Makita U.S.A. Inc.
Master Builders Technologies
Milwaukee Electric Tool
Corporation
Motorola Corporation
Multiquip, Inc.
Nicolon/Mirafi Group
Pacific Polymers, Inc.
Pacific Stihl, Inc.
Sika Corporation
Simpson Strong-Tie Company,
Inc.
S-B Power Tool Company
Soff-Cut International
Stanley-Proto Industrial Tools
3M
W.R. Meadows, Inc.
Werner Ladder Company
Weyerhaeuser Company
MANAGEMENT INFORMATION SYSTEMS
The Company has made substantial investments in computer hardware and the
development of computer software applications which it believes allow the
Company to achieve cost savings, deliver superior customer service and centrally
manage its operations. As part of the integration of the White Cap business
model at acquired companies, branches are linked to the Company's central
computer system and are converted to the Company's software applications,
including point-of-sale, order processing, order fulfillment, inventory
management, purchasing and financial reporting. White Cap's software
applications are continually being developed and enhanced. The Company has
recently installed a customized software package that provides order entry,
purchasing, inventory control, accounts receivable, accounts payable and
financial statement reporting. The software also provides a fully integrated
distribution/warehouse management system. The
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<PAGE> 36
Company's new software is specifically designed to track on a real-time basis
the inventory level of each SKU by branch, forecast demand by SKU and calculate
optimum reorder quantities and lead times to maximize fill rates while
minimizing inventory carrying costs.
The Company's inventory management software is designed to minimize the
Company's cost of goods sold by forecasting and analyzing sales history for
every SKU in its inventory. The system can then calculate order quantities and
lead times and determine the lowest cost source of supply. Each and every order
is tracked from data entry to will call or delivery. Utilizing its customer
support software, the Company's customer service representatives are able to
inform customers on a real-time basis of the Company's in-stock position and
recommend an array of substitute products for discontinued or out-of-stock
items. In addition, the Company's system has the ability to accept and
cross-reference the product codes of suppliers and manufacturers, Universal
Product Codes (UPCs) and its own proprietary product codes. The Company is
implementing EDI in order to streamline purchasing, accounts receivable and
accounts payable.
CUSTOMER CREDIT
Approximately 80% of White Cap's sales are on open account, managed by
White Cap's in-house credit department. The Company offers its customers several
credit options including: 2% tenth prox credit terms, job-based credit lines,
revolving private label third party charge accounts and third party equipment
leasing lines. Unlike the large home centers, which do not create a "direct"
receivable from their customers, the Company utilizes its own credit facility to
allow its customers to charge their purchases. Each in-house account is opened
and credit terms are set according to the customer's creditworthiness and
purchasing profile after review by White Cap's credit department. Each account
is put on a real-time monitoring status and assigned an in-house credit manager
who communicates directly with the customer on any credit-related issues. In
addition, most state lien laws allow the Company to file a preliminary lien
notice with the owner of the real property, the lender and the general
contractor that the Company has extended credit for materials used in the
improvement of real property. A properly filed preliminary notice gives the
Company certain legal remedies, including lien rights, which allow it to look
beyond its customer for the recovery of a past due job-based receivable.
Historically, White Cap has experienced a net accounts receivable write-off
rate averaging 0.3% of net sales over the period from January 1992 to March
1997. The Company believes its collection performance can be attributed to: (i)
a credit department with extensive experience in construction credit; (ii) a
real-time customized accounts receivable software package; (iii) thorough
screening of all new accounts; and (iv) the ongoing monitoring and reevaluation
of existing accounts.
COMPETITION
White Cap competes against a broad range of building material dealers,
specialty contractor suppliers, home centers, retail hardware stores and mail
order marketers within the markets it serves. The majority of traditional
contractor suppliers in the Company's markets have only one or two locations.
White Cap competes with several multiple branch operators, all of whom
management believes have lower annual revenues than White Cap. Several specialty
contractor suppliers with revenues greater than the Company also compete in the
Company's markets, including Carlson Corporation, which specializes in
fasteners; Hilti Fastening Systems -- USA, which specializes in fastener systems
and power tools; and Fasteners, Inc., which specializes in tools and fasteners.
The Company believes that it provides a much wider range of products to service
more of the professional contractor's needs than these specialty contractor
suppliers.
The Company believes its focus on medium- and large-sized pro-contractors
distinguishes it from home center chains, whose primary emphasis is on the DIY
consumer market and small maintenance and home improvement contractors. The
Company believes that the services it offers the pro-contractor and the
relationship of its sales force with the professional contractor would be
difficult for home centers to replicate under their current structure which is
oriented more towards the DIY consumer market. However, the Company believes
that home centers are attempting to gain market share among medium-sized
professional contractors, by providing limited delivery services and limited
commercial credit facilities. In addition, the
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<PAGE> 37
Company believes that the largest of such chains have explored, and continue to
explore, competing in the medium and large pro-contractor categories through
in-house contractor sales efforts.
PROPERTIES
The Company's corporate headquarters and main distribution facility are
located in approximately 38,000 square feet of leased space (plus an adjacent
yard area of approximately 70,000 square feet) at 3120 Airway Avenue, Costa
Mesa, California. This facility is strategically located close to key major
freeways and is situated adjacent to Orange County's John Wayne Airport. White
Cap's credit and inventory control departments are operated from a separate
leased office facility in Santa Ana, California.
Approximately 40% of the SKUs stocked by the Company in its branches are
warehoused at its distribution facility in Costa Mesa, California. The Company
is implementing a program to increase drop-shipments by its suppliers directly
to branches and as a result expects the percentage of goods warehoused in the
distribution facility to continue to decline. The Company's fleet of transfer
trucks make scheduled deliveries from its distribution facilities to its 17
California branches. In addition, common carriers are used to resupply the
Company's out-of-state branches.
The Company maintains 20 branch locations in California, Nevada, Arizona,
and Colorado, all of which are leased. The leases for these 20 branches expire
at various periods between 1998 and 2007. The aggregate annual lease payments on
these properties, as of July 1997 was approximately $2,200,000. The Company also
owns a 7,500 square foot warehouse facility adjacent to its Las Vegas branch.
The Company believes that its facilities are adequate for its current needs and
that suitable additional space will be available as needed to facilitate the
Company's growth strategy. The following sets forth information concerning the
Company's operating facilities.
<TABLE>
<CAPTION>
BUILDING SQUARE YARD SQUARE
BRANCH LOCATION FOOTAGE FOOTAGE TOTAL
- ------------------------------------------------------- --------------- ----------- -------
<S> <C> <C> <C>
Chatsworth, CA......................................... 20,020 41,230 61,250
San Diego, CA.......................................... 16,261 41,951 58,212
Santa Ana, CA.......................................... 27,504 31,536 59,040
Paramount, CA.......................................... 22,320 21,710 44,030
Sacramento, CA......................................... 23,200 19,680 42,880
Ventura, CA............................................ 13,158 22,370 35,528
Riverside, CA.......................................... 17,670 17,925 35,595
San Juan, CA........................................... 14,970 17,362 32,332
Fresno, CA............................................. 21,040 6,390 27,430
Thousand Palms, CA..................................... 7,840 15,316 23,156
Temecula, CA........................................... 9,430 13,650 23,080
Stockton, CA........................................... 10,500 8,925 19,425
San Leandro, CA........................................ 13,452 6,629 20,081
Santa Rosa, CA......................................... 11,100 630 11,730
San Francisco, CA...................................... 52,000 20,000 72,000
Dublin, CA............................................. 10,000 0 10,000
San Jose, CA........................................... 9,800 3,000 12,800
Phoenix, AZ............................................ 13,230 24,400 37,630
Denver, CO............................................. 9,676 10,076 19,752
Las Vegas, NV.......................................... 10,505 21,095 31,600
------- ------- -------
Total........................................ 333,676 343,875 677,551
======= ======= =======
</TABLE>
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<PAGE> 38
EMPLOYEES
As of July 31, 1997, White Cap had approximately 640 employees, consisting
of approximately 106 at its Costa Mesa, California headquarters and 534 at its
branch locations. White Cap's sales force consists of 178 sales professionals.
The Company considers its relations with its employees to be satisfactory.
LITIGATION
The Company is from time to time a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial condition or results of
operations of the Company.
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<PAGE> 39
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The directors, executive officers and key employees of the Company and
their respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- -----------------------------------------------------------------
<S> <C> <C>
Greg Grosch 50 Chairman of the Board of Directors, Chief Executive Officer and
President
Richard Gagnon 44 Senior Vice President and National Sales Manager
Dan Tsujioka 48 Executive Vice President -- Merchandising, Secretary and Director
Chris Lane 36 Chief Financial Officer and Director
Jack Karg 48 Vice President and Chief Operations Officer
Brian Etter 32 Vice President and Treasurer
Gary Zwilling 50 Director of Credit
Charles Gruden 48 Director of Human Resources
Michael Monroe 48 Regional Vice President Sales
Albert Malatesta 57 Regional Vice President Branch Operations
Mark King 37 Director
James Johnson 59 Director
Charles Hamilton 49 Director
</TABLE>
Mr. Grosch is Chairman, Chief Executive Officer and President of the
Company and has nearly 25 years experience in retailing. In 1976, Mr. Grosch
formed White Cap Industries, Inc. and since then has directed and been directly
involved in all aspects of the business and implementation of the Company's
growth strategy. Prior to joining the Company, Mr. Grosch held sales and
marketing positions with a major regional grocery chain and a national oil
company. Mr. Grosch holds a Bachelor's Degree in marketing from California State
University -- Northridge.
Mr. Tsujioka joined the Company in November 1996 as Executive Vice
President and was elected Director in February 1997. In July 1997, Mr. Tsujioka
was appointed Executive Vice President -- Merchandising, with responsibility for
Company-wide merchandising. Mr. Tsujioka was a member of the original founding
group and the first general manager of Home Depot, Inc., where he started the
first prototype warehouse for Home Improvement Supplies (the predecessor to Home
Depot). Mr. Tsujioka was with Home Depot and its predecessors from 1980 to 1989.
From 1994 to 1995, Mr. Tsujioka served as Vice President of Special Projects for
Home Depot training store managers and district managers in a "back to basics"
training program. From 1995 to 1996, Mr. Tsujioka was Vice President of
Merchandising for Home Depot. From 1989 to 1993, Mr. Tsujioka was retired.
Mr. Gagnon joined the Company in 1979. Since 1985, he has been Senior Vice
President and National Sales Manager of the Company overseeing the Company's
sales force. Mr. Gagnon has over twenty years experience in the contractor
supplier industry and also holds a California contractor's license.
Mr. Lane has been a special consultant to the Company since 1995 and was
appointed Chief Financial Officer of the Company in April 1997. Mr. Lane was
elected as a Director of the Company in February 1997. From 1992 to 1997, Mr.
Lane performed merger and acquisition and litigation support services as a
partner with the Orange County, California accounting firm of Kieckhafer, Lane &
Schiffer LLP. From 1986 to 1992, Mr. Lane was with Arthur Andersen LLP. He was
an Audit Manager when he left the firm in 1992. In June 1997, Mr. Lane also
entered into an agreement with KRG Capital agreeing to act as a Director of KRG
Capital.
Mr. Karg joined the Company in 1995 as Chief Operations Officer. From 1979
to 1995, Mr. Karg was employed at Audiovox Corporation, where he progressed from
Credit Manager handling thirteen western states to Assistant Vice President of
West Coast Operations to Vice President of Western Operations in 1988.
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<PAGE> 40
As Vice President of Western Operations, Mr. Karg was responsible for all
aspects of operations of Audiovox's automotive and cellular businesses.
Mr. Etter joined the Company in July 1997 as Vice President and Treasurer.
From 1992 to 1997, Mr. Etter was employed with Apria Healthcare Group ("Apria"),
where he progressed from Finance Manager to Director of Operational Finance in
1994. As Director of Operational Finance, Mr. Etter was responsible for the
financial management and analysis of over 350 branches and five divisions. At
Apria, Mr. Etter actively participated in the planning and integration of over
35 acquisitions and in the merger of the two largest competitors in the home
healthcare industry. From 1989 to 1992, Mr. Etter was with Arthur Andersen &
Company. He was an Audit Senior in the Enterprise Group when he left the firm in
1992.
Mr. Zwilling joined the Company in August of 1985 and serves as Director of
Credit. Previously, he spent three years with Knox Industrial Supply as credit
manager and six years with Orco Construction Supply as credit manager and
controller.
Mr. Gruden joined the Company in April 1997 and serves as Director of Human
Resources. Previously, Mr. Gruden spent seven and half years at IKEA as an Area
Human Resource Manager and was responsible for over 1,000 employees in IKEA's
Western region.
Mr. Monroe joined the Company in June 1997 as Regional Vice President
Sales. From 1982 to June 1997 he was the President and an owner of Viking
Distributing. From 1977 to 1982, Mr. Monroe was an Outside Sales Representative
for Viking Distributing Supply Company.
Mr. Malatesta joined the Company in June 1997 as Regional Vice President
Branch Operations. From 1982 to June 1997, he was the Vice President, Operations
Manager, and an owner of Viking Distributing. Previously, Mr. Malatesta spent
twenty-six years at R&H Wholesale Hardware where he progressed to General
Manager.
Mr. King has been a director of the Company since February 1997. Mr. King
is the founder and Managing Director of KRG Capital. Mr. King has 14 years
experience as a senior executive, an investment banker and the lead principal in
the completion of 15 strategic acquisitions involving middle market companies.
From September 1994 to January 1996, Mr. King served as Vice President of LM
Capital Corporation, a registered investment advisor specializing in private and
public equity investments and strategic acquisitions. From 1988 to 1992, Mr.
King was the Co-Founder, President and Vice Chairman of Industrial Services
Technologies, Inc. ("IST"), a provider of maintenance services to the refinery,
fertilizer and chemicals industries and from 1992 to the present, he has served
as Vice Chairman of IST. Mr. King serves as a director of various private
companies.
Mr. Johnson has been a director of the Company since February 1997. Mr.
Johnson is the co-founder of and has been a Managing General Partner of Apex
Investment Partners, a Chicago based manager of investment funds, since 1988.
Prior to founding Apex, from 1986 to 1988, Mr. Johnson was the co-founder and
general partner of Knightsbridge Partners, an investment banking firm. From 1974
to 1986, Mr. Johnson served in various positions, including Senior Vice
President, with Beatrice Companies. From 1965 to 1974, Mr. Johnson held various
positions, including Senior Manager, with KPMG Peat Marwick. Mr. Johnson serves
as a director of various private companies.
Mr. Hamilton has been a director of the Company since February 1997. Mr.
Hamilton has over 26 years of investment experience in the fields of securities
analysis, corporate finance and venture capital. He is currently a principal in
the private equity group at Robertson, Stephens & Company, where he has also
served as a managing director since 1981. Mr. Hamilton has served as a director
of numerous venture-financed companies in recent years and he is presently on
the board of eight private companies.
At present all directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal.
There are no family relationships between any of the Directors or executive
officers of the Company. Following the consummation of the Offering each
director shall serve until the following annual meeting when a successor is duly
elected and qualified or until his or her earlier death, resignation or removal.
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<PAGE> 41
In addition, following the consummation of the Offering, the Company
intends to appoint at least two additional outside directors.
COMMITTEES OF THE BOARD
The Board of Directors has established an Audit Committee and a
Compensation Committee. The initial members of the Audit Committee are Messrs.
King, Johnson and Hamilton. The Audit Committee oversees actions taken by the
Company's independent auditors, recommends the engagement of auditors and
reviews the Company's internal accounting policies and practices. The initial
members of the Compensation Committee are Messrs. King, Johnson and Hamilton.
The Compensation Committee approves the compensation of executives of the
Company, makes recommendations to the Board of Directors with respect to
standards for setting compensation levels and administers the Company's
incentive plans. The Company expects that the two outside directors appointed
following the Offering will join the Audit and Compensation Committees.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth the cash compensation of the Chief Executive
Officer and the three other most highly compensated executive officers of the
Company for the year ended March 31, 1997. No other person who served as an
executive officer of the Company during the fiscal year ended March 31, 1997
received compensation which exceeded $100,000 for such year.
<TABLE>
<CAPTION>
CASH COMPENSATION(A)
--------------------- ALL OTHER
OFFICERS CAPACITIES IN WHICH SERVED SALARY BONUS(B) COMPENSATION(C)
- --------------- ---------------------------------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Greg Grosch Chairman, President and Chief $408,763 $ -- $33,419
Executive Officer
Richard Gagnon Senior Vice President and National 190,649 121,507 5,218
Sales Manager
Gary Joslin Treasurer(d) 157,500 2,000 --
Jack Karg Vice President and Chief 97,731 30,000 --
Operations Officer
</TABLE>
- ---------------
(a) Amounts shown include compensation for services rendered in all capacities
to White Cap during the year ended March 31, 1997.
(b) Includes all cash bonuses earned during year ended March 31, 1997 and paid
during the year ended March 31, 1997 or subsequent thereto. Also includes
all cash bonuses paid during year ended March 31, 1997 for services rendered
during the year ended March 31, 1996.
(c) Amounts shown include the Company's contribution to the named individuals'
401(k) plan, life insurance and additional disability and unemployment
policies.
(d) Mr. Joslin also served as the Company's Chief Financial Officer during the
fiscal year ended March 31, 1997. Mr. Joslin resigned from his position with
the Company in July 1997.
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<PAGE> 42
STOCK OPTION GRANTS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following discloses options granted during the year ended March 31,
1997 for the executives named in the compensation table above.
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed Annual
---------------------------------------------------------------- Rates of Stock Price
NUMBER OF % of Total Appreciation
SECURITIES Options/SARs for Option Term(d)(e)
UNDERLYING Granted to ------------------------------
OPTIONS/SARS Employees in Exercise of Expiration 5% Annual 10% Annual
NAME GRANTED(#)(a)(b) Fiscal Year(%) Base Price($) Date(c) Growth Rate($) Growth Rate($)
- -------------------- ---------------- --------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Greg Grosch -- -- -- -- -- --
Richard Gagnon -- -- -- -- -- --
Gary Joslin -- -- -- -- -- --
Jack Karg 24,795 3.8% $2.48 March 31, 2007 $ 38,693 $ 97,654
</TABLE>
- ---------------
(a) All of such options were granted under the Existing Plan (as defined).
(b) The options vest in equal installments over a five-year period.
(c) The options granted are subject to earlier termination and repurchase upon
the occurrence of certain events related to termination of employment.
(d) The dollar amounts in these columns represent potential value that might be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming that the market price of the Common Stock appreciates
in value from the date of the grant at the 5% and 10% annual rates
prescribed by regulation, and therefore are not intended to forecast
possible future appreciation, if any, of the price of the Common Stock.
(e) In calculating the potential realizable value, the Company used an estimated
market price of $2.48 per share as of the grant date.
COMPENSATION OF DIRECTORS
Member of the Company's Board of Directors serve without cash compensation.
Upon completion of the Offering, directors will be eligible for incentive awards
under the Incentive Plan (as defined). See "-- Equity Incentive Plan."
EMPLOYMENT AGREEMENTS
Grosch Employment Agreement. In November 1996, the Company and Mr. Grosch
entered into an employment agreement (the "Grosch Employment Agreement")
providing for Mr. Grosch's employment as Chairman, President and Chief Executive
Officer. The initial employment period expires November 2001 and will
automatically extend for successive one year periods thereafter unless the
Company or Mr. Grosch gives notice of intent not to renew.
The Grosch Employment Agreement provides for an initial base salary of
$300,000 plus (i) an annual incentive bonus based upon the Company's operating
performance and (ii) specified cost of living increases. In addition, the
Company has taken out a key man life insurance policy on Mr. Grosch's life
payable to the Company but assigned to the Company's lenders.
Upon termination by Mr. Grosch for good reason or termination by the
Company without cause, Mr. Grosch would be entitled to receive his base salary
during the period that is the lesser of (i) three years or (ii) the remainder of
the term, plus a supplemental severance payment. The Grosch Employment Agreement
also provides that the Company may terminate Mr. Grosch for cause, and Mr.
Grosch would be entitled to
41
<PAGE> 43
receive his base salary during the period that is the lesser of (i) two years or
(ii) the remainder of the term, plus a maximum supplemental severance payment of
$375,000. The Grosch Employment Agreement includes a confidentiality provision
and a non-solicitation provision.
Gagnon Employment Agreement. In February 1997, the Company and Mr. Gagnon
entered into an employment agreement (the "Gagnon Employment Agreement")
providing for Mr. Gagnon's employment as Senior Vice President and National
Sales Manager of the Company. The initial employment period expires February
2002 and shall automatically extend for successive one year periods thereafter
unless the Company or Mr. Gagnon gives notice of intent not to renew.
The Gagnon Employment Agreement provides for an initial base salary of
$200,000 plus (i) an annual fixed bonus of $100,000 based on the Company's
operating performance, (ii) an annual variable incentive bonus based upon the
Company's operating performance, (iii) specified cost of living increases and
(iv) an additional incentive bonus of $1,000,000, payable after three years. The
Company has accelerated the additional incentive bonus as of September 16, 1997.
Upon termination by Mr. Gagnon for good reason or termination by the
Company without cause, Mr. Gagnon would be entitled to receive (i) his base
salary during the period that is the lesser of twelve months or the remainder of
the term, and (ii) a prorated portion of any fixed or variable bonus earned
through the date of termination. The Gagnon Employment Agreement also provides
that if the Company terminates Mr. Gagnon for cause or if Mr. Gagnon employment
terminates as a result of voluntary resignation, he would be entitled to receive
his base salary only through the date of termination.
The Gagnon Employment Agreement also includes a confidentiality provision,
a non-solicitation provision, and a nondisclosure and invention and copyright
assignment agreement.
1997 INCENTIVE AND STOCK OPTION PLAN
In 1997, the Company adopted the 1997 Long Term Incentive and Stock Option
Plan of White Cap Industries, Inc. (the "Existing Plan") designed to provide
incentives to present and future executive, managerial, marketing, technical,
other key employees, and consultants and advisors of the Company and its
subsidiaries as may be selected in the sole discretion of the Company's Board of
Directors. The Existing Plan provided for aggregate option grants of up to
660,848 shares. As of June 30, 1997, options to purchase an aggregate of 647,273
shares of Common Stock at an exercise price of $2.48 per share were outstanding
under the Existing Plan. No additional grants shall be made under the Existing
Plan after the consummation of the Offering.
EQUITY INCENTIVE PLAN
In connection with the Offering, the Company has adopted the 1997 Long-Term
Equity Incentive Plan (the "Incentive Plan") designed to update and replace the
Existing Plan.
The Incentive Plan provides for the granting to directors, employees and
other key individuals who perform services for the Company and its subsidiaries
("Participants") of the following types of incentive awards: stock options,
stock appreciation rights ("SARs"), restricted stock, performance units,
performance grants and other types of awards that the Compensation Committee of
the Board (the "Committee") deems to be consistent with the purposes of the
Incentive Plan. An aggregate of 500,000 shares of Common Stock have been
reserved for issuance under the Incentive Plan. The Incentive Plan affords the
Company latitude in tailoring incentive compensation for the retention of key
personnel, to support corporate and business objectives, and to anticipate and
respond to a changing business environment and competitive compensation
practices.
The Committee will have exclusive discretion to select the Participants and
to determine the type, size and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all other
determinations which it deems necessary or desirable in the interpretation and
administration of the Incentive Plan. The Incentive Plan is scheduled to
terminate ten years from the date that
42
<PAGE> 44
the Incentive Plan was initially approved and adopted by the stockholders of the
Company, unless extended for up to an additional five years by action of the
Board of Directors. With limited exceptions, including termination of employment
as a result of death, disability or retirement, or except as otherwise
determined by the Committee, rights to these forms of contingent compensation
are forfeited if a recipient's employment or performance of services terminates
within a specified period following the award. Generally, a Participant's rights
and interest under the Incentive Plan will not be transferable except by will or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order.
Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock at
a price fixed by the Committee. The option price may be less than, equal to or
greater than the fair market value of the underlying shares of Common Stock, but
in no event shall the exercise price of an incentive stock option be less than
the fair market value on the date of grant. Options generally will expire not
later than ten years after the date on which they are granted. Options will
become exercisable at such times and in such installments as the Committee shall
determine. Payment of the option price must be made in full at the time of
exercise in such form (including, but not limited to, cash or Common Stock of
the Company) as the Committee may determine.
An SAR may be granted alone, or in tandem with options, either at the time
of grant of the related option or by amendment thereafter to an outstanding
option. SARs granted in tandem with options shall be exercisable only when, to
the extent and on the condition that any related option is exercisable. The
exercise of an option shall result in an immediate forfeiture of any related SAR
to the extent the option is exercised, and the exercise of an SAR shall cause an
immediate forfeiture of any related option to the extent the SAR is exercised.
Upon the exercise of an SAR, the Participant shall be entitled to a
distribution in an amount equal to the difference between the fair market value
of a share of Common Stock on the date of exercise and the exercise price of the
SAR or, in the case of SARs granted in tandem with options, any option to which
the SAR is related, multiplied by the number of shares of Common Stock as to
which the SAR is exercised. The Committee shall decide whether such distribution
shall be in cash, in shares of Common Stock having a fair market value equal to
such amount, in other securities having a fair market value equal to such amount
or in a combination thereof.
A restricted stock award is an award of a given number of shares of Common
Stock which are subject to a restriction against transfer and to a risk of
forfeiture during a period set by the Committee. During the restriction period,
the Participant generally has the right to vote and receive dividends on the
shares. Dividends received while under restriction are treated as compensation.
Performance awards are those whose final value, if any, is determined by
the degree to which specified performance objectives have been achieved during
an award period set by the Committee, subject to such adjustments as the
Committee may approve based on relevant factors. Performance objectives are
based on such measures of performance, including, without limitation, measures
of Company, unit or Participant performance, or any combination of the
foregoing, as the Committee may determine. The Committee may make such
adjustments in the computation of any performance measure as it deems
appropriate. The Committee shall determine the portion of each performance award
that is earned by a participant on the basis of the Company's performance over
the performance cycle in relation to the performance goals for such cycle. The
earned portion of a performance award may be paid out in shares of Common Stock,
cash, other securities of the Company, or any combination thereof, as the
Committee may determine.
Upon the liquidation or dissolution of the Company all outstanding awards
under the Incentive Plan shall terminate immediately prior to the consummation
of such liquidation or dissolution, unless otherwise provided by the Committee.
In the event of a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, distribution of assets, or any
other change in the corporate structure or shares of the Company, the Committee
shall make such adjustment as it deems appropriate in the number and kind of
shares or other property reserved for issuance under the Incentive Plan, in the
number and kind of shares or other property covered by grants previously made
under the Incentive Plan, and in the exercise price of outstanding options and
SARs. In the event of any merger, consolidation or other reorganization in which
the
43
<PAGE> 45
Company is not the surviving or continuing corporation or in which a change in
control is to occur, all of the Company's obligations regarding options, SARs
performance awards, and restricted stock that were granted hereunder and that
are outstanding on the date of such event shall, on such terms as may be
approved by the Committee prior to such event, be assumed by the surviving or
continuing corporation or canceled in exchange for property (including cash).
Certain Federal Tax Consequences under the Incentive Plan. The following
discussion addresses certain federal income tax consequences under current law
to recipients of awards made under the Incentive Plan. The following discussion
is intended only as a general summary of the federal income tax consequences
arising under the Incentive Plan based upon the Internal Revenue Code (the
"Code") as currently in effect. Because federal income tax consequences will
vary as a result of individual circumstances, each Participant should consult
his tax advisor with respect to the tax consequences of such participation.
Moreover, the following summary relates only to a Participants' federal income
tax treatment, and the state, local and foreign tax consequences may be
substantially different.
A Participant to whom a nonqualified stock option is granted will not
recognize any income at the time of the grant. When a Participant exercises a
nonqualified stock option, he generally will recognize ordinary compensation
income equal to the difference, if any, between the fair market value of the
Common Stock he receives at such time and the option's exercise price. The
Participant's tax basis in such shares will be equal to the exercise price paid
plus the amount includable in his gross income as compensation, and his holding
period for such shares will begin on the day on which he recognizes taxable
income in respect of such shares.
A Participant to whom an incentive stock option is granted will not
recognize any ordinary income at the time of grant or at the time of exercise.
However, upon the exercise of an incentive stock option, the Participant
generally will be required to include the excess of fair market value of the
Common Stock over the option's exercise price in his alternative minimum taxable
income and, as a result, he may be subject to an alternative minimum tax
("AMT"). In order to obtain incentive stock option treatment for federal income
tax purposes, a Participant (i) must be an employee of the Company or a
subsidiary continuously from the date of grant until any termination of
employment and (ii) in the event of such a termination, must exercise an
incentive stock option within three months after such termination, except if
disabled, in which case exercise may occur within one year from the date of
termination of employment. If a Participant holds Common Stock received upon the
exercise of an incentive stock option for more than one year after exercise and
more than two years after the option was granted (the "Statutory Holding
Periods"), then upon a sale of such Common Stock he will recognize long-term
capital gain or loss equal to the difference, if any, between the sale price of
such shares and the option's exercise price. If the Participant has not held
such shares for the Statutory Holding Periods, when he sells such shares (a
"disqualifying disposition") he will recognize ordinary compensation income
equal to the lesser of (i) the excess, if any, of the fair market value of such
shares on the date of exercise over the exercise price or (ii) the excess, if
any, of the sale price over the exercise price. Any additional gain or any loss
on such sale will constitute capital gain or loss, short- or long-term depending
upon whether the Participant has held the Common Stock for more than one year
after the exercise date. The tax basis of such shares to the Participant, for
purposes of computing such other gain or loss, will be equal to the exercise
price paid plus the amount includable in his gross income as compensation, if
any.
A participant will not recognize any taxable income as a result of the
inclusion of SARs in a nonqualified stock option or an incentive stock option.
At the time of exercise, a Participant generally will recognize ordinary
compensation income in an amount equal to the cash and the fair market value of
the Common Stock he receives to satisfy his SARs. The Participant's tax basis in
any such shares received pursuant to a SAR will be equal to the amount
includable in his gross income as compensation in respect of such shares, and
the Participant's holding period therefor will begin on the day on which he
recognizes taxable income in respect of such shares.
With respect to restricted stock awards, unless he files a timely election
with the Internal Revenue Service under Section 83(b) of the Code (a "Section
83(b) election"), a Participant who receives Common Stock pursuant to a
restricted stock award will not recognize any taxable income upon the receipt of
such award, but will recognize taxable compensation income at the time his
interest in such shares is no longer
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<PAGE> 46
subject to the repurchase option imposed by the Plan in an amount equal to the
fair market value of such shares at such time. Alternatively, by filing a
Section 83(b) election within 30 days after the shares are granted, the
Participant may elect to recognize ordinary income equal to the fair market
value of the shares on the grant date. In either event, the Participant's tax
basis in such shares will be equal to the amount includable in his gross income
as compensation, and his holding period for such shares will begin on the date
his compensation income is determined. If a Participant does not make a Section
83(b) election, dividends paid on restricted stock awards will be includable in
his income as compensation when received.
A Participant to whom a performance grant award is made will not recognize
taxable income at the time such award is made. Such Participant generally will
recognize taxable income, however, at the time cash, Common Stock or other
Company securities or property are paid to him pursuant to such award in an
amount equal to the amount of such cash and the fair market value at such time
of such shares, securities or property. The tax basis of any such shares,
securities or property received by a Participant pursuant to a performance grant
award will be equal to the amount includable in his gross income as compensation
in respect of such shares, securities or property, and the holding period
therefor will begin on the day on which he recognizes taxable income in respect
of such shares, securities or property. Any income equivalents paid to a
Participant with respect to his performance grant award should generally be
regarded as compensation.
If a Participant who receives Common Stock under the Incentive Plan
(whether pursuant to the exercise of an option, as a restricted stock award, or
as a performance grant award) is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (such recipient, an
"Insider"), the tax consequences may be different from those described above.
Generally, an Insider will not recognize income (or, in the case of the exercise
of an incentive stock option, alternative minimum taxable income) on receipt of
Common Stock. However, by filing a Section 83(b) election with the Internal
Revenue Service no later than 30 days after the date of transfer of property
(e.g., after exercise of a nonqualified stock option that was granted within six
months of such exercise), an Insider may elect to be taxed based upon the fair
market value of the Common Stock at the time of such transfer.
Subject to certain limitations described in the next paragraph, the company
for which a Participant is performing services generally will be allowed to
deduct amounts that are includable in the Participant's income as ordinary
compensation income at the time such amounts are so includable, provided that
such amounts qualify as reasonable compensation for personal services actually
rendered.
With limited exceptions, the Company may not deduct certain compensation
paid to its chief executive officer or any of its four other highest paid
executives to the extent such compensation exceeds $1 million in any taxable
year. Depending on the circumstances, some or all of the compensation paid to
such an executive under the Incentive Plan may be nondeductible.
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<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The table and footnotes below sets forth certain information regarding
beneficial ownership of the Common Stock as of September 15, 1997, assuming
exercise of options exercisable with 60 days of the date hereof, by (i) each
person or entity who owns of record or beneficially 5% or more of the Common
Stock, (ii) each director of the Company, (iii) the Chief Executive Officer and
each other executive officer quoted in the Summary Compensation Table and (iv)
all officers and directors of the Company as a group. To the knowledge of the
Company, each of such stockholders has sole voting and investment power as to
the shares shown unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OF COMMON STOCK PERCENTAGE OF SHARES OF
NUMBER OF BENEFICIALLY OWNED COMMON STOCK BENEFICIALLY
SHARES OF PRIOR TO THE OWNED AFTER THE
NAME COMMON STOCK OFFERING(i)(j) OFFERING(i)(j)
- ----------------------------- ------------ -------------------- -------------------------
<S> <C> <C> <C>
Greg Grosch.................. 2,699,690(a) 42.9% 26.2%
Dan Tsujioka................. 178,447(b) 2.8 1.7
Chris Lane................... 157,761(c) 2.5 1.5
Richard Gagnon............... 174,000(d) 2.8 1.7
Gary Joslin.................. -- -- --
Jack Karg.................... 4,959(e) * *
Mark M. King................. 1,727,273(f)(j) 27.4 16.8
James A. Johnson............. 843,302(g)(j) 13.4 8.2
Charles A. Hamilton.......... 221,921(h)(j) 3.5 2.2
Apex Investment Fund III,
L.P. and affiliate......... 843,302(g)(j) 13.4 8.2
KRG Capital Partners, LLC.... 1,727,273(f)(j) 27.4 16.8
All Officers and Directors as
a Group (9 Persons)........ 6,007,353(f)(g)(h) 95.5 58.4
</TABLE>
- ---------------
* Indicates less than one percent.
(a) Includes 269,967 shares held by trusts for the benefit of Mr. Grosch's
children.
(b) Includes 8,874 shares held by trusts for the benefit of Mr. Tsujioka's
children and options to acquire 7,603 shares which become exercisable on
September 30, 1997.
(c) Includes 91,534 shares of restricted stock which vest over a three year
period. Includes 21,250 shares held by Mr. Lane's wife.
(d) All of the shares held by Mr. Gagnon were purchased from Mr. Grosch
effective February 25, 1997 but 139,200 of such shares remain subject to
repurchase by Mr. Grosch in the event Mr. Gagnon leaves the Company prior to
February 25, 2001. Twenty-five percent of the remaining 139,200 shares vest
each year commencing February 25, 1998 and vested shares are no longer
subject to the repurchase right of Mr. Grosch.
(e) Includes options to acquire 4,959 shares which become exercisable on
September 30, 1997.
(f) Includes 1,727,273 shares held by members of KRG Capital Investments II,
LLC, an investment limited liability company ("KRG II") of which KRG Capital
is the manager. The managing directors of KRG Capital are Mark M. King,
Bruce L. Rogers and Charles R. Gwirtsman. All the shares held by members of
KRG II are subject to a voting agreement providing KRG Capital the right to
vote all of such shares. Mr. King is a Managing Director and the founder of
KRG Capital and as a result may be deemed to share beneficial ownership of
all such shares covered by the voting agreement. Mr. King disclaims
beneficial ownership of all shares covered by the voting agreement, other
than 339,323 shares held directly by Mr. King, his wife, and a trust formed
for the benefit of their children.
(g) Includes 790,375 shares issuable upon exercise of warrants held by Apex
Investment Fund III, L.P. and 52,927 shares issuable upon exercise of
warrants held by Apex Strategic Partners LLC. Mr. Johnson is the President
of Stellar Investment Co., a managing member of Apex Management III, LLC,
which is
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<PAGE> 48
the sole general partner of Apex Investment Fund III, L.P. and the Manager
of Apex Strategic Partners, LLC. As a result, Mr. Johnson may be deemed to
share beneficial ownership of such shares, although he disclaims such
beneficial ownership.
(h) Includes 221,921 shares held by Bayview Investors, L.P. Mr. Hamilton is a
managing director of BancAmerica Robertson Stephens, the general partner of
Bayview Investors, Ltd.
(i) Total outstanding shares include the following: (i) 39,215 shares issuable
to the former shareholders of A-Y Supply upon conversion of a subordinated
convertible promissory note (determined by dividing $500,000 by 75% of the
midpoint of the range of the initial public offering price per share); (ii)
19,607 shares issuable to the former owners of Stop Supply upon exercise of
a warrant (determined by dividing $250,000 by 75% of the midpoint of the
range of the initial public offering price per share); (iii) 1,176,184
shares issuable upon exercise of warrants held by Apex, Bayview and
Argentum; and (iv) 129,454 shares issuable upon exercise of currently vested
stock options granted to employees of the Company. Does not include 104,400
shares issuable upon conversion of Series B Preferred Stock held by the
former owners of Viking Distributing which are subject to a repurchase right
by the Company if certain performance targets are not achieved for the
Northern California operations of the Company.
