<PAGE>
SCHEDULE 14A
(RULE 14a101) INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
WHITE CAP INDUSTRIES, INC.
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
common stock
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(2) Aggregate number of securities to which transaction applies:
10,725,791 outstanding shares and 719,982 shares subject to options.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$16.50 per share; the proposed maximum aggregate value of the
transaction is $169,629,675.40 (the sum of (i) the product of
10,725,791 outstanding shares of common stock less 971,446 shares of
common stock held by some members of management and $16.50 per share
and (ii) the product of 719,982 shares subject to options and $16.50
per share less the $4.44 per share weighted average exercise price of
the option shares being cashed out). The filing fee equals 1/50 of 1%
of the aggregate value.
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(4) Proposed maximum aggregate value of transaction:
$169,629,675.40
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(5) Total fee paid:
$33,925.94
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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Notes:
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[LOGO OF WHITE CAP INDUSTRIES, INC.]
WHITE CAP INDUSTRIES, INC.
COSTA MESA, CALIFORNIA 92626
You are cordially invited to attend a special meeting of the stockholders of
White Cap Industries, Inc. White Cap will hold the meeting on October , 1999,
at 11:00 a.m., local time, at the Doubletree Hotel, 3050 Bristol Street, Costa
Mesa, California.
The purpose of the special meeting is for you to vote upon a merger of WC
Recapitalization Corp., a Delaware corporation newly-formed and organized by
Leonard Green & Partners, L.P., with and into White Cap. In the merger, each
outstanding share of White Cap common stock will be canceled and converted
automatically into the right to receive $16.50 in cash, other than 971,446
shares currently held by six members of White Cap's management, whom we refer to
as the management group. Shares retained by the management group will remain
outstanding and represent approximately 9% of White Cap's outstanding common
stock.
Completion of the merger is subject to a number of conditions, including
obtaining the necessary financing. Therefore, even if you approve the merger, we
cannot assure you that the merger will be completed.
The proposed merger is the result of extensive consideration of alternatives
to maximize stockholder values which began last October. In the course of your
board's consideration of alternatives, White Cap's management and financial
advisor contacted numerous parties concerning the possibility of a sale,
leveraged recapitalization or similar transaction. As it became apparent that
such a transaction could involve a continuing investment, and other potentially
conflicting interests, on the part of management, a group of five disinterested
directors began to oversee the process.
Following extensive consideration of potential alternatives, the independent
directors concluded that the merger is in the best interests of White Cap and
its stockholders. Holders of 15.8% of White Cap's stock, who will have no
continuing interest in White Cap after the merger, have agreed to vote in favor
of the merger, as have each of the members of the management group, who own an
additional 29.7% of the outstanding stock. BancBoston Robertson Stephens
rendered an opinion on July 21, 1999 that, as of that date, and based upon the
considerations set forth in the opinion, the merger consideration was fair, from
a financial point of view, to the stockholders of White Cap other than WC
Recapitalization Corp. and its affiliates, the management group and dissenting
holders who exercise their appraisal rights. We have attached the written
opinion of BancBoston Robertson Stephens, dated July 21, 1999, as APPENDIX B to
the enclosed proxy statement and you should read the entire opinion carefully.
BancBoston Robertson Stephens' opinion is not a recommendation as to how you
should vote with respect to the merger.
The independent directors and White Cap's board of directors believe that
the terms of the merger are fair to, and in the best interest of White Cap and
its stockholders. They both unanimously recommend that you approve the merger.
Approval of the merger requires the affirmative vote of holders of a
majority of the outstanding shares of common stock.
The enclosed proxy statement provides you with a summary of the proposed
merger and additional information. Please give this information your careful
attention.
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by completing, signing, dating and mailing
the enclosed proxy card.
Very truly yours,
/s/
Chairman of the Board
, 1999
<PAGE>
[LOGO]
WHITE CAP INDUSTRIES, INC.
3120 AIRWAY AVENUE
COSTA MESA, CALIFORNIA 92626
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER __, 1999
------------------------
To Our Stockholders:
We are holding a special meeting of White Cap Industries, Inc.'s
stockholders on October __, 1999, at 11:00 a.m., local time, at the Doubletree
Hotel, 3050 Bristol Street, Costa Mesa, California, for the following purposes:
- To consider and vote on a proposal to approve a merger agreement pursuant
to which WC Recapitalization Corp., a newly-formed company, will merge
with and into White Cap. Each White Cap stockholder will be entitled to
receive $16.50 in cash for each outstanding share of common stock that the
stockholder owns immediately prior to the effective time of the merger,
other than some members of management who will continue to hold 971,446
shares, representing approximately 9% of White Cap's outstanding common
stock, and other than dissenting stockholders who are entitled to and have
perfected their appraisal rights. Members of the management group will
receive $16.50 per share for their remaining outstanding 2,231,346 shares
and the difference between $16.50 and the option exercise prices for their
options covering 165,104 shares. A copy of the merger agreement is
attached as APPENDIX A and is described in the accompanying proxy
statement.
- To consider and act upon such other matters as may properly come before
the special meeting or any adjournment of the meeting.
Only holders of White Cap's common stock at the close of business on the
record date, ____________, 1999, will be entitled to notice of, and to vote at,
the special meeting or any adjournment of the meeting.
By Order of the Board of Directors
/s/
Vice President and Secretary
_________, 1999
<PAGE>
[LOGO]
WHITE CAP INDUSTRIES, INC.
------------------
PROXY STATEMENT
------------------------
INTRODUCTION
We are sending this proxy statement to you in connection with the
solicitation of proxies by our board of directors. The board will use the
proxies at the special meeting of stockholders to be held on October , 1999 at
11:00 a.m. (local time) at the Doubletree Hotel in Costa Mesa, California, and
at any adjournment of the meeting. This proxy statement, the notice of special
meeting of stockholders and the enclosed form of proxy are first being mailed to
you on or about September , 1999.
We have called the special meeting of stockholders to consider and vote on a
proposal to approve a merger agreement, which is attached to this proxy
statement as APPENDIX A. According to the merger agreement, WC Recapitalization
Corp., a newly-formed company, will be merged with and into White Cap. Each
White Cap stockholder will be entitled to receive $16.50 in cash for each
outstanding share of common stock that the stockholder owns immediately prior to
the effective time of the merger, other than some members of management who will
continue to hold 971,446 shares, representing approximately 9% of White Cap's
outstanding common stock, and other than dissenting stockholders who are
entitled to and have perfected their appraisal rights. The members of management
will receive $16.50 per share for their remaining outstanding 2,231,346 shares,
and the difference between $16.50 and the option exercise prices for their
options covering 165,104 shares.
Completion of the merger is subject to a number of conditions, including WC
Recapitalization Corp. obtaining the necessary financing. Therefore, even if you
approve the merger and any related transactions, we cannot assure you that the
merger will be completed.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER APPROVED OR DISAPPROVED
OF THIS TRANSACTION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THE TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The board of directors fixed the close of business on , 1999 as the
record date to determine which stockholders are entitled to notice of, and to
vote at, the special meeting and any adjournment of the meeting. If you are a
holder of record of White Cap common stock at the close of business on the
record date, you are entitled to one vote for each share that you hold on each
matter submitted to a vote of stockholders. At the record date, there were
shares of White Cap common stock outstanding and entitled to vote at
the special meeting. The holders of a majority of the outstanding shares
entitled to vote must be present in person or represented by proxy at the
special meeting to meet the requirement to transact business according to White
Cap's articles of incorporation and Delaware law. We will count abstentions and
broker non-votes for the purpose of determining whether we have the required
number of shares to transact business.
According to our certificate of incorporation and Delaware law, the
affirmative vote of the holders of a majority of our outstanding shares entitled
to vote at the meeting is required to approve the
<PAGE>
principal terms of the merger agreement. Your failure to vote or your vote to
abstain will have the same legal effect as a vote cast against approval.
Brokers and, in many cases, nominees will not have discretionary power to
vote on proposals to be presented at the special meeting. Therefore, if your
shares are held of record by a broker or nominee, you should instruct your
broker or nominee as to how you would like them to vote.
You have the power to revoke your proxy at any time before it is exercised
by filing an instrument with the Secretary of White Cap instructing him to
revoke your proxy, or by submitting a duly executed proxy bearing a later date,
or by voting in person at the special meeting. Subject to your power to revoke,
we will vote all shares represented by each properly executed proxy according to
the instructions indicated on the proxy. If you do not include voting
instructions on your proxy, we will vote your proxy to approve the merger.
If you are a dissenting stockholder that has perfected your appraisal rights
under Delaware law, you are entitled to require us to purchase your shares of
common stock for cash at the fair market value of the shares as of July 21,
1999, which is the day before the terms of the merger were announced, excluding
any appreciation or depreciation as a consequence of the merger. The obligation
of WC Recapitalization Corp. to effect the merger is subject to the condition,
which WC Recapitalization Corp. may waive, that holders of no more than 10% of
White Cap common stock exercise their appraisal rights. See "Rights of
Dissenting Stockholders."
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE PRINCIPAL TERMS OF
THE MERGER AGREEMENT. YOU SHOULD NOTE THAT CERTAIN DIRECTORS HAVE CONFLICTS OF
INTEREST IN CONNECTION WITH THIS RECOMMENDATION. SEE "SPECIAL FACTORS--INTERESTS
OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR INTERESTS
OR WHICH MAY PRESENT CONFLICTS OF INTEREST."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................................................... 1
SUMMARY................................................................................................... 2
Date, Time And Place Of The Special Meeting............................................................. 2
Purpose Of The Special Meeting.......................................................................... 2
Record Date And Quorum.................................................................................. 2
Vote Required........................................................................................... 2
Parties To The Merger Transaction....................................................................... 3
The Proposal............................................................................................ 3
Effective Time Of The Merger; Payment For Shares........................................................ 3
Background Of The Merger Transaction.................................................................... 3
The Independent Directors' And Board of Directors' Recommendation....................................... 3
Opinion Of White Cap's Financial Advisor................................................................ 4
Purpose And Reasons Of LGP And The Management Group For The Merger Transaction.......................... 4
Position Of The Management Group As To Fairness Of The Merger Transaction............................... 5
Interests Of Directors And Officers In The Merger That Are Different From Your Interests Or Which May
Present Conflicts Of Interest......................................................................... 5
Certain Effects Of The Merger........................................................................... 6
Conditions To The Merger; Termination; Expenses......................................................... 6
Federal Income Tax Considerations....................................................................... 7
Accounting Treatment.................................................................................... 7
Financing Of The Merger................................................................................. 7
Stockholders Voting Agreement........................................................................... 7
Market Prices For Common Stock And Dividends............................................................ 8
Rights Of Dissenting Stockholders....................................................................... 8
Summary Of Selected Consolidated Financial Data......................................................... 9
Forward Looking Information............................................................................. 9
Selected Pro Forma Condensed Financial Data (Unaudited)................................................. 10
SPECIAL FACTORS........................................................................................... 11
Background Of The Merger Transaction.................................................................... 11
The Independent Directors' And The Board Of Directors' Recommendation................................... 19
Opinion of White Cap's Financial Advisor................................................................ 20
Purpose And Reasons Of LGP And The Management Group For The Merger Transaction.......................... 26
Position Of The Management Group As To Fairness Of The Merger Transaction............................... 27
Interests Of Directors And Officers In The Merger That Are Different From Your Interests Or Which May
Present Conflicts Of Interest......................................................................... 27
Certain Effects Of The Merger........................................................................... 30
Conduct Of White Cap's Business After The Merger........................................................ 31
THE PROPOSAL.............................................................................................. 32
Vote Required; Record Date.............................................................................. 32
Effective Time.......................................................................................... 32
THE MERGER................................................................................................ 33
Conversion Of Securities................................................................................ 33
Treatment Of Stock Options.............................................................................. 33
Payment For Shares...................................................................................... 33
</TABLE>
i
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<TABLE>
<S> <C>
Transfer Of Shares...................................................................................... 34
Conditions.............................................................................................. 34
Representations And Warranties.......................................................................... 35
Covenants............................................................................................... 36
Nonsolicitation Covenant................................................................................ 36
Indemnification And Insurance........................................................................... 37
Expenses................................................................................................ 37
Termination, Amendment And Waiver....................................................................... 38
Termination Fee......................................................................................... 38
Financing............................................................................................... 39
Stockholders Voting Agreement........................................................................... 42
Regulatory Approvals.................................................................................... 42
Accounting Treatment.................................................................................... 42
Appraisal Rights........................................................................................ 42
FEDERAL INCOME TAX CONSIDERATIONS......................................................................... 45
PENDING LITIGATION RELATED TO THE MERGER.................................................................. 46
BUSINESS OF WHITE CAP..................................................................................... 46
Operations.............................................................................................. 47
Customer Credit......................................................................................... 49
Management Information Systems.......................................................................... 49
Employees............................................................................................... 50
MARKET PRICES OF COMMON STOCK AND DIVIDENDS............................................................... 50
SELECTED CONSOLIDATED FINANCIAL DATA...................................................................... 51
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)......................................... 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 60
General................................................................................................. 60
Results of Operations................................................................................... 60
Quarterly Results of Operations; Seasonality............................................................ 64
Liquidity and Capital Resources......................................................................... 65
Year 2000............................................................................................... 65
Recent Accounting Pronouncements........................................................................ 66
Impact of Inflation and Changing Prices................................................................. 67
Quantitative and Qualitative Disclosures about Market Risk.............................................. 67
FORWARD LOOKING STATEMENTS................................................................................ 68
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT.................................................. 69
CERTAIN INFORMATION CONCERNING LGP........................................................................ 71
PROXY SOLICITATION........................................................................................ 71
STOCKHOLDER PROPOSALS..................................................................................... 71
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................ 71
OTHER MATTERS............................................................................................. 71
INCORPORATION BY REFERENCE................................................................................ 71
</TABLE>
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<TABLE>
<S> <C>
APPENDIX A--AGREEMENT AND PLAN OF MERGER.................................................................. A-1
APPENDIX B--OPINION OF FINANCIAL ADVISOR TO THE BOARD OF DIRECTORS OF WHITE CAP INDUSTRIES, INC........... B-1
APPENDIX C--STOCKHOLDERS VOTING AGREEMENT................................................................. C-1
APPENDIX D--DELAWARE APPRAISAL RIGHTS STATUTE............................................................. D-1
</TABLE>
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are for your convenience only, and
briefly address some commonly asked questions about the merger. You should still
carefully read this proxy statement in its entirety, including the attached
appendices.
Q. WHAT AM I BEING ASKED TO VOTE UPON?
A. You are being asked to approve a merger agreement which provides that WC
Recapitalization Corp., a corporation organized by Leonard Green & Partners,
L.P., be merged into White Cap. Holders of about 45.5% of our common stock have
already agreed to vote in favor of this merger. If the merger agreement is
approved, White Cap will no longer be a publicly-held corporation.
Q. WHAT WILL I RECEIVE IF THE MERGER AGREEMENT IS APPROVED?
A. You will receive $16.50 in cash, without interest, for each share of White
Cap common stock that you own. You will no longer hold any shares of White Cap
common stock.
Q. WHAT WILL HAPPEN TO PRESENT MEMBERS OF WHITE CAP'S MANAGEMENT?
A. Some members of management will continue to hold a portion of White Cap's
securities. For the remaining portion of the White Cap shares they own, they,
like you, will receive $16.50 in cash. These members of management will also
continue as officers and employees of White Cap after the merger.
Q. WHY IS WHITE CAP PROPOSING THE MERGER?
A. We believe that the merger is in your best interests, in light of the value
to be paid to you if the merger is approved. Also, we believe the merger is in
White Cap's best interests because, as a private company, we will have greater
flexibility to undergo fluctuations in our short-term earnings without the
constraint of the public market's emphasis on quarterly earnings. This will
allow us to focus on our long-term value, by making strategic capital
expenditure and acquisition decisions.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
proxy statement, please fill out and sign your proxy card. Then mail your
completed, signed and dated proxy card in the enclosed return envelope as soon
as possible so that your shares can be voted at the White Cap special meeting.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will not be able to vote your shares without instructions from
you. You should follow the directions provided by your broker to vote your
shares.