(j) Shares and percentages are calculated without giving effect to the
Underwriters' over-allotment option. Assuming the Underwriters'
over-allotment option is exercised, up to 255,000 shares (42.5% of the over-
allotment shares) will be sold by certain stockholders of the Company. In
such event, the percentage of total shares beneficially owned by Apex,
Bayview, Argentum and KRG Capital will be 6.9%, 1.8%, .9% and 15.3%,
respectively.
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<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The total amount of authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, par value $0.01 per share, and 1,000,000
shares of preferred stock, par value $1.00 per share (the "Preferred Stock").
Upon completion of the Offering, 10,294,028 shares of Common Stock will be
issued and outstanding, and no shares of Preferred Stock will be outstanding
other than 60,000 shares of Series B Preferred Stock described below. The
discussion herein describes the Company's capital stock, the Certificate of
Incorporation and Bylaws as anticipated to be in effect upon consummation of the
Offering. The following summary of certain provisions of the Company's capital
stock describes all material provisions of, but does not purport to be complete
and is subject to, and qualified in its entirety by, the Certificate of
Incorporation and the Bylaws of the Company that are included as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.
COMMON STOCK
As of September 15, 1997, there were 6,105,752 shares of Common Stock
outstanding held by 80 holders of record. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. The issued and outstanding shares of Common Stock are,
and the shares of Common Stock being offered will be upon payment therefor,
validly issued, fully paid and nonassessable. Subject to the prior rights of the
holders of any Preferred Stock and restrictions contained in the Credit
Agreement, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the Board may from time to time determine. See "Dividend
Policy."
Following consummation of the Offering, the shares of Common Stock will not
be redeemable or convertible, and the holders thereof will have no preemptive or
subscription rights to purchase any securities of the Company and no rights to
convert their Common Stock into any other securities. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive pro rata the assets of the Company which are legally
available for distribution, after payment of all debts and other liabilities and
subject to the prior rights of any holders of Preferred Stock then outstanding.
Application has been made for the approval for quotation of the Common
Stock on Nasdaq under the symbol "WHCP."
PREFERRED STOCK
The Board may, without further action by the Company's stockholders, from
time to time, direct the issuance of additional shares of Preferred Stock in
series and may, at the time of issuance, determine the rights, preferences and
limitations of each series. If so designated by the Board, a series of Preferred
Stock may be subject to redemption for cash, property or rights under
circumstances, and subject to conditions, as may be designated by the Board.
Satisfaction of any dividend preferences of outstanding shares of Preferred
Stock would reduce the amount of funds available for the payment of dividends on
shares of Common Stock. Holders of shares of Preferred Stock may be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding-up of the Company before any payment is made to the holders of shares of
Common Stock. Under certain circumstances, the issuance of shares of Preferred
Stock may render more difficult or tend to discourage a merger, tender offer or
proxy contest, the assumption of control by a holder of a large block of the
Company's securities or the removal of incumbent management. The Board, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the holders of shares of Common
Stock. Upon consummation of the Offering, there will be no shares of Preferred
Stock outstanding.
In connection with the acquisition of Viking Distributing, the Company
issued 60,000 shares of Series B Convertible Preferred Stock to the former
owners of Viking Distributing. The Series B Preferred Stock is nonvoting, has a
liquidation preference of $0.10 per share and is convertible into 104,400 shares
of Common
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<PAGE> 50
Stock following the expiration of the redemption period described below. The
Series B Preferred Stock is subject to mandatory redemption at its liquidation
value if certain three year compounded growth rates are not achieved for the
Company's Northern California operations.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the By-laws provide that, except as otherwise required by law,
special meetings of the stockholders can only be called pursuant to a resolution
adopted by a majority of the Board of Directors or by the chief executive
officer of the Company. Stockholders will not be permitted to call a special
meeting or to require the Board to call a special meeting.
The Restated Certificate of Incorporation contains a "fair price" provision
pursuant to which any Business Combination (as defined therein) involving an
interested stockholder and the Company or any subsidiary would require approval
by the affirmative vote of the holders of at least 66 2/3% of the shares of
voting stock of the Company. The fair price provision of the Restated
Certificate of Incorporation provides that 66 2/3% stockholder vote is not
required if the Business Combination is approved by 70% of the continuing
directors or if certain procedures and price requirements are satisfied.
Instead, the vote, if any, required by applicable Delaware law or by any other
provision of the Restated Certificate of Incorporation would be necessary.
The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company, including
proposed nominations of persons for election to the Board. Stockholders at an
annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
Board or by a stockholder who was a stockholder of record on the record date for
the meeting, who is entitled to vote at the meeting and who has given to the
Company's Secretary timely written notice, in proper form, of the stockholder's
intention to bring that business before the meeting. Although the By-laws do not
give the Board the power to approve or disapprove stockholder nominations of
candidates or proposals regarding other business to be conducted at a special or
annual meeting, the By-laws may have the effect of precluding the conduct of
certain business at a meeting if the proper procedures are not followed or may
discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.
The Company's By-Laws provide that the number of Directors of the Company
will be fixed from time to time exclusively by the Board of Directors. The
By-Laws provide that any action required or permitted to be taken at any annual
or special meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the actions so
taken, is executed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
SECTION 203 OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly-held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) the transaction
is approved by the Board of Directors prior to the date the interested
stockholder obtained such status, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) on
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<PAGE> 51
or subsequent to such date the "business combination" is approved by the board
of directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the "interested stockholder." A "business combination" is
defined to include mergers, asset sales and other transactions resulting in
financial benefit to a stockholder. In general, an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
the Amended and Restated Certificate of Incorporation provides that the Company
shall indemnify directors and officers of the Company to the fullest extent
permitted by such law.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Company's Common Stock is American
Stock Transfer & Trust Company.
DESCRIPTION OF CERTAIN INDEBTEDNESS
Upon consummation of the Offering, the Company expects to terminate its
existing credit agreement and enter into a Credit Agreement (the "Credit
Agreement") with Bank of America National Trust and Savings Association will and
other institutions party thereto (the "Banks"), pursuant to which the Company
will have available borrowings of up to $100 million. Loans under the Credit
Agreement consist of $75 million in aggregate principal amount of delayed draw
term loans to be used for acquisitions (the "Term Loans") and a $25 million
revolving credit facility (the "Revolving Credit Facility"), which will permit
the Company to finance working capital, future acquisitions, letters of credit
and other general corporate needs. This information relating to the Credit
Agreement is qualified in its entirety by reference to the complete text of the
documents entered into in connection therewith. The following is a description
of the general terms of the Credit Agreement.
Indebtedness of the Company under the Credit Agreement is guaranteed by all
subsidiaries of the Company now owned or hereafter acquired and is secured by a
first priority security interest in (i) all capital stock of all direct and
indirect subsidiaries of the Company, now owned or hereafter acquired, and (ii)
all tangible and intangible property of the Company and its direct and indirect
subsidiaries, now owned or hereafter acquired.
Indebtedness under the Credit Agreement bears interest at a floating rate.
Indebtedness under the Revolving Credit Facility (the "Revolving Loans") and the
Term Loans bear interest at a rate based (at the Company's option) upon (i) the
Base Rate (defined as in the Credit Agreement) or (ii) the Eurodollar Rate (as
defined in the Credit Agreement) for one, two, three or six months, in each
case. Applicable margins range from 0% to 0.75% in the case of Base Rate loans
and 0.875% to 1.75% in the case of Eurodollar loans, depending upon the
Company's ratio of total debt to operating cash flow.
The Term Loans and the Revolving Loans mature four years following the date
of initial borrowing. The Credit Agreement provides for mandatory repayments,
subject to certain exceptions, of the Term Loans based on certain net proceeds
from the sale of equity securities by the Company subsequent to the Offering,
asset sales outside the ordinary course of business and insurance proceeds not
redeployed.
The Revolving Loans may be repaid and reborrowed. The Company is required
to pay to the lenders under the Credit Agreement a customary commitment fee upon
closing, as well as an unused line fee.
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The Credit Agreement contains certain financial covenants which require the
Company to maintain: (i) a minimum net worth equal to 80% of the Company's
consolidated net worth as of the closing of the Credit Agreement (giving effect
to the Offering) plus 50% of consolidated net income of the Company for each
fiscal year plus 75% of the net proceeds of future equity offerings; (ii) a
maximum consolidated total debt to adjusted EBITDA ratio ranging from 3.5 to 1.0
to 3.0 to 1 over the term of the Credit Agreement; (iii) a minimum fixed charge
coverage ratio ranging from 3.0 to 1 to 1.25 to 1 over the term of the Credit
Agreement; and (iv) a minimum asset coverage ratio ranging from 0.85 to 1.0 to
1.0 to 1.0 over the term of the Credit Agreement. The Credit Agreement also
contains covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales, acquisition,
mergers and consolidation, prepayments of other indebtedness, liens and
encumbrances, capital expenditures and other matters customarily restricted in
such agreements.
The Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA, judgment defaults, failure of any guaranty or security
agreement supporting the Credit Agreement to be in full force and effect and
change of control of the Company or WCI.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE RECAPITALIZATION
In February 1997, KRG Capital formed the Company, which acquired all of the
outstanding stock of WCI from Greg Grosch, the then sole stockholder, Chairman,
President and Chief Executive Officer of WCI, through the Recapitalization. The
Company acquired the stock of WCI for (i) $10 million in cash; (ii) a $1.5
million subordinated note; (iii) 87,000 shares of Common Stock; and (iv)
Convertible Preferred Stock which will automatically convert into 2,795,390
shares of Common Stock upon consummation of the Offering. In connection with the
Recapitalization, shares of redeemable preferred stock and warrants to purchase
Common Stock were purchased by three investment funds. Such shares of redeemable
preferred stock will be redeemed upon consummation of the Offering. See "Recent
Transactions," "Use of Proceeds" and "Principal Stockholders."
MANAGEMENT AGREEMENT
The Company and WCI are parties to a five-year management agreement with
KRG Capital, pursuant to which KRG Capital provides financial management
consulting and advisory services. Under the terms of such agreement, (i) the
Company paid KRG Capital a transaction closing fee of $300,000 in connection
with the closing of Stock Purchase Agreement, dated November 26, 1996, by and
between Holdings and Mr. Grosch and (ii) the Company and WCI agreed to pay KRG
Capital a base management fee of $250,000 per year. During the year ended March
31, 1997, the Company and WCI paid KRG Capital fees of $62,500 pursuant to such
agreement. KRG Capital received an aggregate transaction closing fee from WCI in
the amount of $100,000 following the closings of the acquisitions of Stop Supply
and Viking Distributing.
Upon completion of the Offering, KRG Capital, the Company and WCI will
terminate the existing management agreement and enter into a transaction
advisory agreement pursuant to which the Company and WCI will pay to KRG Capital
an annual transaction advisory fee of $200,000 and a formula based transaction
fee payable upon the completion of additional acquisitions by the Company or
WCI. The transaction fee will be (i) $50,000 for any transactions where the
aggregate transaction value is $20 million or less, unless the Board of
Directors determines the transaction presented unusual complexities in which
case the fee may be adjusted upward upon approval of the Board of Directors, and
(ii) an amount to be agreed upon and approved by the Board of Directors, but in
no event less than $50,000, for any transaction where the aggregate transaction
value exceeds $20 million.
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STOCKHOLDER AGREEMENT
The Company, KRG Capital, Mr. Grosch and certain affiliates of KRG Capital
are parties to an Amended and Restated Stockholders Agreement (the "Stockholders
Agreement"), which will take effect upon the closing of the Offering and will
have a term of ten years. The Stockholders Agreement provides that so long as
Mr. Grosch or parties related to KRG Capital hold at least 5% of the issued and
outstanding Common Stock, (i) Mr. Grosch and KRG Capital will each be entitled
to designate one director, (ii) the stockholder parties will vote all of their
shares for such designees and (iii) KRG Capital will be entitled to have one
additional KRG Capital principal attend all board meetings as a non-voting
observer.
LEASES
The Company leases two properties located in Las Vegas, Nevada and San Juan
Capistrano, California, respectively, from Greg Grosch and his wife. Both leases
were entered into in May 1994 and are six year leases renewable for 4 successive
five year terms at the Company's option. Monthly rent under the leases is $5,565
for the Las Vegas property and $9,135 for the San Juan Capistrano property. The
terms of each lease are to be renegotiated upon each renewal. Payments under the
Las Vegas lease totaled $66,780 in the year ended March 31, 1997, and payments
under the San Juan Capistrano lease totaled $109,620 in such year.
The Company also leases a property in Riverside, California from Black
Marlin Investment Company and the Nuttal Trust (the "Landlord"). Black Marlin
Investment Company is wholly owned by Mr. and Mrs. Grosch. The Riverside lease
has a term of six years expiring in 2002. Monthly rent under the Riverside lease
is $7,403. Payments under the Riverside Lease to the Landlord totaled $48,119 in
the year ended March 31, 1997.
The Company is a guarantor of certain indebtedness of Greg Grosch, his wife
and the Landlord secured by mortgages on the three properties described above.
The Company believes that the terms of the leases described above are no less
favorable to the Company than terms that could be obtained with unaffiliated
third parties in arms-length transactions.
ISSUANCE OF SENIOR REDEEMABLE PREFERRED SHARES AND WARRANTS
On February 25, 1997, the Company issued 127,541 shares of its Redeemable
Preferred Stock at a purchase price of $3.92 per share and 127,541 warrants to
purchase shares of Common Stock at a purchase price of $0.01 per share to
Bayview Investors, Ltd., an affiliate of BancAmerica Robertson Stephens &
Company. The Company expects to redeem the Redeemable Preferred Stock and pay
accrued dividends on such stock with a portion of the net proceeds from the
Offering. See "Use of Proceeds" and "Underwriting."
CERTAIN STOCKHOLDERS
Apex Investment Fund III, L.P., Apex Strategic Partners LLC and Argentum
Capital Partners, L.P. combined own more than 10% of both the Common Stock and
the preferred equity of the Company. These entities are affiliates of First
Analysis Securities Corporation, one of the Underwriters in the Offering.
CREDIT AGREEMENT
An affiliate of BancAmerica Robertson Stephens is a lender under the
Company's Credit Agreement.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering there has been no public market for the Common Stock
of the Company. Sales of substantial amounts of Common Stock in the public
market could adversely affect market prices of the Common Stock and make it more
difficult for the Company to sell equity securities in the future at a time and
price which it deems appropriate.
Upon completion of the Offering, the Company will have outstanding
10,294,028 shares of Common Stock (not including (i) 517,819 shares issuable
upon the exercise of unvested options held by certain members of management,
(ii) 104,000 shares of Common Stock issuable upon conversion of Series B
Preferred Stock held by the former owners of Viking Distributing which are
subject to a repurchase right by the Company if certain performance targets are
not achieved for the Northern California operations of the Company and (iii)
500,000 shares reserved for sale or grant in the future under the Incentive
Plan). The
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4,000,000 shares sold in the Offering will be freely tradeable without
restriction or further registration under the Securities Act unless held by
"affiliates" of the Company. The remaining 6,294,028 outstanding shares of
Common Stock quoted above may not be sold unless they are registered under the
Securities Act or unless an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act, is available. In addition,
beginning 90 days after the date of this Prospectus, holders of vested stock
options may sell shares of Common Stock acquired upon due exercise of such
options subject to the provisions of Rule 701 under the Securities Act ("Rule
701").
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned "restricted
securities" for at least one but less than two years, and any affiliate of the
Company who has owned shares for at least one year, is entitled to sell within
any three month period a number of shares that does not exceed the greater of 1%
of the outstanding shares of the Company's Common Stock (approximately 102,940
shares immediately after the Offering) or the average weekly trading volume in
the Company's Common Stock on Nasdaq during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain provisions regarding
the manner of sale, notice requirements and the availability of current public
information about the Company. A stockholder (or stockholders whose shares are
aggregated) who is not an affiliate of the Company for at least 90 days prior to
a proposed transaction and who has beneficially owned "restricted securities"
for at least two years is entitled to sell such shares under Rule 144 without
regard to the limitations described above.
Any employee, officer or director of the Company who purchased his or her
shares prior to the date of this Prospectus or holds vested stock options as of
that date pursuant to a written compensatory plan or contract is entitled to
rely on the resale provisions of Rule 701, which permits non-affiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus.
The Company and all of its current stockholders holding in the aggregate
6,118,314 shares of Common Stock (5,863,314 shares if the Underwriters'
over-allotment option is exercised in full) have agreed not to sell publicly
shares of capital stock of the Company for a period of 180 days following the
closing date of the Offering without the prior written consent of the
Representative. Such stockholders have further agreed that they will not
otherwise dispose of any shares of capital stock of the Company unless the
person to whom such disposition is made agrees to substantially the same as the
foregoing. The Company has further agreed that during such 180-day period it
will not sell privately shares of Common Stock unless the price per share
received by the Company for such Common Stock is equal to or greater than the
initial public offering price. Upon issuance of 647,273 shares of Common Stock
reserved for issuance upon the sale of shares to, and exercise of options in the
future by, employees under the Existing Plan, such shares will be subject to the
same restrictions on resale imposed on the other shares held by members of
management described above.
As soon as practicable after 90 days following the date of this Prospectus,
the Company will file a Form S-8 registration statement under the Securities Act
to register the shares of Common Stock issuable under the Company's option
plans. This registration statement would become effective immediately upon
filing. Shares issued upon the exercise of stock options after the effective
date of the Form S-8 registration statement would be eligible for resale in the
public market without restriction, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements applicable to certain options as described
in the preceding paragraph.
The Company, Mr. Grosch, KRG Capital, Apex, Bayview and Argentum are
parties to a registration rights agreement dated February 25, 1997 (the
"Registration Rights Agreement"). After the Offering, an aggregate of 5,492,186
shares of Common Stock owned or issuable upon exercise of warrants, in the
aggregate, by such stockholders will be entitled to certain rights to register
such shares ("Registrable Shares") under the Securities Act pursuant to the
Registration Rights Agreement. Subject to certain conditions, the registration
rights granted with respect to the Common Stock may be exercised by holders of a
majority of the outstanding shares of such Registrable Shares. Subject to
certain conditions, piggyback registration rights are available at all times for
the Registrable Shares.
53
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and BancAmerica Robertson Stephens ("Robertson Stephens") are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company the number of shares of Common Stock that each Underwriter has
agreed to purchase as set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............................
BancAmerica Robertson Stephens....................................................
---------
Total................................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered are subject to approval of certain legal matters by counsel and certain
other conditions. If any shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all such shares (other than
shares covered by the over-allotment option described below) must be purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the price to the
public set forth on the cover page of this Prospectus, and to certain dealers
(who may include the Underwriters) at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow,
discounts not in excess of $ per share to any other Underwriter and certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company and certain selling stockholders have granted an option to the
Underwriters, exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of 600,000 additional shares of Common Stock at the
initial public offering price set forth on the cover page of this Prospectus,
net of underwriting discounts and commissions. such option may be exercised at
any time until 30 days after the date of this Prospectus. See "Principal
Stockholders." To the extent that the Representatives exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
At the Company's request, the Underwriters have reserved up to 200,000
shares for sale at the initial public offering price to certain of the Company's
employees, members of their immediate families and other individuals who are
business associates of the Company in each case as such parties have expressed
an interest in purchasing such shares. The number of shares available for sale
to the general public will be reduced to the
54
<PAGE> 56
extent these individuals purchase such reserved shares. Any reserved shares not
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby.
The Company, its officers and directors, certain of its shareholders and
certain employees of the Company have agreed, subject to certain exceptions, not
to directly or indirectly sell, offer to sell, grant any option for the sale of
or otherwise dispose of any shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock, without the prior written
consent of DLJ, on behalf of the Underwriters, for a period of 180 days after
the date of this Prospectus. See "Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, are price-earnings ratios of publicly traded
companies that the Representatives believe to be comparable to the Company,
certain financial information of the Company, the history of, and the prospects
for, the Company and the industry in which it competes, and assessment of the
Company's management, its past and present operations, the prospects for, and
timing of, future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
The Company has applied to have the Common Stock quoted on Nasdaq under the
symbol "WHCP."
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Under Rule 2720 of the Conduct Rules of the NASD ("Rule 2720"), the Company
is considered an affiliate of Robertson Stephens because (i) Robertson Stephens,
through its affiliate Bayview Investors, Ltd., may be deemed to beneficially own
10.2% of the preferred equity of the Company and (ii) First Analysis Securities
Corporation, one of the Underwriters in the Offering, may be deemed to
beneficially own more than 10% of both the Common Stock and the preferred equity
of the Company through its affiliates Apex Investment Fund III, L.P., Apex
Strategic Partners LLC and Argentum Capital Partners, L.P. See "Certain
Relationships and Related Transactions" and "Use of Proceeds." This Offering is
being conducted in accordance with Rule 2720 which provides that, among other
things, when an NASD member participates in the underwriting of an affiliate's
equity securities, the price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards ("QIU"). In
accordance with this requirement, DLJ has assumed the responsibilities of acting
as QIU and will recommend a maximum price in compliance with the requirements of
Rule 2720. In connection with the Offering, DLJ is performing due diligence
investigations and reviewing and participating in the preparation of this
Prospectus and the Registration Statement of which this prospectus forms a part.
As compensation for the services of DLJ as QIU, the Company has agreed to pay
DLJ $5,000.
LEGAL MATTERS
The legality of the shares of Common Stock will be passed upon for the
Company by Kirkland & Ellis, New York, New York. Lance C. Balk who is a partner
of Kirkland & Ellis, as of the date of this Prospectus, holds 9,761 shares of
the Company's Common Stock. Certain legal matters relating to the Offering will
be passed upon for the Underwriters by Latham & Watkins, New York, New York.
55
<PAGE> 57
EXPERTS
The consolidated balance sheets of White Cap Industries, Inc. as of March
31, 1997, March 31, 1996 and December 31, 1995; the consolidated statements of
operations, consolidated statements of cash flows and consolidated statements of
stockholders' equity of White Cap Industries, Inc. for the fiscal year ended
March 31, 1997 and the years ended December 31, 1995, December 31, 1994 and for
the three months ended March 31, 1996; the financial statements of A-Y Supply,
Inc. as of and for the year ended December 31, 1996; and the financial
statements of Viking Distributing Co. as of and for the fiscal year ended March
31, 1997 included in this Prospectus and the registration statement of which it
is a part, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
such reports.
The balance sheet of A-Y Supply, Inc. as of December 31, 1995 and the
statements of income, stockholders' equity and cash flows of A-Y Supply, Inc.
for the years ended December 31, 1995 and 1994 included in this Prospectus and
the registration statement of which it is a part, have been so included in
reliance on the reports of Burnett, Umphress & Kilgour, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, (the
"Commission") a Registration Statement on Form S-1 under the Act with respect to
the shares of Common Stock being offered by this Prospectus. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the shares of Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, copies of which may be obtained upon payment of the fees prescribed by
the Commission or examined without charge at (i) the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and (ii) the Commission's regional offices located at
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661 and 75 Park Plaza,
14th Floor, New York, New York 10007. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete,
and in each instance where such contract or other document is an exhibit to the
Registration Statement, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference.
56
<PAGE> 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WHITE CAP INDUSTRIES, INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY:
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets at December 31, 1995, March 31, 1996, March 31, 1997 and
June 30, 1997 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994,
December 31, 1995, the three months ended March 31, 1996, the year ended March 31,
1997 and the three months ended June 30, 1996 and 1997 (unaudited)................ F-4
Consolidated Statements of Stockholders' Equity (deficit) for the years ended
December 31, 1994, December 31, 1995, the three months ended March 31, 1996, the
year ended March 31, 1997 and the three months ended June 30, 1997 (unaudited).... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
December 31, 1995, the three months ended March 31, 1996, the year ended, March
31, 1997 and for the three months ended June 30, 1996 and 1997 (unaudited)........ F-6
Notes to Consolidated Financial Statements.......................................... F-7
A-Y SUPPLY, INC.
Reports of Independent Public Accountants........................................... F-18
Balance Sheets as of December 31, 1995 and 1996..................................... F-19
Statements of Income for the years ended December 31, 1994, 1995 and 1996........... F-21
Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and
1996.............................................................................. F-22
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996....... F-23
Notes to Financial Statements....................................................... F-24
VIKING DISTRIBUTING CO.:
Report of Independent Public Accountants............................................ F-27
Balance Sheet as of March 31, 1997.................................................. F-28
Statement of Operations for the year ended March 31, 1997........................... F-29
Statement of Changes in Stockholders' Equity for the year ended March 31, 1997...... F-30
Statement of Cash Flows for the year ended March 31, 1997........................... F-31
Notes to Financial Statements....................................................... F-32
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To White Cap Industries, Inc.:
We have audited the accompanying consolidated balance sheets of WHITE CAP
INDUSTRIES, INC. (a Delaware corporation) and subsidiary as of December 31,
1995, March 31, 1996 and March 31, 1997 and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1994 and 1995, the three month period ended March 31, 1996 and for
the year ended March 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of White Cap
Industries, Inc. and subsidiary as of December 31, 1995, March 31, 1996 and
March 31, 1997 and the results of their operations and their cash flows for the
years ended December 31, 1994 and 1995, the three month period ended March 31,
1996 and for the year ended March 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
August 12, 1997
F-2
<PAGE> 60
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31,
DECEMBER 31, ------------------------- JUNE 30,
1995 1996 1997 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 297,000 $ 205,000 $ 214,000 $ 2,882,000
Accounts receivable, net of allowance for doubtful
accounts of $270,000, $702,000, $525,000 and
$812,000 at December 31, 1995, March 31, 1996,
March 31, 1997 and June 30, 1997, respectively.... 11,588,000 11,487,000 19,175,000 27,279,000
Inventories......................................... 16,337,000 15,786,000 20,426,000 23,029,000
Prepaid expenses and other.......................... 339,000 335,000 441,000 489,000
Deferred income taxes............................... -- -- 738,000 1,235,000
----------- ----------- ----------- -----------
28,561,000 27,813,000 40,994,000 54,914,000
----------- ----------- ----------- -----------
RECEIVABLE FROM STOCKHOLDER........................... 586,000 481,000 -- --
PROPERTY AND EQUIPMENT, net........................... 6,849,000 6,768,000 7,461,000 9,059,000
RENTAL EQUIPMENT, net................................. -- -- 500,000 475,000
INTANGIBLE ASSETS, net................................ -- -- 13,205,000 25,982,000
OTHER ASSETS.......................................... 196,000 225,000 132,000 212,000
----------- ----------- ----------- -----------
$36,192,000 $35,287,000 $62,292,000 $90,642,000
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt................... $ 627,000 $ 689,000 $ 3,156,000 $ 3,106,000
Accounts payable.................................... 12,894,000 10,422,000 17,162,000 22,299,000
Accrued liabilities................................. 2,328,000 2,136,000 3,266,000 4,782,000
----------- ----------- ----------- -----------
15,849,000 13,247,000 23,584,000 30,187,000
----------- ----------- ----------- -----------
LONG-TERM DEBT, net of current portion................ 15,815,000 18,095,000 38,888,000 60,382,000
----------- ----------- ----------- -----------
DEFERRED INCOME TAXES................................. -- -- 200,000 189,000
----------- ----------- ----------- -----------
SENIOR REDEEMABLE PREFERRED STOCK,
$.01 par value:
Designated -- 680,000 shares; issued and
outstanding -- none at December 31, 1995 and March
31, 1996; 675,969 at March 31, 1997 and June 30,
1997.............................................. -- -- 2,650,000 2,650,000
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 8, 9, and 10)
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible Preferred Stock, $.01 par value:
Designated -- 2,700,000 shares; issued and
outstanding -- none at December 31, 1995 and March
31, 1996; 2,180,479 at March 31, 1997 and
2,240,479 at June 30, 1997........................ -- -- 2,250,000 2,256,000
Common Stock, $.01 par value:
Authorized -- 10,000,000 shares; issued and
outstanding -- 4,160 shares at December 31, 1995
and March 31, 1996; 600,000 at March 31, 1997
and 652,606 at June 30, 1997 (7,238 and
1,044,000 and 1,135,534 shares post split,
respectively)................................... -- -- 6,000 11,000
Additional paid-in capital........................ 4,000 4,000 -- --
Retained earnings (accumulated deficit)........... 4,524,000 3,941,000 (5,286,000) (5,033,000)
----------- ----------- ----------- -----------
4,528,000 3,945,000 (3,030,000) (2,766,000)
----------- ----------- ----------- -----------
$36,192,000 $35,287,000 $62,292,000 $90,642,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 61
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS THREE MONTHS ENDED
--------------------------- ENDED YEAR ENDED --------------------------
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1994 1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES........................ $69,508,000 $77,840,000 $19,511,000 $101,770,000 $23,509,000 $37,311,000
COST OF GOODS SOLD............... 49,420,000 53,961,000 13,627,000 69,740,000 15,992,000 25,848,000
----------- ----------- ----------- ------------ ----------- -----------
Gross Profit................... 20,088,000 23,879,000 5,884,000 32,030,000 7,517,000 11,463,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ 17,918,000 20,517,000 5,670,000 27,375,000 6,235,000 9,423,000
----------- ----------- ----------- ------------ ----------- -----------
Income from operations......... 2,170,000 3,362,000 214,000 4,655,000 1,282,000 2,040,000
INTEREST EXPENSE, NET............ 822,000 1,385,000 442,000 2,273,000 424,000 1,319,000
----------- ----------- ----------- ------------ ----------- -----------
Income (loss) before provision
(benefit) for income taxes... 1,348,000 1,977,000 (228,000) 2,382,000 858,000 721,000
PROVISION (BENEFIT) FOR INCOME
TAXES.......................... 30,000 40,000 -- (414,000) 9,000 318,000
----------- ----------- ----------- ------------ ----------- -----------
Net income (loss).............. $ 1,318,000 $ 1,937,000 $ (228,000) $ 2,796,000 $ 849,000 $ 403,000
=========== =========== =========== ============ =========== ===========
PRO FORMA INFORMATION
(unaudited):
Historical income (loss) before
provision (benefit) for
income taxes................. $ 1,348,000 $ 1,977,000 $ (228,000) $ 2,382,000 $ 858,000
Pro forma income tax provision
(benefit).................... 553,000 811,000 (93,000) 977,000 352,000
----------- ----------- ----------- ------------ -----------
Pro forma net income (loss).... $ 795,000 $ 1,166,000 $ (135,000) $ 1,405,000 $ 506,000
=========== =========== =========== ============ ===========
Pro forma net income (loss) per
share........................ $ 0.19 $ 0.03
============ ===========
Pro forma weighted average
shares outstanding........... 7,284,332 7,398,112
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 62
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
---------------------- ------------------ PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
--------- ---------- -------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993... -- $ -- 4,160 $ -- $ 4,000 $ 2,901,000 $ 2,905,000
Stockholder
distributions........... -- -- -- -- -- (584,000) (584,000)
Net income................. -- -- -- -- -- 1,318,000 1,318,000
--------- --------- ------- ------ ------- ----------- -----------
BALANCE, December 31, 1994... -- -- 4,160 -- 4,000 3,635,000 3,639,000
Stockholder
distributions........... -- -- -- -- -- (1,048,000) (1,048,000)
Net income................. -- -- -- -- -- 1,937,000 1,937,000
--------- --------- ------- ------ ------- ----------- -----------
BALANCE, December 31, 1995... -- -- 4,160 -- 4,000 4,524,000 4,528,000
Stockholder
distributions........... -- -- -- -- -- (355,000) (355,000)
Net loss................... -- -- -- -- -- (228,000) (228,000)
--------- --------- ------- ------ ------- ----------- -----------
BALANCE, March 31, 1996...... -- -- 4,160 -- 4,000 3,941,000 3,945,000
Recapitalization:
Stockholder
distributions......... -- -- -- -- -- (6,252,000) (6,252,000)
Purchase and retirement
of WCI common stock... -- -- (4,160) -- (4,000) (5,716,000) (5,720,000)
Common stock issued..... -- -- 600,000 6,000 -- -- 6,000
Series A-1 convertible
preferred stock
issued................ 1,496,843 2,250,000 -- -- -- -- 2,250,000
Series A-2 convertible
preferred stock
issued................ 683,636 -- -- -- -- -- --
Preferred dividend
accretion............... -- -- -- -- -- (55,000) (55,000)
Net income................. -- -- -- -- -- 2,796,000 2,796,000
--------- --------- ------- ------ ------- ----------- -----------
BALANCE, March 31, 1997...... 2,180,479 2,250,000 600,000 6,000 -- (5,286,000) (3,030,000)
Sale of common stock
(unaudited)............. -- -- 52,606 5,000 -- -- 5,000
Sale of convertible
preferred stock
(unaudited)............. 60,000 6,000 -- -- -- -- 6,000
Preferred dividend
accretion (unaudited)... -- -- -- -- -- (150,000) (150,000)
Net income (unaudited)..... -- -- -- -- -- 403,000 403,000
--------- --------- ------- ------ ------- ----------- -----------
BALANCE, June 30, 1997
(unaudited)............. 2,240,479 $2,256,000 652,606 $11,000 $ -- $ (5,033,000) $(2,766,000)
========= ========= ======= ====== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 63
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS THREE MONTHS ENDED
-------------------------- ENDED YEAR ENDED -------------------------
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1994 1995 1996 1997 1996 1997
------------ ------------ ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)............................. $ 1,318,000 $ 1,937,000 $ (228,000) $ 2,796,000 $ 849,000 $ 403,000
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization............... 811,000 1,109,000 347,000 1,524,000 355,000 687,000
Gain on disposition of property and
equipment................................. (3,000) (4,000) (1,000) (28,000) -- (1,000)
Changes in assets and liabilities, net of
effects from acquisitions:
(Increase) decrease in accounts
receivable................................ (2,421,000) (2,098,000) 100,000 (4,861,000) (2,087,000) (3,437,000)
(Increase) decrease in inventories.......... (5,396,000) (2,592,000) 551,000 (1,698,000) 79,000 2,674,000
(Increase) decrease in prepaid expenses..... 294,000 (308,000) (25,000) 955,000 (72,000) (75,000)
Increase in deferred tax asset.............. -- -- -- (738,000) -- (9,000)
Increase (decrease) in accounts payable..... 3,562,000 2,969,000 (2,472,000) 5,079,000 3,158,000 2,606,000
Increase (decrease) in accrued expenses..... 1,008,000 417,000 (181,000) 405,000 (575,000) (406,000)
Increase in deferred tax liability.......... -- -- -- 200,000 -- (11,000)
---------- ----------- ----------- ------------ ------------ -------------
Net cash provided by (used in) operating...... (827,000) 1,430,000 (1,909,000) 3,634,000 1,707,000 2,431,000
---------- ----------- ----------- ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (1,259,000) (4,525,000) (266,000) (2,120,000) (178,000) (653,000)
Proceeds from sale of property and
equipment................................... -- 15,000 2,000 139,000 -- 10,000
Purchase of A-Y Supply, net of $1,323,000 in
cash acquired............................... -- -- -- (16,502,000) -- --
Purchase of Viking Distributing Co., net of
$145,000 in cash acquired................... -- -- -- -- -- (16,046,000)
Purchase of Stop Supply, Inc., net of $61,000
in cash acquired............................ -- -- -- -- -- (3,698,000)
---------- ----------- ----------- ------------ ------------ -------------
Net cash used in investing activities (1,259,000) (4,510,000) (264,000) (18,483,000) (178,000) (20,387,000)
---------- ----------- ----------- ------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under line of credit
agreement................................... 2,812,000 1,871,000 2,397,000 467,000 (747,000) 14,197,000
Principal payments on notes payable........... (417,000) (498,000) (176,000) -- (769,000) (14,173,000)
Proceeds received from notes payable.......... 477,000 3,712,000 121,000 22,235,000 -- 20,739,000
Principal payments on subordinated note
payable to stockholder...................... (325,000) -- -- -- -- --
(Increase) decrease in receivable from
stockholder................................. -- (372,000) 105,000 481,000 82,000 --
Stockholder distributions paid................ (442,000) (1,483,000) (366,000) (6,241,000) -- --
Preferred dividend accretion.................. -- -- -- (55,000) -- (150,000)
Preferred stock issued........................ -- -- -- 4,900,000 -- 6,000
Common stock issued........................... -- -- -- 6,000 -- 5,000
Common stock purchased and retired............ -- -- -- (5,720,000) -- --
Increase in deferred finance costs............ -- -- -- (1,215,000) -- --
---------- ----------- ----------- ------------ ------------ -------------
Net cash provided by (used in) financing
activities.................................. 2,105,000 3,230,000 2,081,000 14,858,000 (1,434,000) 20,624,000
---------- ----------- ----------- ------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 19,000 150,000 (92,000) 9,000 95,000 2,668,000
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 128,000 147,000 297,000 205,000 205,000 214,000
---------- ----------- ----------- ------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of period........ $ 147,000 $ 297,000 $ 205,000 $ 214,000 $ 300,000 $ 2,882,000
========== =========== =========== ============ ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest...................................... $ 902,000 $ 1,455,000 $ 455,000 $ 2,451,000 $ 446,000 $ 1,290,000
========== =========== =========== ============ ============ =============
Income taxes.................................. $ 16,000 $ 48,000 $ -- $ 10,000 $ 36,000 $ 100,000
========== =========== =========== ============ ============ =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company acquired various shop equipment under its equipment lease
financing arrangements totaling approximately $456,000 and $518,000 during the
years ended December 31, 1994 and 1995, respectively.