Q. HOW DO I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. At any time before the White Cap special meeting, you may change your vote by
sending a written notice stating that you would like to revoke your proxy or by
completing and submitting a new, later dated proxy card to the Corporate
Secretary of White Cap. You also can attend the White Cap special meeting and
vote in person.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the merger is completed, you will receive written instructions for
exchanging your stock certificates for cash.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We intend to complete the merger as soon as possible after the White Cap
special meeting. We expect to close the transaction in early October this year.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. After reading through this proxy statement, if you have more questions about
the merger, you should contact:
White Cap Industries, Inc.
3120 Airway Ave.
P.O. Box 1770
Costa Mesa, California 9262
Attention: Chris Lane, Chief Financial Officer
1
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SUMMARY
THIS BRIEF SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. BEFORE VOTING, YOU SHOULD CAREFULLY READ THE ENTIRE PROXY
STATEMENT, THE APPENDICES AND THE OTHER DOCUMENTS TO WHICH THIS PROXY STATEMENT
REFERS IN THEIR ENTIRETY TO FULLY UNDERSTAND THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. UNLESS THE CONTEXT INDICATES
OTHERWISE, ALL REFERENCES TO "WHITE CAP," "WE," "OUR" AND "US" REFER TO WHITE
CAP INDUSTRIES, INC. ALL REFERENCES TO "INDUSTRIES" REFER TO WHITE CAP
INDUSTRIES II, INC., WHICH IS WHITE CAP'S PRINCIPAL OPERATING SUBSIDIARY. ALL
REFERENCES TO "WC" REFER TO WC RECAPITALIZATION CORP., THE NEWLY-FORMED COMPANY
WHICH WILL MERGE WITH AND INTO WHITE CAP. ALL REFERENCES TO "LGP" REFER TO
LEONARD GREEN & PARTNERS, L.P. ALL REFERENCES TO "GREEN" REFER TO GREEN EQUITY
INVESTORS III, L.P., AN AFFILIATE OF LGP.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
We will hold a special meeting of stockholders on October , 1999, at 11:00
a.m., local time, at the Doubletree Hotel, located at 3050 Bristol Street, Costa
Mesa, California.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will consider and vote on a proposal to approve
a merger agreement which is attached to this proxy statement as APPENDIX A.
According to the merger agreement, WC will merge with and into White Cap.
Further, each outstanding share of our common stock will be canceled and
converted automatically into the right to receive $16.50 in cash, payable to the
holder, without interest, except for 971,446 shares, called the continuing
shares, held by some members of management, whom we refer to in this proxy
statement as the management group, and except for dissenting shares. The
continuing shares, which represent approximately 9% of our outstanding common
stock, will remain outstanding. The management group will receive $16.50 per
share for the 2,231,346 shares they sell, and will receive the difference
between $16.50 and the option exercise prices for their options covering 165,104
shares. See "The Proposals" and "The Merger."
RECORD DATE AND QUORUM
If you are a beneficial owner of our common stock at the close of business
on , 1999, which our board of directors has established as the
record date, you are entitled to one vote for each share you hold of record on
each matter submitted to a vote of stockholders. The holders of a majority of
the outstanding shares entitled to vote at the special meeting must be present
in person or represented by proxy in order for us to transact business. See "The
Proposals--Vote Required; Record Date."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of our common stock entitled to vote at the special meeting is required to
approve the principal terms of the merger agreement.
At the record date, there were shares of our common stock
outstanding. Stockholders, including the management group, who collectively
owned approximately 45.5% of the outstanding shares of our common stock as of
July 21, 1999, including the management group, have agreed to vote their shares
to approve the merger. We have been advised that all of our other directors and
executive officers intend to vote all of their shares to approve the merger. See
"The Proposals--Vote Required; Record Date."
2
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PARTIES TO THE MERGER TRANSACTION
WHITE CAP INDUSTRIES, INC. We are one of the leading business-to-business
retailers to professional contractors in the western United States. We market
our products through our branch locations, our highly experienced outside sales
force, our toll-free centralized fulfillment center, and through strategic
distribution of our in-stock catalogs. Our principal executive offices are
located at 3120 Airway Avenue, Costa Mesa, California 92626. Our telephone
number is (714) 850-0900. See "Business of White Cap."
WC RECAPITALIZATION CORP. Leonard Green & Partners, L.P., which we refer to
in this proxy statement as LGP, recently formed WC Recapitalization Corp., a
privately-owned Delaware corporation, for the sole purpose of effecting the
merger. In this proxy statement, we refer to WC Recapitalization Corp. as WC. WC
has not conducted any prior business. WC's principal executive offices are
located at 11111 Santa Monica Boulevard, Suite 2000, Los Angeles, California
90025. WC's telephone number is (310) 954-0444. See "Certain Information
Concerning LGP."
THE PROPOSAL
The merger agreement provides that WC will merge with and into White Cap.
After the merger, WC will cease to exist as a separate entity and White Cap will
continue as the surviving corporation. At the effective time of the merger, each
share of our issued and outstanding common stock will convert into the right to
receive $16.50 in cash, without interest, other than 971,446 shares held by
members of our management group, the shares owned by WC which will be canceled
without payment, and the dissenting shares. This right to receive $16.50 in cash
is referred to in this proxy statement as the merger consideration. As a result
of the merger, our common stock will no longer be publicly traded and will be
privately owned by an affiliate of LGP and the management group. See "The
Merger."
The transactions surrounding the merger agreement are sometimes referred to
in this proxy statement as the merger transaction.
EFFECTIVE TIME OF THE MERGER; PAYMENT FOR SHARES
The merger will become effective when we file a certificate of merger with
the Secretary of State of the State of Delaware. We expect to file the
certificate as soon as practicable after the special meeting, subject to
approval of the principal terms of the merger agreement at the special meeting
and satisfaction or waiver of the terms and conditions of the merger agreement.
See "The Proposals-- Effective Time" and "The Merger--Conditions." We will
designate a disbursing agent to forward detailed instructions to you regarding
the surrender of your share certificates, together with a letter of transmittal,
promptly after the effective time. You should not submit your certificates to
the disbursing agent until you have received these materials. The disbursing
agent will pay you as promptly as practicable following its receipt of your
certificates and other required documents. We will not pay accrued interest on
the cash payable to you upon the surrender of your certificates. See "The
Merger-- Payment for Shares." YOU SHOULD NOT SEND ANY SHARE CERTIFICATES AT THIS
TIME.
BACKGROUND OF THE MERGER TRANSACTION
For a description of events leading to approval of the merger by our board
of directors, as well as the approval by the independent directors, see the
section of this proxy statement entitled "Special Factors--Background of the
Merger."
THE INDEPENDENT DIRECTORS' AND THE BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS AND THE INDEPENDENT DIRECTORS RECOMMEND THAT YOU VOTE
FOR THE MERGER. The independent directors have recommended to the board of
directors, and the board has approved, the merger agreement. The board and the
independent
3
<PAGE>
directors believe that the merger agreement is in the best interests of White
Cap and its stockholders and therefore recommends that you vote "FOR" adoption
and approval of the principal terms of the merger agreement. The board and the
independent directors based their recommendation on the following factors:
- the terms and conditions of the merger agreement;
- our assets, obligations, operations, earnings and prospects and those of
the industry in which we compete;
- recent market prices of our common stock, recent trading activity and the
fact that the merger consideration to be paid to the stockholders
represents a premium over $11.06, the per share closing sale price of our
common stock on July 21, 1999, the day prior to the board's approval of
the merger agreement, and a premium of $8.88 over the per share book value
of White Cap on June 30, 1998;
- an analysis of the business-to-business building products supply industry
generally;
- the results of the board's market solicitation to determine whether there
were other buyers for our business;
- a review of possible alternatives to the sale of our business, including
continuing to operate our business as a publicly-owned entity; and
- the written opinion of BancBoston Robertson Stephens, White Cap's
financial advisor, dated July 21, 1999, that, as of that date, and based
on the considerations set forth in the opinion, the payment of $16.50 per
share to the holders of our common stock is fair from a financial point of
view to White Cap's stockholders other than WC and its affiliates, the
White Cap management group and holders of dissenting shares.
OPINION OF WHITE CAP'S FINANCIAL ADVISOR
On July 21, 1999, BancBoston Robertson Stephens, White Cap's financial
advisor, delivered its written opinion to the White Cap board that, as of such
date and subject to the assumptions, limitations and qualifications set forth in
the opinion, the merger consideration was fair, from a financial point of view,
to White Cap's stockholders other than WC and its affiliates, the White Cap
management group and the dissenting shares. The opinion of BancBoston Robertson
Stephens was provided for the information of the White Cap board in connection
with the merger and does not constitute a recommendation as to how you should
vote with respect to the merger. The full text of the written opinion of
BancBoston Robertson Stephens is attached as APPENDIX B. You should read this
opinion in its entirety to understand the assumptions made, matters considered
and limitations of the review undertaken by BancBoston Robertson Stephens in
connection with the opinion. See "Special Factors--Opinion Of White Cap's
Financial Advisor."
PURPOSE AND REASONS OF LGP AND THE MANAGEMENT GROUP FOR THE MERGER TRANSACTION
Green Equity Investors III, L.P., which is an affiliate of LGP, and the
management group entered into the transactions contemplated by the merger
agreement in order to acquire 100% ownership of White Cap. In this proxy
statement, we refer to Green Equity Investors, III, L.P. as Green. When the
merger is completed, members of the management group will continue to hold a
portion of their investment in White Cap through ownership of both White Cap's
common and preferred stock. Members of the management group will be entitled to
receive cash proceeds from the merger for the rest of their investment in White
Cap after the merger on the same terms as other stockholders.
As a result of the merger, excluding the exercise of warrants that may be
issued to finance the merger and excluding the exercise of any stock option
grants, Green will acquire approximately 84% of
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our common stock outstanding and 84% of our preferred stock outstanding, for an
investment of $84.5 million. When the merger is completed, the management group
will, for an investment valued at $16.0 million, own approximately 16% of the
outstanding shares of our common and preferred stock. These percentages reflect
the planned exchange by the management group of a part of their common stock for
preferred stock, immediately following the merger. See "Special Factors--Purpose
and Reasons of LGP and the Management Group for the Merger Transaction."
As a private company, we will have greater flexibility to undergo
fluctuations in short-term earnings and to focus on our long-term value by
pursuing our growth strategy, including making capital expenditure and
acquisition decisions, without the constraint of the public market's emphasis on
quarterly results.
POSITION OF THE MANAGEMENT GROUP AS TO FAIRNESS OF THE MERGER TRANSACTION
The members of the management group have considered the factors examined by
the independent directors, and the board described in detail in "Special
Factors--The Independent Directors' and Board of Directors' Recommendation." The
members of the management group believe that these factors, when considered
together, provide a reasonable basis for them to believe that the merger is fair
to you. See "Special Factors--Position of the Management Group as to Fairness of
the Merger Transaction." Members of the management group are directors and
executive officers of White Cap and have an interest in the contemplated merger
transaction. See "Special Factors--Interests Of Directors And Officers In The
Merger That Are Different From Your Interests Or Which May Present Conflicts of
Interest."
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS OR WHICH MAY PRESENT CONFLICTS OF INTEREST
As you consider the recommendation of our board of directors with respect to
the merger, you should be aware that some officers and directors of White Cap
and its affiliates, and persons related to these officers and directors, have
interests in connection with the merger which may be different from, or in
addition to, your interests, as well as actual or potential conflicts of
interest described in more detail under "Special Factors--Interests Of Directors
And Officers In The Merger That Are Different From Your Interests Or Which May
Present Conflicts of Interest." These interests include those described below.
After the merger, members of the management group will own shares of both
our common and preferred stock. The management group will own approximately 16%
of our common and preferred stock. Under the merger agreement, all members of
the management group have also agreed to enter into employment agreements with
our principal operating subsidiary, Industries.
After completion of the merger, White Cap, Green, and members of the
management group, in their capacity as stockholders of White Cap, will be
parties to a stockholders agreement that will provide each party with specific
rights and obligations. Among other things, the stockholders agreement restricts
the ability of each stockholder who is a party to the agreement to freely
transfer his or her securities. See "The Merger--Financing."
Members of the management group and the independent directors beneficially
own our common stock and options to purchase our common stock which will be
cancelled as part of the merger. Upon completion of the merger, the net cash
payments to the management group and independent directors will total
$68,051,673. See "The Merger--Treatment of Stock Options."
The merger agreement provides that the indemnification and exculpation
rights existing in favor of our directors or officers, as provided in our
articles of incorporation or bylaws that are in effect on the date of the merger
agreement, shall survive the merger with respect to matters occurring at or
prior to the effective time. In addition, we will provide our directors and
executive officers with continuing
5
<PAGE>
directors' and officers' liability insurance coverage following the merger,
subject to some limitations. See "Special Factors--Interests Of Directors And
Officers In The Merger That Are Different From Your Interests Or Which May
Present Conflicts of Interest."
CERTAIN EFFECTS OF THE MERGER
As a result of the merger, Green and the management group will own all of
White Cap's equity. Other current stockholders will no longer have any interest
in White Cap, and therefore will not participate in our future earnings and
growth. Instead, stockholders will have the right to receive $16.50 in cash,
without interest, for each share of our common stock they currently hold, except
for dissenting stockholders who have perfected their appraisal rights. See
"Rights of Dissenting Stockholders." Although an equity investment in White Cap
following the merger involves substantial risk, if we realize our projections,
the value of such an equity investment could be considerably greater than its
original cost. Further, even if the projections are not met, Green and the
management group may earn a substantial return on their investment following the
merger. See "Special Factors--Interests Of Directors And Officers In The Merger
That Are Different From Your Interests Or Which May Present Conflicts of
Interest" and "Forward Looking Information." In addition, as a result of the
merger, our common stock will no longer be traded on the Nasdaq National Market,
price quotations will no longer be available and the registration of our common
stock under the Securities Exchange Act of 1934 will terminate. See "Special
Factors--Certain Effects of the Merger."
CONDITIONS TO THE MERGER; TERMINATION; EXPENSES
In order for the parties to effect the merger, a number of conditions must
be met, the most significant of which are:
- stockholders who hold a majority of our outstanding common stock must
approve the merger;
- the representations and warranties of both parties must be true in all
material respects at the merger's effective time;
- the financing for the merger must be completed; and
- the accounting rules must not have changed in a way that prevents the
merger from qualifying for recapitalization treatment.
See "The Merger--Conditions" and "Financing of the Merger." Even if you
approve the merger, we cannot assure you that it will be completed.
At any time before the effective time of the merger, the board of directors
of White Cap and WC may mutually terminate the merger agreement. The parties may
also terminate the merger agreement if:
- the merger has not become effective on or before January 31, 2000; or
- any court or other governmental entity has prohibited or enjoined the
merger in a final and nonappealable decision.
WC may terminate the merger agreement prior to the effective time if:
- White Cap's board of directors withdraws or adversely modifies its
recommendation of the merger transaction;
- White Cap's board of directors approves a third party acquisition, as
described under "The Merger--Nonsolicitation Covenant;"
- a third party acquisition occurs; or
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<PAGE>
- White Cap, or any of our officers, directors, employees, representatives
or agents, takes any of the prohibited actions described under "The
Merger--Nonsolicitation Covenant."
We may terminate the merger agreement before the effective time of the
merger by providing written notice to WC that we have approved a good faith
proposal for a third party acquisition as described under "The
Merger--Nonsolicitation Covenant."
Each of the parties will pay its own costs and expenses in connection with
the merger, but if the merger is not completed, we will pay or reimburse WC for
all out-of-pocket expenses WC incurs in connection with the merger, except in
some instances described under "The Merger--Expenses."
FEDERAL INCOME TAX CONSIDERATIONS
If the merger becomes effective, the receipt of the merger consideration by
holders of our common stock will be a taxable transaction for federal income tax
purposes. For a more detailed discussion of the federal income tax
considerations in connection with the merger, see "Federal Income Tax
Considerations." We urge you to consult your tax advisor to determine the effect
of the merger under federal, state, local and foreign tax laws.
ACCOUNTING TREATMENT
We will treat the merger as a recapitalization for accounting purposes. See
"Accounting Treatment."
FINANCING OF THE MERGER
We expect to finance the merger through the issuance of debt and equity
securities or bank or other commercial borrowings, or some combination of
securities issuances and borrowings. LGP, on behalf of Green, has agreed to
provide up to $114.5 million of financing in connection with the merger, by
purchasing senior discount debentures and preferred and common stock financing.