During the year ended March 31, 1997 and the three months ended June 30,
1997, the Company acquired all of the outstanding capital stock of A-Y Supply,
Inc., Viking Distributing Co. and Stop Supply, Inc. In conjunction with these
acquisitions, the following liabilities were assumed:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, THREE MONTHS ENDED
1997 JUNE 30, 1997
-------------------- ------------------
(UNAUDITED)
<S> <C> <C>
Fair value of assets acquired............................................... $ 20,216,000 $ 24,878,000
Cash and notes payable exchanged for capital stock.......................... (17,825,000) (19,538,000)
------------ ------------
Liabilities assumed......................................................... $ 3,391,000 $ 5,340,000
============ ============
</TABLE>
In connection with the recapitalization transaction in February 1997, the
Company distributed certain property recorded at $284,000 to its shareholder,
and the Company's shareholder assumed certain debt totaling $242,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 64
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
1. BUSINESS ORGANIZATION
White Cap Industries, Inc. (formerly White Cap Holdings, Inc.) ("WCI"), was
formed in November 1996 as a Delaware corporation and had no prior operating
history. White Cap Industries Corp. (formerly White Cap Industries, Inc. )
("WCIC") was formed in February 1976 as a California corporation.
In February 1997, WCI and WCIC completed a transaction whereby the sole
shareholder of WCIC exchanged all of the outstanding stock of WCIC for preferred
stock of WCI, cash and dividends. This transaction was accounted for as a
recapitalization because there was not unilateral change of control of WCIC.
Through this recapitalization transaction, WCIC became a wholly owned subsidiary
of WCI. The operating results for all periods prior to the recapitalization
transaction consist entirely of the historical results of WCIC. Hereinafter WCI
and WCIC are collectively referred to as the "Company".
The Company is a business-to-business retailer of specialty tools and
materials to professional contractors throughout the Western United States. At
March 31, 1997, the Company's operations consisted of a central distribution
center located in Costa Mesa, California and 20 retail stores located in
California, Las Vegas, Phoenix, and Denver.
Effective January 1, 1997, the Company acquired all of the capital stock of
A-Y Supply, Inc. (see Note 3). Subsequent to March 31, 1997, the Company
acquired Stop Supply, Inc. and Viking Distributing Co., Inc. (see Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements and related notes
include the accounts of White Cap Industries, Inc. and its wholly owned
subsidiary White Cap Industries Corp. All intercompany account balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Concentration of Credit Risk
The majority of sales are on a credit basis to professional concrete,
framing, waterproofing, landscaping, grading, electrical, mechanical and general
contractors located throughout the Western United States. Many customers are
under-capitalized and generally represent a higher than normal credit risk. In
many cases this risk is somewhat mitigated by filing a preliminary notice on
materials for specific jobs sites. The Company records an estimated allowance
for doubtful accounts and adjusts this estimate periodically based upon
historical experience and specific knowledge of a customer's financial
condition. No single customer represents more than three percent of the accounts
receivable balance shown in the accompanying consolidated balance sheets.
Inventories
Inventories are stated at the lower of cost (weighted average, which
approximates FIFO) or market and consist primarily of purchased products held
for sale.
F-7
<PAGE> 65
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
Property and Equipment
Property and equipment are recorded at cost and depreciated based on the
estimated useful lives of depreciable assets using primarily the straight-line
method for financial reporting purposes and accelerated methods for tax
purposes. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Building............................... 30 years
Transportation equipment............... 3 to 10 years
Machinery and equipment................ 2 to 10 years
Office equipment....................... 3 to 5 years
Lesser of useful life
Leasehold improvements................. or term of lease
</TABLE>
Upon retirement of property and equipment, the asset and accumulated
depreciation and amortization accounts are relieved and any gain or loss is
reflected in operations. Maintenance costs and repairs are expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Intangibles Assets
Intangible assets consist of goodwill, covenant not to compete and deferred
financing costs. Goodwill represents the excess of cost over the fair value of
net assets acquired in business combinations accounted for under the purchase
method. Management has evaluated its accounting for goodwill, considering such
factors as historical profitability and future undiscounted operating cash
flows, and believes that the asset is realizable and that the amortization
period is appropriate.
Intangible assets are amortized on a straight-line basis over the following
estimated useful lives:
<TABLE>
<S> <C>
Goodwill................ 40 years
Covenant not to compete... Term of the agreement (5 years)
Deferred financing
costs................. Term of the agreements (5 to 8 years)
</TABLE>
Revenue Recognition
Revenue from product sales is recognized as orders are picked up by
customers or upon delivery to customers. The Company also rents equipment to
customers under short-term agreements and such revenue is recognized over the
rental period as earned. The Company establishes reserves for estimated customer
returns, allowances and discounts at the time the related revenue is recognized.
Cost of Goods Sold
Cost of goods sold consists primarily of the purchase cost of the product
plus transportation to the Company's facilities. Vendor rebates are recognized
on an accrual basis in the period earned as a reduction to cost of goods sold.
F-8
<PAGE> 66
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109. The statement
requires an asset and liability approach for financial accounting and reporting
of income taxes. Deferred taxes are determined based on the estimated future tax
effects of differences between the financial and tax basis of assets and
liabilities given the provisions of the enacted tax laws. Prior to the
recapitalization transaction completed in February 1997, WCI was taxed as an S
Corporation (see Note 6).
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximates the fair value. In addition, the carrying value of
all borrowings approximate fair value based on interest rates currently
available to the Company.
Cash Management
The Company has a cash management program that processes cash receipts and
provides for centralized cash disbursements using certain zero-balance accounts.
This cash management program may result in negative book cash balances in
various zero-balance disbursement accounts. At December 31, 1995, March 31, 1996
and March 31, 1997, such negative cash balances total approximately $2.8
million, $577,000 and $2.7 million, respectively, and are included in accounts
payable.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock-Based Compensation". As permitted under SFAS 123, the
Company has elected to continue to account for employee stock-based compensation
under APB Opinion No. 25 and therefore presents the necessary pro forma
disclosures (see Note 8).
Unaudited Pro Forma Net Income
Pro Forma net income represents the results of operations adjusted to
reflect a provision for income tax on historical income before income taxes,
which gives effect to the change in the Company's income tax status to a C
Corporation for all periods presented. The difference between the pro forma
income tax rates utilized and the federal statutory rate of 34% relates
primarily to state income taxes (net of federal benefit) and certain permanent
differences.
Unaudited Pro Forma Net Income Per Share
Pro forma net income per share has been computed by dividing pro forma net
income, net of senior redeemable preferred stock dividends, by the pro forma
weighted average number of shares outstanding. In accordance with a regulation
of the Securities and Exchange Commission (SEC), such computation includes all
common equivalent shares (using the treasury stock method and anticipated
initial public offering price) issued twelve months prior to the filing of the
initial public offering as if they were outstanding for the entire period
presented. Additionally, in accordance with SEC rules, 621,353 shares are
included in the pro forma weighted average shares, representing the number of
shares necessary to pay the portion of the fiscal 1997 stockholders dividend
that exceeded the earnings for such period. Common equivalent shares from
convertible stock are included in the calculation as if converted. Further, the
pro forma weighted average shares outstanding has been adjusted to reflect a
1.74-for-1 stock split of the common stock which will be effected immediately
prior to the consummation of the proposed initial public offering (See Note 10).
Actual share amounts have not been adjusted to reflect this split.
Historical net income per share has not been presented because it is not
indicative of the ongoing entity.
F-9
<PAGE> 67
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". This
statement is effective for both interim and annual reporting periods ending
after December 15, 1997. SFAS No. 128 replaces primary EPS with basic EPS and
fully diluted EPS with diluted EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding. Diluted EPS is computed in the
same way as fully diluted EPS, except that the calculation now uses the average
share price for the reporting period to compute dilution from options under the
treasury stock method. Management does not believe that adoption of this
standard will have a significant impact on earnings per share.
In June 1997, the FASB issued SFAS Nos. 130 and 131 "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information." FASB No. 130 and No 131 are effective for fiscal years
beginning after December 15, 1997, with earlier adoption permitted. The Company
does not believe that adoption of these standards will have a material effect on
the Company.
Unaudited Quarterly Information
The accompanying financial information as of June 30, 1997 and for the
three months ended June 30, 1996 and 1997 is unaudited and has been prepared on
substantially the same basis as the annual financial statements. In the opinion
of management, the unaudited information contains all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial position
and results of operations as of such date and for such periods.
3. ACQUISITION OF A-Y SUPPLY, INC.
Effective January 1, 1997, the Company acquired 100 percent of the
outstanding capital stock of A-Y Supply, Inc. ("A-Y") for approximately $16.8
million in cash and notes. The total assets related to this acquisition are
$20.2 million, including goodwill of $10.1 million and a covenant not to compete
of $1 million. Total liabilities of $3.4 million were assumed. This acquisition
was accounted for as a purchase. Accordingly, the results of operations of A-Y
are included in the consolidated financial position of the Company beginning on
the effective date of the acquisition. In February 1997 A-Y was merged into the
Company.
The following summary, prepared on a pro forma basis, combines the results
of operations as if A-Y had been acquired as of the beginning of the fiscal year
ended March 31, 1997, after including the impact of adjustments for amortization
of intangibles, C Corporation income taxes and interest expense on the
acquisition debt.
<TABLE>
<S> <C>
Net sales...................................... $123,459,000
Net income..................................... $ 1,772,000
Earnings per share............................. $ 0.24
Pro forma weighted average shares
outstanding.................................. 7,284,332
</TABLE>
The pro forma information is presented for informational purposes only and
is not necessarily indicative of the operating results that would have occurred
had the acquisition been consummated as of the above date, nor are they
indicative of future operating results. The pro forma weighted average shares
outstanding has been adjusted to reflect a 1.74-for-1 stock split of common
stock which will be effected immediately prior to the consummation of the
proposed initial public offering (see Note 10).
F-10
<PAGE> 68
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
4. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31, JUNE 30,
1995 1996 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Land and building......................... $ 379,000 $ 379,000 $ 471,000 $ 471,000
Transportation equipment.................. 4,708,000 4,813,000 5,233,000 6,513,000
Machinery and equipment................... 2,143,000 2,164,000 2,474,000 4,341,000
Office equipment.......................... 2,283,000 2,339,000 3,163,000 4,059,000
Leasehold improvements.................... 1,474,000 1,521,000 1,697,000 2,173,000
----------- ----------- ----------- -----------
10,987,000 11,216,000 13,038,000 17,557,000
Less -- accumulated depreciation.......... (4,138,000) (4,448,000) (5,577,000) (8,498,000)
----------- ----------- ----------- -----------
$ 6,849,000 $ 6,768,000 $ 7,461,000 $ 9,059,000
=========== =========== =========== ===========
</TABLE>
Rental Equipment
Rental equipment consists primarily of construction equipment acquired in
connection with the A-Y acquisition and is net of accumulated depreciation of
approximately $20,000 and $45,000 at March 31, 1997 and June 30, 1997,
respectively.
Intangible Assets
Intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31, JUNE 30,
1995 1996 1997 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Goodwill.......................................... $ -- $ -- $11,124,000 $24,177,000
Covenant not to compete........................... -- -- 1,000,000 1,000,000
Deferred financing costs and other................ -- -- 1,215,000 1,125,000
----------- ----------- ----------- -----------
-- -- 13,339,000 26,302,000
Less -- accumulated amortization.................. -- -- (134,000) (320,000)
----------- ----------- ----------- -----------
$ -- $ -- $13,205,000 $25,982,000
=========== =========== =========== ===========
</TABLE>
Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31, JUNE 30,
1995 1996 1997 1997
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Payroll and payroll related......................... $ 1,330,000 $ 600,000 $ 979,000 $1,383,000
Sales tax........................................... 551,000 532,000 947,000 998,000
Commissions......................................... 179,000 173,000 327,000 209,000
Other............................................... 268,000 831,000 1,013,000 2,192,000
----------- ----------- ----------- ----------
$ 2,328,000 $2,136,000 $3,266,000 $4,782,000
=========== =========== =========== ==========
</TABLE>
F-11
<PAGE> 69
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31, MARCH 31, MARCH 31, JUNE 30,
1995 1996 1997 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Senior Loan and Security Agreement:
Revolving line of credit...................... $11,269,000 $13,666,000 $14,133,000 $28,330,000
Term Loan..................................... -- -- 12,000,000 11,400,000
Senior Subordinated Investor Notes, at 19.25
percent, secured by certain assets, maturing
February 2005................................. -- -- 7,032,000 15,000,000
Subordinated Shareholder Note, interest at 13
percent, maturing February 2005............... -- -- 1,500,000 1,500,000
Senior Subordinated A-Y Shareholders' Notes,
interest at 10 percent, maturing March 2000... -- -- 3,000,000 3,000,000
Note payable secured by transportation
equipment, interest at 8.25 percent, maturing
August 2005................................... 3,129,000 3,113,000 3,043,000 3,025,000
Other........................................... 2,044,000 2,005,000 1,336,000 1,233,000
----------- ----------- ----------- -----------
16,442,000 18,784,000 42,044,000 63,488,000
Less -- Current portion..................... (627,000) (689,000) (3,156,000) (3,106,000)
----------- ----------- ----------- -----------
$15,815,000 $18,095,000 $38,888,000 $60,382,000
=========== =========== =========== ===========
</TABLE>
Senior Loan and Security Agreement
The Company has a loan and security agreement (the "Agreement") with
certain senior lenders (the "Banks"), which provides a $25 million revolving
line of credit and a $12 million term loan. The Agreement expires in February
2002. The revolver bears interest at 1/4 percent over the Bank's prime rate and
provides for a Libor option of 2 1/2 percent over the Libor rate. The term loan
bears interest at 3/4 percent over the Bank's prime rate and provides for a
Libor option of 3 percent over the Libor rate. For the period ended March 31,
1997, the interest rates ranged from 8.1 to 8.75 percent on the revolver and
from 8.6 to 9.3 percent on the term loan. Borrowings under the revolver portion
of the security agreement are based on advance rates of 85 percent and 65
percent of eligible accounts receivable and inventory, respectively. The
Agreement includes financial covenants for net worth, working capital, fixed
charge coverage and inventory turnover, among others. This agreement has
prepayment penalties associated with early retirement. (See Note 10.)
Senior Subordinated Investor Notes
During fiscal 1997, the Company entered into a senior subordinated purchase
agreement in an amount of $7 million ("First Closing Note") with an unrelated
investor. The agreement also authorizes an additional note in the amount of $3
million ("Second Closing Note"), none of which was outstanding at March 31,
1997. The First Closing Note bears interest at 19.25 percent per annum of which
6.25 percent is deferred. Such deferred interest is payable no later than
February 2002. In the event the Company completes an initial public offering or
transfers substantially all of the assets of the Company in a consolidation or
merger, the Company will be required to prepay the entire principal balance, all
accrued but unpaid interest and certain prepayment penalties. (See Note 10). The
agreement includes certain financial covenants, as defined. The note is
subordinated to the senior debt and A-Y shareholder notes discussed below.
F-12
<PAGE> 70
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
Senior Subordinated A-Y Shareholders' Notes
Under the terms of the A-Y acquisition, the Company entered into three
separate subordinated note agreements with the former shareholders of A-Y,
aggregating $3 million. These notes are subordinated to the senior debt. The
notes may be prepaid at the Company's option without penalty. In the event the
Company closes an initial public offering with minimum net proceeds of $15
million, the Company must use any amount over $15 million to prepay the unpaid
principal balance and accrued interest on these notes. One of the notes, in the
amount of $500,000, contains a non-detachable warrant that allows the holder, in
the event of an initial public offering of the Company, to purchase shares of
the Company's common stock by converting the note payable (A-Y Warrant). The
number of shares issuable upon conversion shall be calculated by dividing the
then outstanding principal balance of the note by an amount equal to 75 percent
of the fair value of one share of the Company's common stock at the date of
exercise. The A-Y Warrant expires the sooner of 20 days after the completion of
an initial public offering or February 25, 2000. In the event the warrant is
exercised, the excess of the fair value of the stock issued over the balance of
the note payable ($167,000) will be charged to interest expense in the period
the warrant is exercised.
Annual maturities of long-term debt as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31:
------------------------------------------------
<S> <C>
1998............................................ $ 3,156,000
1999............................................ 4,558,000
2000............................................ 4,595,000
2001............................................ 2,787,000
2002............................................ 16,912,000
Thereafter...................................... 10,036,000
-----------
$42,044,000
===========
</TABLE>
6. INCOME TAXES
The significant components of the Company's deferred income tax assets
(liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
Current deferred tax assets:
Inventory reserves................... $ -- $ 350,000
Allowance for bad debt............... -- -- 250,000
Other................................ -- -- 138,000
-------- -------- --------
$ -- $ -- $ 738,000
======== ======== ========
Long-term deferred tax liability --
Depreciation......................... $ -- $ -- $(200,000)
======== ======== ========
</TABLE>
Although realization of the above deferred tax assets is not assured,
management believes that realization is more likely than not through future
taxable earnings.
Prior to the recapitalization transaction completed in February 1997, the
Company was taxed as an S Corporation. Under these provisions, taxable income or
loss was included in the personal tax return of the stockholder of WCIC.
Therefore, no provision for federal or state income taxes was reflected in the
historical financial statements. As an S Corporation, the Company was subject to
a minimum franchise tax of $800, or
F-13
<PAGE> 71
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
1.5% of taxable income, which is included in the Company's tax provision for the
years ended December 31, 1994 and 1995.
Effective February 26, 1997, the Company terminated its S Corporation
status and converted to a C Corporation for both federal and state purposes. As
a result of this change in income tax status, the Company recorded an income tax
benefit of approximately $500,000 to establish net deferred tax assets during
the year ended March 31, 1997. The benefit for income taxes for the year ended
March 31, 1997 primarily represents this tax benefit net of C Corporation income
taxes.
7. STOCKHOLDERS' EQUITY
At March 31, 1997, the authorized capital stock of WCI consists of
10,000,000 shares of common stock and 5,000,000 shares of preferred stock, of
which 3,380,000 shares of preferred stock has been designated.
Senior Redeemable Preferred Stock
In connection with the recapitalization transaction, WCI issued 675,969 of
senior redeemable preferred stock (Senior Preferred Stock) in a private
placement for an aggregate price of $2,650,000. The Senior Preferred Stock
accrues cumulative dividends of eight percent per annum and, in the event of an
initial public offering (IPO) or the sale of the Company, has a mandatory
redemption feature. The Senior Preferred Stock is redeemable for the stated
amount plus accrued dividends (Redemption Price). In the event that WCI does not
complete an IPO or sale of the Company, WCI must offer to redeem the Senior
Preferred Stock on March 1, 2005 at the Redemption Price. The Senior Preferred
Stock has a total liquidation preference of $2,650,000 plus accrued dividends.
Accrued dividends of approximately $19,000 are included in accrued liabilities
as of March 31, 1997.
Convertible Preferred Stock
In connection with the recapitalization transaction, WCI issued 1,496,843
shares (convertible into 2,604,507 shares of Common Stock, post split) of Series
A-1 Preferred Stock ("A-1 Preferred") in a private placement for an aggregate
purchase price of $2,250,000. In addition, WCI issued 683,636 shares
(convertible into 1,189,527 shares of Common Stock, post split) of Series A-2
Preferred Stock ("A-2 Preferred") to WCIC's former shareholder, together with
other consideration, in exchange for all outstanding common shares of WCIC.
The A-1 Preferred and the A-2 Preferred accrue cumulative dividends of
approximately $393,000 per year. At the option of the holder, each share of the
A-1 and A-2 Preferred can be converted into one share (1.74 shares, post split)
of common stock. Such conversion is automatic in the event of an IPO or upon
merger or sale of the Company. The conversion rate is subject to adjustment
under certain circumstances pursuant to anti-dilution provisions. In addition,
the A-2 Preferred is subject to redemption at $.0146 per share if the Company
does not attain certain earnings levels during the three cumulative fiscal years
ending 1999 and the five cumulative fiscal years ended 2001, as defined. Accrued
dividends of approximately $36,000 are included in accrued liabilities as of
March 31, 1997.
Common Stock Warrants
In connection with the issuance of the Senior Redeemable Preferred Stock,
the Company issued warrants to purchase 675,969 shares (1,176,186 shares, post
split) of common stock at an exercise price of $0.01 per share ($.006 per share,
post split) (estimated fair value). The warrants expire on March 1, 2007.
F-14
<PAGE> 72
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
8. EMPLOYEE BENEFIT PLANS
Employee Stock Option Plan
On March 19, 1997, the Company adopted the 1997 Long Term Incentive and
Stock Option Plan ("the Plan"). The Plan reserves for issuance to employees,
members of the board of directors, consultants and independent contractors a
maximum of 379,798 shares of the Company's A-1 Preferred or common stock
(convertible into 660,849 shares of Common Stock, post split) upon exercise of
stock options, stock appreciation rights, and restricted or performance stock
awards. Stock options may be granted as "Incentive Stock Options" (as defined by
the Internal Revenue Code of 1986) or as nonqualified options. The exercise
price is determined by the Compensation Committee and may not be less than 100
percent of the fair market value at the date of grant. For Incentive Stock
Options the exercise price for options granted to individuals who own more than
ten percent of the total combined voting power of all classes of the stock of
the Company shall be 110 percent of the fair value at the date of grant. Each
option and award shall expire on the date determined by the Compensation
Committee but may not extend beyond ten years for incentive stock options and
fifteen years for nonqualified options. Awards under the Plan may be granted
through February 1, 2007.
Options to acquire an aggregate of 348,976 shares of A-1 Preferred
(convertible into 607,218 shares of Common Stock, post split) at an exercise
price of $4.31 per share were granted to employees on March 31, 1997. The
options vest over five years, beginning September 30, 1997 and expire March 31,
2007. At March 31, 1997, a total of 30,822 shares (convertible into 53,630
shares of Common Stock, post split) remain available for future grant under the
Plan.
The Company has adopted the disclosure-only provision of SFAS 123.
Accordingly, no compensation cost has been recorded for stock option grants. Had
compensation cost for the Plan been determined based on the fair value at the
grant date for awards in fiscal 1997 consistent with the provision of SFAS 123,
the effect would not have been material for all periods presented.
The fair value of each A-1 Preferred option is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 1997: Dividend yield of
zero percent; zero expected volatility; risk-free rate of 6.38 percent; and
expected lives of five years. The weighted-average exercise price of the options
granted during fiscal 1997 is $4.31 per share and the weighted-average fair
value is $1.18 per share.
401(k) Plan
The Company maintains a defined contribution benefit plan (the "401(k)
Plan") covering substantially all of its employees. Company contributions to the
401(k) Plan are voluntary and at the discretion of the Company. The Company's
expense related to the 401(k) Plan totaled $152,000 and $131,000 for the years
ended December 31, 1994 and December 31, 1995, $2,000 for the three months ended
March 31, 1996 and $99,000 for the year ended March 31, 1997.
Other
On February 25, 1997 a major shareholder of the Company sold 100,000 shares
(convertible into 174,000 shares of Common Stock, post split) of Series A-2
convertible preferred stock to an officer of the Company for the estimated fair
value of $.0146 per share. Of the shares, 80,000 (convertible into 139,200
shares of Common Stock, post split) are subject to repurchase by the major
shareholder. The repurchase option lapses at a rate of 25% a year for such
shares commencing February 25, 1998.
F-15
<PAGE> 73
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has entered into operating leases that expire at various dates
through 2004. Total rental expense under these operating leases was
approximately $1,663,000 and $1,743,000 for the years ended December 31, 1994
and 1995, $443,000 for the three months ended March 31, 1996 and $1,868,000 for
the year ended March 31, 1997. Future minimum rentals on these operating leases
are as follows:
<TABLE>
<S> <C>
YEAR ENDING MARCH 31:
-------------------------------------------------
1998............................................. $1,730,000
1999............................................. 1,622,000
2000............................................. 1,560,000
2001............................................. 1,241,000
2002............................................. 1,030,000
Thereafter....................................... 2,236,000
----------
$9,419,000
==========
</TABLE>
Employment Agreements/Bonus Plans
The Company entered into employment agreements with certain key management
employees with a minimum term of 5 years. These agreements specify annual base
salary levels, incentive bonuses which are payable if the Company attains
certain earnings goals, as defined, and severance provisions that range from
zero to three years of base compensation. The Company accrues for these bonuses
based on management's estimates of achieving such performance goals and has
included these amounts in accrued liabilities at March 31, 1997. One employment
agreement contains a guaranteed bonus of $1 million which is being accrued over
the three year period benefitted. In the event of an initial public offering,
this bonus becomes immediately earned. The Company will record the remaining
unamortized amount of this bonus in the period the IPO closes ($890,000 at July
1, 1997).
Loan Guarantee
The Company leases certain facilities under operating lease agreements with
one of the Company's stockholders and the Company currently guarantees the debt
of the stockholder related to this property. The stockholder is currently in the
process of refinancing this debt and, in management's opinion, the Company will
be released as a guarantor when the refinancing is completed.
10. SUBSEQUENT EVENTS -- (UNAUDITED)
Acquisitions of Stop Supply, Inc. and Viking Distributing Co., Inc.
Effective May 1, 1997, the Company acquired the common stock of Stop
Supply, Inc. ("Stop") in exchange for approximately $3,275,000 in cash and a
warrant exercisable into common stock of the Company at 75 percent of the
initial public offering price, up to a maximum of $250,000. Stop currently
operates one construction supply store located in Central California. Effective
June 25, 1997, the Company acquired the common stock of Viking Distributing Co.,
Inc. ("Viking") in exchange for approximately $15,750,000 in cash and the
assumption of $500,000 of short-term debt. Viking operates three construction
supply stores located in Northern California. In connection with these
acquisitions, the Company borrowed an additional $8 million under the Senior
Subordinated Investor Agreement and approximately $13 million under the Senior
Loan and Security Agreement (see Note 5). In connection with these acquisitions
the maximum borrowings provided
F-16
<PAGE> 74
WHITE CAP INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997 ARE UNAUDITED)
for under the Company's revolving line of credit was increased to $35 million.
The terms of the amended Agreement also provide for seasonal maximum borrowings
of $38 million.
Proposed Public Offering
Subsequent to March 31, 1997 the Company has proposed the filing of a Form
S-1 Registration Statement with the Securities and Exchange Commission to sell
common stock to the public. The majority of such proceeds will be used to repay
debt. If the Company is successful at completing this offering and repaying the
debt, it will incur debt prepayment charges of approximately $7.8 million, which
will be charged to operations in the period the debt is repaid. In addition, if
the Company is successful at completing this offering, the Company will write
off approximately $1.2 million associated with capitalized debt issuance costs.
F-17
<PAGE> 75
To the Board of Directors
A-Y SUPPLY, INC.
North Highlands, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of A-Y SUPPLY, INC. as of
December 31, 1995, and the related statements of income, stockholder's equity
and retained earnings and cash flows for the years ended December 31, 1995 and
1994. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A-Y SUPPLY INC. as of
December 31, 1995, and the results of its operations and its cash flows for the
years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
BURNETT, UMPHRESS & KILGOUR
Rancho Cordova, California
March 1, 1996
F-18
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To A-Y Supply, Inc.:
We have audited the accompanying balance sheet of A-Y SUPPLY, INC. (a
California corporation) as of December 31, 1996, and the related statements of
income, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of A-Y Supply, Inc. as of December 31, 1995,
were audited by other auditors whose report dated March 1, 1996, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A-Y Supply, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Sacramento, California
January 31, 1997
F-19
<PAGE> 77
A-Y SUPPLY, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash.............................................................. $1,387,893 $1,323,206
Receivables....................................................... 2,415,939 2,776,951
Inventory......................................................... 1,734,438 2,941,360
Prepaid expenses.................................................. 4,494 22,035
Property held for sale............................................ 824,841 --
Assets to be distributed to stockholders.......................... -- 904,228
---------- ----------
Total current assets...................................... 6,367,605 7,967,780
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation of $765,330, and $703,255 in 1996 and 1995
respectively...................................................... 894,497 903,202
COVENANT NOT TO COMPETE, net of accumulated amortization of $6,612
and $6,112 in 1996 and 1995, respectively......................... 5,500 5,000
---------- ----------
Total assets.............................................. $7,267,602 $8,875,982
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable...................................................... $ 350,000 $ 350,000
Accounts payable.................................................. 1,278,528 1,462,050
Accrued expenses.................................................. 187,694 227,023
Current maturity of long-term debt................................ 107,538 130,466
Payable to stockholders for assets to be distributed.............. -- 904,228
---------- ----------
Total current liabilities................................. 1,923,760 3,073,767
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturity........................... 149,218 117,711
Note payable -- related party..................................... 200,000 200,000
---------- ----------
Total long-term liabilities............................... 349,218 317,711
---------- ----------
Total liabilities......................................... 2,272,978 3,391,478
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 100,000 shares authorized, 348 shares
issued and outstanding......................................... 34,800 34,800
Retained earnings................................................. 4,959,824 5,449,704
---------- ----------
Total stockholders' equity................................ 4,994,624 5,484,504
---------- ----------
Total liabilities and stockholders' equity................ $7,267,602 $8,875,982
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 78
A-Y SUPPLY, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
SALES............................................... $17,490,588 $21,669,850 $25,708,057
COST OF SALES....................................... 12,471,375 15,446,837 17,319,781
----------- ----------- -----------
Gross profit from sales........................... 5,019,213 6,223,013 8,388,276
EQUIPMENT RENTAL INCOME, net........................ 304,664 390,898 367,218
----------- ----------- -----------
Gross profit from operations...................... 5,323,877 6,613,911 8,755,494
SELLING EXPENSES.................................... 1,917,912 2,160,933 2,534,883
GENERAL AND ADMINISTRATIVE EXPENSES................. 2,415,935 2,488,818 3,147,477
----------- ----------- -----------
Income from operations............................ 990,030 1,964,160 3,073,134
WRITEDOWN OF ASSETS TO BE DISTRIBUTED TO FAIR MARKET
VALUE............................................. -- -- (61,780)
OTHER INCOME........................................ 230,279 160,836 155,446
OTHER EXPENSES...................................... (33,967) (43,976) (135,214)
----------- ----------- -----------
Income before provision for taxes................. 1,186,342 2,081,020 3,031,586
PROVISION FOR INCOME TAX............................ 17,725 29,821 50,470
----------- ----------- -----------
Net income........................................ $ 1,168,617 $ 2,051,199 $ 2,981,116
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 79
A-Y SUPPLY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993..................... 348 $34,800 $3,014,422 $3,049,222
Net Income..................................... -- -- 1,168,617 1,168,617
Distributions to stockholders.................. -- -- (684,329) (684,329)
--- ------- ---------- ----------
BALANCE AT DECEMBER 31, 1994..................... 348 34,800 3,498,710 3,533,510
Net Income..................................... -- -- 2,051,199 2,051,199
Distributions to stockholders.................. -- -- (590,085) (590,085)
--- ------- ---------- ----------
BALANCE AT DECEMBER 31, 1995..................... 348 34,800 4,959,824 4,994,624
Net Income..................................... -- -- 2,981,116 2,981,116
Distributions to stockholders.................. -- -- (1,587,008) (1,587,008)
Assets to be distributed to stockholders....... -- -- (904,228) (904,228)
--- ------- ---------- ----------
BALANCE AT DECEMBER 31, 1996..................... 348 $34,800 $5,449,704 $5,484,504
=== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 80
A-Y SUPPLY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $1,168,617 $2,051,199 $ 2,981,116
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization........................ 163,658 189,188 252,553
Provision for doubtful accounts...................... 21,574 32,939 25,460
Provision for inventory reserve...................... -- -- 22,000
Writedown of assets to fair market value............. -- -- 61,780
Changes in assets and liabilities --
Accounts receivable.................................. (69,981) (623,610) (386,472)
Increase (decrease) in inventory..................... 54,919 (145,993) (1,228,922)
Prepaid expenses..................................... 14,096 11,222 (17,541)
Increase (decrease) in accounts payable.............. (260,129) 174,576 189,573
Accrued expenses..................................... 15,320 48,946 33,278
---------- ---------- -----------
Net cash provided by operating activities....... 1,108,074 1,738,467 1,932,825
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for equipment and leasehold
improvements......................................... (149,273) (322,782) (502,835)
Proceeds from disposition of equipment.................. 36,963 25,590 179,429
Investment in property held for sale.................... (474,319) (350,522) (78,519)
Proceeds from employees................................. 15,006 92 --
---------- ---------- -----------
Net cash used in investing activities........... (571,623) (647,622) (401,925)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new debt.................................. 350,000 -- 350,000
Principal payments on debt.............................. (102,994) (106,936) (358,579)
Distributions to stockholders........................... (684,329) (590,085) (1,587,008)
---------- ---------- -----------
Net cash used in financing activities........... (437,323) (697,021) (1,595,587)
---------- ---------- -----------
Net increase (decrease) in cash................. 99,128 393,824 (64,687)
CASH, beginning of year................................... 894,941 994,069 1,387,893
---------- ---------- -----------
CASH, end of year......................................... $ 994,069 $1,387,893 $ 1,323,206
========== ========== ===========
SUPPLEMENTAL DISCLOSURES REGARDING CASH FLOWS:
Cash paid for --
Income tax........................................... $ 23,825 $ 26,800 $ 42,620
========== ========== ===========
Interest............................................. $ 53,907 $ 60,257 $ 56,803
========== ========== ===========
Noncash items --
Assets to be distributed to stockholders............. -- -- $ 904,228
Automotive equipment purchased through debt.......... $ 86,209 $ 294,801 $ --
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 81
A-Y SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Activities
A-Y Supply, Inc. (the "Company") is engaged primarily in the wholesale
distribution of construction materials and supplies to contractors and the
rental and repair of construction equipment. The Company has facilities located
in North Highlands, Stockton, San Leandro, Clovia and Santa Rosa, California.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Concentration of Credit Risk
Cash includes amounts deposited in financial institutions in excess of
Federal Deposit Insurance Corporation limits.
Inventory
Inventory consists of building materials, supplies, tools and equipment
which is stated at the lower of cost (determined on the first-in, first-out
method) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost and include
improvements that significantly add to the asset's productivity or extend its
useful life. Costs of maintenance and repairs are charged to expense. Upon
retirement or disposal of equipment and leasehold improvements, the costs and
related depreciation are removed from the accounts, and gain or loss, if any, is
reflected in current operations. Rental equipment represents assets held for
rental to customers. Depreciation is computed using the straight-line and
declining balance method. The estimated useful lives used for calculating
depreciation for equipment and leasehold improvements are as follows:
<TABLE>
<CAPTION>
LIFE
-------------
<S> <C>
Automotive equipment........................... 5 years
Office equipment............................... 5 - 7 years
Rental equipment............................... 5 years
Leasehold improvements......................... 5 - 39 years
</TABLE>
Covenant Not to Compete
The covenant not to compete is being amortized over 240 months.
Amortization expense for the years ended 1996, 1995 and 1994 was $500 and has
been included in general and administrative expenses.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, principally
long-term debt, approximate their estimated fair values.
F-24
<PAGE> 82
A-Y SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company passes through
the taxable income to its stockholders each year as earned. S corporations doing
business in California are subject to a 1.5% California franchise tax on taxable
income.
Reclassifications
Reclassifications have been made to the 1994 and 1995 financial statements
to conform to the 1996 presentation.
2. SALE TO OUTSIDE INVESTOR
In an agreement dated December 31, 1996, the stockholders have entered into
an agreement to sell the stock of the Company to an outside investor (the
"Investor") for agreed upon consideration. The closing purchase price is
contingent upon a calculation based upon net current assets (as defined in the
agreement) which includes certain audited current assets and current liabilities
of the Company as of December 31, 1996.
Prior to the agreement closing, the stockholders will distribute to
themselves assets listed on the 1995 balance sheet as property held for sale and
vehicles which are included in 1995 equipment and leasehold improvements. During
1996, these assets were written down to their fair market value and transferred
to assets to be distributed to stockholders on the 1996 balance sheet. The
related payable, termed payable to stockholders for assets to be distributed,
represents the distribution which will be made during 1997.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements as of December 31, 1995 and 1996
consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Automotive equipment........................ $ 784,161 $ 846,216
Office equipment............................ 174,331 215,200
Rental equipment............................ 513,660 475,267
Leasehold improvements...................... 125,600 131,849
---------- ----------
1,597,752 1,668,532
Less -- Accumulated depreciation............ (703,255) (765,330)
---------- ----------
$ 894,497 $ 903,202
========== ==========
</TABLE>
4. NOTE PAYABLE
As of December 31, 1995 the note payable consists of a $1,000,000 line of
credit with WestAmerica Bank. The line bears interest at prime plus 1.75% per
annum, payable monthly and expires on September 30, 1996. The line is secured by
inventory, chattel paper, accounts receivable, contract rights and general
intangibles. The line of credit is personally guaranteed by the Company
stockholders. As of December 31, 1995, there was an outstanding balance of
$350,000 on the note.