This financing is contingent upon our satisfying the conditions set forth in the
merger agreement and our receipt of the financing discribed below to be provided
by Donaldson, Lufkin & Jenrette Securities Corporation, referred to in this
proxy statement along with its affiliates as DLJ.
We expect to obtain additional financing for the merger by (a) issuing, or
causing Industries to issue, $120 million of senior subordinated debt securities
in an offering exempt from registration under the Securities Act of 1933 and (b)
entering into a $100 million revolving credit facility for which we have
received a commitment from DLJ, of which up to $10 million will be available to
finance the merger. If we are unable to issue $120 million of senior
subordinated debt securities, DLJ has committed, in lieu of its commitment to
provide the $100 million revolving credit facility described above, to provide
us with $70 million of senior bridge term loans and a $30 million senior bridge
revolving credit facility, and to purchase $50 million in senior subordinated
increasing rate bridge notes. These are described in "The Merger--Financing."
STOCKHOLDERS VOTING AGREEMENT
Pursuant to a voting agreement, dated July 22, 1999, current holders of
45.5% of the fully-diluted shares of our common stock, including members of the
management group, will vote their shares in favor of the merger. Each of the
stockholders who signed the voting agreement has executed an irrevocable proxy
to vote his or her shares in favor of the merger. The voting agreement is
attached to this proxy statement as APPENDIX C.
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<PAGE>
MARKET PRICES FOR COMMON STOCK AND DIVIDENDS
Our common stock is traded on the Nasdaq National Market (symbol: WHCP). See
"Market Prices of Common Stock and Dividends" for details about the high and low
sales prices per share for each quarterly period for the two most recent fiscal
years and for the first quarter of 1999.
On July 21, 1999, the last trading day prior to the announcement of the
execution of the merger agreement, the closing price per share of our common
stock as reported by Nasdaq was $11.06. On September , 1999, the last trading
day prior to printing the proxy statement, the closing price per share of our
common stock as reported by Nasdaq was $ . As of May 28, 1999, there were
approximately 185 holders of record of our common stock.
We do not currently pay cash dividends on our common stock and intend to
retain earnings for use in the operation and expansion of our business, whether
or not the merger is completed.
RIGHTS OF DISSENTING STOCKHOLDERS
If you do not wish to accept the merger consideration, you have the right
under Delaware law to receive the fair value of your shares of common stock, to
be determined by a Delaware court. This appraisal rights is subject to a number
of restrictions and technical requirements. Generally, if you wish to exercise
this right:
- you must not vote in favor of adopting and approving the merger; and
- you must make a written demand for appraisal before the vote on the
merger.
Merely voting against the merger agreement and the merger will not perfect
your appraisal rights. APPENDIX D to this proxy statement contains the
applicable provisions of the Delaware General Corporation Law relating to
appraisal rights. See "Appraisal Rights."
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<PAGE>
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents summary selected consolidated financial data of
White Cap as of and for each of the three fiscal years in the period ended March
27, 1999, for the fiscal years ended December 31, 1994 and December 31, 1995,
for the three months ended March 31, 1996 (derived from the audited historical
consolidated financial statements of White Cap) and for the three months ended
June 27, 1998 and June 26, 1999, respectively. This financial data should be
read in conjunction with our historical consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included or incorporated elsewhere in this proxy statement.
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED DECEMBER THREE YEARS ENDED ENDED
31, MONTHS ------------------------------------- ---------
-------------------- ENDED MARCH MARCH 31, MARCH 31, MARCH 27, JUNE 27,
1994 1995 31, 1996 1997 1998 1999 1998
--------- --------- ----------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(A):
Net sales.............................. $ 69,508 $ 77,840 $ 19,511 $ 101,770 $ 186,727 $ 292,313 $ 68,637
Cost of sales........................ 49,420 53,961 13,627 69,740 126,760 196,411 46,563
--------- --------- ----------- ----------- ----------- ----------- ---------
Gross profit......................... 20,088 23,879 5,884 32,030 59,967 95,902 22,074
Selling, general and administrative
expenses........................... 17,918 20,517 5,670 27,375 49,262 75,270 16,882
Non-recurring charge................. -- -- -- -- 1,426 -- --
--------- --------- ----------- ----------- ----------- ----------- ---------
Income from operations............... 2,170 3,362 214 4,655 9,279 20,632 5,192
Interest expense, net................ 822 1,385 442 2,273 4,507 3,835 881
--------- --------- ----------- ----------- ----------- ----------- ---------
Income (loss) before income tax and
extraordinary charges.............. 1,348 1,977 (228) 2,382 4,772 16,797 4,311
Income tax provision (benefit)(b).... 30 40 -- (414) 1,938 6,644 1,707
--------- --------- ----------- ----------- ----------- ----------- ---------
Net income (loss) before
extraordinary charges.............. 1,318 1,937 (228) 2,796 2,834 10,153 2,604
Extraordinary item net of tax
benefit............................ -- -- -- -- 5,999 -- --
--------- --------- ----------- ----------- ----------- ----------- ---------
Net income (loss) after extraordinary
item............................... $ 1,318 $ 1,937 $ (228) $ 2,796 $ (3,165) $ 10,153 $ 2,604
--------- --------- ----------- ----------- ----------- ----------- ---------
--------- --------- ----------- ----------- ----------- ----------- ---------
Basic income (loss) per share.......... $ 1.26 $ 1.86 $ (0.22) $ 2.63 $ (0.68) $ 0.95 $ 0.25
Diluted income (loss) per share........ $ 1.26 $ 1.86 $ (0.22) $ 1.88 $ (0.39) $ 0.91 $ 0.23
Basic weighted average shares
outstanding.......................... 1,044 1,044 1,044 1,044 5,170 10,656 10,601
Diluted weighted average shares
outstanding.......................... 1,044 1,044 1,044 1,458 8,949 11,106 11,112
BALANCE SHEET DATA:
Working capital...................... $ 10,840 $ 12,712 $ 14,566 $ 17,410 $ 34,626 $ 57,969 $ 46,193
Total assets......................... 26,750 36,192 35,287 62,292 118,280 173,192 163,920
Long-term debt, net.................. 10,472 15,815 18,095 38,888 17,080 52,965 48,773
Total stockholders' equity
(deficit).......................... 3,639 4,528 3,945 (3,030) 66,054 78,746 91,044
Book value per share (c)............. $ 7.34
Ratio of earnings to fixed charges
(d)................................ 1.85x 4.08x 4.42x
Ratio of earnings to fixed charges
and preferred stock dividends
(e)................................ 1.67x 4.08x 4.42x
<CAPTION>
JUNE 26,
1999
---------
<S> <C>
STATEMENT OF OPERATIONS DATA(A):
Net sales.............................. $ 80,515
Cost of sales........................ 54,130
---------
Gross profit......................... 26,385
Selling, general and administrative
expenses........................... 20,405
Non-recurring charge................. --
---------
Income from operations............... 5,980
Interest expense, net................ 1,019
---------
Income (loss) before income tax and
extraordinary charges.............. 4,961
Income tax provision (benefit)(b).... 1,960
---------
Net income (loss) before
extraordinary charges.............. 3,001
Extraordinary item net of tax
benefit............................ --
---------
Net income (loss) after extraordinary
item............................... $ 3,001
---------
---------
Basic income (loss) per share.......... $ 0.28
Diluted income (loss) per share........ $ 0.27
Basic weighted average shares
outstanding.......................... 10,724
Diluted weighted average shares
outstanding.......................... 11,193
BALANCE SHEET DATA:
Working capital...................... $ 62,192
Total assets......................... 180,390
Long-term debt, net.................. 54,029
Total stockholders' equity
(deficit).......................... 81,772
Book value per share (c)............. $ 7.62
Ratio of earnings to fixed charges
(d)................................ 4.29x
Ratio of earnings to fixed charges
and preferred stock dividends
(e)................................ 4.29x
</TABLE>
- - - ------------------------------
(a) White Cap changed its fiscal year end to March 31, effective March 31, 1996.
Subsequently, effective April 1, 1998, White Cap changed its fiscal year to
a 52 or a 53 week period ending on the Saturday nearest to March 31.
(b) Reflects S Corporation status until February 28, 1997, when White Cap
converted to C Corporation status and recorded a tax benefit of
approximately $500,000 to establish net deferred tax assets.
(c) Represents total stockholders' equity divided by the number of shares
outstanding at the balance sheet date.
(d) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, the amortization of debt issue
costs and that portion of operating rental expense representative of the
interest factor.
(e) For the purpose of determining the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes
and fixed charges. Fixed charges consist of interest on indebtedness, the
amortization of debt issue costs and that portion of operating rental
expense representative of the interest factor. Preferred stock dividends are
also included in the pro forma fixed charge amounts. Preferred stock
dividends have been "grossed up" to a pre-income tax basis to provide
comparability to other components of the ratio.
FORWARD LOOKING INFORMATION
See "Forward Looking Information."
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<PAGE>
SELECTED PRO FORMA CONDENSED FINANCIAL DATA (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA -----------
----------- FISCAL
FISCAL YEAR QUARTER
ENDED MARCH ENDED JUNE
27, 1999 26, 1999
----------- -----------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS:
Net sales................................................................................ $ 292,313 $ 80,515
Cost of sales............................................................................ 196,411 54,130
----------- -----------
Gross profit........................................................................... 95,902 26,385
Selling, general & administrative........................................................ 76,270 20,655
----------- -----------
Income from operations................................................................. 19,632 5,730
Interest expense, net.................................................................... 20,202 5,098
----------- -----------
Income (loss) before income taxes...................................................... (570) 632
Income tax provision (benefit)........................................................... (233) 250
----------- -----------
Net income (loss)...................................................................... $ (337) $ 382
----------- -----------
----------- -----------
Basic income (loss) per share:
Income (loss) per share................................................................ $ (3.29) $ (0.58)
Basic weighted average shares outstanding.............................................. 2,081 2,149
Diluted income (loss) per share:
Income (loss) per share................................................................ $ (3.29) $ (0.58)
Diluted weighted average shares outstanding............................................ 2,081 2,149
OTHER DATA:
Ratio of earnings to fixed charges....................................................... 1.11x
Deficiency in earnings to cover fixed charges............................................ $ (570)
----------- -----------
----------- -----------
Deficiency in earnings to cover fixed charges and preferred dividends.................... $ (11,314) $ (2,054)
----------- -----------
----------- -----------
BALANCE SHEET DATA:
Working capital........................................................................ $ 57,389 $ 60,588
Total assets........................................................................... 188,473 195,709
Total long-term debt................................................................... 152,565 152,629
Stockholders' deficit.................................................................. (74,934) (71,870)
Book value per share................................................................... (34.85) (33.43)
</TABLE>
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<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER TRANSACTION
In October 1998, when large volumes of our common stock traded under $10 per
share and as low as $6.625, various members of the board of directors became
concerned with the valuation the public market had assigned to White Cap.
Shortly thereafter the board concluded that the perceived cyclical nature of our
business, combined with diminished attentiveness of the market was likely to
preclude achieving a reasonable trading value of our capital stock in the short
or medium term. The board of directors also concluded that the inability to
achieve a reasonable stock price would have a negative impact on our ability to
continue to pursue aggressive strategic acquisitions, creating a further
impediment to improving stockholder value.
In order to increase stockholder value, the board of directors considered a
recapitalization involving a significant dividend to our stockholders or a sale
of White Cap. In conjunction with this thought process our board engaged DLJ in
October 1998 to conduct an analysis of various strategic alternatives. Based on
DLJ's analysis, the board of directors determined that a company-financed
leveraged recapitalization would not provide sufficient cash to our stockholders
and the resulting increased financial leverage would place additional pressure
on our stock price. While conducting its analysis, representatives of DLJ also
contacted, at the request of our board, certain potential strategic buyers
during the fall of 1998, but did not receive any indications of interest.
In the later half of October 1998 representatives of LGP initiated contact
with us. An informal meeting was held between a representative of LGP, Greg
Grosch and Chris Lane, whereby LGP indicated an interest in the pro-contractor
supply industry. No additional dialogue took place between management, any of
our directors or any other representatives of White Cap and LGP until April
1999.
In late 1998 and early 1999, DLJ and the board of directors had various
discussions regarding the ability to increase shareholder value. Based on past
reaction and response to DLJ's inquiries, it appeared to the board of directors
that a formal sale process might be in the best interests of stockholders. We
retained DLJ on April 26, 1999 to act as our financial advisor in connection
with the board's evaluation of various strategic alternatives to maximize
stockholder value. Among the strategic alternatives the board of directors and
DLJ considered were selling White Cap to a strategic or financial purchaser,
refinancing our existing indebtedness and incurring new indebtedness for the
purpose of repurchasing our capital stock or providing an extraordinary dividend
to our stockholders. In order to be fully informed as to alternatives available
to us, our board instructed DLJ to contact potential strategic and financial
buyers to establish the interest level in pursuing a transaction with us.
In April 1999 LGP indicated its interest in some form of a strategic
acquisition of White Cap. On April 15, 1999 LGP signed a confidentiality
agreement with us. This confidentiality agreement contained a "standstill
agreement" by LGP, in which LGP generally agreed that it would not for a period
of three years seek to acquire any of our voting securities or seek to influence
or gain control of White Cap without the approval of the board of directors.
Pursuant to procedures intended to assure confidentiality among potential
bidders, two teams of DLJ investment bankers, separate from those individuals
who advised White Cap, provided financial advisory services to both LGP and
another party referred to below as the Second Interested Party. The team of
investment bankers that assisted LGP in arranging financing also assisted LGP in
connection with the proposed merger for customary compensation. DLJ also
provided preliminary advice to other prospective bidders who did not submit
formal proposals.
At a meeting held on April 20, 1999 a representative of LGP communicated to
Greg Grosch and Chris Lane LGP's preliminary interest in exploring an
acquisition of White Cap for between $16 and $18 per share in total
consideration. A representative of LGP indicated that LGP would be interested in
retaining our senior management and having our senior management retain an
equity interest in
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<PAGE>
White Cap. A representative of LGP also stated that LGP was prepared to commence
a due diligence investigation of White Cap with the objective of setting forth a
proposal within 30 days thereafter. On April 28, representatives of White Cap,
including Richard Gagnon, Daniel Tsujioka, Brian Etter, Jack Karg, Greg Grosch
and Chris Lane, DLJ, LGP and certain financial institutions representing LGP met
to discuss, among other topics, our business, industry, competitive position,
financial performance and future prospects.
During late April 1999 and into May 1999, DLJ contacted 19 potential parties
other than LGP, including both strategic and financial buyers, to determine
their level of interest in pursuing a transaction with us. Of the 19 parties
initially contacted, five parties other than LGP expressed significant interest
in pursuing a transaction, each party signed a confidentiality agreement similar
to that signed by LGP and received certain information about us. Following a
review of the information distributed, three interested parties other than LGP
requested to meet with our management team to discuss, among other topics, our
business, industry, competitive position, financial performance and future
prospects. During May 1999, members of our management team and DLJ met with the
three other interested parties and provided those parties with additional
non-public information regarding White Cap.
At a meeting held on May 17, 1999 among representatives of LGP, DLJ and
White Cap, a representative of LGP indicated that LGP continued to have an
interest in pursuing a transaction with White Cap and sought assurances that for
a determinate period of time we would not seek to communicate with any
additional potential buyers. The board of directors, after extensive
deliberation and discussion with DLJ, authorized our management to refrain from
contact with new potential buyers of White Cap for a period of two weeks, with
the express understanding that follow-up and responsive dialogue with any
potential buyers that had already been contacted would continue. LGP's
preliminary indication of interest required, in part, that our senior management
retain a portion of their common stock.
On June 3, 1999, representatives of LGP, management and certain financial
institutions met to discuss, among other topics, our business, industry,
competitive position, financial performance and future prospects. At a meeting
held on June 4, 1999 among a representative of LGP, Greg Grosch and Chris Lane
the representative of LGP indicated that LGP no longer had an interest in
pursuing a transaction on the terms previously discussed.
On June 8, 1999, DLJ made a presentation to the board of directors regarding
the status of discussions with all potential purchasers. DLJ informed our board
that one of the interested parties had decided not to continue pursuing a
transaction with us and as a result, only two interested parties (other than
LGP) remained interested in pursuing a potential transaction with us. Following
the presentation, our board instructed DLJ to continue discussion with all
interested parties.