As of December 31, 1996, the note payable consists of a $350,000 short-term
promissory note with WestAmerica Bank. The note bears interest at the bank's
index rate plus .75% per annum, with interest payable monthly. The note expires
on May 31, 1997. The note is secured by inventory, chattel paper, accounts
receivable, contract rights and general intangibles. The note is personally
guaranteed by the Company stockholders.
F-25
<PAGE> 83
A-Y SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. LONG-TERM DEBT
Long-term debt as of December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Various auto loans, secured by automotive equipment,
aggregate monthly payments ranging from $481 to
$1,741, including principal and interest ranging
from 8.40% to 13.0%, due through October 2000...... $ 256,756 $ 248,177
Less -- Current maturity............................. (107,538) (130,466)
--------- ---------
$ 149,218 $ 117,711
========= =========
</TABLE>
Aggregate maturities on long-term debt over the next four years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
--------------------------------------------------
<S> <C>
1997.............................................. $130,466
1998.............................................. 73,842
1999.............................................. 33,351
2000.............................................. 10,518
--------
$248,177
========
</TABLE>
6. RELATED PARTY TRANSACTIONS
The note payable-related party represents an unsecured amount due to a
relative of the stockholder. Monthly interest payments are made at a rate of 8%
per annum. The note will be paid in full as a part of the purchase described in
Note 2.
The Company leases showroom, office, warehouse and distribution space
located in North Highlands, Stockton, San Leandro and Santa Rosa from the
stockholders under various informal operating lease agreements. These informal
agreements will be finalized prior to the sale described in Note 2.
Lease expense related to the above operating leases is reported in general
and administrative expenses. For the years ended December 31, 1994, 1995 and
1996, these expenses amounted to $298,338, $290,640 and $327,987, respectively.
7. 401(k) PLAN
The Company adopted a defined contribution 401(k) plan during the year
ended December 31, 1994. The amount contributed by the Company is to be
determined annually by the Board of Directors. During the year ended December
31, 1994, 1995, and 1996, the Company contributed approximately $19,927, $24,000
and $33,000 to the plan, respectively. This amount is included in general and
administrative expenses.
F-26
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Viking Distributing Co.:
We have audited the accompanying balance sheet of Viking Distributing Co.
as of March 31, 1997, and the related statements of operations, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Viking Distributing Co. as
of March 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
June 13, 1997
F-27
<PAGE> 85
VIKING DISTRIBUTING CO.
BALANCE SHEET AS OF MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 145,428
Accounts receivable, net of allowance for doubtful accounts of $43,000......... 3,939,518
Inventories.................................................................... 3,917,281
Prepaid expenses............................................................... 17,295
Deferred taxes................................................................. 487,981
----------
Total current assets........................................................ 8,507,503
PROPERTY AND EQUIPMENT, net...................................................... 943,124
DEPOSITS......................................................................... 28,012
----------
Total assets................................................................ $9,478,639
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................................... $ 214,140
Current maturities of obligations under capital leases......................... 33,299
Accounts payable............................................................... 2,281,603
Accrued liabilities............................................................ 1,169,259
Income taxes payable........................................................... 343,687
Sales taxes payable............................................................ 246,969
----------
Total current liabilities................................................... 4,288,957
----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities........................................ 501,828
Obligations under capital leases, less current maturities...................... 90,777
Deferred rent.................................................................. 32,392
----------
Total long-term liabilities................................................. 624,997
----------
Total liabilities........................................................... 4,913,954
----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 50,000 shares authorized; 33,363 shares issued and
outstanding................................................................. 51,000
Retained earnings.............................................................. 4,513,685
----------
Total stockholders' equity.................................................. 4,564,685
----------
Total liabilities and stockholders' equity.................................. $9,478,639
----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE> 86
VIKING DISTRIBUTING CO.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
NET SALES....................................................................... $35,191,898
COST OF GOODS SOLD.............................................................. 24,527,881
-----------
Gross profit.......................................................... 10,664,017
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 9,446,093
-----------
Income from operations................................................ 1,217,924
OTHER EXPENSE: Interest expense, net............................................ (280,175)
-----------
Income before provision for income taxes.............................. 937,749
PROVISION FOR INCOME TAXES...................................................... 402,178
-----------
Net income............................................................ $ 535,571
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE> 87
VIKING DISTRIBUTING CO.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996....................... 33,363 $51,000 $3,978,114 $ 4,029,114
Net income.................................. 0 0 535,571 535,571
------ ------- ---------- ----------
BALANCE, MARCH 31, 1997....................... 33,363 $51,000 $4,513,685 $ 4,564,685
------ ------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE> 88
VIKING DISTRIBUTING CO.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 535,571
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization............................................... 296,316
Changes in assets and liabilities:
Accounts receivable, trade................................................ (226,452)
Deferred taxes............................................................ (374,240)
Inventory................................................................. (444,161)
Prepaid expenses.......................................................... (3,759)
Accounts payable.......................................................... 96,537
Income taxes payable...................................................... (28,560)
Deferred rent............................................................. 8,046
Sales tax payable......................................................... 23,045
Accrued liabilities....................................................... 712,396
---------
Net cash provided by operations........................................ 594,739
---------
CASH FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................ (268,776)
---------
CASH FROM FINANCING ACTIVITIES:
Repayment on line of credit.................................................... (200,000)
Payments for long-term debt.................................................... (36,848)
---------
Net cash used for financing activities................................. (236,848)
Net increase in cash................................................... 89,115
CASH, beginning of year.......................................................... 56,313
---------
CASH, end of year................................................................ $ 145,428
---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest......................................... $ 260,000
Cash paid during the year for taxes............................................ 485,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE> 89
VIKING DISTRIBUTING CO.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Operations
Viking Distributing Co. (the Company) distributes a broad range of
professional-grade portable power tools, fasteners, construction equipment and
supplies to general contractors, specialty contractors and public agencies. The
majority of the Company's sales are in Northern California. The Company is
subject to certain risk factors, including, but not limited to, strong
competition and the volatility of the construction industry. This volatility can
adversely impact the Company's results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires certain estimates be made by management.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are made up of cash on hand and in the bank.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents that are
held by the Company's bank. The Company has not experienced any losses related
to its financial instruments.
Inventories
Inventories are stated at the lower of cost (weighted average, which
approximates first-in, first-out) or market.
Property and Equipment
Property, plant and equipment are carried at cost. Depreciation is computed
using the straight-line method over the useful lives of assets as follows:
<TABLE>
<S> <C>
Trucks and automobiles......................... 5 years
Furniture and fixtures......................... 7 years
Machinery and equipment........................ 3 to 5 years
10 years or the life of the lease,
Leasehold improvements......................... whichever is shorter
</TABLE>
Revenue Recognition
Sales are recognized as products are shipped.
Deferred Rent
Certain of the Company's leases contain fixed escalations of the minimum
annual lease payments during the original term of the lease. The Company
recognizes rent expense on a straight-line basis, recording the difference
between the rental amount charged to operations and the amount payable under the
lease as deferred rent.
F-32
<PAGE> 90
VIKING DISTRIBUTING CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under the liability method, deferred taxes are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
2. PROPERTY AND EQUIPMENT:
Property and equipment at March 31, 1997, consists of:
<TABLE>
<S> <C>
Trucks and automobiles.................................. $ 874,533
Machinery and equipment................................. 603,388
Leasehold improvements.................................. 395,473
Furniture and fixtures.................................. 71,990
-----------
Total......................................... 1,945,384
Less: Accumulated depreciation.......................... (1,002,260)
-----------
$ 943,124
===========
</TABLE>
Total depreciation expense for the year ended March 31, 1997, was $296,316.
Included in property and equipment are depreciated amounts totaling $150,000
related to assets held under capital leases.
3. BANK LINE OF CREDIT:
The Company has a line of credit agreement with a bank to provide for
short-term borrowings with interest at a rate of one point over the bank's prime
rate (9.50 percent at March 31, 1997). Loan advances of up to $1,000,000 are
available. The Company had no borrowings outstanding at March 31, 1997, under
this agreement. The outstanding principal is due and payable in full on March 1,
1998.
The Company is required by the bank to maintain certain financial covenants
covering current ratio, tangible net worth, ratio of total liabilities to
tangible net worth, and ratio of cash flow to debt service, and requiring
profitable operations (all as defined in the agreement) in addition to certain
nonfinancial covenants. The Company was in compliance with all of these
covenants as of March 31, 1997.
4. NOTES PAYABLE:
The Company has the following notes payable at March 31, 1997:
<TABLE>
<S> <C>
Notes payable to the principal stockholders of the Company, bearing
interest at 12 percent per annum; maturing in June 2001................ $ 150,000
Notes payable to related parties, collateralized by several of the
Company's trucks and automobiles, payable in monthly installments,
including interest at annual percentage rates ranging from 9 percent to
9.5 percent and maturing between August 1997 and March 1999............ 123,871
Notes payable to a number of financial institutions, collateralized by
several of the Company's trucks and automobiles, payable in monthly
installments, including interest at annual percentage rates ranging
from 8.75 percent to 10 percent and maturing between December 1997 and
June 1999.............................................................. 87,097
</TABLE>
F-33
<PAGE> 91
VIKING DISTRIBUTING CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
<TABLE>
<S> <C>
Note payable to a bank, collateralized by receivables, inventories and
equipment, payable in 60 monthly installments of principal of $5,000
plus interest at 1.25 percent above the bank's prime rate (9.5 percent
at March 31, 1997), maturing on March 1, 2001.......................... 240,000
Note payable to a bank, collateralized by receivables, inventories and
equipment, payable in 60 monthly installments of principal of $1,667
plus interest at 1.25 percent above the bank's prime rate (9.5 percent
at March 31, 1997), maturing on June 15, 2000.......................... 65,000
Note payable to a bank, collateralized by receivables, inventories and
equipment, payable in 48 monthly installments of principal of $3,125
plus interest at 1.25 percent above the bank's prime rate (9.5 percent
at March 31, 1997), maturing on June 15, 1998.......................... 50,000
---------
Notes payable............................................................ 715,968
Less: Current maturities................................................. (214,140)
---------
Notes payable, net of current maturities................................. $ 501,828
---------
</TABLE>
Future minimum debt repayments under the notes payable above are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------------------------
<S> <C>
1998....................................... $214,140
1999....................................... 164,025
2000....................................... 103,573
2001....................................... 81,736
2002....................................... 152,494
--------
$715,968
========
</TABLE>
5. LEASES:
The Company conducts its operations from leased facilities consisting of a
main office and warehouse facility and branch sales offices, warehouses and
retail stores. All leases are classified as operating leases and all have a
five-year term. The leases generally provide that the Company pay the taxes,
insurance and maintenance expenses related to the leased properties.
The Company also leases certain vehicles and computer equipment under
capital leases.
F-34
<PAGE> 92
VIKING DISTRIBUTING CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
The future minimum lease payments in the aggregate are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31 CAPITAL OPERATING
-------------------------------------------------------- ------- ----------
<S> <C> <C>
1998.................................................. $42,974 $ 351,278
1999.................................................. 42,974 366,544
2000.................................................. 40,148 307,634
2001.................................................. 22,387 50,047
2002.................................................. 2,974 0
------- ----------
151,457 $1,075,503
=========
Less: Amounts allocated to interest..................... 27,381
-------
Present value of net minimum payments................... 124,076
Less: Current maturities................................ 33,299
-------
Long-term capital obligations........................... $90,777
=======
</TABLE>
Total rent expense under building leases was $326,544 for the year ended
March 31, 1997.
The Company is involved in various lawsuits, claims and injuries that are
incidental to its business. In the opinion of management, the resolution of
these matters will not materially affect the business position, results of
operations or liquidity of the Company.
6. INCOME TAXES:
The provision for income taxes shown in the accompanying statement of
operations is composed of the following for the year ended March 31, 1997:
<TABLE>
<S> <C>
Current:
Federal........................................ $ 605,605
State.......................................... 170,813
---------
776,418
---------
Deferred:
Federal........................................ (282,875)
State.......................................... (91,365)
---------
(374,240)
---------
$ 402,178
=========
</TABLE>
The deferred tax asset reflected in the accompanying balance sheet includes
the following at March 31, 1997:
<TABLE>
<S> <C>
Deferred taxes:
Accrued bonuses................................. $160,000
Accrued vacation and other benefits............. 142,648
Accrued profit sharing.......................... 62,250
State franchise taxes payable................... 11,859
Obsolescence reserve............................ 21,420
Capitalized overheads related to inventory...... 45,365
Other........................................... 44,439
--------
$487,981
========
</TABLE>
F-35
<PAGE> 93
VIKING DISTRIBUTING CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
7. PROFIT-SHARING PLAN:
The Company operates a profit-sharing plan covering all of its eligible
employees. The Company can contribute, at the discretion of the Board of
Directors, up to 15 percent of qualified wages to the plan. For the year ended
March 31, 1997, the Company declared a contribution of $150,000 to the plan,
which is included in accrued liabilities at March 31, 1997.
8. SUBSEQUENT EVENT:
During March 1997, the principal stockholders of the Company entered into
an agreement to sell all of the Company's stock to an outside investor for an
agreed-upon consideration as defined in the agreement. This agreement is
expected to close during June 1997. Prior to the closing, the current
stockholders will distribute to themselves $400,000 in bonuses which are
included in accrued liabilities at March 31, 1997.
F-36
<PAGE> 94
[PHOTOS OF COMPANY'S PRODUCTS AND/OR FACILITIES]
<PAGE> 95
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 7
Recent Transactions....................... 11
Use of Proceeds........................... 12
Dividend Policy........................... 12
Dilution.................................. 13
Capitalization............................ 14
Unaudited Pro Forma Combined Financial
Data.................................... 15
Selected Historical Financial and
Operating Data.......................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 27
Management................................ 38
Principal and Selling Stockholders........ 46
Description of Capital Stock.............. 48
Description of Certain Indebtedness....... 50
Certain Relationships and Related
Transactions............................ 51
Shares Eligible for Future Sale........... 52
Underwriting.............................. 54
Legal Matters............................. 55
Experts................................... 56
Additional Information.................... 56
Index to Financial Statements............. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
4,000,000 SHARES
[WHITE CAP INDUSTRIES LOGO]
[WHITE CAP INDUSTRIES
COLOR LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCAMERICA ROBERTSON STEPHENS
, 1997
======================================================
<PAGE> 96
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
<TABLE>
<S> <C>
SEC registration fee..................................... $ 26,137
NASD filing fee.......................................... 27,850
Nasdaq National Market original listing fee.............. 50,000
Blue sky fees and expenses (including attorneys' fees and
expenses).............................................. 60,000
Printing and engraving expenses.......................... 210,000
Transfer agent's fees and expenses....................... 3,500
Accounting fees and expenses............................. 300,000
Legal fees and expenses.................................. 310,000
Miscellaneous expenses................................... 290,000
----------
Total.......................................... $1,250,000
==========
</TABLE>
All amounts are estimated except for the SEC registration fee and the NASD
filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any person who is, or
is threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any person who is, or is threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
Section 145.
In that regard, the Certificate of Incorporation provides that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of
II-1
<PAGE> 97
the corporation) by reason of the fact that he is or was a director or officer
of such corporation, or is or was serving at the request of such corporation as
a director, officer or member of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of such corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Indemnification in connection with an action or suit by or in the right of such
corporation to procure a judgment in its favor is limited to payment of
settlement of such an action or suit except that no such indemnification may be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the indemnifying corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1997, in connection with its incorporation and initial
capitalization, the registrant issued Greg Grosch, its Chief Executive Officer:
(i) a $1.5 million subordinated note, which note is being repaid with the
proceeds of the offering made hereby (the "Offering"); (ii) warrants to acquire
shares of convertible preferred stock (subsequently exercised by Mr. Grosch),
which shares will automatically convert into 68,364 shares of Common Stock upon
consummation of the Offering; (iii) 50,000 shares of Common Stock, and (iv)
Convertible Preferred Stock which will automatically convert into 1,538,182
shares of Common Stock upon consummation of the Offering. In connection with the
incorporation and capitalization transactions described above, (i) shares of
redeemable preferred stock and warrants to purchase Common Stock were purchased
by three investment funds and (ii) 550,000 shares of Common Stock and
Convertible Preferred Stock which will automatically convert into 573,933 shares
of Common Stock were issued to KRG Capital Investments II, LLC. Such shares of
redeemable preferred stock will be redeemed upon consummation of the Offering.
In connection with the registrant's acquisition of Viking Distributing Company,
Inc. ("Viking Distributing"), 60,000 shares of Series B Preferred Stock were
issued to the former owners of Viking Distributing. Such shares will
automatically convert into shares of Common Stock on a share-for-share basis
upon consummation of the offering but will remain subject to a repurchase right
by the Company if certain performance targets are not achieved for the Northern
California operations of the registrant. In connection with the registrant's
acquisition of A-Y Supply, Inc. ("A-Y Supply"), a $500,000 subordinated
convertible promissory note convertible into a number of shares of Common Stock
determined by dividing $500,000 by 75% of the initial offering price per share
specified herein was issued to the former owners of A-Y Supply. In connection
with the registrant's acquisition of Stop Supply, Inc. ("Stop Supply"), warrants
to acquire up to $250,000 of Common Stock at an exercise price equal to 75% of
the initial offering price per share specified herein were issued to the former
owners of Stop Supply. Each of the foregoing issuances was exempt from
registration under Section 4(2) of the Securities Act of 1933.
II-2
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement.
3.1 Form of Restated Certificate of Incorporation of the registrant.
3.2 Form of Restated Bylaws of the registrant.
4.1 Form of certificate representing shares of Common Stock, $0.01 par value
per share.
4.2* Form of Credit Agreement.
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Form of Stock Incentive Plan.
10.2 Form of Employment Agreement by and between White Cap Industries, Corp.
(formerly White Cap Industries, Inc.) ("WCI") and Greg Grosch.
10.3 Form of Employment Agreement by and between WCI and Richard Gagnon.
10.4** Employment Agreement by and between WCI and Chris Lane.
10.5** Employment Agreement dated as of June 24, 1997 by and between WCI and
Michael Monroe.
10.6** Employment Agreement dated as of June 24, 1997 by and between WCI and
Albert Malatesta.
10.7 Form of Transaction Advisory Agreement by and among the registrant, WCI
and KRG Capital Partners, LLC.
10.8 Form of Stockholders Agreement among the registrant, KRG Capital Partners,
LLC, Greg Grosch and certain other stockholders.
11.1** Earnings Per Share.
21.1** Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Burnett, Umphress & Kilgour.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1** Powers of Attorney
27.1** Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES:
Schedule II was previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or
II-3
<PAGE> 99
in the aggregate, represent a fundamental change in the information set
forth in this registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that the undertakings set forth in paragraph (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed
to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
In addition, the undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such securities
at that time shall be deemed to be the initial bona fide Offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide Offering thereof.
II-4
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Costa Mesa,
State of California on October 17, 1997.
WHITE CAP HOLDINGS, INC.
By: /s/ GREG GROSCH
------------------------------------
Name: Greg Grosch
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 16, 1997, by or on behalf of
the following persons in the capacities indicated with respect to White Cap
Holdings, Inc.:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ GREG GROSCH Chairman, Chief Executive Officer,
- --------------------------------------------- President and Director
Greg Grosch (principal executive officer)
/s/ CHRIS LANE Chief Financial Officer and Director
- --------------------------------------------- (principal accounting and financial officer)
Chris Lane
* Director
- ---------------------------------------------
Dan Tsujioka
* Director
- ---------------------------------------------
Mark M. King
* Director
- ---------------------------------------------
James A. Johnson
* Director
- ---------------------------------------------
Bruce L. Rogers
* Director
- ---------------------------------------------
Charles R. Gwirtsman
* Director
- ---------------------------------------------
Charles A. Hamilton
*By: /s/ CHRIS LANE
- ---------------------------------------------
Chris Lane
Attorney-in-fact
</TABLE>
II-5
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement.
3.1 Form of Restated Certificate of Incorporation of the registrant.
3.2 Form of Restated Bylaws of the registrant.
4.1 Form of certificate representing shares of Common Stock, $0.01 par value
per share.
4.2* Form of Credit Agreement.
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Form of Stock Incentive Plan.
10.2 Form of Employment Agreement by and between White Cap Industries, Corp.
(formerly White Cap Industries, Inc.) ("WCI") and Greg Grosch.
10.3 Form of Employment Agreement by and between WCI and Richard Gagnon.
10.4** Employment Agreement by and between WCI and Chris Lane.
10.5** Employment Agreement dated as of June 24, 1997 by and between WCI and
Michael Monroe.
10.6** Employment Agreement dated as of June 24, 1997 by and between WCI and
Albert Malatesta.
10.7 Form of Transaction Advisory Agreement by and among the registrant, WCI
and KRG Capital Partners, LLC.
10.8 Form of Stockholders Agreement among the registrant, KRG Capital Partners,
LLC, Greg Grosch and certain other stockholders.
11.1** Earnings Per Share.
21.1** Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Burnett, Umphress & Kilgour.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1** Powers of Attorney
27.1** Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 3.1
[FORM OF]
RESTATED CERTIFICATE OF INCORPORATION
OF
WHITE CAP HOLDINGS, INC.
ARTICLE I - Name
The name of the corporation is White Cap Industries, Inc. (hereinafter
referred to as the "Corporation").
ARTICLE II - Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, County of New Castle, Wilmington, Delaware
19801. The name of the registered agent of the Corporation at that address is
The Corporation Trust Company.
ARTICLE III - Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
ARTICLE IV - Capital Stock
Section A. General. The total number of shares of stock that the
Corporation is authorized to have outstanding at any one time is 21,000,000
shares consisting of 20,000,000 shares of Common Stock, par value $.01 per share
(the "Common Stock"), and 1,000,000 shares of Preferred Stock, par value $1.00
per share (the "Preferred Stock").
Section B. Common Stock. Except as otherwise provided by the Delaware
General Corporation Law, by this Restated Certificate of Incorporation and
subject to the rights of holders of any series of Preferred Stock, the holders
of record of Common Stock shall share ratably all dividends in cash, stock or
otherwise in such amounts as the board of directors of the Corporation may from
time to time determine and, are subject to all the powers, rights, privileges,
preferences and priorities of any series of Preferred Stock as provided herein
or in any resolution or resolutions adopted by the board of directors pursuant
to authority expressly vested in it by the provisions of Section C of this
ARTICLE IV. Upon liquidation, dissolution or winding up of the Corporation, the
-1-
<PAGE> 2
holders of the Common Stock are entitled to receive pro rata, the assets of the
Corporation which are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
Preferred Stock then outstanding.
(a) The Common Stock shall not be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the Corporation's capital stock.
(b) No holder of Common Stock shall have any preemptive,
subscription, redemption, conversion or sinking fund rights with respect to the
Common Stock, or to any obligations convertible (directly or indirectly) into
stock of the Corporation whether now or hereafter authorized.
(c) Except as otherwise provided by the Delaware General
Corporation Law, by this Restated Certificate of Incorporation and subject to
the rights of holders of any series of Preferred Stock, all of the voting power
of the stockholders of the Corporation shall be vested in the holders of the
Common Stock, and each holder of Common Stock shall have one vote for each share
held by such holder on all matters voted upon by the stockholders of the
Corporation.
Section C. Preferred Stock. Authority is hereby expressly vested in the
board of directors of the Corporation, subject to the provisions of this ARTICLE
IV and to the limitations prescribed by law, to authorize the issuance from time
to time of one or more series of Preferred Stock. The authority of the board of
directors with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of the majority of the total number of the directors then
in office:
(a) The designation of such series;
(b) The dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes or series of
the Corporation's capital stock, and whether such dividends shall be cumulative
or non-cumulative;
(c) Whether the shares of such series shall be subject to
redemption for cash, property or rights, including securities of any other
corporation, by the Corporation or upon the happening of a specified event, and,
if made subject to any such redemption, the times or events, prices, rates,
adjustments and other terms and conditions of such redemptions;
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) Whether or not the shares of such series shall be
convertible into, or exchangeable for, at the option of either the holder or the
Corporation or upon the happening of a specified event, shares of any other
class or classes or any other series of the same class of the
-2-
<PAGE> 3
Corporation's capital stock, and, if provision be made for conversion or
exchange, the times or events, prices, rates, adjustments and other terms and
conditions of such conversions or exchanges;
(f) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(g) The rights of the holders of the shares of such series
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(h) The provisions as to voting, optional and/or other special
rights and preferences, if any, including, without limitation, the right to
elect one or more directors.
Section D. Series B Convertible Preferred Stock
(a) Designation; Shares Authorized. Sixty thousand (60,000) of
the shares of preferred stock authorized by this Article IV are hereby
designated as "Series B Convertible Preferred Stock" (hereinafter referred to as
"Series B Preferred Shares"). Such number of shares may be decreased by
resolution of the Board of Directors adopted and filed pursuant to DGCL Section
151(g) or any successor provision; provided, that no such decrease shall reduce
the number of authorized Series B Preferred Shares to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, warrants, convertible or
exchangeable securities or other rights to acquire Series B Preferred Shares.
(b) Stated Capital. The par value and the amount to be
represented in the stated capital of the Corporation for each Series B Preferred
Share shall be $0.01.
(c) Rank. The Series B Preferred Shares shall rank (i) junior
to all of the Corporation's shares of senior redeemable preferred stock, par
value $0.01 per share, and Series A-1 and A-2 convertible preferred stock, par
value $0.01 per share, (ii) prior to all of the Corporation's Common Stock, and
(iii) except as otherwise may be set forth in the herein or a resolution of the
Board of Directors adopting other series of preferred stock consistent with
Section D(d)(iii)(C)(a), prior to or pari passu with all other shares of the
Corporation's preferred stock hereafter issued, as to payment of dividends and
as to distributions of assets upon the Equitation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
(d) Description of Series B Preferred Shares. The rights,
preferences, privileges and restrictions granted to or imposed upon the Series B
Preferred Shares or the holders thereof are as follows:
(i) Voting Rights. Except as may be required by law,
holders of Series B Preferred Shares shall not be entitled to
vote with holders of the Common Stock for the election of
directors and other makers submitted to a vote of holders of
Common
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<PAGE> 4
Stock. Each holder of Series B Preferred Shares shall have the
special voting rights which are described in subsection
D(d)(iii)(C).
(ii) Preemptive Rights. Holders of Series B Preferred
Shares shall not be entitled, as a matter of right, to
subscribe for, purchase or receive any part of any stock of
the Corporation of any class whatsoever, or of securities
convertible into or exchangeable for any stock of any class
whatsoever, whether now or hereafter authorized and whether
issued for cash or other consideration or by way of dividend.
(iii) Other Rights, Preferences, Privileges and
Restrictions.
(A) Dividends. The holder of each Series B
Preferred Share shall participate ratably with holders of the
shares of Common Stock in any dividends declared by the
Corporation's Board of Directors on the Common Stock based
upon the number of shares of Common Stock into which each
Series B Preferred Share is convertible at the time of such
declaration. In no event shall any dividend be paid, nor shall
any distribution be made, on the Common Stock, unless all
dividends on the Series B Preferred Shares shall have been
paid or declared and a sum sufficient for the payment thereof
set apart for payment.
(B) Liquidation Right and Preference. In the
event of the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of
Series B Preferred Shares shall be entitled to receive in
cash, out of the assets of the Corporation, an amount equal to
(i) $0.10 per share for each outstanding Series B Preferred
Share held by such holder (the "Stated Value Per Share"), plus
(ii) all declared but unpaid dividends (the aggregate value of
(i) and (ii) hereinafter referred to as the "Liquidation
Preference"), before any payment shall be made or any assets
distributed to the holders of shares of Common Stock or any
other class of shares of the Corporation ranking junior to
Series B Preferred Shares. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of
the Corporation are insufficient to pay such Liquidation
Preference, the holders of such Series B Preferred Shares
shall share pro rata in any such distribution in proportion to
the full amounts to which they would otherwise be respectively
entitled. Following such payment to the holders of Series B
Preferred Shares upon such liquidation, dissolution or winding
up of the Corporation, the holders of shares of Common Stock
and Series B Preferred Shares (as if such Series B Preferred
Shares had been converted into shares of Common Stock pursuant
to subsection D(d)(iii)(D)hereof) shall then be entitled to
share ratably in all the assets of the Corporation thereafter
remaining.
The sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, shall be
deemed to be a liquidation or dissolution of the Corporation
for purposes of this subsection D(d)(iii)(B).
-4-
<PAGE> 5
(C) Special Voting Rights. Without the
affirmative vote of the holders (acting together as a class)
of at least 662/3% of the Series B Preferred Shares at the
time outstanding (including, for such purpose, any holder of
any warrant to purchase any shares of Series B Preferred
Shares) given in person or by proxy at any annual meeting, or
at such special meeting called for that purpose, or, if
permitted by law, in writing without a meeting, the
Corporation shall not:
a. declare or pay any dividend or
make any other distribution on any shares of capital stock of
the Corporation at any time created and issued ranking junior
to the Series B Preferred Shares (hereinafter called "Junior
Stock"), other than dividends or distributions payable solely
in shares of Junior Stock, or purchase, redeem or otherwise
acquire for any consideration (other than in exchange for or
out of the net cash proceeds of the contemporaneous issue or
sale of other shares of Junior Stock), or set aside as a
sinking fund or other fund for the redemption or repurchase of
any shares of Junior Stock or any warrant, rights or options
to purchase shares of Junior Stock, except, with respect to
any of the foregoing, pursuant to any employee benefit plan of
the Corporation, or redeem, purchase or otherwise acquire for
value (or pay into or set aside a sinking fund for such
purpose) any Series B Preferred Share, except as set forth in
Section D(d)(iii)(D) and Section 5 below; or
b. change the authorized number of
shares of Series B Preferred Shares, or alter or amend the
rights or preferences of Series B Preferred Shares as stated
in this Certificate.
(D) Conversion Rights.
a. Automatic Conversion. Series B
Preferred Shares shall be automatically converted into shares
of Common Stock, upon the election of the Corporation and
delivery of written notice of such election to the holders of
Series B Preferred Shares (which election and notice may be
delivered within ninety (90) days before or after the
automatic conversion events described below without effecting
the effective time of such automatic conversion), upon the
occurrence of (i) the closing of the issuance and sale of
shares of Common Stock in an underwritten public offering,
pursuant to an effective registration statement under the
Securities Act of 1933, as amended (as used herein, a "Public
Offering'); (ii) any sale of all the outstanding capital stock
of the Corporation, or (iii) a merger, consolidation, sale of
substantially all of the assets of the Corporation or similar
transaction involving the Corporation (each, a "Automatic
Conversion Event"). Any such automatic conversion shall only
be effected at the time of, and subject to, the closing of the
transactions contemplated by the Automatic Conversion Event.
-5-
<PAGE> 6
b. Optional Conversion. Except as
prohibited by Section D(e)(i)(G) hereof, commencing April 1,
2000, each Series B Preferred Share shall be convertible at
the option of the holder thereof into Shares of Common Stock
of the Corporation in accordance with the provisions and
subject to the adjustments provided for in subsection
D(d)(iii)(D)(d) hereof. In order to exercise the conversion
privilege, a holder of Series B Preferred Shares shall
surrender the certificate evidencing such Series B Preferred
Shares to the Corporation at its principal office, duly
endorsed to the Corporation and accompanied by written notice
to the Corporation that the holder elects to convert a
specified portion or all of such shares. Series B Preferred
Shares converted at the option of the holder shall be deemed
to have been converted on the day of surrender of the
certificate representing such shares for conversion in
accordance with the foregoing provisions, and at such time the
right of the holder of such Series B Preferred Shares, as such
holder, shall cease and such holder shall be treated for all
purposes as the record holder of that number of Shares of
Common Stock issuable upon conversion. As promptly as
practicable on or after the conversion date, the Corporation
shall issue and mail or deliver to such holder a certificate
or certificates for the number of Shares of Common Stock
issuable upon conversion, computed to the nearest one
hundredth of a full share, and a certificate or certificates
for the balance of Series B Preferred Shares surrendered, if
any, not converted into Shares of Common Stock.
c. Effect of Conversion. After a
conversion contemplated by subsection D(d)(iii)(D) or (b)
hereof, accrual of all dividends on the Series B Preferred
Shares shall cease and payment of any previously accrued and
unpaid dividends shall be made (i) only on such date as
declared by the Corporation's directors, of (ii) if made as a
result of an Automatic Conversion Event, within five business
days of the closing of such Automatic Conversion Event.
d. Conversion Price and
Adjustments.
i. Except as limited by
Section D(e)(i)(G) hereof, each Series B Preferred Share
issued and outstanding shall be convertible into-the number of
Shares of Common Stock of the Corporation equal to the
quotient obtained by dividing $0.10 by the Conversion Price
(as defined below) then in effect (the "Conversion Shares").
The initial "Conversion Price" shall be equal to $0.10. In the
event the Corporation shall at any time subdivide or split its
outstanding Shares of Common Stock into a greater number of
shares or declare any dividend payable in Shares of Common
Stock, the Conversion Price in effect immediately prior to
such subdivision, split or dividend shall be proportionately
decreased, and conversely, in case the outstanding Shares of
Common Stock of the Corporation shall be combined into a
smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
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<PAGE> 7
ii. In case of any capital
reorganization or any reclassification of the Common Stock of
the Corporation (whether pursuant to a merger or consolidation
or otherwise), each Series B Preferred Share shall thereafter
be convertible for the number of shares of stock or other
securities or property receivable upon such capital
reorganization or reclassification of Common Stock, as the
case may be, by a holder of the number of shares of Common
Stock into which each Series B Preferred Share was convertible
immediately prior to such capital reorganization or
reclassification of Common Stock; and, in any case,
appropriate adjustment shall be made in the application of the
provisions herein set forth with respect to the rights and
interests thereafter of the holders of the Series B Preferred
Shares to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other securities or
property thereafter deliverable upon the conversion of each
Series B Preferred Share. The provisions of this subsection
D(d)(iii)(D)(d)(ii) shall apply to successive capital
reorganizations or reclassifications.
iii. If and whenever the
Corporation shall issue or sell any shares of Common Stock for
a consideration per share less than $0.10 (other than pursuant
to the exercise of (A) any options issued to any officer or
employee of the Corporation under any stock option plan
adopted by the Corporation, or (B) warrants to purchase Common
Stock or other securities convertible into Common Stock issued
as of the date of the original issuance of Series B Preferred
Shares), or shall issue any options, warrants or other rights
for the purchase of such shares at a consideration per share
of less than $0.10 (other than pursuant to the exercise of (A)
any options issued to any officer or employee of the
Corporation under any stock option plan adopted by the
Corporation, or (B) warrants to purchase Common Stock or other
securities convertible into Common Stock issued as of the date
of original issuance of the Series B Preferred Shares, the
number of Conversion Shares into which each Series B Preferred
Share is convertible shall be adjusted according to the
following formulas:
-7-
<PAGE> 8
O + N
W = [( ----- x W) - W] x A
1 O
where
P x (O + N)
A = 1 - -----------
M x O
and
W1 = the number of Conversion Shares to be added to the
current number of Conversion shares
W = the current number of Conversion Shares into which
each Series B Preferred Share is convertible
N = the number of additional shares of Common Stock
issued
O = the number of shares of Common Stock outstanding,
determined on a fully diluted basis, prior to the
issuance of additional Common Stock
P = the offering price or deemed value per share of the
additional shares of Common Stock issued
M = $0.10
Such adjustment shall become effective immediately after the issuance
of such additional shares of Common Stock (or securities convertible
into Common Stock).
iv. Upon each adjustment
to the Conversion Price pursuant to any provision of this
subsection D(d)(iii)(D)(d), the number of Conversion Shares
shall be adjusted by multiplying such number by a fraction,
the numerator of which shall be the Conversion Price
immediately prior to such adjustment and the denominator of
which shall be the Conversion Price immediately thereafter.
v. The anti-dilution
provisions of this subsection D(d)(iii)(D)(d), as applied to
any holder of Series B Preferred Shares, may be waived
-8-
<PAGE> 9
by the affirmative vote of the holders (acting together as a
class) of at least seventy-five percent (75%) of the then
outstanding Series B Preferred Shares.
e. Notice of Conversion Price
Adjustment. Upon any adjustment of the Conversion Price, then
and in each such case the Corporation shall give written
notice thereof, by first-class mail, postage prepaid,
addressed to the registered holders of Series B Preferred
Shares at the addresses of such holders as shown on the books
of the Corporation, which notice shall state the Conversion
Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares receivable at such
price upon the conversion of Series B Preferred Shares,
setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
f. Rights to Preconversion
Distributions. The holders of Series B Preferred Shares shall
have the following rights to certain properties received by
the holders of Shares of Common Stock:
i. In case the Corporation
shall declare a dividend or distribution upon Shares of Common
Stock payable other than in cash out of earnings or surplus or
other than in Shares of Common Stock, then thereafter each
holder of Series B Preferred Shares upon the conversion
thereof will be entitled to receive the number of Shares of
Common Stock into which such Series B Preferred Shares shall
be converted, and, in addition and without payment therefor,
the property which such holder would have received as a
dividend if continuously since the record date for any such
dividend or distribution such holder (A) had been the record
holder of the number of Shares of Common Stock then received,
and (B) had retained all dividends or distributions in stock
or securities payable in respect of such Shares of Common
Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or
indirectly from such Shares of Common Stock.
ii. Subject to the
provisions of subsection D(d)(iii)(B) regarding liquidation
rights, if any capital reorganization or reclassification of
the capital stock of the Corporation, or consolidation or
merger of the Corporation with another corporation, or the
sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of
Shares of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Shares
of Common Stock, -then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of Series
B Preferred Shares shall thereafter have the right to receive,
in lieu of Shares of Common Stock of the Corporation
immediately theretofore receivable upon the conversion of such
Series B Preferred Shares, such shares of stock, securities or
assets as may be issued or
-9-
<PAGE> 10
payable with respect to or in exchange for a number of
outstanding Shares of Common Stock equal to the number of
Shares of Common Stock immediately theretofore receivable upon
the conversion or such Series B Preferred Shares had such
reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and
interests of the holders of the Series B Preferred Shares to
the end that the provisions hereof (including without
limitation provisions for adjustments of the Conversion Price
and of the number of shares receivable upon the conversion of
such Series B Preferred Shares) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter receivable upon the
conversion of such Series B Preferred Shares. The Corporation
shall not effect any such reorganization, reclassification,
consolidation, merger or sale, unless prior to the
consummation thereof the surviving corporation (if other than
the Corporation), the corporation resulting from such
consolidation or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the
registered holders of the Series B Preferred Shares at the
last address of such holders appearing on the books of the
corporation, the obligation to deliver to such holders such
shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to
receive.
g. Notice of Certain Events.
i. the Corporation shall
pay any dividend payable in stock upon Shares of Common Stock
or make any distribution (other than regular cash dividends)
to the holders of Shares of Common Stock; or
ii. the Corporation shall
offer for subscription pro rata to the holders of Shares of
Common Stock any additional shares of stock of any class or
other rights; or
iii. there shall be any
capital reorganization, reclassification of the capital stock
of the Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all of in
assets, to another corporation; provided, however, that this
provision shall not be applicable to the merger or
consolidation of the Corporation with or into another
corporation if, following such merger or consolidation, the
shareholders of the Corporation immediately prior to such
merger or consolidation own at least 80% of the equity of the
combined entity; or
iv. there shall be a
voluntary or involuntary dissolution, liquidation or winding
up of the Corporation;
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<PAGE> 11
then, in any one or more of said cases, the Corporation shall
give written notice, by first-class mail, postage prepaid,
addressed to the holders of Series B Preferred Shares at the
addresses of such holders as shown on the books of the
Corporation, on the date on which (A) the books of the
Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (B) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also specify the date as of
which the holders of Common Stock of record shall participate
in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Shares of Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
Such written notice shall be given at least 20 days prior to
the action in question and not less than 20 days prior to the
record date or the date on which the Corporation's transfer
books are closed in respect thereto.
h. As used in this subsection
D(d)(iii)(D) the term "Common Shares" shall mean and include
the Corporation's presently authorized Common Stock and shall
also include any options, warrants, securities convertible
into Common Stock or other rights for the purchase of such
Common Stock which are vested and presently exercisable;
provided that the shares receivable pursuant to conversion of
Series B Preferred Shares shall be shares designated as Common
Stock of the Corporation as of the date of issuance of such
Series B Preferred Shares, or, in case of any reclassification
of the outstanding shares thereof, the stock, securities or
assets provided for in subsection D(d)(iii)(D)(f)(ii) above.