Following numerous discussions among DLJ, members of the board of directors
and management of White Cap and White Cap's outside legal advisor, Hogan &
Hartson L.L.P., the board concluded that based on preliminary comments of the
remaining potential buyers, any transaction for the acquisition of White Cap
would most likely be in the form of an investor-financed leveraged
recapitalization and that there was an expectation on the part of the potential
buyers that our senior management would have a continued role in White Cap and
would be required to continue to hold a substantial equity interest.
Although management had no affiliation with any potential buyer of White
Cap, to the extent any competing offer included as a condition a continued
substantive ownership interest by any of the members of the board who were also
members of White Cap's management group, the board of directors determined it
was in the best interest of our stockholders that further negotiations and
deliberations regarding a potential transaction be undertaken and managed by the
non-management members of the board of directors, comprised of Mark M. King,
James A. Johnson, Charles A.
12
<PAGE>
Hamilton, Donald M. Koll and Douglas C. Jacobs, who we refer to in this proxy
statement as our independent directors. Accordingly, our board of directors
determined in mid-June 1999 that Greg Grosch, Chris Lane and Dan Tsujioka, who
we refer to in this proxy statement as the management directors, recuse
themselves from the decision-making process relating to any negotiations or
deliberations regarding a potential transaction for the sale of control of White
Cap. Due to personal commitments, Mr. Koll was inaccessible and did not
participate in any substantive deliberations or discussions of our board of
directors or meetings of our independent directors after early June 1999.
On June 9, 1999 LGP furnished a letter to us, dated June 8, 1999, in which
LGP proposed to pursue a recapitalization transaction whereby our stockholders
would receive $16.00 per share in cash and $2.00 per share in preferred stock.
The preferred stock was proposed to have a term of 12 years and a dividend rate
of 11% payable quarterly in cash or in kind. The LGP proposal also set forth as
a condition that Greg Grosch and Chris Lane each commit to remain with us for a
minimum of three years following consummation of the transaction. Additional
parameters regarding the proposed transaction's structure and financing were not
provided at the time LGP put forward the June 8, 1999 proposal. LGP also
indicated that its due diligence review was substantially complete.
On June 9, 1999, one of the interested parties informed DLJ that it decided
not to continue pursuing a transaction with us. Following this conversation, LGP
and a second interested party, which we will refer to in this proxy statement as
the Second Interested Party, were the only remaining parties interested in
pursuing a transaction with White Cap. The Second Interested Party submitted a
verbal indication of interest that was preliminary in nature and was put forward
prior to performing a due diligence investigation.
On June 25, 1999 we received a letter of intent from the Second Interested
Party. The initial proposal of the Second Interested Party provided for a merger
whereby each of our stockholders would have the right to elect to receive either
$16.00 per share in cash or a combination of $12.00 per share in cash and $4.00
in equity in White Cap. As a condition to the proposed merger, at least 25% of
our outstanding common stock would remain outstanding. The Second Interested
Party also indicated its expectation that our management, as well as KRG Capital
Partners, LLC, who we refer to in this proxy statement as KRG, and Apex
Investment Fund III, L.P., who we refer to in this proxy statement as Apex,
would elect to take a combination of cash and shares in the surviving company.
KRG and Apex both have designated representatives on our board of directors. The
Second Interested Party's proposal required that Greg Grosch and certain other
members of senior management each commit to remain with us for a minimum of
three years following consummation of the transaction and Chris Lane commit to
remain with us for a minimum of one year following consummation of the
transaction.
Following numerous discussions among the independent directors and DLJ, the
independent directors instructed DLJ to seek clarification from the Second
Interested Party regarding the structure and financing of the transaction it
proposed, the timetable for the completion of due diligence by the Second
Interested Party, any specific expectations regarding the requirement of
continued ownership by our current stockholders and any disparity in treatment
of our stockholders that might result therefrom, the intentions of the Second
Interested Party regarding the public or private nature of the continued
ownership in our equity by our current stockholders as the result of the
proposed transaction, the position of the Second Interested Party regarding
responsibility for transaction expenses and the terms of any exclusivity sought
by the Second Interested Party prior to execution of a definitive agreement.
Additionally, based on the expectation that our stockholders would have a
continued interest in the surviving company going forward, our independent
directors sought information regarding the Second Interested Party's intentions
as to the strategic direction and financing plans for White Cap.
On June 27, 1999 LGP submitted to us a revised proposal whereby our
stockholders would receive $17.00 per share in cash, provided that approximately
27% of our outstanding common stock would continue to be held by our current
stockholders as equity in White Cap following completion of the
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proposed transaction. The proposal provided that the equity retained by our
stockholders would be diluted over time by the issuance by White Cap of new
convertible preferred stock to LGP with an exercise price upon conversion to
White Cap common stock at substantially below $17.00 per share. LGP reiterated
its expectation that Mr. Grosch commit to remain with us for a minimum of three
years following consummation of the transaction and stated that LGP would seek a
one year continued commitment to us from Mr. Lane.
Following several meetings and teleconferences among the independent
directors and DLJ, the independent directors instructed DLJ to seek
clarification from LGP regarding the structure of the transaction they proposed,
the terms of the preferred stock to be issued, the intentions of LGP regarding
the public or private nature of the equity to be retained by our current
stockholders or issued to our current stockholders in the transaction and any
specific expectations regarding which of our stockholders would be expected to
hold a continued equity interest in White Cap. As with the then most recent
proposal of the Second Interested Party, the independent directors sought
information regarding LGP's intentions as to the strategic direction and
financing plans for White Cap based on the expectation that our current
stockholders would have a continued interest in White Cap.
On June 29, 1999 LGP submitted a revised proposal whereby our stockholders
would receive $15.50 per share in cash, provided that approximately 16.7% of
White Cap's outstanding common stock continue to be held by our current
stockholders as equity in White Cap following completion of the proposed
transaction. A portion of the equity to be retained by our current stockholders
was to be converted into pay-in-kind preferred stock of White Cap with a 10%
annual dividend rate.
On June 30, 1999 the Second Interested Party submitted a revised proposal to
the board whereby each share of our common stock would be converted into the
right to receive $12.50 in cash and $3.50 in equity of White Cap. The continued
equity stake to be held by our current stockholders was proposed to be uniform
among all stockholders and the equity that remained outstanding would continue
to be publicly traded. The revised proposal provided that the Second Interested
Party was prepared to complete due diligence and negotiate definitive agreements
within a two week period.
On the afternoon of June 30, 1999 a teleconference meeting of our board of
directors was convened to consider the most recent proposals of LGP and the
Second Interested Party. The meeting commenced with representatives from DLJ
providing a general descriptive analysis of the proposals submitted by LGP and
the Second Interested Party, respectively. Hogan & Hartson discussed structural
considerations relating to the two proposals. The management directors disclosed
their potential interest in the competing proposals based on the conditions set
forth by each of LGP and the Second Interested Party. Following a question and
answer period regarding management's assessment of our ability to perform and
bring value to the equity to be retained by our current stockholders under each
of the competing proposals, the management directors excused themselves from the
meeting.
Following the departure of the management directors, DLJ provided a further
comparative analysis of the competing proposals. DLJ also discussed the
viability of alternative transactions under then prevailing market conditions.
After substantial deliberation, the independent directors determined that the
auction process between the two interested parties should continue to be pursued
in earnest with the objective of improving the price per share to be received by
our stockholders and clarifying the specific terms and conditions of each
interested party's proposal. It was also determined that DLJ should instruct the
Second Interested Party to accelerate its due diligence timetable. After the
independent directors completed their deliberations, the management directors
were invited to rejoin the meeting, at which time the management directors were
informed of the independent directors' conclusions and ratified and approved
such conclusions.
During the week of July 5, 1999 DLJ made inquiries to both LGP and the
Second Interested Party regarding clarifications of and refinements to their
respective proposals in accordance with the independent directors' instructions.
The Second Interested Party also began its business, accounting and
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legal due diligence at an off-site facility we had prepared for such purpose.
Following various telephone calls among the independent directors, DLJ and Hogan
& Hartson, a form of merger agreement was provided to both LGP and the Second
Interested Party in order to make distinctions between the proposals of the two
parties in the event our board of directors ultimately concluded either or both
proposals were in the best interests of our stockholders.