(e) Redemption.
(i) Mandatory Redemption of Series B Preferred
Shares.
(A) For purposes of this subsection
D(e)(i), the following terms shall have the meanings set forth
below:
a. "Business" shall mean that part
of the Corporation's operations in Northern California
formerly represented by the businesses conducted, and store
locations operated, by Viking Distributing Co., Inc., a
California corporation, A-Y Supply, Inc., a California
corporation, and Stop Supply, Inc., a California corporation.
"Business" shall not include any store locations of the
Corporation in Northern California which are opened by the
Corporation subsequent to the date of the initial issuance of
the Series B Preferred Shares.
b. "Compounded Growth Rate" shall
mean the percentage change in EBITDA, compounded annually, for
the cumulative, three twelve-month
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<PAGE> 12
periods ended on March 31, 2000, as compared to a base amount
equal to $7,500,000.
c. "EBITDA" shall mean, for any
period, Net Income of the Business, plus (i) any income or
franchise taxes related to the Business, plus (ii) total
interest expenses in such period, allocable to the Business,
plus (iii) amortization and depreciation deducted in
determining Net Income for such period and allocable to the
Business, plus (iv) all other non-cash charges deducted in
determining Net Income for such period and allocable to the
Business.
d. "Net Income" for any period of
determination shall mean the net income of the Business
determined in accordance with generally accepted accounting
principles in effect at the time of determination, but
excluding (but only to the extent otherwise included): (i)
extraordinary items; (ii) earnings or losses from sales of
fixed or capital assets; (iii) earnings or losses attributable
to any period other than the period of calculation: (iv)
earnings of entities that are not Subsidiaries, except to the
extent such earnings are actually paid to the Corporation in
cash; (v) earnings of any Subsidiary, the payment of which to
the Corporation is prohibited by law, rule, regulation or
contract; and (vi) earnings attributable to minority interests
(meaning shares of stock of any class of a Subsidiary) that
are not owned by the Corporation.
e. "Security" or "Securities" shall
have the same meaning as in Section 2(1) of the Securities Act
of 1933, as amended, or any similar federal statute, and the
rules and regulations of the Securities and Exchange
Commission thereunder, all as the same shall be in effect at
the time.
f. "Subsidiary" shall mean any
corporation of which more than 50% (by number of votes) of the
Voting Stock shall be beneficially owned, directly or
indirectly, by such parent corporation.
g. "Voting Stock" shall mean
Securities of any class or classes, the hollers of which are
ordinarily, in the absence of contingencies, entitled to elect
the corporate directors (or persons performing similar
functions).
(B) The Series B Preferred Shares shall
be subject to redemption, at a redemption price per share
equal to $0.10 (such sum being hereinafter referred to as the
"Redemption Price"), as follows:
a. If the Compounded Growth Rate is
greater than or equal to 10.0%, none of the Series B Preferred
Shares shall be subject to redemption at any time.
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<PAGE> 13
b. If the Compounded Growth Rate is
less than or equal to 5.0%, all of the Series B Preferred
Shares then outstanding shall be subject to redemption by the
Corporation.
c. If the Compounded Growth Rate is
greater than 5.0%, but less than 10.0%, Series B Preferred
Shares then outstanding shall be subject to redemption by the
Corporation pursuant to the following formula:
[10% - COMPOUNDED GROWTH RATE] X 100 X 12,000 SHARES = SERIES
B PREFERRED SHARES SUBJECT TO REDEMPTION]
(C) For purposes of subsection
D(e)(i)(B)(c) and (e)(iv), any fractional share amounts shall
be adjusted upward or downward to the nearest whole number of
shares.
(D) For purposes of Section D(e)(i),
all amounts shall be adjusted to reflect stock splits, stock
dividends or over subdivisions of the Capital Stock of the
Corporation.
(E) Upon an Automatic Conversion Event
elected by the Corporation as described in Section
D(d)(iii)(D)(a), the Compounded Growth Rate shall be
determined as of the end of the last full calendar month
immediately preceding the effectiveness of such required or
requested conversion (the "Month End"), and shall be
calculated based upon the percentage change in EBITDA during
the 12-month period immediately preceding the Month End as
compared to EBITDA during the 12-month period commencing 24
months prior to the Month End (the "Measurement Period"). If
the annual growth rate for the Measurement Period is greater
than or equal to 10.0%, none of the Series B Preferred Shares
shall be subject to redemption. If the annual growth rate of
the Measurement Period is less than or equal to 5.0%, all of
the Series B Preferred Shares then outstanding shall be
subject to redemption by the Corporation. If the annual growth
rate of the Measurement Period is greater than 5.0%, but less
than 10.0%, Series B Preferred Shares then outstanding shall
be subject to redemption by the Corporation at the Redemption
Price in accordance with Section 5(B) hereof pursuant to the
following formula:
[10% - ANNUAL GROWTH RATE] X 100 X 6,000 SHARES = SERIES B
PREFERRED SHARES SUBJECT TO REDEMPTION]
(F) The determination of any
calculation required by this Section D(e)(1) shall be
determined by the then independent public accountants of the
Corporation, consistent with applicable generally accepted
accounting principles and using methods of allocating revenue
of the Corporation that are no less favorable to the holders
of Series B Preferred Shares than any other methods used by
the
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<PAGE> 14
Corporation, and which determination shall be binding upon the
Corporation and any holder of Series B Preferred Shares after
delivery thereof to the Corporation.
(G) All Series B Preferred Shares
subject to redemption pursuant to this Section D(e)(i) shall
have no right to receive any accumulated and unpaid dividend
thereon, and no right to exercise the optional conversion
rights set forth in Section D(d)(iii )(D)(b) hereof.
(ii) Redemption Procedures. Not more than 30 nor
less than 10 days prior to the redemption date, notice by
first class mail, postage prepaid, shall be given to the
holders of record of the Series B Preferred Shares to be
redeemed, addressed to such shareholders at their last
addresses as shown on the stock books of the Corporation. Each
such notice of redemption shall specify the date fixed for
redemption; the Redemption Price; the place or places of
payment; and that payment of the Redemption Price will be made
upon presentation and surrender of certificates representing
the shares of Series B Preferred Shares. Any notice which is
mailed as herein provided shall be conclusively presumed to
have been duly given, whether or not a holder of the Series B
Preferred Shares receives such notice; and failure so to give
such notice, or any defect in such notice, to the holders of
any shares designated for redemption shall not affect the
validity of the proceedings for the redemption of any other
shares of Series B Preferred Shares. On or after the date
fixed for redemption as stated in such notice, each holder of
the shares called for redemption (other than shares which have
been duly surrendered for conversion at or before the close of
business on the date fixed for redemption) shall surrender the
certificate or certificates evidencing such shares to the
Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption
Price. If fewer than all the shares represented by any such
surrendered certificate or certificates are redeemed, a new
certificate shall be issued representing the unredeemed
shares. If, on the date fixed for redemption, funds necessary
for the redemption shall be available therefor and shall have
been irrevocably deposited or set aside, then, notwithstanding
that the certificates evidencing any shares so called for
redemption shall not have been surrendered, the dividends with
respect to the shares so called shall cease to accumulate on
and after the date fixed for redemption, such shares shall no
longer be deemed outstanding, the holders thereof shall cease
to be shareholders, and all rights whatsoever with respect to
such shares (except the right of the holders thereof to
receive the Redemption Price without interest upon surrender
of their certificates) shall terminate.
(f) Outstanding Shares. For purposes of this Certificate, all
Series B Preferred Shares shall be deemed outstanding except for (a) Series B
Preferred Shares held of record or beneficially by the Corporation or any
subsidiary of the Corporation; (b) from the date of surrender of certificates
representing Series B Preferred Shares for conversion pursuant to Section
D(d)(iii)(D), all Series B Preferred Shares which have been converted
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into Common Stock or other securities or property pursuant to Section
D(d)(iii)(D); and all authorized but unissued Series B Preferred Shares.
(g) Status of Series B Preferred Shares Upon Retirement.
Series B Preferred Shares which are acquired by the Corporation or converted
pursuant to Section D(d) shall be canceled pursuant to the DGCL, or any
successor provision, and thereupon shall return to the status of authorized and
unissued shares of Preferred Stock of the Corporation without designation as to
series. Upon the acquisition by the Corporation or conversion pursuant to
Section D(d) of all outstanding Series B Preferred Shares, all provisions of
this Section D Certificate shall cease to be of further effect. Upon the
occurrence of suds event, the Board of Directors of the Corporation shall have
the power pursuant to the DGCL, without shareholder action, to cause this
Certificate of Designation to be eliminated from the Certificate of
Incorporation.
Section E. Recapitalization
(a) Stock Split. Immediately upon the filing of this Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware (the "Effective Time"), each share of Common Stock outstanding at the
Effective Time shall be, without further action by the Corporation or the holder
thereof, changed and converted into a number of shares of Common Stock equal to
the number determined by multiplying each outstanding share of Common Stock by
1.74 (the "Stock Split"). Each certificate then outstanding representing shares
of Common Stock shall automatically represent from and after the Effective Time
that number of shares of Common Stock equal to the number of shares shown on the
face of the certificate multiplied by 1.74.
(b) Fractional Shares. In the event that the Stock Split would
result in any holder of shares of Common Stock holding a share of Common Stock
that is not an integral multiple of one, the effect of the Stock Split shall be
such that the shares of Common Stock issued as a result of the Stock Split shall
be rounded down to the next integrel multiple of one.
ARTICLE V - Existence
The Corporation is to have a perpetual existence.
ARTICLE VI - Stockholders and Directors
Section A. Stockholders Action. Election of directors need not be by
written ballot unless the by-laws of the Corporation so provide. Subject to the
rights of any series of Preferred Stock, from and after the date on which the
Common Stock of the Corporation is registered pursuant to the Securities Act of
1933, as amended (the "1933 Act"), (i) any action required or permitted to be
taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected in
lieu thereof by any consent in writing by such stockholders, (ii) special
meetings of the stockholders of the Corporation may be called only by either the
board of directors pursuant to a resolution adopted by the affirmative vote of
the
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<PAGE> 16
majority number of the total number of directors then in office or by the chief
executive officer of the Corporation, (iii) special meetings of the stockholders
cannot be called by the stockholders of the Corporation, and (iv) advance notice
of stockholder nominations of persons for election to the Board of Directors of
the Corporation and of business to be brought before any annual meeting of the
stockholders by the stockholders of the Corporation shall be given in the manner
provided in the by-laws of the Corporation.
Section B. Number of Directors and Term of Office. Subject to any
rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances, the number of directors which shall
constitute the Board of Directors of the Corporation shall be such number as
shall be fixed by resolution adopted by the affirmative vote of the majority of
the total number of directors then in office. Each director shall be elected at
each annual meeting of stockholders and shall hold such office until the next
annual meeting of stockholders and until his successor shall be elected and
qualified.
Section C. Removal and Resignation. No director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors;
provided, however, that if the holders of any class or series of capital stock
are entitled to vote by the provisions of this Restated Certificate of
Incorporation (it being understood that any references to this Restated
Certificate of Incorporation shall include any duly authorized certificate of
designation) to elect one or more directors, such director or directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote. Any
director may resign at any time upon written notice to the Corporation.
Section D. Vacancies and Newly Created Directorships. Subject to any
rights of the holders of any series of Preferred Stock to fill such newly
created directorships or vacancies, any newly created directorships resulting
from any increase in the authorized number of directors and any vacancies in the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall, unless provided by law or by resolution approved by the
majority of the total number of directors then in office, be filled only by
resolution approved by the affirmative vote of the majority of the total number
of directors then in office, and any director so chosen shall hold office until
the next annual meeting of stockholders and until his successor shall have been
duly elected and qualified, unless he shall resign, die, become disqualified or
be removed for cause.
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ARTICLE VII - General Provisions
Section A. Dividends. The board of directors shall have authority from
time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working capital or for any
other purpose or purposes, and to abolish or add to any such reserve or reserves
from time to time as said board may deem to be in the interest of the
Corporation; and said board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of the Corporation.
Section B. Issuance of Stock. The shares of all classes of stock of the
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the board of directors of the
Corporation, provided that shares having a par value shall not be issued for a
consideration less than such par value, as determined by the board. At any time,
or from time to time, the Corporation may grant rights or options to purchase
from the Corporation any shares of its stock of any class or classes to run for
such period of time, for such consideration, upon such terms and conditions, and
in such form as the board of directors may determine. The board of directors
shall have authority, as provided by law, to determine that only a part of the
consideration which shall be received by the Corporation for the shares of its
stock issued shall be shares having a par value, the amount of the part of such
consideration so determined to be capital shall be equal to the aggregate par
value of such shares. The excess, if any, at any time, of the total net assets
of the Corporation over the amount so determined to be capital, as aforesaid,
shall be surplus. All classes of stock of the Corporation shall be and remain at
all times nonassessable.
The board of directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the board of directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.
Section C. Inspection of Books and Records. The board of directors
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
board of directors or of the stockholders of the Corporation.
Section D. Location of Meetings, Books and Records. Except as otherwise
provided in the by-laws, the stockholders of the Corporation and the board of
directors may hold their meetings and have an office or offices outside of the
State of Delaware, and, subject to the provisions of the laws of said State, may
keep the books of the Corporation outside of said State at such places as may,
from time to time, be designated by the Board of Directors.
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<PAGE> 18
ARTICLE VIII - Amendments
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation in the
manner now or hereinafter prescribed herein and by the laws of the State of
Delaware, and all rights conferred upon stockholders herein are granted subject
to this reservation. Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, ARTICLE IX, ARTICLE XI and this
ARTICLE VIII of this Restated Certificate of Incorporation shall not be altered,
amended or repealed and no provision inconsistent therewith shall be adopted
without the affirmative vote of the holders of at least 662/3% of the voting
power of the then outstanding shares of capital stock of the Corporation
entitled to vote on such alteration, amendment or repeal.
ARTICLE IX - Liability
Section A. Limitation of Liability.
(a) To the fullest extent permitted by the Delaware General
Corporation Law as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), and except as otherwise provided in the Corporation's by-laws, no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.
(b) Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
Section B. Right to Indemnification. Each person who was or is made
party or is threatened to be made a part to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee
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or agent of another Corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide for broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section C of this ARTICLE IX with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the board
of directors of the Corporation. The right to indemnification conferred in this
Section B of ARTICLE IX shall be a contract right and shall include the
obligation of the Corporation to pay the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advance of
expenses"); provided, however, that, if and to the extent that the Delaware
General Corporation Law requires, an advance of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section B or otherwise. The Corporation may, by action of its board of
directors, provide indemnification to employees and agents of the Corporation
with the same or lesser scope and effect as the foregoing indemnification of
directors and officer.
Section C. Procedure for Indemnification. Any indemnification of a
director or officer of the Corporation or advance of expenses under Section B of
this ARTICLE IX shall be made promptly, and in any event within forty-five days
(or, in the case of an advance of expenses, twenty days) upon the written
request of the director or officer. If a determination by the Corporation that
the director or officer is entitled to indemnification pursuant to this ARTICLE
IX is required, and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advance of expenses, in whole or in part, or if payment in full pursuant to such
request is not made within forty-five days (or, in the case of an advance of
expenses, twenty days), the right to indemnification or advances as granted by
this ARTICLE IX shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
Section B of this ARTICLE IX, if any, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its board of
directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the
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claimant has not met the applicable standard of conduct. The procedure for
indemnification of other employees and agents for whom indemnification is
provided pursuant to Section B of this ARTICLE IX shall be the same procedure
set forth in this Section C for directors or officers, unless otherwise set
forth in the action of the board of directors providing for indemnification for
such employee or agent.
Section D. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or was serving at the
request of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.
Section E. Service for Subsidiaries. Any person serving as a director,
officer, employee or agent of another Corporation, partnership, limited
liability company, joint venture or other enterprise, at least 50% of whose
equity interests are owned by the Corporation (hereinafter a "subsidiary" for
this ARTICLE IX) shall be conclusively presumed to be serving in such capacity
at the request of the Corporation.
Section F. Reliance. Persons who after the date of the adoption of this
provision become or remain directors or officers of the Corporation or who,
while a director or officer of the Corporation, become or remain a director,
officer, employee or agent of a subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this ARTICLE IX in entering into or continuing such service. The
rights to indemnification and to the advance of expenses conferred in this
ARTICLE IX shall apply to claims made against an indemnitee arising out of acts
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.
Section G. Non-Exclusivity of Rights. The rights to indemnification and
to the advance of expenses conferred in this ARTICLE IX shall not be exclusive
of any other right which any person may have or hereafter acquire under this
Restated Certificate of Incorporation or under any statute, by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
Section H. Merger or Consolidation. For purposes of this ARTICLE IX,
references to "the Corporation" shall include any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this ARTICLE IX with respect to the resulting or surviving
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corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
ARTICLE X - Business Combinations
The Corporation expressly elects to be governed by Section 203
of the Delaware General Corporation Law. Notwithstanding the terms of Section
203 of the Delaware General Corporation Law, Greg Grosch and KRG Capital
Partners, LLC and their respective affiliates (the "Excepted Stockholders")
shall not be deemed at any time and without regard to percentage of voting stock
of the Corporation owned by the Excepted Stockholders to be an "interested
stockholder" as such term is defined in Section 203 (c)5 of the Delaware General
Corporation Law.
ARTICLE XI - Fair Price Provision
Section A. Required Vote for Certain Business Combinations. In addition
to any affirmative vote required by law or by this Restated Certificate of
Incorporation, and except as otherwise expressly provided in Section B of this
ARTICLE XI:
(a) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder (as
herein defined) or (ii) any other corporation or entity (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defied) of any Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $5,000,000 or more; or
(c) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate
of any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $5,000,000
or more; or
(d) the adoption of any plan or proposal for the liquidation,
dissolution or winding up of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder; or
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or
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any Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder;
shall require, subject to Section B of this ARTICLE XI, the affirmative vote of
the holders of at least 66 2/3% of the voting power of the then outstanding
Voting Stock (as hereinafter defined), voting together as a single class at a
duly constituted meeting of stockholders called expressly for such purpose. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law.
Section B. Definition of "Business Combination." The term "Business
Combination" as used in this ARTICLE XI shall mean any transaction which is
referred to in any one or more of clauses (a) through (e) of Section A of
ARTICLE XI; provided, however, that the term "Business Combination" shall not
include any transaction which occurs on or prior to the date of the closing of
the initial public offering of the Common Stock of the Corporation.
Section C. Conditions to be Satisfied. The provisions of Section A of
this ARTICLE XI shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative vote, if any,
as is required by law and any other provisions of this Restated Certificate of
Incorporation, if all of the conditions specified in any of the following
Paragraphs (a), (b) or (c) are met:
(a) The Business Combination shall have been approved by the
affirmative vote of 70% of the Continuing Directors then in office.
(b) All of the following conditions shall have been met:
(i) aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by holders of Common Stock in such Business
Combination shall be at least equal to the highest of the
following:
(A) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested Stockholder
for any shares of Common Stock acquired by it (1) within the
two-year period immediately prior to and including the first
public announcement of the proposal of the Business
Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder,
whichever is higher; or
(B) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date
on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred
to in this ARTICLE XI as the "Determination Date"),
whichever is higher.
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(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any other class of
outstanding Voting Stock in such Business Combination shall be
at least equal to the highest of the following (it being
intended that the requirements of this Paragraph 2(ii) shall
be required to be met with respect to every other class of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular
class of Voting Stock):
(A) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Voting Stock acquired by it
(1) within the two-year period immediately prior to and
including the Announcement Date or (2) in the transaction in
which it became an Interested Stockholder, whichever is
higher;
(B) (if applicable) the highest preferential
amount per share which the holders of shares of such class of
Voting Stock are entitled to receive from the corporation in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
(C) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(iii) The consideration to be received by holders of
a particular class of outstanding Voting Stock shall be in
cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If
the Interested Stockholder has paid for shares of any class of
Voting Stock with varying forms of consideration, the form of
consideration for such a class of Voting Stock shall be either
cash or the form used to acquire the largest number of shares
of such class of Voting Stock previously acquired by such
Interested Stockholder.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (a) there shall have been (1) no failure
to declare and pay at regular dates therefor the full amount
of any dividends (whether or not cumulative) payable on any
class or series of Preferred Stock, except as approved by the
affirmative vote of a majority of the Continuing Directors;
(2) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision
of the Common Stock), except as approved by the affirmative
vote of the majority of the Continuing Directors; and (3) an
increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number
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of outstanding shares of the Common Stock, unless the failure
so to increase such annual rate is approved by the affirmative
vote of a majority of the Continuing Directors; the beneficial
owner of any additional shares of Voting Stock except as part
of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise, unless such transaction shall have
been approved or ratified by the affirmative vote of a
majority of the Continuing Directors after such person shall
have become an Interested Stockholder.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the 1934 Act and the rules and regulations
thereunder (or any subsequent provisions replacing such 1934
Act, rules and regulations) shall be mailed to public
stockholders of the Corporation at least 20 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed
pursuant to such 1934 Act, rules or regulations or subsequent
provisions thereof).
(c) Upon consummation of the transaction which resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder owned
at least 85% of the voting stock of the Corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (i) persons who are directors and also
officers of the Corporation and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer.
Section D. Certain Definitions. For the purposes of this ARTICLE XI:
(a) A "person" shall mean an individual, a Group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, a business trust, a government or political subdivision, any
unincorporated organization, or any other association or entity.
(b) "Interested Stockholder" shall mean any person who or
which:
(i) is the beneficial owner, directly or indirectly,
of 15% or more of the voting power of the then outstanding
shares of Voting Stock; or
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(ii) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to and
including the date in question was the beneficial owner,
directly or indirectly, of 15% or more of the voting power of
the then outstanding shares of Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
the beneficial ownership of any shares of Voting Stock which
were at any time within the two-year period immediately prior
to and including the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession
shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the
meaning of the Securities Act of 1933 (or any subsequent
provisions replacing such Act or the rules and regulations
promulgated thereunder) and such Assignment or succession was
not approved by a majority of the Continuing Directors;
provided, however, that the term "Interested Stockholder"
shall not include (1) the Corporation; (2) any Subsidiary of
the Corporation; (3) any person, directly or indirectly,
owning of the record or beneficially 100% of the issued and
outstanding capital stock of the Corporation (other than
directors' qualifying shares, if any); (4) any employee
benefit plan or compensation arrangement of the Corporation or
any Subsidiary of the Corporation; (5) any person holding
shares of Voting Stock organized, appointed or established by
the Corporation or any Subsidiary for or pursuant to the terms
of any such employee benefit plan or compensation arrangement;
or (6) any Grandfathered Person unless such Grandfathered
Person becomes, after the closing of the initial public
offering of shares of Common Stock of the Corporation, the
beneficial owner of more than the Grandfathered Percentage of
the Voting Stock then outstanding.
Notwithstanding the foregoing, no person shall become an
"Interested Stockholder" as the result of an acquisition of
Voting Stock by the Corporation which, by reducing the number
of shares outstanding, increase the proportionate number of
shares beneficially owned by such person to 15% (or, if
applicable, the Grandfathered Percentage with respect to such
person) or more of the voting power of the then outstanding
shares of Voting Stock; provided, however, that if a person
shall become the beneficial owner of 15% (or, if applicable,
the Grandfathered Percentage with respect to such person) or
more of the voting power of the then outstanding shares of
Voting Stock by reason of share purchases by the Corporation
and shall, after such share purchases by the Corporation,
become the beneficial owner of any additional shares of Voting
Stock of the Corporation (other than any shares of Voting
Stock issued to such person as a result of a stock dividend,
stock split, reclassification, recapitalization, or other
similar transaction involving the issuance of shares of Voting
Stock on a pro rata basis to all holders of Voting Stock),
then such person shall be deemed to be an "Interested
Stockholder" if immediately thereafter the voting power of the
shares of Voting Stock beneficially owned by such person
equals or exceeds 15% (or in the case of a Grandfathered
Person, the Grandfathered
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<PAGE> 26
Percentage with respect to such person) or more of the voting
power of all of the shares of Voting Stock then outstanding.
(c) A person shall be deemed the "beneficial owner" of, and
shall be deemed to beneficially own, any Voting Stock:
(i) which such person or any of such person's
Affiliates or Associates, directly or indirectly beneficially
owns (as determined pursuant to Rule 13d-3 of the Rules and
Regulations promulgated by the Securities and Exchange
Commission under the 1934 Act);
(ii) which such person or any of its Affiliates or
Associates, directly or indirectly, has or shares with respect
to the Voting Stock (1) the right to acquire, or direct the
acquisition of such voting Stock pursuant to any agreement,
arrangement, understanding or otherwise (whether or not in
writing) (other than customary arrangements with and between
underwriters and selling group members with respect to a bona
fide public offering of securities) or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise; provided, however, that a person shall not be
deemed the "beneficial owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer
made by or on behalf of such person or any of such person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, (2) the right to vote, or
to direct the voting of, such Voting Stock pursuant to any
agreement, arrangement, understanding or otherwise (whether or
not in writing) (provided that a person shall not be deemed to
be the beneficial owner of any securities if the agreement,
arrangement or understanding to vote such security arises
solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the Rules and Regulations promulgated under
the 1934 Act and is not also then reportable by such person on
Schedule 13D under the 1934 Act (or any comparable or
successor report)), or (3) the right to dispose of, or to
direct the disposition of, such Voting Stock pursuant to any
agreement, arrangement, understanding or otherwise (whether or
not in writing) (other than customary arrangements with and
between underwriters and selling group members with respect to
a bona fide public offering of securities); or
(iii) which is beneficially owned, directly or
indirectly, by any other person (or any Affiliate or Associate
thereof) with which such person or any of such person's
Affiliates or Associates has any agreement, arrangement,
understanding or otherwise (whether or not in writing) (other
than customary arrangements with and between underwriters and
selling group members with respect to a bona fide public
offering of securities) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy described in
Clause 3(ii)(2) above) or disposing of any shares of Voting
Stock;
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provided, however, that (1) no person engaged in business as
an underwriter of securities shall be deemed the beneficial
owner of any securities acquired through such person's
participation as an underwriter in good faith in a firm
commitment underwriting until the expiration of 40 days after
the date of such acquisition and (2) no person who is a
director or an officer of the Corporation shall be deemed,
solely as a result of his or her position as director or
officer of the Corporation, the beneficial owner of any
securities of the Corporation that are beneficially owned by
any other director or officer of the Corporation.
(d) Notwithstanding anything in the definition of beneficial
owner to the contrary, the phrase "then outstanding," when used with reference
to a person's beneficial ownership of securities of the Corporation, shall mean
the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
person would be deemed to own beneficially hereunder.
(e) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the 1934 Act (or any subsequent provisions replacing the 1934
Act or the rules and regulations promulgated thereunder); provided, however,
that no person who is a director or officer of the Corporation shall be deemed
an Affiliate or an Associate of any other director or officer of the Corporation
solely as a result of his or her position as a director or officer of the
Corporation.
(f) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph (b) of this Section D, the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the Corporation.
(g) "Continuing Director" means (i) any member of the Board of
Directors of the Corporation who is not an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder and was a member of the
Board of Directors prior to the time that the Interested Stockholder became an
Interested Stockholder, and (ii) any person who subsequently becomes a member of
the Corporation's Board of Directors who is not an Associate or Affiliate of an
Interested Stockholder and is recommended or approved by the affirmative vote of
a majority of the Continuing Directors.
(h) "Fair Market Value" means:
(i) in the case of stock, the highest closing sale
price during the 30-day period immediately prior to and
including the date in question of a share of such stock on the
principal United States securities exchange registered under
the 1934 Act (or any subsequent provisions replacing such Act
or the rules and regulations promulgated thereunder) on which
such stock is listed, or, if such stock is not listed
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on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period
immediately prior to and including the date in question on the
National Association of Securities Dealers Automated Quotation
System or any comparable system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the
affirmative vote of a majority of the Continuing Directors of
the Board of Directors in good faith; and
(ii) in the case of property other than cash or
stock, the fair market value of such property on the date in
question as determined by an affirmative vote of a majority of
the Continuing Directors of the Board of Directors in good
faith.
(i) "Group Acting in Concert" shall mean persons seeking to
combine or pool their voting or other interests in the securities of the
Corporation for a common purpose, pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written, oral or
otherwise, or any "group of persons" as defined under Section 13(d) of the 1934
Act (or any subsequent provisions replacing the 1934 Act or the rules and
regulations promulgated thereunder). When persons act together for any such
purpose, their group is deemed to have acquired their stock.
(j) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in Paragraphs (i) and (ii) of Section C of this ARTICLE XI shall include
the shares of Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
(k) "Voting Stock" shall mean the outstanding shares of
capital stock of the Corporation entitled, at the time, to vote generally in the
election of directors.
(l) "Grandfathered Percentage" shall mean, with respect to any
Grandfathered Person, the percentage of the voting power of the then outstanding
shares of Voting Stock that such Grandfathered Person beneficially owns as of
the close of business on the date of the closing of the initial public offering
of shares of Common Stock of the Corporation plus an additional five (5)
percentage points; provided, however, than in the event the underwriters
exercise their over-allotment option in connection with the initial public
offering of shares of Common Stock, the Grandfathered Percentage shall, from and
after the closing of such over-allotment option, mean, with respect to any
Grandfathered Person, the percentage of the voting power of the then outstanding
shares of Voting Stock that such Grandfathered Person beneficially owns as of
the close of business on the date of the closing of the over-allotment option
plus an additional five (5) percentage points; and provided, further, that, in
the event any Grandfathered Person shall sell, transfer, or otherwise dispose of
any outstanding shares of Voting Stock after the close of business on the date
of the closing of the initial public offering of the Corporation's Common Stock,
the Grandfathered Percentage shall, subsequent to such sale, transfer or
disposition, mean, with respect to such Grandfathered Person, the lesser of (1)
the Grandfathered Percentage as in effect immediately prior to such sale,
transfer, or disposition or (2) the percentage of the voting power of the then
outstanding
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<PAGE> 29
shares of Voting Stock that such Grandfathered Person beneficially owns
immediately following such sale, transfer or disposition plus an additional five
(5) percentage points.
(m) "Grandfathered Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, is, as of the close
of business on the date of the closing of the initial public offering of shares
of Common Stock of the Corporation, the beneficial owner of 15% or more of the
voting power of the then outstanding Voting Stock at such time. Any
Grandfathered Person who becomes, after the close of business on the date of the
initial public offering of shares of Common Stock of the Corporation, the
beneficial owner of less than 15% of the voting power of the then outstanding
shares of Voting Stock shall cease to be a Grandfathered Person.
(n) The term "voting power" shall mean, with respect to each
outstanding share of capital stock of the Corporation, the number of votes which
a holder of such share shall be entitled, at the time, to vote generally in the
election of directors.
Section E. Powers of the Board of Directors. A majority of the
directors of the Corporation, unless there is an Interested Stockholder, in
which case a majority of the Continuing Directors then in office, shall have the
power to determine for the purposes of this ARTICLE XI, on the basis of
information known to them after reasonable inquiry, (i) whether a person is an
Interested Stockholder, (ii) the number or percentage of shares of Voting Stock
or other equity securities beneficially owned by any person, (iii) whether a
person is an Affiliate or Associate of, or is affiliated or associated with,
another person, (iv) whether the assets of which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $5,000,000 or more, (v)
whether the requirements of Section C of this ARTICLE XI have been met with
respect to any Business Combination, and (vi) any other matters of
interpretation arising under this ARTICLE XI. The good faith determination by
the affirmative vote of 70% of the directors or, if there is an Interested
Stockholder, by the affirmative vote of a majority of the Continuing Directors
then in office, on such matters shall be conclusive and binding for all purposes
of this ARTICLE XI.
Section F. No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this ARTICLE XI shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
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<PAGE> 30
IN WITNESS WHEREOF, White Cap Holdings, Inc. has caused this
Certificate to be executed by Greg Grosch, its Chief Executive Officer and
President, and attested to by Dan Tsujioka, its Secretary, as of this __th day
of October, 1997.
WHITE CAP HOLDINGS, INC.
By: _____________________________
Greg Grosch
Chief Executive Officer & President
Attest:
By: _______________________
Dan Tsujioka
Secretary
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<PAGE> 1
EXHIBIT 3.2
[FORM OF]
AMENDED AND RESTATED BY-LAWS
OF
WHITE CAP INDUSTRIES, INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located in the City of Wilmington, County of New
Castle, State of Delaware, and the name of the corporation's registered agent at
such address shall be The Corporation Trust Company. The registered office
and/or registered agent of the corporation may be changed from time to time by
action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders shall be
held each year within 150 days after the close of the immediately preceding
fiscal year of the corporation or at such other time specified by the Board of
Directors for the purpose of electing directors and conducting such other proper
business as may come before the meeting. At the annual meeting stockholders
shall elect directors and transact such other business as properly may be
brought before the meeting pursuant to ARTICLE II, Section 11 hereof.
Section 2. Special Meetings. Special Meetings of the stockholders may only
be called in the manner provided in the restated certificate of incorporation.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
<PAGE> 2
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days before the date of the meeting. All
such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the chairman of the board, the president or
the secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the General Corporation Law of the State of Delaware or by the
restated certificate of incorporation. If a quorum is not present, the holders
of a majority of the shares present in person or represented by proxy at the
meeting, and entitled to vote at the meeting, may adjourn the meeting to another
time and/or place. When a specified item of business requires a vote by a class
or series (if the corporation shall then have outstanding shares of more than
one class or series) voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum (as to such class or series)
for the transaction of such item of business.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
restated certificate of incorporation a different vote is required, in which
case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the
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election of directors, in which case Section 2 of ARTICLE III hereof shall
govern and control the approval of such subject matter.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the restated certificate of
incorporation of the corporation or any amendments thereto and subject to
Section 3 of ARTICLE VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the secretary or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, (ii)
brought before the meeting by or at the direction of the board of directors, or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy days' notice or
prior public announcement of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the date on
which such notice of the date of the annual meeting was mailed or such public
announcement was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these by-laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 11.
The presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not
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properly brought before the meeting and in accordance with the provisions of
this Section 11; and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted. For purposes of this Section 11, "public announcement" shall mean
disclosure in a press release reported by Dow Jones News Service, Associated
Press or a comparable national news service. Nothing in this Section 11 shall be
deemed to affect any rights of stockholders to request inclusion of proposals in
the corporation's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors. In
addition to such powers as are herein and in the restated certificate of
incorporation expressly conferred upon it, the board of directors shall have and
may exercise all the powers of the corporation, subject to the provisions of the
laws of Delaware, the restated certificate of incorporation and these by-laws.
Section 2. Number, Election and Term of Office. Subject to any rights of
the holders of any series of Preferred Stock to elect additional directors under
specified circumstances, the number of directors which shall constitute the
board shall be such as from time to time shall be fixed by resolution adopted by
the affirmative vote of a majority of the total number of directors then in
office. The directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote in
the election of directors; provided that, whenever the holders of any class or
series of capital stock of the corporation are entitled to elect one or more
directors pursuant to the provisions of the restated certificate of
incorporation of the corporation (including, but not limited to, for purposes of
these by-laws, pursuant to any duly authorized certificate of designation), such
directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such directors. The directors shall be elected and shall hold
office only in the manner provided in the restated certificate of incorporation.
Section 3. Removal and Resignation. No director may be removed from office
without cause and without the affirmative vote of the holders of a majority of
the voting power of the then outstanding shares of capital stock entitled to
vote generally in the election of directors voting together as a single class;
provided, however, that if the holders of any class or series of capital stock
are entitled by the provisions of this restated certificate of incorporation (it
being understood that any references to this restated certificate of
incorporation shall include any duly authorized certificate of designation) to
elect one or more directors, such director or directors so elected may be
removed without cause only by the vote of the holders of a majority of the
outstanding shares of that class or series entitled to vote. Any director may
resign at any time upon written notice to the corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the total number of directors may be filled only in the
manner provided in the restated certificate of incorporation.
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Section 5. Nominations.
(a) Only persons who are nominated in accordance with the procedures
set forth in these by-laws shall be eligible to serve as directors. Nominations
of persons for election to the board of directors of the corporation may be made
at a meeting of stockholders (i) by or at the direction of the board of
directors or (ii) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in this by-law, who is
entitled to vote for the election of directors at the meeting and who shall have
complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for election to
the board of directors of the corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation (i) in the case of an annual
meeting, not less than sixty (60) nor more than ninety (90) days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is changed by more than
thirty (30) days from such anniversary date, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth
(10th) day following the earlier of the day on which notice of the date of the
meeting was mailed or public disclosure of the meeting was made, and (ii) in the
case of a special meeting at which directors are to be elected, not later than
the close of business on the tenth (10th) day following the earlier of the day
on which notice of the date of the meeting was mailed or public announcement of
the meeting was made. Such stockholder's notice shall set forth (i) as to each
person whom the stockholder proposes to nominate for election as a director at
such meeting all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (ii) as to the
stockholder giving the notice (A) the name and address, as they appear on the
corporation's books, of such stockholder and (B) the class and number of shares
of the corporation which are beneficially owned by such stockholder and also
which are owned of record by such stockholder; and (iii) as to the beneficial
owner, if any, on whose behalf the nomination is made, (A) the name and address
of such person and (B) the class and number of shares of the corporation which
are beneficially owned by such person. At the request of the board of directors,
any person nominated by the board of directors for election as a director shall
furnish to the secretary of the corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 5. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 5, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this Section 5.
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Section 6. Annual Meetings. The annual meeting of the board of directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by the
chairman of the board, the president (if the president is a director) or, upon
the written request of at least a majority of the directors then in office, the
secretary of the corporation on at least 24 hours notice to each director,
either personally, by telephone, by mail, or by telecopy.
Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
The board of directors shall elect, by the affirmative vote of a majority of the
total number of directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and board of directors at which he
or she is present. If the chairman of the board is not present at a meeting of
the stockholders or the board of directors, the president (if the president is a
director and is not also the chairman of the board) shall preside at such
meeting, and, if the president is not present at such meeting, a majority of the
directors present at such meeting shall elect one of their members to so
preside. A majority of the total number of directors then in office shall
constitute a quorum for the transaction of business. Unless by express provision
of an applicable law, the corporation's amended and restated certificate of
incorporation or these by-laws a different vote is required, the vote of a
majority of directors present at a meeting at which a quorum is present shall be
the act of the board of directors. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Committees. The board of directors may, by resolution passed by
a majority of the total number of directors then in office, designate one or
more committees, each committee to consist of one or more of the directors of
the corporation, which to the extent provided in such resolution or these
by-laws shall have, and may exercise, the powers of the board of directors in
the management and affairs of the corporation, except as otherwise limited by
law. The board of directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
Section 10. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the board of directors as provided in Section 9 of
this ARTICLE III, of such committee is or are absent or disqualified, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in place
of any such absent or disqualified member.
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Section 11. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
Section 11 shall constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
restated certificate of incorporation, any action required or permitted to be
taken at any meeting of the board of directors, or of any committee thereof, may
be taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by the
board of directors and shall consist of a chairman of the board, if any is
elected, chief executive officer, a president, one or more vice-presidents, a
secretary, a chief financial officer, a treasurer and such other officers and
assistant officers as may be deemed necessary or desirable by the board of
directors. Any number of offices may be held by the same person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors at its discretion, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
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Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors.
Section 5. Compensation. Compensation of all executive officers shall be
approved by the board of directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of the
corporation.
Section 6. The Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the board, an officer of the
Corporation, and, if present, shall preside at each meeting of the board of
directors or shareholders. The Chairman of the Board shall, in the absence or
disability of the president, act with all of the powers and be subject to all
the restrictions of the president. He shall advise the president, and in the
president's absence, other officers of the Corporation, and shall perform such
other duties as may from time to time be assigned to him by the board of
directors.
Section 7. Chief Executive Officer. The chief executive officer shall have
the powers and perform the duties incident to that position. Subject to the
powers of the board of directors, he shall be in the general and active charge
of the entire business and affairs of the corporation, and shall be its chief
policy making officer. In the absence of the Chairman of the Board, he shall
preside at all meetings of the board of directors and stockholders and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or provided in these by-laws. The chief executive officer is
authorized to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the board of directors to some other
officer or agent of the corporation. Whenever the president is unable to serve,
by reason of sickness, absence or otherwise, the chief executive officer shall
perform all the duties and responsibilities and exercise all the powers of the
president.
Section 8. The President. The president of the corporation shall, subject
to the powers of the board of directors and the chairman of the board, have
general charge of the business, affairs and property of the corporation, and
control over its officers, agents and employees; and shall see that all orders
and resolutions of the board of directors are carried into effect. The president
is authorized to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the board of directors to some other
officer or agent of the corporation. The president shall have such other powers
and perform such other duties as may be prescribed by the chief executive
officer, the board of directors or as may be provided in these by-laws.
Section 9. Vice-presidents. The vice-president, or if there shall be more
than one, the vice-presidents in the order determined by the board of directors
or the chairman of the board, shall, in the absence or disability of the
president, act with all of the powers and be subject to all the restrictions of
the president. The vice-presidents shall also perform such other duties and have
such other powers as the board of directors, the chief executive officer, the
president or these by-laws may, from time to time, prescribe. The
vice-presidents may also be designated as executive vice-presidents or senior
vice-presidents, as the board of directors may from time to time prescribe.
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Section 10. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under the
chairman of the board's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these by-laws or by law; shall have
such powers and perform such duties as the board of directors, the chief
executive officer, the president or these by-laws may, from time to time,
prescribe; and shall have custody of the corporate seal of the corporation. The
secretary, or an assistant secretary, shall have authority to affix the
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his or her signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
chief executive officer, the president, or secretary may, from time to time,
prescribe.
Section 11. The Chief Financial Officer. The chief financial officer shall
have the custody of the corporate funds and securities; shall keep full and
accurate all books and accounts of the corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the chairman of the board
or the board of directors; shall cause the funds of the corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the board of directors, at
its regular meeting or when the board of directors so requires, an account of
the corporation; shall have such powers and perform such duties as the board of
directors, the chief executive officer, the president or these by-laws may, from
time to time, prescribe. If required by the board of directors, the chief
financial officer shall give the corporation a bond (which shall be rendered
every six years) in such sums and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of the office of chief financial officer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the chief financial officer belonging to
the corporation.
Section 12. Treasurer. The treasurer shall, in the absence or disability
of the chief financial officer, act with all of the powers and be subject to all
the restrictions of the chief financial officer. The treasurer shall also
perform such other duties and have such other powers as the board of directors,
the chief executive officer, the chief financial officer or these by-laws may,
from time to time, prescribe.
Section 13. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
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Section 14. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person selected by it.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the chief executive officer or the president or any
vice president and the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. If such
a certificate is countersigned (i) by a transfer agent or an assistant transfer
agent other than the corporation or its employee or (ii) by a registrar, other
than the corporation or its employee, the signature of any such chairman of the
board, chief executive officer, president, vice president, secretary, or
assistant secretary may be facsimiles. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation whether because of death, resignation or otherwise before such
certificate or certificates have been delivered by the corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the corporation. Shares of stock
of the corporation shall only be transferred on the books of the corporation by
the holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
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Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day following the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the restated certificate of incorporation, if any,
may be declared by the board of directors at any regular or special meeting, in
accordance with applicable law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the restated
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certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to ARTICLE IV hereof, the board of directors may authorize any
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer or employee who is a
director of the corporation or its subsidiaries, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the board of
directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the power
to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The board of directors shall
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
corporation, or any of them, shall be open to the inspection
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of the stockholders; and no stockholder shall have any right to inspect any
account or book or document of the corporation, except as conferred by the laws
of the State of Delaware, unless and until authorized so to do by resolution of
the board of directors or of the stockholders of the corporation.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the restated
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these by-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
AMENDMENTS
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the corporation is expressly authorized to make,
alter, amend, change, add to or repeal these by-laws by the affirmative vote of
70% of the total number of directors then in office. Any alteration or repeal of
these by-laws by the stockholders of the corporation shall require the
affirmative vote of a majority of the outstanding shares of the corporation
entitled to vote on such alteration or repeal; provided, however, that Section
11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VII
of these by-laws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of the corporation
entitled to vote on such alteration or repeal.
October 1997
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EXHIBIT 10.3
[FORM OF]
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
effective as of January 1, 1997 by and between WHITE CAP INDUSTRIES, INC., a
California corporation (the "Company"), and RICHARD GAGNON, an individual
("Executive").
R E C I T A L S
WHEREAS, the Company and Executive entered into that certain Employment
Agreement dated February 25, 1997 (the "Employment Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement as provided
herein; and
WHEREAS, the Company desires to retain the services of Executive, and
Executive desires to be employed by the Company, on the terms and subject to the
conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning January 1, 1997 and ending as provided in
Section 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as a Senior Vice
President and the National Sales Manager of the Company and shall have the
normal and reasonable duties, responsibilities and authority commensurate with
such position as determined by the Board of Directors of the Company and as
directed by the President of the Company. Executive's services pursuant to this
Agreement shall be performed primarily at the Company's principal place of
business in Orange County, California, and at such other facilities of the
Company as are necessary for the Executive to perform his duties hereunder.
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<PAGE> 15
(b) Executive shall report to the President of the Company. Executive
shall devote Executive's reasonable best efforts and Executive's full business
time and attention (except for permitted vacation periods and reasonable periods
of illness or other incapacity) to the business and affairs of the Company
during the normal business hours of the executive offices of the Company.
Executive shall perform Executive's duties and responsibilities to the best of
Executive's abilities in a reasonably diligent, trustworthy, businesslike and
efficient manner.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$200,000 per annum (the "Base Salary"), which salary shall be payable in regular
installments in accordance with the Company's general payroll practices,
including those related to withholding for taxes, insurance and similar items.
Executive's Base Salary shall be increased on January 1 of each calendar year,
commencing January 1, 1998, by at least the Adjustment Percentage (as defined
below) of the Base Salary applicable to the previous fiscal year. As used
herein, "Adjustment Percentage" means the sum of (x) the Consumer Price Index
for the State of California, published by the Bureau of Labor Statistics of the
United States Department of Labor for the immediately preceding fiscal year,
plus (y) three percent (3%). In addition, during the Employment Period,
Executive shall be entitled to participate in all of the Company's employee
benefit, profit sharing, stock option, incentive compensation, vacation and
other perquisite plans and programs ("Benefits") for which key employees of the
Company are generally eligible; provided, however, in no event shall Executive's
benefits be less than the Benefits described on Exhibit "A" hereto.
(b) During the Employment Period, the Company shall reimburse Executive
for all reasonable expenses incurred by Executive in the course of performing
Executive's duties under this Agreement which are consistent with the Company's
policies in effect from time to time with respect to travel, entertainment and
other business expenses, subject to the Company's requirements with respect to
reporting and documentation of such expenses.
(c) During the Employment Period, the Company shall pay for or reimburse
Executive for all fees and reasonable expenses of Executive's participation in
professional organizations, trade associations or other organizations reasonably
related to Executive's position and responsibilities as an officer of the
Company.
4. Bonus; Incentive Compensation.
(a) Fixed Bonus. In the event that gross margin percentage of the Company
(determined by dividing the net operating income of the Company by the gross
revenues of the Company, calculated in accordance with generally accepted
accounting principles applied consistently with past practices) for any full
fiscal year during the term of this Agreement is equal to, or greater than 90%
of the gross margin percentage (which gross margin percentage shall be agreed
upon by the Chief Executive Officer of the Company and the Executive prior to
completion of the first fiscal quarter of such fiscal year of the Company) of
the Company for the prior full
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<PAGE> 16
fiscal year, Executive shall be entitled to receive a fixed bonus equal to
$100,000 at the end of such year, payable within 95 days following the end of
such fiscal year. For the fiscal year ended March 31, 1998, the prior full
fiscal year shall be deemed to be the fiscal year ended December 31, 1996.
(b) Variable Bonus. In addition to the Fixed Bonus described in Section
4(a) above, Executive shall also be entitled to receive an annual bonus at the
end of each full fiscal year of employment by the Company, payable within 95
days following the end of such fiscal year, equal to $10,000 for each 1% point
increase in the greater of (i) Future EBITDA over the Base Year EBITDA plus 5%,
or (ii) Three Year Average Future EBITDA over Base Year EBITDA plus 5%. For
purposes of the foregoing, any fractional percentage point of EBITDA growth
shall be multiplied by $10,000 to determine the bonus allocable to such
fractional percentage point.
Base Year EBITDA for the fiscal year ending March 31, 1997 (the
"Base Year") shall be $13,634,691 as determined in accordance with Schedule II
attached hereto and agreed to by the Company and Executive.
For each fiscal year thereafter, Base Year EBITDA shall be
determined by the audited financial statements for the Company for the
immediately preceding fiscal year on a consolidated basis, and shall also
include Restated EBITDA of any entity acquired by the Company during the subject
fiscal year ("Acquired Entity"), based upon the most recently completed fiscal
year of the Acquired Entity.
Restated EBITDA shall mean EBITDA of an Acquired Entity for any
period prior to the acquisition, restated to exclude discontinued owner
compensation and other owner related restatements deemed appropriate by the
Company's Chief Executive Officer and Chief Financial Officer.
Future EBITDA shall be determined by the audited financial
statements for the Company for the subject fiscal year on a consolidated basis
utilizing the actual EBITDA of the Company for the subject fiscal year,
including the actual EBITDA of any Acquired Entity for the period of the fiscal
year the Company actually owned the Acquired Entity, and the pro forma Restated
EBITDA of the Acquired Entity for the period of the fiscal year the Acquired
Entity was not owned by the Company.
Three Year Average Future EBITDA shall mean the average of the
Future EBITDA for the immediately preceding three (3) years, or such shorter
period of time if less than three years have elapsed since the Base Year.
Base Year EBITDA and Future EBITDA shall be determined within 75
days following the end of the Company's fiscal year, and shall be set forth in
Schedule II attached hereto and initialed and agreed to by the Company and
Executive. Schedule III attached hereto
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<PAGE> 17
contains an example of the calculation of the Variable Bonus for the fiscal year
ended March 31, 1998 and after giving effect to the acquisition of an Acquired
Entity during the fiscal year.
(c) Incentive Compensation. As an incentive to continue employment with
the Company, the Company shall pay to the Executive on the third anniversary of
this Agreement an amount equal to $1,000,000 (the "Incentive Compensation").
Executive shall be required to be employed by the Company on the third
anniversary of this Agreement to be eligible to receive the Incentive
Compensation; provided, however, if Executive has been terminated without Cause,
has resigned for Good Reason or if Executive dies or becomes permanently
disabled or incapacitated prior to the third anniversary of this Agreement,
Executive shall still be eligible to receive the Incentive Compensation in
accordance with this Section 4(c) and Section 5 below. Notwithstanding the
foregoing, the Company may defer one-third of the Incentive Compensation to the
fourth anniversary of this Agreement and an additional one-third of the
Incentive Compensation to the fifth anniversary of this Agreement in the event
the payment thereof at the third anniversary would cause the Company to breach
any of its financial covenants contained in agreements between the Company and
its institutional lenders. In the event of such deferral, the Company agrees to
(i) pay such deferred amount on the earlier to occur of (A) such time as it is
able without breaching the aforementioned financial covenants or (B) the fourth
or fifth anniversary of this Agreement, as applicable; and (ii) shall pay to the
Executive simple interest on the amount of the deferred Incentive Compensation
equal to 10% per annum, which interest shall be paid at the time of payment of
the deferred Incentive Compensation.
5. Term.
(a) The Employment Period shall end on the fifth anniversary hereof
("Original Term") unless extended as set forth below; provided that (i) the
Employment Period shall terminate prior to the Original Term upon Executive's
death or permanent disability or incapacity; (ii) the Employment Period may be
terminated by the Company at any time prior to such date for Cause (as
hereinafter defined) or without Cause; and (iii) the Employment Period may be
terminated by Executive for Good Reason at any time or by his Voluntary
Resignation after the second anniversary hereof. For purposes of the foregoing,
Executive's permanent disability or incapacity shall be determined in accordance
with the Company's disability insurance policy, if such a policy is then in
effect, or if no such policy is then in effect, such permanent disability or
incapacity shall be determined by the Board in its good-faith judgment based
upon inability to perform the essential functions of his position, with
reasonable accommodation by the Company, for a period in excess of 180 days
during any period of 365 calendar days. For purposes of the foregoing,
Executive's "Voluntary Resignation" shall mean resignation by Employee other
than for Good Reason. The Employment Period shall automatically extend for
successive one-year periods (each, a "Supplemental Term") following the fifth
anniversary of this Agreement, unless either party delivers written notice to
the other party no later than one hundred twenty (120) days prior to the end of
the fifth anniversary of this Agreement or any successive anniversary of this
Agreement, as the case may be, of intent not to renew.
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<PAGE> 18
(b) If the Employment Period is terminated without Cause by the Company or
by Executive with Good Reason prior to the end of the Original Term or a
Supplemental Term, as the case may be, the Executive shall be entitled to
receive (i) his Base Salary (determined in accordance with Section 3(a)) during
the period that is the lesser of (A) twelve months, or (B) the remainder of the
Original Term or a Supplemental Term, as the case may be, (ii) a prorated
portion of any fixed or variable bonus payable pursuant to Sections 4(a) and (b)
earned through the date of such termination for the calendar year in which the
termination occurs, and (iii) the Incentive Compensation referred to in Section
4(c). If the Executive's employment is terminated without Cause by the Company,
the Company shall keep in force existing health insurance covering the Executive
and his dependents for a period of eighteen (18) months from the date of
termination on the basis in effect at the date of Executive's employment at the
Company's expense. If Executive's employment is a resignation with Good Reason,
the Company shall keep in force existing health insurance covering the Executive
and his dependents for a period of six (6) months from the date of termination
on the basis in effect at the date of Executive's employment.
(c) If the Employment Period is terminated by the Company for Cause or is
terminated as a result of Executive's Voluntary Resignation, (i) Executive shall
be entitled to receive Executive's Base Salary only through the date of
termination, and (ii) Executive shall not be entitled to any Incentive
Compensation payment earned as of the date of termination, unless such
termination is after the third anniversary hereof, in which case the Incentive
Compensation shall be deemed fully earned.
(d) If the Employment Period is terminated as a result of permanent
disability, incapacity or death, Executive or Executive's representatives or
beneficiaries shall be entitled to receive (i) Executive's Base Salary through
the date of termination, plus twelve months of Executive's then Base Salary,
(ii) a prorated portion of any fixed or variable bonus payable pursuant to
Sections 4(a) and (b) earned through the date of such termination for the
calendar year in which the termination occurs, and (iii) any remaining Incentive
Compensation payments referred to in Section 4(c). If the Executive's employment
is terminated by reason of Executive's death, incapacity or disability, the
Company shall keep in force existing health insurance covering the Executive and
his dependents for a period of 18 months from the date of termination on the
basis in effect at the date of termination of the Executive's employment. The
Executive and his dependents shall also be entitled to any continuation of
coverage rights under an applicable law.
(e) The amount of Base Salary payable pursuant to Sections 5(b) and (c)
shall be payable in accordance with the Company's normal payroll procedures
applied to Executive as if he remained an employee of the Company. The amount of
any fixed or variable bonus payable pursuant to Sections 5(b) and (c) shall be
payable in accordance with the terms of Sections 4(a) and (b). The amount of any
Incentive Compensation payable pursuant to Sections 5(b) and (c) shall be
payable on the dates set forth in Section 4(c).
(f) All of Executive's rights to any other employee benefit hereunder
(except as described above or pursuant to law) accruing after the termination of
the Employment Period shall
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<PAGE> 19
cease upon such termination. Upon termination of this Agreement for any reason
whatsoever, Executive shall have the right to receive any accrued but unused
vacation time and any and all benefits due Executive pursuant to Section 3(a) as
of termination.
(g) For purposes of this Agreement, "Cause" shall mean (1) the conviction
of any act constituting a felony under the laws of any state or of the United
States, or a crime involving moral turpitude that causes material harm to
Company, (2) willful misconduct by Executive causing material harm to Company,
but only if Executive shall not have discontinued such misconduct within 30 days
after receiving written notice from the Company describing the misconduct and
stating that the Company will consider the continuation of such misconduct as
cause for termination of this Agreement, or (3) substantial failure to perform
the duties required by Section 2(a) hereof which is not cured within 180 days
after receiving written notice from the Company describing the failure to
perform and stating that the Company will consider the continuation of such
failure to perform as cause for termination of this Agreement. Resignation with
"Good Reason" shall mean (x) the assignment to Executive of duties substantially
and materially inconsistent with the position and nature of Executive's
employment as set forth in Section 2(a) of this Agreement, (y) a reduction of
compensation and benefits that would substantially diminish the aggregate value
of Executive's compensation and benefits or a substantial change in the
allocation between Executive's variable and fixed compensation without
Executive's consent, or (z) the failure by the Company to obtain from any
successor an agreement to assume and perform this Agreement.
(h) Nothing in this Agreement shall be deemed to limit or otherwise
abrogate the Company's obligation to make the payments under Section 5(b) if
Executive is terminated without Cause following a merger, consolidation or sale
of the Company or following a change in the control of the Company's outstanding
voting securities. A "change in control" shall be deemed to have occurred if any
person or any persons acting together that would constitute a group (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) (other than
Greg Grosch, KRG Capital Partners, LLC, a Colorado limited liability company
("KRG"), or its affiliates, or a group in which Greg Grosch, KRG or its
affiliates are the controlling participants) shall beneficially own at least 50%
of the aggregate voting power of all classes of capital stock (including shares
convertible into voting securities) entitled to vote on the election of
directors to the Board. Without limiting the foregoing, any sale of
substantially all of the Company's assets to another entity without an express
assumption by such entity of the Company's obligations under this Agreement
shall be deemed to constitute termination without Cause pursuant to Section 5(b)
above and the Company shall be obligated to make the specified payments pursuant
to Section 5(b) upon consummation of the transaction pursuant to which the
Company is selling substantially all of its assets.
6. Confidential Information. As used herein, the term "Confidential Information"
shall mean all information disclosed to Executive or known by Executive as a
consequence of or through Executive's employment by the Company (including,
without limitation, information belonging to third parties or companies
affiliated with or related to the Company in the Company's
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<PAGE> 20
possession) not generally known in the trade or industry in which such
information is used, about the Company's products, processes, services,
customers, marketing strategy and business plans. Executive agrees that
Executive shall not disclose to any unauthorized person or use for Executive's
own account any Confidential Information without the prior written consent of
the Board or the President, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public other than
as a result of Executive's acts or omissions to act. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time as
the Company may request, all memoranda, notes, plans, records, computer tapes
and software and other documents and data (and copies thereof) relating to the
Confidential Information or the business of the Company or any subsidiary which
Executive may then possess or have under Executive's control.
7. Non-Solicitation. During the Original Term or during any Supplemental Term,
Executive shall not directly or indirectly through another entity (i) induce or
attempt to induce or encourage any employee of the Company or any subsidiary to
leave the employ of the Company or such subsidiary, (ii) solicit or hire any
person who was an employee of the Company or any subsidiary of the Company at
any time during the Employment Period if such person was employed by the Company
or a subsidiary of the Company at any time during the one-year period prior to
such hiring, or (iii) induce or attempt to induce any customer, supplier,
licensee or other business relation of the Company or any subsidiary to
withdraw, curtail or cease doing business with the Company or such subsidiary.
8. Enforcement. If, at the time of enforcement of Sections 6 and 7 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period or scope reasonable under such circumstances shall be substituted for the
stated period or scope. Because Executive's services are unique and because
Executive has access to Confidential Information, the parties hereto agree that
money damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provisions hereof (without posting a bond or
other security).
9. Representations.
(a) Executive hereby represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by Executive does not and
will not conflict with, breach, violate or cause a default under any contract,
agreement, instrument, order, judgment or decree to which Executive is a party
or by which Executive is bound, (ii) Executive is not a party to or bound by any
employment agreement, noncompete agreement or confidentiality agreement with any
other person or entity, and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms.
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<PAGE> 21
(b) Company hereby represents and warrants to the Executive that (i) the
execution, delivery and performance of this Agreement by the Company does not
and will not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which Executive is
a party or by which Executive is bound, and (ii) upon the execution and delivery
of this Agreement by the Executive, this Agreement shall be the valid and
binding obligation of the Company, enforceable in accordance with its terms.
10. Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign Executive's
rights or delegate Executive's obligations hereunder without the prior written
consent of the Company. Without limiting the foregoing, the Company may not,
without Executive's prior written consent, assign rights or delegate its
obligations under this Agreement.
11. Survival. Sections 6, 7, 8 and 9 shall survive and continue in full force in
accordance with their terms, notwithstanding any termination of the Employment
Period.
12. Notices. Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered by nationally recognized overnight courier
service, or mailed by certified mail, return receipt requested, to the recipient
at the address indicated below.
If to Executive: Richard Gagnon
c/o White Cap Industries, Inc.
3120 Airway Drive
Costa Mesa, CA 92626
If to the Company: White Cap Industries, Inc.
c/o KR Capital Corporation
370 17th Street, Suite 2300
Denver, CO 80202
or such other address or to the attention of such person as the recipient party
shall leave specified by prior written notice to the sending party. Any notice
under this Agreement will be deemed to have been given when so delivered or
mailed. Any Notice of Termination of Executive's employment by the Company shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
13. Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be elective and valid under applicable law but
if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced
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<PAGE> 22
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
14. Complete Agreement. This Agreement, together with the other agreements
referred to herein, embodies the complete agreement and understanding among the
parties and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
15. Counterparts. This Agreement may be executed in separate counterparts, each
of which is deemed to be an original and all of which taken together constitute
one and the same agreement.
16. Choice of Law. This Agreement will be governed by the internal law and not
the laws of conflicts, of the State of California.
17. Agreement to Arbitrate; Expenses. Except for the enforcement of any covenant
herein that would be the subject of specific performance contemplated by Section
8, any controversy or claim arising out of or relating to this Agreement or the
formation, breach or interpretation hereof, will be settled by arbitration
before one arbitrator in accordance with the National Rules for the Resolution
of Employment Disputes of the American Arbitration Association in Orange County,
California. Judgment upon the award rendered by the arbitration may be entered
and enforced in the court with jurisdiction over the appropriate party. All
controversies not subject to arbitration or contesting any arbitration will be
litigated in the State of California, Orange County Superior Court or a federal
court in the Central District of California (and each of the parties hereto
hereby consents to the exclusive jurisdiction of such courts and waives any
objections thereto). The expenses (including reasonable attorneys' fees)
incurred by the prevailing party in any arbitration or litigation related to
this Agreement shall be borne by the non-prevailing party in such arbitration or
litigation.
18. Amendment and Waiver. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
19. Nondisclosure and Invention and Copyright Assignment Agreement.
Executive's employment also is subject to the requirement that Executive
sign, observe, and agree to be bound, both during and after Executive's
employment, by the provisions of the Company's Nondisclosure and Invention and
Copyright Assignment Agreement, a copy of which is attached as Exhibit "A".
Executive's execution of the Nondisclosure and Invention and Copyright
Assignment Agreement is an express condition precedent to the Company's
obligations under this Agreement. Executive also agrees to execute, deliver and
perform, during the term of his employment with the Company and thereafter, any
other reasonable confidentiality and
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<PAGE> 23
nondisclosure agreements concerning the Company and any of its affiliates which
the Company promulgates for other key employees and executives of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY: WHITE CAP INDUSTRIES, INC.,
a California corporation
By:_________________________________
Greg Grosch
President
EXECUTIVE: ____________________________________
RICHARD GAGNON
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<PAGE> 24
EXHIBIT "A"
NONDISCLOSURE AND INVENTION AND
COPYRIGHT ASSIGNMENT AGREEMENT
In consideration of my employment by WHITE CAP INDUSTRIES, INC. or any of
its subsidiaries and affiliates (the "Company"):
1. I will promptly disclose to the Company in writing all discoveries,
concepts and ideas, whether patentable or unpatentable, including but not
limited to processes, designs, innovations, inventions, formulas, methods, and
techniques, as well as improvements and know-how related thereto, made,
conceived, reduced to practice or learned by me while in the Company's employ,
either solely or jointly with others during my employment ("Company
Inventions"). This Agreement shall not apply to any Invention developed entirely
on my own time without using the Company's equipment, supplies, facilities or
trade secret information, except for those items and inventions that either: (a)
relate, at the time of conception or reduction to practice of the invention, to
the Company's business or any of the products or services being developed,
manufactured or sold by the Company or which may conveniently be used in
relation therewith, or actual, or demonstrably anticipated research or
development of the Company, or (b) result from any work performed by me for the
Company.
THIS AGREEMENT DOES NOT APPLY TO ANY INVENTION WHICH QUALIFIES FULLY UNDER
THE PROVISIONS OF CALIFORNIA LABOR CODE SECTION 2870.
(a) I hereby assign to the Company all of my right, title and
interest in and to all such Company Inventions and to applications for
United States and/or foreign letters patent and to United States and/or
foreign letters patent granted upon such Company Inventions.
(b) I will acknowledge and deliver promptly to the Company such
written instruments and do such other acts, such as giving testimony in
support of my inventorship (and I understand I shall be paid for my time
spent in connection with such acts at a rate equal to the last hourly rate
paid to me by the Company), as may be necessary in the opinion of the
Company to obtain and maintain United States and/or foreign letters patent
and to vest the entire right and title thereunto in Company.
(c) I agree that title to any and all copyrights, copyright
registrations and copyrightable subject matter which occurs as a result of
my employment by the Company shall be the sole and exclusive property of
the Company, and that such works comprise works made for hire. I hereby
assign, and agree to assign, all of said copyrights to the Company.
<PAGE> 25
(d) I have listed on the attached Annex A all unpatented, but
potentially patentable, ideas and inventions conceived before my
employment with the Company and which are exempt from the obligations of
this Agreement.
(e) In the event the Company is unable (after good faith efforts are
made by the Company) to secure my signature on any document necessary to
apply for, prosecute, obtain, or enforce any patent, copyright, or other
right of protection relating to any Company Inventions, I hereby
irrevocably designate and appoint the Company and each of its duly
authorized officers and agents as my agent and attorney-in-fact to act for
and in my behalf and stead to execute and file any such document and to do
all other lawfully permitted acts to further the prosecution, issuance and
enforcement of patents, copyrights or other rights or protections with the
same force and effect as if executed and delivered by me.
2. As a direct or indirect consequence of my employment with the Company I
have been and will/may be exposed to highly sensitive and confidential
information (some of which I may in the past have, or may in the future, develop
or contribute to) not generally, if at all, known or available to persons or
entities not in some way affiliated with the Company and/or affiliates
(hereinafter "Confidential Information"). Confidential Information shall
include, without limitation, all (i) information that has or could have
commercial value or other utility in the business in which the Company and its
affiliates are engaged or contemplate engaging in, and (ii) all information the
unauthorized disclosure of which could be detrimental to the interests of the
Company and/or its affiliates, whether or not such information is identified as
Confidential Information by the Company. By example, and without limitation,
Confidential Information includes: financial statements and records,
illustrations, prototypes, models, whether patentable or unpatentable, trade
secrets, know-how, concepts and other data, trademarks, copyrights, design
features, or configurations of any kind, procedures, demonstrations, methods,
processes, uses, manufacturing information, techniques, formulas, improvements,
research and development data, pamphlets, books, reports or other documents,
inspection procedures, apparatuses, compounds, compositions, combinations,
programs, software and works of authorships, whether discovered, conceived,
developed, made or produced, research and development projects; strategic
alliances; confidential information of other entities or companies with whom the
Company or its affiliates may enter into joint ventures, strategic alliances or
other business relationships; the identity of consultants and assistants; future
advertising and marketing methods and plans; detailed sales and pricing
information and formulas; budgets; product performance; sources of products;
production and distribution methods or procedures; business methods, procedures
and plans; licensing arrangements; customer product preferences and
requirements; and, additional information relating to financial, marketing,
technical, developmental and/or other business aspects, of the Company and/or
the Company's affiliates. I agree and understand that any and all of the
foregoing is considered by the Company to be of a highly confidential nature and
as a trade secret. The term "Confidential Information" shall not include any
information obtained by me through (i) industry publications which are
disseminated to or can be acquired by businesses in the industry, (ii) local and
state contractors license lists, (iii) Dodge Reports and Dun & Bradstreet and
any similar
<PAGE> 26
information services, (iv) any Chamber of Commerce or other trade association
reports, or (v) reports from governmental agencies. In furtherance of the
foregoing, I agree as follows:
(a) To refrain from reproducing or making any summary, extract or
abridgement of, other than in the regular course of business, or removing,
any business record, document, schematic, drawing, instrument, component
or any other item dealing with the Confidential Information without prior
written consent therefor.
(b) To refrain from discussing with any other person or persons,
whether or not said persons are in the employ of the Company, any aspect
of the Confidential Information, except as said discussions directly
relate to completion of the particular task at hand and/or in compliance
with instructions to do so.
(c) To accept and maintain the Confidential Information on a
confidential basis and to protect and safeguard same against unauthorized
publication or disclosure. I will not be justified in disregarding the
obligation of confidentiality by selecting individual pieces of public
information and fitting them together by use of integrated disclosure to
contend that such Confidential Information is in the public domain.
(d) Other than in furtherance of my employment with the Company, not
to use, directly or indirectly, for my own or for my future employer's
advantage, any Confidential Information learned during my employment with
the Company and which is not made publicly known (through no fault of
mine).
(e) Not to disclose, publicize, reveal or make available, directly
or indirectly, any of the Confidential Information to any firm, person, or
entity whatsoever, except for a disclosure which is required, if at all,
by statute, order of court or otherwise by law, and then only after first
advising the Company of such demand with reasonably sufficient advance
notice, if possible, so as to afford the Company an opportunity to seek a
protective order.
(f) Upon termination of my employment, to turn over to a designated
individual employed by the Company all property then in my possession or
custody belonging to the Company. I will not retain any original, copy,
summary or abridgement of any document which contains Confidential
Information, including correspondence, memoranda, reports, calendars,
contracts, notebooks, drawings, photos or other documents relating in any
way to the affairs of the Company or to the affairs of its affiliated
companies and which are entrusted to me or developed by me at any time
during my employment with the Company, all of which, will be delivered to
the Company immediately upon termination of my employment.
(g) Not to interfere with the relationship between and/or among the
Company and its consultants, agents, employees or others working on
research and development
<PAGE> 27
projects or providing services or products to or for the Company, nor
disclose the identity of said individuals and/or entities so long as not
otherwise generally known in the trade.
3. Notwithstanding the definition of "Confidential Information," I
understand that I shall not be liable for disclosure to any third party or use
of any Confidential Information which: (a) at the time of disclosure or
thereafter becomes a part of the public domain through no act or omission by me;
(b) has been independently generated, discovered or perfected by me and is
listed on the attached Annex A; (c) is subsequently and lawfully disclosed to me
by a third party, which third party did not acquire the information under an
obligation of confidentiality from or through the Company; or (d) is required to
be disclosed as a matter of law.
4. I acknowledge and agree that the Confidential Information, and the
strict confidentiality thereof, materially affects the successful conduct of the
Company's business and its goodwill; therefore, any breach of the terms of this
Agreement by me is a material breach thereof, and may result in termination of
my employment, the imposition of injunctive relief, and liability for damages
sustained by the Company. The expenses (and reasonable attorneys' fees) incurred
by the prevailing party in any arbitration or litigation relating to this
Agreement shall be borne by the non-prevailing party in such arbitration or
litigation.
5. No modification or waiver of this Agreement or any of its provisions
shall be binding upon the Company unless made in writing and signed on behalf of
the Company by one of its officers (other than me). The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision and such invalid or
unenforceable provision shall be reformed to the extent possible in order to
give its intended effect and/or meaning. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
6. This Agreement together with my Employment Agreement with the Company
supersedes any and all agreements between me and the Company with respect to the
subject matter hereof. In the event of any controversy, dispute or claim arising
out of or relating to this Agreement, the arbitration provisions of Section 17
of the Employment Agreement between me and the Company shall be applicable. The
covenants and agreements undertaken herein shall survive termination of my
employment.
<PAGE> 28
I have read and fully understand the foregoing, and by affixing my
signature below, I agree to be fully bound hereby.
________________________________
EMPLOYEE'S NAME
(Please Print)
Dated: ______________________ ________________________________
EMPLOYEE'S SIGNATURE
<PAGE> 29
WRITTEN NOTIFICATION TO EMPLOYEE
In accordance with California Labor Code Section 2872, you are hereby
notified that your Employee Nondisclosure and Invention and Copyright Assignment
Agreement does not require you to assign to the Company any invention which
qualifies fully under the provisions of California Labor Code Section 2870.
You are hereby provided a copy of California Labor Code Section 2870.
I hereby acknowledge receipt of this written notification.
Dated: _______________, 1997 ________________________________
EMPLOYEE'S SIGNATURE
<PAGE> 30
AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (the "Agreement") is entered into as of this _________ day of
_____________, 1997 by and between WHITE CAP INDUSTRIES, INC., a California
corporation (the "Company"), and RICHARD GAGNON, an individual ("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. A new Section 4(d) to the Amended and Restated Employment Agreement dated
effective as of January 1, 1997 is hereby added to read in full as follows:
(d) Accelerated Incentive Compensation. Notwithstanding anything in this
Agreement to the contrary, the Company hereby agrees to accelerate the payment
of the Incentive Compensation provided for in Section 4(c) in the amount of
$1,000,000 and such Incentive Compensation shall be deemed to be fully earned by
Executive effective upon the closing of an initial public offering of common
stock in White Cap Industries, Inc. (the "IPO"). Such Incentive Compensation
shall be due and payable within thirty (30) days of the closing of the IPO. If
the IPO does not close for any reason, the Incentive Compensation shall be paid
in accordance with the provisions of Section 4(c).
Except as provided in this Amendment, the Amended and Restated Employment
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY: WHITE CAP INDUSTRIES, INC.,
a California corporation
By:________________________________
Greg Grosch
President
EXECUTIVE: ________________________________
RICHARD GAGNON
<PAGE> 1
EXHIBIT 4.1
- ------------------------------------------------------------------------------
[WHITE CAP LOGO]
PRO CONTRACTOR SUPPLIER
NUMBER SHARES
WHITE CAP INDUSTRIES, INC
WC INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES that CUSIP 963505 10 2
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK (PAR VALUE $.01) OF
WHITE CAP INDUSTRIES, INC.
(herein called the Corporation), transferable on the books of the Corporation by
said owner in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares of stock
represented hereby are issued and shall be held subject to all of the provisions
of the Certificate of Incorporation and the By-Laws of the Corporation, and any
amendments thereto, copies of which are on file with Secretary of the
Corporation, and to the laws of the State of Delaware from time to time in
effect to all of which the holder by acceptance hereof assents. This Certificate
is not valid until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Greg Grosch /s/ Dan Isujioka
----------------------- -----------------------
CHAIRMAN, PRESIDENT & SECRETARY
CHIEF EXECUTIVE OFFICER
WHITE CAP INDUSTRIES, INC.
[CORPORATE
SEAL]
DELAWARE
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--Custodian
TEN ENT--as tenants by the entireties (Cust) (Minor)
JT TEN--as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
____________________________________________________________________________
____________________________________________________________________________
_____________________________________________________________________ SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE, AND APPOINT _______________________________________.
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ___________________________
_________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
NOTICE: THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENHANCEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
__________________________________
THE SIGNATURE(S) SHOULD BE GUARAN-
TEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM). PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
October 16, 1997
White Cap Industries, Inc.
3120 Airway Avenue
P.O. Box 1770
Costa Mesa, CA 92626
Re: Shares of Common Stock, $.01 par value
Ladies and Gentlemen:
We are acting as counsel to White Cap Industries, Inc., a California
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), of a Registration Statement on Form S-1,
Registration No. 333-33767 (the "Registration Statement") pertaining to the
registration of a proposed offering by the Company of up to 4,000,000 shares of
the Company's Common Stock, $.01 par value per share (the "Shares") and 600,000
Shares pursuant to which the Company and certain shareholders have granted the
underwriters an option to purchase solely to cover over-allotments, if any,
shares to be newly issued and sold by the Company in the proposed offering (the
"New Shares" and, together with the Existing Shares, the "Common Stock").
We have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate records and other
instruments as we have deemed necessary for the purposes of this opinion,
including the following: (i) Amended and Restated Certificate of Incorporation
and the Bylaws of the Company, each as amended to the date hereof; and (ii)
certain resolutions adopted by the Board of Directors of the Company. In
addition, we have made such other and further investigations as we have deemed
necessary to enable us to express the opinions hereinafter set forth.
Based upon the foregoing and having regard to legal considerations
that we deem relevant, and subject to the comments and qualifications set forth
below, it is our opinion that the Common Stock has been duly authorized and the
Shares, when duly executed and delivered by authorized officers of the Company
and issued upon receipt of the consideration to be paid therefor (all in
conformity with the Board of Directors' resolutions examined by us), will be
duly and validly issued, fully paid and non-assessable.
<PAGE> 2
For purposes of this opinion, we have with your permission made the
following assumptions, in each case without independent verification: (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as copies, (iii) the
authenticity of the originals of all documents submitted to us as copies, (iv)
the genuineness of the signatures of persons signing all documents in connection
with which this opinion is rendered, (v) the authority of such persons signing
all documents on behalf of the parties thereto and (vi) the due authorization,
execution and delivery of all documents by the parties thereto.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the section
entitled "Legal Matters" in the prospectus included in the Registration
Statement. In giving such consent, we do not thereby concede that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations promulgated thereunder.
We do not find it necessary for purposes of this opinion to cover,
and accordingly we do not purport to cover herein, the application of the
securities or "Blue Sky" laws of the various states to the offering and sale of
the Common Stock.
This opinion shall be limited to the laws of the State of Delaware.
This opinion is furnished to you in connection with the filing of
the Registration Statement and is not to be used, circulated, quoted or
otherwise relied upon for any other purpose.
Very truly yours,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
2
<PAGE> 1
EXHIBIT 10.1
[FORM OF]
WHITE CAP INDUSTRIES, INC.
1997 LONG-TERM EQUITY INCENTIVE PLAN
1. Purpose.
This plan shall be known as the White Cap Industries, Inc.
1997 Long-Term Equity Incentive Plan (the "Plan"). The purpose of the Plan shall
be to promote the long-term growth and profitability of White Cap Industries,
Inc. (the "Company") and its Subsidiaries (as defined below) by (i) providing
certain directors, officers and key employees of, and certain other key
individuals who perform services for, the Company and its Subsidiaries with
incentives to maximize stockholder value and otherwise contribute to the success
of the Company and (ii) enabling the Company to attract, retain and reward the
best available persons for positions of substantial responsibility. Grants of
incentive or nonqualified stock options, stock appreciation rights ("SARs"),
either alone or in tandem with options, restricted stock, performance awards, or
any combination of the foregoing may be made under the Plan.
2. Definitions.
(a) "Board of Directors" and "Board" mean the board of directors
of the Company.
(b) "Cause" means the occurrence of one of the following events:
(i) Conviction of a felony or any crime or offense lesser than
a felony involving the property of the Company or a Subsidiary; or
(ii) Conduct that has caused demonstrable and serious injury
to the Company or a Subsidiary, monetary or otherwise; or
(iii) Willful refusal to perform or substantial disregard of
duties properly assigned, as determined by the Company; or
(iv) Breach of duty of loyalty to the Company or a Subsidiary
or other act of fraud or dishonesty with respect to the Company or a Subsidiary.
(c) "Change in Control" means the occurrence of one of the following
events:
<PAGE> 2
(i) if any "person" or "group" as those terms are used in
Sections 13(d) and 14(d) of the Exchange Act, other than an Exempt Person, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities;
or
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board and any new directors
whose election by the Board or nomination for election by the Company's
stockholders was approved by at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation (A) which would result in all or a portion of the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (B) by which the corporate
existence of the Company is not affected and following which the Company's chief
executive officer and directors retain their positions with the Company (and
constitute at least a majority of the Board); or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets, other than a
sale to an Exempt Person.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board. The
membership of the Committee shall be constituted so as to comply at all times
with the applicable requirements of Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code.
(f) "Common Stock" means the Common Stock, par value $0.01 per share,
of the Company, and any other shares into which such stock may be changed by
reason of a recapitalization, reorganization, merger, consolidation or any other
change in the corporate structure or capital stock of the Company.
(g) "Competition" is deemed to occur if a person whose employment with
the Company or its Subsidiaries has terminated obtains a position as a full-time
or part-time employee of, as a member of the board of directors of, or as a
consultant or advisor with or to, or acquires an ownership interest in excess of
5% of, a corporation, partnership, firm or other entity that engages in any of
the businesses of the Company or any Subsidiary with which the person was
involved in a management role at any time during his or her last five years of
employment with or other service for the Company or any Subsidiaries.
-2-
<PAGE> 3
(h) "Disability" means a disability that would entitle an eligible
participant to payment of monthly disability payments under any Company
disability plan or as otherwise determined by the Committee.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Exempt Person" means (i) Greg Grosch or KRG Capital Partners, LLC,
(ii) any person, entity or group under the control of any party included in
clause (i) (including by virtue of a voting agreement giving such party voting
control over shares of the Company's capital stock held by such person, entity
or group), or (iii) any employee benefit plan of the Company or a trustee or
other administrator or fiduciary holding securities under an employee benefit
plan of the Company.
(k) "Fair Market Value" of a share of Common Stock of the Company
means, as of the date in question, the officially-quoted closing selling price
of the stock (or if no selling price is quoted, the bid price) on the principal
securities exchange on which the Common Stock is then listed for trading
(including for this purpose the Nasdaq National Market) (the "Market") for the
immediately preceding trading day or, if the Common Stock is not then listed or
quoted in the Market, the Fair Market Value shall be the fair value of the
Common Stock determined in good faith by the Board; provided, however, that when
shares received upon exercise of an option are immediately sold in the open
market, the net sale price received may be used to determine the Fair Market
Value of any shares used to pay the exercise price or withholding taxes and to
compute the withholding taxes.
(l) "Incentive Stock Option" means an option conforming to the
requirements of Section 422 of the Code and any successor thereto.
(m) "Non-Employee Director" has the meaning given to such term in Rule
16b-3 under the Exchange Act.
(n) "Nonqualified Stock Option" means any stock option other than an
Incentive Stock Option.
(o) "Other Company Securities" mean securities of the Company other
than Common Stock, which may include, without limitation, unbundled stock units
or components thereof, debentures, preferred stock, warrants and securities
convertible into or exchangeable for Common Stock or other property.
(p) "Retirement" means retirement as defined under any Company pension
plan or retirement program or termination of one's employment on retirement with
the approval of the Committee.
(q) "Subsidiary" means a corporation or other entity of which
outstanding shares or ownership interests representing 50% or more of the
combined voting power of such corporation
-3-
<PAGE> 4
or other entity entitled to elect the management thereof, or such lesser
percentage as may be approved by the Committee, are owned directly or indirectly
by the Company.
3. Administration.
The Plan shall be administered by the Committee; provided that
the Board may, in its discretion, at any time and from time to time, resolve to
administer the Plan, in which case the term "Committee" shall be deemed to mean
the Board for all purposes herein. The Committee shall consist of at least two
directors. Subject to the provisions of the Plan, the Committee shall be
authorized to (i) select persons to participate in the Plan, (ii) determine the
form and substance of grants made under the Plan to each participant, and the
conditions and restrictions, if any, subject to which such grants will be made,
(iii) modify the terms of grants made under the Plan, (iv) interpret the Plan
and grants made thereunder, (v) make any adjustments necessary or desirable in
connection with grants made under the Plan to eligible participants located
outside the United States and (vi) adopt, amend, or rescind such rules and
regulations, and make such other determinations, for carrying out the Plan as it
may deem appropriate. Decisions of the Committee on all matters relating to the
Plan shall be in the Committee's sole discretion and shall be conclusive and
binding on all parties. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with applicable federal and state laws and rules and regulations promulgated
pursuant thereto. No member of the Committee and no officer of the Company shall
be liable for any action taken or omitted to be taken by such member, by any
other member of the Committee or by any officer of the Company in connection
with the performance of duties under the Plan, except for such person's own
willful misconduct or as expressly provided by statute.
The expenses of the Plan shall be borne by the Company. The
Plan shall not be required to establish any special or separate fund or make any
other segregation of assets to assume the payment of any award under the Plan,
and rights to the payment of such awards shall be no greater than the rights of
the Company's general creditors.
4. Shares Available for the Plan.
Subject to adjustments as provided in Section 15, an aggregate
of 500,000 shares of Common Stock (the "Shares") may be issued pursuant to the
Plan. Such Shares may be in whole or in part authorized and unissued, or shares
which are held by the Company as treasury shares. If any grant under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited as to
any Shares, such unpurchased or forfeited Shares shall thereafter be available
for further grants under the Plan unless, in the case of options granted under
the Plan, related SARs are exercised.
Without limiting the generality of the foregoing provisions of
this Section 4 or the generality of the provisions of Sections 3, 6 or 17 or any
other section of this Plan, the Committee may, at any time or from time to time,
and on such terms and conditions (that are consistent with and not in
contravention of the other provisions of this Plan) as the Committee may, in its
sole discretion, determine, enter into agreements (or take other actions with
respect to the options) for new options containing terms (including exercise
prices) more (or less) favorable than the outstanding options.
-4-
<PAGE> 5
5. Participation.
Participation in the Plan shall be limited to those directors
(including Non-Employee Directors), officers (including non-employee officers)
and key employees of, and other key individuals performing services for, the
Company and its Subsidiaries selected by the Committee (including participants
located outside the United States). Nothing in the Plan or in any grant
thereunder shall confer any right on a participant to continue in the employ of
or the performance of services for the Company or shall interfere in any way
with the right of the Company to terminate the employment or performance of
services of a participant at any time. By accepting any award under the Plan,
each participant and each person claiming under or through him or her shall be
conclusively deemed to have indicated his or her acceptance and ratification of,
and consent to, any action taken under the Plan by the Company, the Board or the
Committee.
Incentive Stock Options or Nonqualified Stock Options, SARs ,
alone or in tandem with options, restricted stock awards, performance awards, or
any combination thereof, may be granted to such persons and for such number of
Shares as the Committee shall determine (such individuals to whom grants are
made being sometimes herein called "optionees" or "grantees," as the case may
be). Determinations made by the Committee under the Plan need not be uniform and
may be made selectively among eligible individuals under the Plan, whether or
not such individuals are similarly situated. A grant of any type made hereunder
in any one year to an eligible participant shall neither guarantee nor preclude
a further grant of that or any other type to such participant in that year or
subsequent years.
6. Incentive and Nonqualified Options.
The Committee may from time to time grant to eligible
participants Incentive Stock Options, Nonqualified Stock Options, or any
combination thereof; provided that the Committee may grant Incentive Stock
Options only to eligible employees of the Company or its subsidiaries (as
defined for this purpose in Section 424(f) of the Code). The options granted
shall take such form as the Committee shall determine, subject to the following
terms and conditions.
It is the Company's intent that Nonqualified Stock Options
granted under the Plan not be classified as Incentive Stock Options, that
Incentive Stock Options be consistent with and contain or be deemed to contain
all provisions required under Section 422 of the Code and any successor thereto,
and that any ambiguities in construction be interpreted in order to effectuate
such intent. If an Incentive Stock Option granted under the Plan does not
qualify as such for any reason, then to the extent of such nonqualification, the
stock option represented thereby shall be regarded as a Nonqualified Stock
Option duly granted under the Plan, provided that such stock option otherwise
meets the Plan's requirements for Nonqualified Stock Options.
(a) Price. The price per Share deliverable upon the exercise
of each option ("exercise price") shall be established by the Committee, except
that in the case of the grant of any Incentive Stock Option, the exercise price
may not be less than 100% of the Fair Market Value of a share of Common Stock as
of the date of grant of the option, and in the case of the grant of any
Incentive Stock Option to an employee who, at the time of the grant, owns more
than 10% of the
-5-
<PAGE> 6
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the exercise price may not be less that 110% of the Fair Market
Value of a share of Common Stock as of the date of grant of the option, in each
case unless otherwise permitted by Section 422 of the Code.
(b) Payment. Options may be exercised, in whole or in part,
upon payment of the exercise price of the Shares to be acquired. Unless
otherwise determined by the Committee, payment shall be made (i) in cash
(including check, bank draft or money order), (ii) by delivery of outstanding
shares of Common Stock with a Fair Market Value on the date of exercise equal to
the aggregate exercise price payable with respect to the options' exercise,
(iii) by simultaneous sale through a broker reasonably acceptable to the
Committee of Shares acquired on exercise, as permitted under Regulation T of the
Federal Reserve Board, (iv) by authorizing the Company to withhold from issuance
a number of Shares issuable upon exercise of the options which, when multiplied
by the Fair Market Value of a share of Common Stock on the date of exercise is
equal to the aggregate exercise price payable with respect to the options so
exercised or (v) by any combination of the foregoing. Options may also be
exercised upon payment of the exercise price of the Shares to be acquired by
delivery of the optionee's promissory note, but only to the extent specifically
approved by and in accordance with the policies of the Committee.
In the event a grantee elects to pay the exercise price
payable with respect to an option pursuant to clause (ii) above, (A) only a
whole number of share(s) of Common Stock (and not fractional shares of Common
Stock) may be tendered in payment, (B) such grantee must present evidence
acceptable to the Company that he or she has owned any such shares of Common
Stock tendered in payment of the exercise price (and that such tendered shares
of Common Stock have not been subject to any substantial risk of forfeiture) for
at least six months prior to the date of exercise, and (C) Common Stock must be
delivered to the Company. Delivery for this purpose may, at the election of the
grantee, be made either by (A) physical delivery of the certificate(s) for all
such shares of Common Stock tendered in payment of the price, accompanied by
duly executed instruments of transfer in a form acceptable to the Company, or
(B) direction to the grantee's broker to transfer, by book entry, such shares of
Common Stock from a brokerage account of the grantee to a brokerage account
specified by the Company. When payment of the exercise price is made by delivery
of Common Stock, the difference, if any, between the aggregate exercise price
payable with respect to the option being exercised and the Fair Market Value of
the share(s) of Common Stock tendered in payment (plus any applicable taxes)
shall be paid in cash. No grantee may tender shares of Common Stock having a
Fair Market Value exceeding the aggregate exercise price payable with respect to
the option being exercised (plus any applicable taxes).
In the event a grantee elects to pay the exercise price
payable with respect to an option pursuant to clause (iv) above, (A) only a
whole number of Share(s) (and not fractional Shares) may be withheld in payment
and (B) such grantee must present evidence acceptable to the Company that he or
she has owned a number of shares of Common Stock at least equal to the number of
Shares to be withheld in payment of the exercise price (and that such owned
shares of Common Stock have not been subject to any substantial risk of
forfeiture) for at least six months prior to the date of exercise. When payment
of the exercise price is made by withholding of Shares, the difference, if any,
between the aggregate exercise price payable with respect to the option being
exercised and the
-6-
<PAGE> 7
Fair Market Value of the Share(s) withheld in payment (plus any applicable
taxes) shall be paid in cash. No grantee may authorize the withholding of Shares
having a Fair Market Value exceeding the aggregate exercise price payable with
respect to the option being exercised (plus any applicable taxes). Any withheld
Shares shall no longer be issuable under such option.
(c) Terms of Options. The term during which each option may be
exercised shall be determined by the Committee, but, except as otherwise
provided herein, in no event shall an option be exercisable in whole or in part,
in the case of a Nonqualified Stock Option or an Incentive Stock Option (other
than as described below), more than ten years from the date it is granted or, in
the case of an Incentive Stock Option granted to an employee who at the time of
the grant owns more than 10% of the total combined voting power of all classes
of stock of the Company or any of its Subsidiaries, if required by the Code,
more than five years from the date it is granted. All rights to purchase Shares
pursuant to an option shall, unless sooner terminated, expire at the date
designated by the Committee. The Committee shall determine the date on which
each option shall become exercisable and may provide that an option shall become
exercisable in installments. The Shares constituting each installment may be
purchased in whole or in part at any time after such installment becomes
exercisable, subject to such minimum exercise requirements as may be designated
by the Committee. Unless otherwise provided herein or in the terms of the
related grant, an optionee may exercise an option only if he or she is, and has
continuously since the date the option was granted, been a director, officer or
employee of or performed other services for the Company or a Subsidiary. Prior
to the exercise of an option and delivery of the Shares represented thereby, the
optionee shall have no rights as a stockholder with respect to any Shares
covered by such outstanding option (including any dividend or voting rights).
(d) Limitations on Grants. If required by the Code, the
aggregate Fair Market Value (determined as of the grant date) of Shares for
which an Incentive Stock Option is exercisable for the first time during any
calendar year under all equity incentive plans of the Company and its
Subsidiaries (as defined in Section 422 of the Code) may not exceed $100,000.
(e) Termination; Change in Control.
(i) If a participant ceases to be a director, officer or
employee of , or to perform other services for, the Company and any Subsidiary
due to death or Disability, all of the participant's options and SARs shall
become fully vested and exercisable and shall remain so for a period of one year
from the date of such death or Disability, but in no event after the expiration
date of the options or SARs. Notwithstanding the foregoing, if the Disability
giving rise to the termination of employment is not within the meaning of
Section 422(e)(3) of the Code, Incentive Stock Options not exercised by such
participant within 90 days after the date of termination of employment will
cease to qualify as Incentive Stock Options and will be treated as Nonqualified
Stock Options under the Plan if required to be so treated under the Code.
(ii) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company and any Subsidiary
upon the occurrence of his or her Retirement, (A) all of the participant's
options and SARs that were exercisable on the date of Retirement shall remain
exercisable for, and shall otherwise terminate at the end of, a period of up
-7-
<PAGE> 8
to three years after the date of Retirement, but in no event after the
expiration date of the options or SARs ; provided that the participant does not
engage in Competition during such three-year period unless he or she receives
written consent to do so from the Board or the Committee, and (B) all of the
participant's options and SARs that were not exercisable on the date of
Retirement shall be forfeited immediately upon such Retirement. Notwithstanding
the foregoing, Incentive Stock Options not exercised by such participant within
90 days after Retirement will cease to qualify as Incentive Stock Options and
will be treated as Nonqualified Stock Options under the Plan if required to be
so treated under the Code.
(iii) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company or a Subsidiary due
to Cause, all of the participant's options and SARs shall be forfeited
immediately upon such cessation, whether or not then exercisable.
(iv) Unless otherwise determined by the Committee, if a
participant ceases to be a director, officer or employee of, or to otherwise
perform services for, the Company or a Subsidiary for any reason other than
death, Disability, Retirement or Cause, (A) all of the participant's options and
SARs that were exercisable on the date of such cessation shall remain
exercisable for, and shall otherwise terminate at the end of, a period of 90
days after the date of such cessation, but in no event after the expiration date
of the options or SARs and (B) all of the participant's options and SARs that
were not exercisable on the date of such cessation shall be forfeited
immediately upon such cessation.
(f) Grant of Reload Options. The Committee may provide (either
at the time of grant or exercise of an option), in its discretion, for the grant
to a grantee who exercises all or any portion of an option ("Exercised Options")
and who pays all or part of such exercise price with shares of Common Stock, of
an additional option (a "Reload Option") for a number of shares of Common Stock
equal to the sum (the "Reload Number") of the number of shares of Common Stock
tendered or withheld in payment of such exercise price for the Exercised Options
plus, if so provided by the Committee, the number of shares of Common Stock, if
any, tendered or withheld by the grantee or withheld by the Company in
connection with the exercise of the Exercised Options to satisfy any federal,
state or local tax withholding requirements. The terms of each Reload Option,
including the date of its expiration and the terms and conditions of its
exercisability and transferability, shall be the same as the terms of the
Exercised Option to which it relates, except that (i) the grant date for each
Reload Option shall be the date of exercise of the Exercised Option to which it
relates and (ii) the exercise price for each Reload Option shall be the Fair
Market Value of the Common Stock on the grant date of the Reload Option.
7. Stock Appreciation Rights.
The Committee shall have the authority to grant SARs under
this Plan, either alone or to any optionee in tandem with options (either at the
time of grant of the related option or thereafter by amendment to an outstanding
option). SARs shall be subject to such terms and conditions as the Committee may
specify.
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<PAGE> 9
No SAR may be exercised unless the Fair Market Value of a
share of Common Stock of the Company on the date of exercise exceeds the
exercise price of the SAR or, in the case of SARs granted in tandem with
options, any options to which the SARs correspond. Prior to the exercise of the
SAR and delivery of the cash and/or Shares represented thereby, the participant
shall have no rights as a stockholder with respect to Shares covered by such
outstanding SAR (including any dividend or voting rights).
SARs granted in tandem with options shall be exercisable only
when, to the extent and on the conditions that any related option is
exercisable. The exercise of an option shall result in an immediate forfeiture
of any related SAR to the extent the option is exercised, and the exercise of an
SAR shall cause an immediate forfeiture of any related option to the extent the
SAR is exercised.
Upon the exercise of an SAR, the participant shall be entitled
to a distribution in an amount equal to the difference between the Fair Market
Value of a share of Common Stock on the date of exercise and the exercise price
of the SAR or, in the case of SARs granted in tandem with options, any option to
which the SAR is related, multiplied by the number of Shares as to which the SAR
is exercised. The Committee shall decide whether such distribution shall be in
cash, in Shares having a Fair Market Value equal to such amount, in Other
Company Securities having a Fair Market Value equal to such amount or in a
combination thereof.
All SARs will be exercised automatically on the last day prior
to the expiration date of the SAR or, in the case of SARs granted in tandem with
options, any related option, so long as the Fair Market Value of a share of
Common Stock on that date exceeds the exercise price of the SAR or any related
option, as applicable. An SAR granted in tandem with options shall expire at the
same time as any related option expires and shall be transferable only when, and
under the same conditions as, any related option is transferable.
8. Restricted Stock.
The Committee may at any time and from time to time grant
Shares of restricted stock under the Plan to such participants and in such
amounts as it determines. Each grant of restricted stock shall specify the
applicable restrictions on such Shares, the duration of such restrictions (which
shall be at least six months except as otherwise provided in the third paragraph
of this Section 8), and the time or times at which such restrictions shall lapse
with respect to all or a specified number of Shares that are part of the grant.
The participant will be required to pay the Company the
aggregate par value of any Shares of restricted stock (or such larger amount as
the Board may determine to constitute capital under Section 154 of the Delaware
General Corporation Law, as amended) within ten days of the date of grant,
unless such Shares of restricted stock are treasury shares. Unless otherwise
determined by the Committee, certificates representing Shares of restricted
stock granted under the Plan will be held in escrow by the Company on the
participant's behalf during any period of restriction thereon and will bear an
appropriate legend specifying the applicable restrictions thereon, and the
participant will be required to execute a blank stock power therefor. Except as
otherwise provided by the
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<PAGE> 10
Committee, during such period of restriction the participant shall have all of
the rights of a holder of Common Stock, including but not limited to the rights
to receive dividends and to vote, and any stock or other securities received as
a distribution with respect to such participant's restricted stock shall be
subject to the same restrictions as then in effect for the restricted stock.
Except as otherwise provided by the Committee, at such time as
a participant ceases to be a director, officer or employee of, or to otherwise
perform services for, the Company and its Subsidiaries due to death, Disability
or Retirement during any period of restriction, all restrictions on Shares
granted to such participant shall lapse. At such time as a participant ceases to
be a director, officer or employee of, or to otherwise perform services for, the
Company or its Subsidiaries for any other reason, all Shares of restricted stock
granted to such participant on which the restrictions have not lapsed shall be
immediately forfeited to the Company.
9. Performance Awards.
Performance awards may be granted to participants at any time
and from time to time as determined by the Committee. The Committee shall have
complete discretion in determining the size and composition of performance
awards so granted to a participant and the appropriate period over which
performance is to be measured (a "performance cycle"). Performance awards may
include (i) specific dollar-value target awards (ii) performance units, the
value of each such unit being determined by the Committee at the time of
issuance, and/or (iii) performance Shares, the value of each such Share being
equal to the Fair Market Value of a share of Common Stock.
The value of each performance award may be fixed or it may be
permitted to fluctuate based on a performance factor (e.g., return on equity)
selected by the Committee.
The Committee shall establish performance goals and objectives
for each performance cycle on the basis of such criteria and objectives as the
Committee may select from time to time, including, without limitation, the
performance of the participant, the Company, one or more of its Subsidiaries or
divisions or any combination of the foregoing. During any performance cycle, the
Committee shall have the authority to adjust the performance goals and
objectives for such cycle for such reasons as it deems equitable.
The Committee shall determine the portion of each performance
award that is earned by a participant on the basis of the Company's performance
over the performance cycle in relation to the performance goals for such cycle.
The earned portion of a performance award may be paid out in Shares, cash, Other
Company Securities, or any combination thereof, as the Committee may determine.
A participant must be a director, officer or employee of, or
otherwise perform services for, the Company or its Subsidiaries at the end of
the performance cycle in order to be entitled to payment of a performance award
issued in respect of such cycle; provided, however, that, except as otherwise
determined by the Committee, if a participant ceases to be a director, officer
or employee of, or to otherwise perform services for, the Company and its
Subsidiaries upon his or her death, Retirement, or Disability prior to the end
of the performance cycle, the participant shall earn a
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<PAGE> 11
proportionate portion of the performance award based upon the elapsed portion of
the performance cycle and the Company's performance over that portion of such
cycle.
10. Withholding Taxes.
(a) Participant Election. Unless otherwise determined by the Committee,
a participant may elect to deliver shares of Common Stock (or have the Company
withhold shares acquired upon exercise of an option or SAR or deliverable upon
grant or vesting of restricted stock, as the case may be) to satisfy, in whole
or in part, the amount the Company is required to withhold for taxes in
connection with the exercise of an option or SAR or the delivery of restricted
stock upon grant or vesting, as the case may be. Such election must be made on
or before the date the amount of tax to be withheld is determined. Once made,
the election shall be irrevocable. The fair market value of the shares to be
withheld or delivered will be the Fair Market Value as of the date the amount of
tax to be withheld is determined. In the event a participant elects to deliver
shares of Common Stock pursuant to this Section 10(a), such delivery must be
made subject to the conditions and pursuant to the procedures set forth in
Section 6(b) with respect to the delivery of Common Stock in payment of the
exercise price of options.
(b) Company Requirement. The Company may require, as a condition to any
grant or exercise under the Plan or to the delivery of certificates for Shares
issued hereunder, that the grantee make provision for the payment to the
Company, either pursuant to Section 10(a) or this Section 10(b), of any federal,
state or local taxes of any kind required by law to be withheld with respect to
any grant or any delivery of Shares. The Company, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee, an amount equal to any
federal, state or local taxes of any kind required by law to be withheld with
respect to any grant or to the delivery of Shares under the Plan, or to retain
or sell without notice a sufficient number of the Shares to be issued to such
grantee to cover any such taxes, the payment of which has not otherwise been
provided for in accordance with the terms of the Plan, provided that the Company
shall not sell any such Shares if such sale would be considered a sale by such
grantee for purposes of Section 16 of the Exchange Act that is not exempt from
matching thereunder.
11. Written Agreement; Vesting.
Each employee to whom a grant is made under the Plan shall
enter into a written agreement with the Company that shall contain such
provisions, including without limitation vesting requirements, consistent with
the provisions of the Plan, as may be approved by the Committee. Unless the
Committee determines otherwise and except as otherwise provided in Sections 6,
7, 8, 9 and 15, no grant under this Plan may be exercised, and no restrictions
relating thereto may lapse, within six months of the date such grant is made.
12. Transferability.
Unless the Committee determines otherwise, no option, SAR,
performance award, or restricted stock granted under the Plan shall be
transferable by a participant otherwise than by will
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<PAGE> 12
or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code. Unless the Committee determines
otherwise, an option, SAR, or performance award may be exercised only by the
optionee or grantee thereof or his guardian or legal representative; provided
that Incentive Stock Options may be exercised by such guardian or legal
representative only if permitted by the Code and any regulations promulgated
thereunder.
13. Listing, Registration and Qualification.
If the Committee determines that the listing, registration or
qualification upon any securities exchange or under any law of Shares subject to
any option, SAR, performance award or restricted stock grant is necessary or
desirable as a condition of, or in connection with, the granting of same or the
issue or purchase of Shares thereunder, no such option or SAR may be exercised
in whole or in part, no such performance award may be paid out and no Shares may
be issued unless such listing, registration or qualification is effected free of
any conditions not acceptable to the Committee.
It is the intent of the Company that the Plan comply in all
respects with Section 162(m) of the Code, that awards made hereunder comply in
all respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Section 162(m), such provision shall be deemed null and void to
the extent required to permit the Plan to comply with Section 162(m), as the
case may be.
14. Transfer of Employee.
The transfer of an employee from the Company to a Subsidiary,
from a Subsidiary to the Company, or from one Subsidiary to another shall not be
considered a termination of employment; nor shall it be considered a termination
of employment if an employee is placed on military or sick leave or such other
leave of absence which is considered by the Committee as continuing intact the
employment relationship.
15. Adjustments.
In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation,
distribution of assets, or any other change in the corporate structure or shares
of the Company, the Committee shall make such adjustment as it deems appropriate
in the number and kind of Shares or other property reserved for issuance under
the Plan, in the number and kind of Shares or other property covered by grants
previously made under the Plan, and in the exercise price of outstanding options
and SARs. Any such adjustment shall be final, conclusive and binding for all
purposes of the Plan. In the event of any merger, consolidation or other
reorganization in which the Company is not the surviving or continuing
corporation or in which a Change in Control is to occur, all of the Company's
obligations regarding options, SARs performance awards, and restricted stock
that were granted hereunder and that are outstanding on the date of such event
shall, on such terms as may be approved by the Committee prior to such event,
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<PAGE> 13
be assumed by the surviving or continuing corporation or canceled in exchange
for property (including cash).
Without limitation of the foregoing, in connection with any
transaction of the type specified by clause (iii) of the definition of a Change
in Control in Section 2(c), the Committee may, in its discretion, (i) cancel any
or all outstanding options under the Plan in consideration for payment to the
holders thereof of an amount equal to the portion of the consideration that
would have been payable to such holders pursuant to such transaction if their
options had been fully exercised immediately prior to such transaction, less the
aggregate exercise price that would have been payable therefor, or (ii) if the
amount that would have been payable to the option holders pursuant to such
transaction if their options had been fully exercised immediately prior thereto
would be less than the aggregate exercise price that would have been payable
therefor, cancel any or all such options for no consideration or payment of any
kind. Payment of any amount payable pursuant to the preceding sentence may be
made in cash or, in the event that the consideration to be received in such
transaction includes securities or other property, in cash and/or securities or
other property in the Committee's discretion.
16. Termination and Modification of the Plan.
The Board of Directors or the Committee, without approval of
the stockholders, may modify or terminate the Plan, except that no modification
shall become effective without prior approval of the stockholders of the Company
if stockholder approval would be required for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
listing requirement of the principal stock exchange on which the Common Stock is
then listed.
17. Amendment or Substitution of Awards under the Plan.
The terms of any outstanding award under the Plan may be
amended from time to time by the Committee in its discretion in any manner that
it deems appropriate (including, but not limited to, acceleration of the date of
exercise of any award and/or payments thereunder or of the date of lapse of
restrictions on Shares); provided that, except as otherwise provided in Section
15, no such amendment shall adversely affect in a material manner any right of a
participant under the award without his or her written consent. The Committee
may, in its discretion, permit holders of awards under the Plan to surrender
outstanding awards in order to exercise or realize rights under other awards, or
in exchange for the grant of new awards, or require holders of awards to
surrender outstanding awards as a condition precedent to the grant of new awards
under the Plan.
18. Commencement Date; Termination Date.
The date of commencement of the Plan shall be October __,
1997, subject to approval by the shareholders of the Company. Unless previously
terminated upon the adoption of a resolution of the Board terminating the Plan,
the Plan shall terminate at the close of business on October __, 2007. No
termination of the Plan shall materially and adversely affect any of the rights
or
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<PAGE> 14
obligations of any person, without his consent, under any grant of options or
other incentives theretofore granted under the Plan.
19. Governing Law. The Plan shall be governed by the corporate laws of the State
of Delaware, without giving effect to any choice of law provisions.
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<PAGE> 1
EXHIBIT 10.2
[FORM OF]
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement"), dated
October , 1997, by and between White Cap Industries, Corp., a California
corporation (the "Company"), and Greg Grosch, an individual ("Executive"),
amends and restates the Employment Agreement, entered into as of February 25,
1997, by and between the Company and Executive.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on February 25, 1997 and ending as provided
in Section 6 hereof (the "Employment Period").
2. Position and Duties.
a. During the Employment Period, Executive shall serve as the
Chairman, President and Chief Executive Officer of the Company and shall have
the normal and reasonable duties, responsibilities and authority commensurate
with such position. Executive's services pursuant to this Agreement shall be
performed primarily at the Company's principal place of business in Orange
County, California, or at such other facilities of the Company as the Company
and the Executive may agree upon from time to time.
b. Executive shall report to the Board of Directors of the Company
(the "Board") and Executive shall devote Executive's reasonable best efforts and
Executive's full business time and attention (except for permitted vacation
periods and reasonable periods of illness or other incapacity) to the business
and affairs of the Company during the normal business hours of the executive
offices of the Company; provided, however, the foregoing shall not prevent
Executive from making and expending any time on passive personal investments,
and/or expending reasonable amounts of time for educational or charitable
activities. Executive shall perform Executive's duties and responsibilities to
the best of Executive's abilities in a reasonably diligent, trustworthy,
businesslike and efficient manner.
3. Base Salary and Benefits.
<PAGE> 2
a. During the Company's fiscal year ending March 31, 1998,
Executive's base salary shall be $300,000 (the "Base Salary"), which salary
shall be payable in regular installments in accordance with the Company's
general payroll practices, including those related to withholding for taxes,
insurance and similar items. Executive's Base Salary shall be increased to
$400,000 for the Company's fiscal year ending on March 31, 1999. Thereafter,
Executive's Base Salary shall be increased on April 1 of each fiscal year,
commencing April 1, 1999, by the Adjustment Percentage (as defined below) of the
Base Salary applicable to the previous fiscal year. As used herein, "Adjustment
Percentage" means the sum of (x) the Consumer Price Index for the State of
California, published by the Bureau of Labor Statistics of the United States
Department of Labor for the immediately preceding fiscal year, plus (y)a three
percent (3%). In addition, during the Employment Period, Executive shall be
entitled to participate in all of the Company's employee benefit, profit
sharing, stock option, incentive compensation, vacation and other perquisite
plans and programs ("Benefits") for which key employees of the Company are
generally eligible; provided, however, in no event shall Executive's Benefits be
less than the Benefits described on Exhibit A hereto.
b. During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by Executive in the course of
performing Executive's duties under this Agreement which are consistent with the
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
c. During the Employment Period, the Company shall pay for or
reimburse Executive for all fees and reasonable expenses of Executive's
participation in professional organizations, trade associations or other
organizations reasonably related to Executive's position and responsibilities as
an officer of the Company.
4. Bonuses. In addition to Base Salary, Executive shall be awarded an
annual bonus ("Bonus") based upon the Bonus Formula set forth on Exhibit B
hereto. The Bonus shall be payable within 95 days following the end of each
fiscal year.
5. Board and Committee Memberships. So long as Executive owns, directly or
indirectly, at least 5% of the issued and outstanding capital stock of White Cap
Holdings, Inc., a Delaware corporation and the parent of the Company
("Holdings"), Executive shall be entitled to serve as a member of the Board of
Directors of Holdings and as a member of the board of directors of the Company.
6. Term.
a. The Employment Period shall end on March 31, 2002 ("Original
Term") unless extended pursuant to Section 6(b) below; provided that (i) the
Employment Period shall terminate prior to the Original Term upon Executive's
death or permanent disability or incapacity; (ii) the Employment Period may be
terminated by the Company at any time prior to
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<PAGE> 3
such date for Cause (as hereinafter defined) or without Cause at any time after
the first anniversary of the Original Term; and (iii)the Employment Period may
be terminated by Executive for Good Reason at any time or by his Voluntary
Resignation after March 31, 1999. For purposes of the foregoing, Executive's
permanent disability or incapacity shall be determined in accordance with the
Company's disability insurance policy, if such a policy is then in effect, or if
no such policy is then in effect, such permanent disability or incapacity shall
be determined by the Board in its good faith judgment based upon inability to
perform the essential functions of his position, with reasonable accommodation
by the Employer, for a period in excess of 180 days during any period of 365
calendar days. For purposes of the foregoing, Executive's Voluntary Resignation
shall mean resignation by Employee other than for Good Reason.
b. The Employment Period shall automatically extend for successive
one year periods (each, a "Supplemental Term") following March 31, 2002 unless
either party delivers written notice to the other party no later than January
31, 2002 with respect to the Original Term or January 31 preceding the end of
any Supplemental Term, as the case may be, of intent not to renew.
c. If the Employment Period is terminated without Cause by the
Company or by Executive with Good Reason prior to the end of the Original Term
or Supplemental Term, as the case may be, the Executive shall be entitled to
receive his Base Salary (determined in accordance with Section 3(a)) during the
period that is the lesser of (i) three years, or (ii) the remainder of the
Original Term or the Supplemental Term, as the case may be, plus a supplemental
severance payment equal to the product of the number of years specified in (i)
or (ii) above (without diminution for any fraction of any year), multiplied by
the bonus determined in accordance with Section 4 for the calendar year
immediately preceding the year in which the termination occurred.
d. If the Employment Period is terminated by the Company for Cause
(as defined in Section 6(i)(3) hereof) prior to the end of the Original Term or
the Supplemental Term, as the case may be, Executive shall be entitled to
receive his Base Salary (determined in accordance with Section 3(a)) during the
period that is the lesser of (i) two years, or (ii)athe remainder of the
Original Term or the Supplemental Term, as the case may be, plus a supplemental
severance payment equal to the product of the number of years specified in (i)
or (ii) above (without diminution for any fraction of any year), multiplied by
the bonus determined in accordance with Section 4 for the calendar year
immediately preceding the year in which the termination occurred, up to a
maximum supplemental severance payment equal to $375,000.
e. If the Employment Period is terminated by the Company for Cause
(as defined in Section 6(i)(1) or (2) hereof) or is terminated as a result of
Executive's Voluntary Resignation, Executive shall be entitled to receive
Executive's Base Salary only through the date of termination and a prorated
portion of any Bonus earned through the date of such termination for the
calendar year in which the termination occurs.
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<PAGE> 4
f. If the Employment Period is terminated as a result of permanent
disability or incapacity, Executive or Executive's representatives or
beneficiaries shall be entitled to receive Executive's Base Salary through the
date of termination, plus twelve months of Executive's then Base Salary and the
Bonus (based on the number of days in such bonus period prior to the termination
date) deemed earned through such date of termination (as determined pursuant to
Sectiona4). If the Employment Period is terminated as a result of death,
Executive's representatives or beneficiaries shall be entitled to the proceeds
of the life insurance required to be maintained for Executive's benefit pursuant
to Section 11 hereof. If the Executive's employment is terminated by reason of
Executive's death or disability, the Company shall keep in force existing health
insurance covering the Executive and his dependents for a period of 18 months
from the date of termination on the basis in effect at the date of termination
of the Executive's employment. The Executive and his dependents shall also be
entitled to any continuation of coverage rights under any applicable law.
g. The amount of Base Salary payable pursuant to Section 6(c) or
Section 6(d) shall be payable in accordance with the Employer's normal payroll
procedures applied to Executive as if he remained an employee of Employer. The
amount of Base Salary payable pursuant to Sections 6(e) or (f) shall be paid
within 30 days following the termination of the Employment Period. The amount of
any bonus (or supplemental severance payment equivalent thereto) payable
pursuant to Section 6(c) which is based on the preceding calendar year shall be
pa|d within 30 days following the termination of the Employment Period. The
amount of any prorated bonus (or supplemental severance payment equivalent
thereto) payable pursuant to Sections 6(d), (e) or (f) shall be paid within 30
days following the end of the applicable bonus period (e.g., annual period
pursuant to the terms of such bonus arrangement) in accordance with the
Employer's normal payroll procedures applied to Executive as if he remained an
employee of Employer.
h. All of Executive's rights to any other employee benefit hereunder
(except as described above or pursuant to law) accruing after the termination of
the Employment Period shall cease upon such termination. Upon termination of
this Agreement for any reason whatsoever, Executive shall have the right to
receive any accrued but unused vacation time and any and all Benefits due
employee pursuant to Sectiona3(a) as of termination. This Section 6(h) shall
have no effect on Executive's equity ownership (including stock options) in
Holdings, which shall be governed by the terms of a Stockholders Agreement
between Executive, the Company and certain other parties.
i. For purposes of the Agreement, "Cause" shall mean (1) the
conviction of any act constituting a felony under the laws of any state or of
the United States, or a crime involving moral turpitude that causes material
harm to Company, (2)a willful misconduct by Executive causing material harm to
Company, but only if Executive shall not have discontinued such misconduct
within 30 days after receiving written notice from the Company describing the
misconduct and stating that the Company will consider the continuation of such
misconduct as cause for termination of this Agreement, or (3) at any time after
the first year of the Original
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<PAGE> 5
Term, substantial failure to perform the duties required by Section 2(a) hereof
which is not cured within 180 days after receiving written notice from the
Company describing the failure to perform and stating that the Company will
consider the continuation of such failure to perform as cause for termination of
this Agreement. Resignation with Good Reason shall mean (x) the assignment to
Executive of duties substantially and materially inconsistent with the position
and nature of Executive's employment as set forth in Section 2(a) of this
Agreement, (y) a reduction of compensation and benefits that would substantially
diminish the aggregate value of Executive's compensation and benefits without
Executive's consent, and (z) the failure by the Company to obtain from any
successor an agreement to assume and perform this Agreement.
j. Nothing in this Agreement shall be deemed to limit or otherwise
abrogate the Company's obligation to make the payments under Section 6(c) if
Executive is terminated without Cause following a merger, consolidation or sale
of the Company or following a change in the control of the Company's outstanding
voting securities. A "change in control" shall be deemed to have occurred if any
person or any persons acting together that would constitute a group (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) (other than
KRC or its affiliates or a group in which KRC and its affiliates are the
controlling participants) shall beneficially own at least 50% of the aggregate
voting power of all classes of capital stock (including shares convertible into
voting securities) entitled to vote on the election of directors to the Board.
Without limiting the foregoing, any sale of substantially all of the Company's
assets to another entity without an express assumption by such entity of the
Company's obligations under this Agreement shall be deemed to constitute
termination without Cause pursuant to Section 6(c) above and the Company shall
be obligated to make the specified payments pursuant to Section 6(c) upon
consummation of the transaction pursuant to which the Company is selling
substantially all of its assets.
7. Confidential Information. As used herein, the term "Confidential
Information" shall mean all information disclosed to Executive or known by
Executive as a consequence of or through Executive's employment by the Company
(including, without limitation, information belonging to third parties or
companies affiliated with or related to the Company in the Company's possession)
not generally known in the trade or industry in which such information is used,
about the Company's products, processes, services, customers, marketing strategy
and business plans. Executive agrees that Executive shall not disclose to any
unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to the Company at the termination of the Employment
Period, or at any other time as the Company may request, all memoranda, notes,
plans, records, computer tapes and software and other documents and data (and
copies thereof) relating to the Confidential Information or the business of
Holdings, the Company or any subsidiary which Executive may then possess or have
under Executive's control.
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<PAGE> 6
8. Non-Solicitation. During the five-year period commencing on the date of
this Agreement, Executive shall not directly or indirectly through another
entity (i) induce or attempt to induce any employee of the Company or any
subsidiary to leave the employ of the Company or such subsidiary, (ii) hire any
person who was an employee of the Company or any subsidiary of the Company at
any time during the Employment Period if such person was employed by the Company
or a subsidiary of the Company at any time during the one-year period prior to
such hiring, or (iii) induce or attempt to induce any customer, supplier,
licensee or other business relation of the Company or any subsidiary to
withdraw, curtail or cease doing business with the Company or such subsidiary.
9. Enforcement. If, at the time of enforcement of Sections 7 and 8 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information, the
parties hereto agree that money damages would be an inadequate remedy for any
breach of this Agreement. Therefore, in the event a breach or threatened breach
of this Agreement, the Company or its successors or assigns may, in addition to
other rights and remedies existing in their favor, apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any violations of, the provisions hereof
(without posting a bond or other security).
10. Representations.
a. Executive hereby represents and warrants to the Company that (i)
the execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which Executive is
a party or by which Executive is bound, (ii) Executive is not a party to or
bound by any employment agreement, noncompete agreement or confidentiality
agreement with any other person or entity, and (iii) upon the execution and
delivery of this Agreement by the Company, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms.
b. Company hereby represents and warrants to the Executive that (i)
the execution, delivery and performance of this Agreement by the Company does
not and will not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which Executive is
a party or by which Executive is bound, and (ii) upon the execution and delivery
of this Agreement by the Executive, this Agreement shall be the valid and
binding obligation of the Company, enforceable in accordance with its terms.
11. Key Man Life Insurance. Executive agrees that, as a condition of
continued employment, Executive will apply for, or participate in the Company's
application for, a key man life insurance policy on Executive's life payable to
the Company, as directed by the Board. In
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<PAGE> 7
addition, during the Employment Period, the Company shall maintain an additional
life insurance policy on Executive's life (or additional coverage under the key
man life insurance policy for the benefit of Executive's estate or other
designee) in the aggregate amount of $2 million payable to the Executive's
estate or other designee of the Executive. The Company will pay all premiums
required to keep such policies in force. Executive shall at the Company's
request submit to all reasonable medical examinations, supply all information
and execute all documents reasonably required by the insurance company or
companies to whom the Company has applied for insurance.
12. Indemnification. During Executive's term as a director and officer of
Holdings, the Company or its subsidiaries, the Company agrees to indemnify and
defend Executive to the fullest extent permitted by law, the Company's
Certificate of Incorporation and the Company's Bylaws against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by Executive in connection with such actions,
suits or proceedings to which Executive is, or is threatened to be made, a party
by reason of the fact that Executive is or was a director or officer of the
Company. The indemnification pursuant to the foregoing sentence shall be the
equivalent of indemnification provided to all directors and officers as a group
and shall not be deemed to be any greater than that provided to all of the
Company's directors and officers as a group. The Company will use its best
efforts to obtain any directors' and officers' liability insurance covering all
directors and officers as a group and to the extent Executive continues to serve
as a director and officer of the Company, the Company shall cause Executive to
be named as an insured party under such policy.
13. Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
Executive's rights or delegate Executive's obligations hereunder without the
prior written consent of the Company. Without limiting the foregoing, the
Company may not, without Executive's prior written consent, assign rights or
delegate its obligations under this Agreement.
14. Survival. Sections 7, 8 and 9 shall survive and continue in full force
in accordance with their terms, notwithstanding any termination of the
Employment Period, unless the Company fails to make any payment owed to the
Executive under this Agreement, and any such failure continues for a period of
120 days after the date that any such payment is due.
15. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered by nationally recognized overnight
courier service, or mailed by certified mail, return receipt requested, to the
recipient at the address indicated below.
Notices to Executive:
Greg Grosch
c/o White Cap Industries, Inc.
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<PAGE> 8
3120 Airway Drive
Costa Mesa, California 92626
Notices to the Company:
White Cap Industries, Inc.
c/o KR Capital Corporation
370 17th Street, Suite 2300
Denver, Colorado 80202
Attn: Mark M. King
or such other address or to the attention of such person as the recipient party
shall leave specified by prior written notice to the sending party. Any notice
under this Agreement will be deemed to have been given when so delivered or
mailed. Any Notice of Termination of Executive's employment by the Company shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
16. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be elective and valid under applicable law
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity illegality or unenforceability will not affect any
other provision or any other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
17. Complete Agreement. This Agreement, together with the other agreements
referred to in the Recitals above, embodies the complete agreement and
understanding among the parties and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
18. Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
19. Choice of Law. This Agreement will be governed by the internal law,
and not the laws of conflicts, of the State of California.
20. Agreement to Arbitrate; Expenses. Except for the enforcement of any
covenant herein that would be the subject of specific performance contemplated
by Section 9, any controversy or claim arising out of or relating to this
Agreement or the formation, breach or interpretation hereof, will be settled by
arbitration before one arbitrator in accordance with the
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<PAGE> 9
Commercial Arbitration Rules of the American Arbitration Association in Orange
County, California. Judgment upon the award rendered by the arbitration may be
entered and enforced in the court with jurisdiction over the appropriate party.
All controversies not subject to arbitration or contesting any arbitration will
be litigated in the State of California, Orange County Superior Court or a
federal court in the Central District of California (and each of the parties
hereto hereby consent to the exclusive jurisdiction of such courts and waive any
objections thereto). The expenses (including reasonable attorneys' fees)
incurred by the prevailing party in any arbitration or litigation related to
this Agreement shall be borne by the non-prevailing party in such arbitration or
litigation.
21. Amendment and Waiver. The provisions of this Agreement may be amended
or waived only with the prior written consent of the Company and Executive, and
no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
WHITE CAP INDUSTRIES, INC.
---------------------------
By: Greg Grosch
Its: President
WHITE CAP HOLDINGS, INC.
---------------------------
By: Mark M. King
Its: President
---------------------------
GREG GROSCH
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<PAGE> 11
EXHIBIT A
1. Five weeks' paid vacation;
2. Health and Dental Insurance in the plans of Executive's choice;
3. Participation in the Company's 401(k) Plan;
4. $1,000,000 Term Life Insurance;
5. Reimbursement once during each two years of consecutive employment with
the Company, up to $50,000 per automobile, for the purchase price of the
automobile of Executive's choice;
6. Seven paid holidays yearly;
7. Participation in the Disability Insurance Plan offered to other employees
of the Company; and
8. Health Club Membership, and associated expenses.
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<PAGE> 12
EXHIBIT B
Executive's Annual Bonus shall be set at 50% of Base Salary and shall be paid in
the event White Cap Industries, Inc. (formerly White Cap Holdings, Inc.), a
Delaware corporation and the parent of the Company ("WCI"), meets its internal
projected pre-tax earnings per share target ("EPS Target") for a given fiscal
year giving effect to the accrual of the Annual Bonus. For fiscal years ended
March 31, 1998, 1999 and 2000, the EPS Target for purposes of this Agreement is
established at $0.00, $0.00 and $0.00, respectively. For subsequent fiscal years
beginning with fiscal year ended March 31, 2001, the EPS Target shall be derived
from WCI's annual projected budget adopted by WCI's Board of Directors. In the
event that WCI does not meet an EPS Target in a given fiscal year, giving effect
to the accrual of the Annual Bonus, but would meet the EPS Target without giving
effect to the accrual of the Annual Bonus, Executive shall be entitled to a
partial Annual Bonus equal to the maximum amount that, when accrued, would still
permit WCI to meet the EPS Target. The EPS Target shall be adjusted to reflect
any new stock issuances during the given fiscal year which would otherwise be
dilutive to pre-tax earnings per share on a GAAP basis.
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<PAGE> 1
EXHIBIT 10.3
[FORM OF]
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
effective as of January 1, 1997 by and between WHITE CAP INDUSTRIES, INC., a
California corporation (the "Company"), and RICHARD GAGNON, an individual
("Executive").
R E C I T A L S
WHEREAS, the Company and Executive entered into that certain Employment
Agreement dated February 25, 1997 (the "Employment Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement as provided
herein; and
WHEREAS, the Company desires to retain the services of Executive, and
Executive desires to be employed by the Company, on the terms and subject to the
conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning January 1, 1997 and ending as provided in
Section 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as a Senior Vice
President and the National Sales Manager of the Company and shall have the
normal and reasonable duties, responsibilities and authority commensurate with
such position as determined by the Board of Directors of the Company and as
directed by the President of the Company. Executive's services pursuant to this
Agreement shall be performed primarily at the Company's principal place of
business in Orange County, California, and at such other facilities of the
Company as are necessary for the Executive to perform his duties hereunder.
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<PAGE> 1
EXHIBIT 10.7
[FORM OF]
TRANSACTION ADVISORY AGREEMENT
THIS TRANSACTION ADVISORY AGREEMENT is made effective as of October
___, 1997, by and between KRG Capital Partners, LLC, a Colorado limited
liability company ("KRG"), White Cap Industries, Corp., a California corporation
("WCI"), and White Cap Industries, Inc., a Delaware corporation ("WCII").
BACKGROUND
WCII, WCI and WCI's subsidiaries, if any (collectively, the "Company"),
desire to receive transaction advisory services from KRG in connection with
acquisitions by the Company of other professional contractor supply businesses.
KRG is willing to provide transaction advisory services to the Company.
Accordingly, the compensation arrangements set forth in this Transaction
Advisory Agreement are designed to compensate KRG for such services.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth and the mutual benefits to be
derived herefrom, KRG and the Company hereby agree as follows:
TERMS
1. ENGAGEMENT.
The Company hereby engages KRG as a transaction advisor, and KRG hereby
agrees to provide transaction advisory services to the Company, all on the terms
and subject to the conditions set forth below.
2. SERVICES OF KRG.
KRG hereby agrees during the term of this engagement to consult with
the Company's boards of directors (collectively, the "Board") and management of
the Company in such manner and on such business and financial matters related to
transactions and such other matters as may be reasonably requested from time to
time by the Board, including, but not limited to:
(i) acquisition strategies and related support;
(ii) certain acquisition finance functions, including assistance in the
review of financial forecasts;
(iii) acquisition related financing strategies and support; and
<PAGE> 2
(iv) acquisition origination, structuring, negotiation, due diligence
and closing related services.
Members of the KRG Group (as defined below) will devote such time and attention
to the Company's affairs as reasonably necessary to accomplish the purposes of
this Transaction Advisory Agreement. For purposes of this Transaction Advisory
Agreement, the "KRG Group" means the Managing Directors of KRG Capital and
associates of KRG Capital.
3. COMPENSATION.
WCI and WCII jointly and severally agree to pay to KRG as compensation
for services to be rendered by KRG hereunder an aggregate fee equal to $200,000
per year (the "Base Transaction Fee"), payable monthly in arrears in an amount
equal to $16,666.67 per month with payment due by the fifth day of each month.
In addition to the Base Fee, the Company agrees to pay to KRG, as compensation
for services rendered to the Company with respect to the consummation of any
acquisition of a contractor supply business which transaction closes after the
date hereof a transaction closing fee (the "Transaction Closing Fee") equal to:
(i) $50,000 for any transaction where the aggregate Transaction Value is $20
million or less, provided such fee may be adjusted upward if the Board of
Directors determines such transaction presented unusual complexities, and (ii)
an amount to be agreed upon by the parties hereto and approved by the Board, but
in no event less than $50,000, for any transaction where the aggregate
Transaction Value exceeds $20 million. "Transaction Value" shall mean the
aggregate of cash and non-cash consideration paid to the sellers of the company
or business being acquired and the value of all interest bearing debt assumed by
WCI or WCII. Any non-cash consideration shall be valued at fair market value and
the value of any equity securities issued shall be fair market value on the date
of issuance assuming such equity securities are fully vested on such date.
4. TERM.
This Transaction Advisory Agreement shall be in effect for an initial
term of five years (the "Original Term") commencing on the date hereof, and
shall be automatically renewed thereafter on a year to year basis (each, a
"Supplemental Term") unless one party gives the other 60 days' prior written
notice of its desire not to renew this Transaction Advisory Agreement.
Notwithstanding the foregoing, WCI and WCII may terminate this Transaction
Advisory Agreement at any time upon 60 days prior written notice; provided that
in the case of such termination, KRG shall be entitled to receive its Base
Transaction Fee for the period that is the lesser of (i) three years or (ii) the
remainder of the Original Term or the Supplemental Term, as the case may be.
Termination of this Transaction Advisory Agreement shall not relieve WCI and
WCII of the obligation to pay any Transaction Closing Fee upon the closing of
any acquisition which was under letter of intent or definitive agreement with
WCI or WCII prior to the effective date of termination.
5. INDEMNIFICATION.
The Company and its subsidiaries shall defend, indemnify and hold
harmless KRG, its affiliates, partners, employees and agents from and against
any and all loss, liability, damage, or expenses arising from any claim (a
"Claim") by any person with respect to, or in any way related to,
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<PAGE> 3
the performance of services contemplated by this Transaction Advisory Agreement
or services provided in connection with the Transaction Advisory Agreement
(including attorneys' fees) (collectively, "Claims") resulting from any act or
omission of KRG, its affiliates, partners, employees or agents, other than for
Claims which shall be proven to be the direct result of gross negligence, bad
faith or willful misconduct by KRG, its affiliates, partners, employees or
agents. The Company and its subsidiaries shall defend at its own cost and
expense any and all suits or actions (just or unjust) which may be brought
against the Company, its subsidiaries and KRG, its officers, directors,
affiliates, partners, employees or agents or in which KRG, its affiliates,
partners, employees or agents may be impleaded with others upon any Claim or
Claims, or upon any matter, directly or indirectly, relating to or arising out
of this Agreement or the consummation of the Agreement or the performance hereof
or thereof by KRG, its affiliates, partners, employees or agents, except that if
such damage shall be proven to be the direct result of gross negligence, bad
faith or willful misconduct by KRG, its affiliates, partners, employees or
agents, then KRG shall reimburse the Company and its subsidiaries for the costs
of defense and other costs incurred by the Company and its subsidiaries.
6. KRG AN INDEPENDENT CONTRACTOR.
KRG and the Company agree that KRG shall perform services hereunder as
an independent contractor, retaining control over and responsibility for its own
operations and personnel. Neither KRG nor its officers, employees or members of
the KRG Group shall be considered employees or agents of the Company as a result
of this Transaction Advisory Agreement, nor shall any of them have authority to
contract in the name of or bind the Company, except as expressly approved by the
Company; provided, however, if any member of the KRG Group is serving as an
officer of the Company, such person shall have all authority as an officer of
the Company to contract in the name or bind the Company notwithstanding any
other provision of this Transaction Advisory Agreement.
7. CONFIDENTIAL INFORMATION.
KRG acknowledges that the information, observations and data obtained
by it, its agents and employees and members of the KRG Group during the course
of KRG's performance under this Transaction Advisory Agreement concerning the
business plans, financial data and business relations of the Company (the
"Confidential Data") are the Company's valuable, special and unique assets. The
Company therefore agrees that it will not, nor will it permit any of its agents,
employees or members of the KRG Group, to disclose to any unauthorized person
any of the Confidential Data obtained by KRG during the course of KRG's
performance under this Transaction Advisory Agreement without the Company's
prior consent unless and to the extent that (i) the Confidential Data becomes
generally known to and available for use by the public otherwise than as a
result of its acts or omissions to act, (ii) such disclosure is required by any
statute, rule, regulation or law or any judicial or administrative body having
jurisdiction or (iii) such disclosure is made in the course of KRG's performance
of its duties under this Agreement to existing or potential lenders or investors
in the Company, potential acquirors or acquisition candidates of the Company or
other third parties performing or proposing to provide services to the Company
who have a need to know such information.
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<PAGE> 4
8. NOTICES.
Any notice or report required or permitted to be given or made under
this Transaction Advisory Agreement by one party to the other shall be deemed to
have been duly given or made if personally delivered, delivered by reputable
overnight courier, sent by telecopy, or, if mailed, when mailed by registered or
certified mail, postage prepaid to the other party at the following addresses
(or at such other address as shall be given in writing by one part to the
other):
If to KRG:
KRG Capital Partners, LLC
Suite 2300
30 Seventeenth Street
Denver, Colorado 80202
Attention: Mark M. King, Managing Director
Telecopy: (303) 572-5015
If to WCI or WCII:
White Cap, Inc.
3120 Airway Avenue
Costa Mesa, California 92626
Attention: Greg Grosch, President
Telecopy: (714) 850-1634
9. ENTIRE AGREEMENT; MODIFICATION, TERMINATION OF PRIOR
AGREEMENT.
This Transaction Advisory Agreement (i) contains the complete and
entire understanding and agreement of KRG, the Company with respect to the
subject matter hereof; (ii) as provided below, supersedes all prior and
contemporaneous understandings, conditions and agreements, oral or written
express or implied; respecting the engagement of KRG in connection with the
subject matter hereof; and (iii) may not be modified except by an instrument in
writing executed by KRG, WCI and WCII.
The Management Agreement dated as February 27, 1997 by and between KRG
Capital, WCI and WCII shall be deemed terminated as of the date hereof and all
accrued but unpaid amounts owing thereunder shall be paid in full to KRG within
15 days of the date hereof. The parties expressly agree that Transaction Closing
Fees due for currently pending acquisition of WCI and WCII as of the date hereof
under this Transaction Advisory Agreement shall not be affected by the
termination of the prior Management Agreement.
10. WAIVER OF BREACH.
The waiver by any party of a breach of any provision of this
Transaction Advisory Agreement by any other party shall not operate or be
construed as a waiver of any subsequent breach of that provision or any other
provision hereby.
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<PAGE> 5
11. ASSIGNMENT.
Neither KRG, WCI nor WCII may assign its rights or obligations under
this Transaction Advisory Agreement without the express written consent of the
other.
12. GOVERNING LAW.
This Transaction Advisory Agreement shall be deemed to be a contract
made under, and is to be governed and construed in accordance with the internal
laws (and not the law of conflicts) of the State of Delaware.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date written above.
KRG CAPITAL PARTNERS, LLC
___________________________________
By: Mark M. King
Its: Managing Director
WHITE CAP INDUSTRIES, CORP.
By: _________________________________
Name: Gregory Grosch
Title: President
WHITE CAP INDUSTRIES, INC.
By: _________________________________
Name: Gregory Grosch
Title: President
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<PAGE> 1
EXHIBIT 10.8
[FORM OF]
WHITE CAP HOLDINGS, INC.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the "Agreement"), dated
effective as of October __, 1997, is made by and among Greg Grosch, an
individual resident of the State of California ("Grosch"), KRG Capital Partners,
LLC ("KRG Capital") and White Cap Industries, Inc., a Delaware corporation
formerly known as White Cap Holdings, Inc. (the "Company").
Reference is made to the Stockholders Agreement (the "Original
Agreement"), dated as of February 25, 1997, by and among the Company and certain
parties named on Schedule I thereto. Capitalized terms used but not otherwise
defined herein shall have the meanings assigned to them in the Original
Agreement.
WHEREAS, Section 8 of the Original Agreement provides that such agreement
shall terminate upon the closing of a Qualifying Public Offering;
WHEREAS, the Company is concurrently with the effective date hereof
completing a Qualifying Public Offering;
WHEREAS, Grosch, KRG Capital and the Company desire to amend and restate
the Original Agreement (becoming the sole parties to this Agreement) as
stockholders of the Company after the closing of the Qualifying Public Offering,
pursuant to the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. KRG CAPITAL VOTING AGREEMENT. During the term of this Agreement, KRG
Capital shall maintain in effect a voting agreement providing that all voting
rights of all shares of capital stock of the Company held by members of KRG
Capital Investments II, LLC (collectively, the "KRG Parties") as of the date
hereof (as described in the Company's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission (the "SEC") in connection with the
Qualified Public Offering) shall be held and controlled exclusively by KRG
Capital. The forgoing shall not be deemed to restrict the transfer of any shares
of capital stock of the Company by the KRG Parties in market transactions (or
pursuant to a registration statement filed with the SEC) free and clear of such
voting agreement. The effect of any such transfers shall only be as provided in
Sections 2(a)(1) and 5(b) below.
<PAGE> 2
2. BOARD OF DIRECTORS.
a. Election of Directors. The Company, Grosch and KRG Capital agree
to take all action within their respective power, including, but not limited to,
the voting of all shares of capital stock of the Company owned by them, to cause
the Board of Directors of the Company (the "Board") to at all times include:
(1) for as long as the KRG Parties beneficially own, directly
or indirectly, or have the right to vote, an aggregate of at least 5% of the
issued and outstanding Common Stock (determined in accordance with Section 2(d)
hereof) of the Company, one designee of KRG Capital; and
(2) for as long as Grosch beneficially owns, directly or
indirectly, at least 5% of the issued and outstanding Common Stock (determined
in accordance with Section 2(d) hereof) of the Company, one designee of Grosch.
Each party who has the right to designate member(s) of the Board pursuant to
this Section 2(a) shall also have the right to remove such designee from the
Board at any time.
b. Replacement Directors. If any director is unable to serve, or is
removed or withdraws from the Board, such withdrawing director's replacement
will be designated by the party which designated the withdrawing director. If
such designating party no longer holds a sufficient number of shares to entitle
the party to designate a replacement director, the withdrawing director's
replacement will be elected as provided by law.
c. Board Observation Rights. For so long as this Agreement remains in
effect and the Transaction Advisory Agreement dated as of the date hereof
between KRG Capital, the Company and White Cap Industries, Corp. remains in
effect, in addition to the director designated pursuant to Section 2(a)(1)
above, the Company and Grosch agree that KRG Capital shall be entitled to have
one other of its Managing Directors attend all Board meetings of the Company as
a non-voting observer (including participation in all telephonic Board
meetings). Copies of all actions by written consent shall also be made available
to KRG Capital's observer upon request.
d. Determination of Ownership. For purposes of determining the number of
shares of Common Stock held by the parties hereto, (i) the number of issued and
outstanding shares of "Common Stock" shall include the actual number of shares
of Common Stock issued and outstanding, together with the number of shares of
Common Stock into which issued the outstanding shares of the Company's preferred
stock are convertible (which are not then subject to vesting or performance
requirements) and the number of shares of Common Stock issuable upon exercise of
outstanding warrants or options (which are not then subject to vesting or
performance requirements); and (ii) shares held by a spouse, former spouse,
other family member, family partnership or trust of a stockholder shall be
deemed to be held by such stockholder and shall remain subject to the terms of
this Agreement as provided herein.
2
<PAGE> 3
3. REPRESENTATIONS AND WARRANTIES.
Each party represents and warrants that such party has all necessary
authority and approvals necessary to enter into this agreement.
4. APPLICATION TO SHARES OF COMPANY.
The provisions of this Agreement shall apply mutatis mutandis to any
shares into which any of the shares of the Common Stock may hereafter be
converted or changed or to any shares resulting from a reclassification,
subdivision or consolidation of any such shares of Common Stock and also to any
shares of the Company which are received by stockholders as a stock dividend on
the shares of Common Stock and to any shares or other securities of the Company
or of a successor company thereof respectively which may be received by
stockholders upon a merger, consolidation, reorganization or reconstruction of
the Company.
5. TERM.
This Agreement shall take effect upon the closing of the Qualifying Public
Offering and shall continue in force until the earlier of:
a. the date this Agreement is terminated by the written consent of Grosch
and KRG Capital;
b. the date on which either KRG Capital or Grosch shall cease to
beneficially own, directly or indirectly, or have the right to vote, an
aggregate of at least 5% of the issued and outstanding Common Stock of the
Company (determined in accordance with Section 2(d) hereof); or
c. the tenth anniversary of the date hereof.
6. NO RESTRICTIONS ON TRANSFER.
This Agreement shall not be deemed to restrict the transfer of shares of
capital stock of the Company in market transactions (or pursuant to a
registration statement filed with the SEC) free and clear of the voting
agreement described in Section 1 hereof. The effect of any such transfer shall
only be as provided in Sections 2(a)(1) and 5(b) hereof.
7. NOTICES.
a. All communications under this Agreement shall be in writing and
shall be delivered by hand or mailed by overnight courier or by registered or
certified mail, postage prepaid:
3
<PAGE> 4
(1) if to either Grosch or KRG Capital at the address shown on
the signature page hereto, or at such other address as they may have furnished
the Company in writing; and
(2) if to the Company, at 3120 Airway Avenue, P.O. Box 1770,
Costa Mesa, California 92626, marked for the attention of the President of the
Company, or at such other address as it may have furnished in writing to each
Stockholder.
b. Any notice so addressed shall be deemed to be given if delivered
by hand, on the date of such delivery; if mailed by courier, on the first
business day following the date of such mailing; and, if mailed by registered or
certified mail, on the third business day after the date of such mailing.
8. AMENDMENT.
This Agreement constitutes the entire Agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. This Agreement may only be amended or altered in any of its provisions
with the written consent of KRG Capital and Grosch. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar) nor shall such waiver constitute
a continuing waiver unless otherwise expressly provided.
9. ASSIGNMENT.
Except as expressly otherwise provided in this Agreement, this Agreement
may not be assigned by a party without the written consent of the parties, and
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors, heirs, executors, administrators, and personal
representatives.
10. GOVERNING LAW.
This Agreement shall be construed and enforced with, and the rights of the
parties shall be governed by, the laws of the State of Delaware, without giving
effect to conflicts of laws principles thereof.
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<PAGE> 5
11. SPECIFIC PERFORMANCE.
Each of the KRG Capital, the Company and Grosch acknowledges and agrees
that the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, the parties hereto agree that the
other parties shall be entitled to an injunction or injunctions, provided such
party is not then in default, to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof.
12. REMEDIES CUMULATIVE.
All rights and remedies of either party hereto are cumulative of each
other and of every other right or remedy such party may otherwise have at law or
in equity, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
13. SECTION HEADINGS.
The headings of the sections and subsections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
thereof.
14. SEVERABILITY
If any provision of this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions, or of such provision in any other jurisdiction, shall
not in any way be affected or impaired thereby.
15. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall be considered one
and the same agreement.
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<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto.
WHITE CAP INDUSTRIES, INC.
By:_______________________________________
Name:
Title:
KRG CAPITAL PARTNERS, LLC 370 Seventeenth
Street, Suite 2300 Denver, CO 80202
By:_________________________________
Name: Mark M. King
Title: Managing Director
__________________________________________
GREG GROSCH
c/o White Cap Industries, Inc.
3120 Airway Avenue
P.O. Box 1770
Costa Mesa, CA 92626
6
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
---------------------------
Orange County, California
October 17, 1997
<PAGE> 1
EXHIBIT 23.2
October 15, 1997
The Board of Directors
White Cap Holdings, Inc.
We consent to the use of our report included herein.
/s/ BURNETT, UMPHRESS & KILGOUR
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