On July 9, 1999 LGP submitted a further revised proposal to DLJ in which it
reduced the amount of equity that our current stockholders would be required to
retain to approximately 9% of our outstanding common stock, all of which was to
be provided from a portion of the existing holdings of our senior management.
All of our other stockholders were to receive, as previously proposed, $15.50
per share, as would members of our senior management for those shares of our
common stock they would not be required to retain. LGP also submitted a form of
commitment letter pursuant to which DLJ would provide a commitment for bridge
financing, subject to certain assumptions and conditions, for the transaction
proposed by LGP. Finally, LGP stated that the revised proposal would expire if
not accepted by July 16, 1999.
On July 9, 1999 the Second Interested Party orally confirmed that DLJ
commited to provide bridge financing, subject to certain assumptions and
conditions, for the transaction proposed by the Second Interested Party.
On the afternoon and evening of July 10, 1999 a teleconference meeting of
the board of directors was held to discuss the most recent proposals of LGP and
the Second Interested Party, as further refined by ongoing dialogue between DLJ
and representatives of each of LGP and the Second Interested Party. The meeting
commenced with a representative from Hogan & Hartson discussing various legal
issues, including the need for recusal of the management directors from
deliberations of the board of directors. Representatives from DLJ then provided
a comparative analysis and status report with respect to the proposals submitted
to us by LGP and the Second Interested Party, including a discussion of relative
price, terms, amount of continued ownership by our current stockholders and the
cash component to be payable to each group of our stockholders, the extent of
completion of the competing interested parties' due diligence, the status of
each competing interested party's financing commitments and status of the
mark-up of a definitive contract by either competing interested party. The board
of directors then discussed the necessity to engage a new investment bank for
purposes of rendering a fairness opinion in the event either proposed
transaction would be pursued in light of DLJ being involved in the proposals of
both LGP and the Second Interested Party. The management directors disclosed
their potential interest in the competing proposals based on the conditions set
forth by each of LGP and the Second Interested Party. Following a question and
answer period regarding management's assessment of our ability to perform and
bring value to any equity interest to be retained by our current stockholders
under the proposal put forward by the Second Interested Party, the management
directors were excused from the meeting.
Following the departure of the management directors, the independent
directors made numerous inquiries of DLJ regarding the relative ability of each
of LGP and the Second Interested Party to close on the transactions respectively
proposed. A detailed discussion followed among the independent directors and
representatives of DLJ and Hogan & Hartson regarding the economics, structure
and terms of each proposal, as well as the financing capability of LGP and the
Second Interested Party. The independent directors and our advisors also
discussed the reliability of the DLJ bridge commitment, the ability of LGP and
the Second Interested Party to deliver their respective equity commitments and
additional issues regarding certainty of completion. Our independent directors
followed with inquiries to DLJ as to the timetable for engaging a new investment
bank for purposes of rendering a fairness opinion and any particular criteria or
qualifications that should be sought in such a bank. Thereafter, DLJ was excused
from the meeting.
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Following the departure of DLJ from the teleconference meeting of the board
of directors, the independent directors entered into deliberations as to the
competing proposals regarding, among other things, their quality, financial
fairness, certainty of closure, transaction structure and overall benefits to
our current stockholders. The independent directors discussed timing issues
related to "going private" transactions and the potential impact on certainty of
completion. Finally, the independent directors discussed the issues resulting
from our stockholders retaining an equity interest in White Cap under the
proposal of the Second Interested Party and liquidity and valuation of such
retained equity in light of the proposed per share cash payment to be made under
the Second Interested Party proposal relative to the then prevailing market
price of our common stock.
The independent directors concluded that the LGP proposal was superior to
the then existing proposal of the Second Interested Party and in the best
interests of our stockholders and that at an appropriate price, the continuation
of an auction process among the competing bidders would no longer be beneficial
to securing optimal value for our stockholders. The independent directors told
DLJ to inform LGP that we sought to receive $16.00 in cash for each share of
common stock not retained by members of our senior management. The independent
directors decided that if LGP offered at least $16.00 per share, they would be
willing to commit to an exclusivity period if so requested; if any revised offer
of LGP were to be less than $16.00, however, the independent directors
determined that we would pursue the proposed transaction but we were not
prepared to commit to exclusivity. The independent directors also told DLJ that
the acceptance of any proposal would be conditioned upon the successful
negotiation of definitive documentation, receipt of a fairness opinion and
approval of our board of directors. After completion of the independent
directors' deliberations, the management directors and DLJ were invited back to
the teleconference meeting. The independent directors announced their
conclusions and instructions to DLJ, which were agreed to and ratified by the
management directors.
On July 11, 1999 LGP verbally communicated to DLJ a revised proposal whereby
stockholders would receive $15.75 per share in cash, other than with respect to
the shares of common stock to be retained by the management group. All other
aspects of the LGP proposal remained unchanged. LGP requested that we enter into
an exclusivity agreement for a limited period during which the parties would
seek to negotiate and enter into definitive documentation. Following various
meetings and telephone calls among the independent directors, DLJ was instructed
to inform LGP that we would commence drafting an exclusivity agreement but would
not commit to such an arrangement until all terms were negotiated in full. On
the evening of July 11, 1999, counsel to LGP provided Hogan & Hartson with a
mark-up of the proposed form of merger agreement to be entered into under the
LGP proposal.
On July 12, 1999, the independent directors submitted a form of exclusivity
agreement to LGP and its counsel for their review and comment. During the course
of negotiations of the terms of the exclusivity agreement with LGP, a revised
proposal for the acquisition of White Cap was submitted by the Second Interested
Party. Under the revised proposal stockholders would receive $16.25 per share in
cash, provided that approximately 7% of our outstanding common stock be retained
by current stockholders. The Second Interested Party indicated an expectation
that members of senior management would elect to retain their shares of common
stock to the fullest extent possible. The revised proposal of the Second
Interested Party required that we commit to certain break-up fees prior to the
execution of definitive documentation, pay the fees and expenses of the Second
Interested Party relating to the proposed transaction and provided for
exclusivity for a period of ten days, and was subject to certain due diligence
contingencies.
The board of directors convened a teleconference meeting with our financial
and legal advisors that commenced early in the evening on July 12, 1999 to
discuss the most recent proposals put forward by LGP and the Second Interested
Party. The meeting commenced with a review by DLJ of the revised proposal of the
Second Interested Party, including the price, terms and structure and clarifying
certain
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issues relating to due diligence, financing of the transaction and the proposed
break-up fee to apply prior to entering into a definitive agreement. DLJ then
discussed their views as to the certainty of closure of the revised proposal by
the Second Interested Party. Finally, a question and answer period ensued
between DLJ and the board of directors regarding the relative price, structure
and underlying capital structure of each proposal and the ability of LGP or the
Second Interested Party to finance the equity portion of the transaction in the
event of a downturn in our business, the financial markets or the economy
generally. Our management directors and DLJ were then excused from the meeting.
The independent directors discussed the relative merits of the competing
proposals, the probability of closure of the competing proposed transactions and
the relative terms of exclusivity and break-up fees sought by each party. The
independent directors decided to seek further clarification from the Second
Interested Party as to certain terms of the revised proposal, after which time
they would further deliberate. The management directors and DLJ then rejoined
the meeting.
A representative of the Second Interested Party was invited to join the
teleconference meeting of the board of directors. Upon joining the meeting, Mark
King and representatives of Hogan & Hartson submitted a number of inquiries to
the representative of the Second Interested Party seeking clarification with
respect to the Second Interested Party's position relating to a proposed
break-up fee, the timetable for entering into definitive documentation, the
length of an exclusivity period and the definition of "material adverse effect"
for purposes of terminating the transaction. The representative for the Second
Interested Party confirmed, in response to an inquiry, that the revised proposal
represented the Second Interested Party's best price per share. The
representative also indicated that other than certain modifications discussed on
the call, the Second Interested Party had no additional flexibility. The
representative of the Second Interested Party was advised by Mr. King to revise
its proposal in accordance with the discussions that had taken place and that we
would commence drafting an exclusivity agreement in the event further
deliberations of the board of directors resulted in a determination to further
pursue the revised proposal. The representative of the Second Interested Party
was then excused from the meeting. Immediately thereafter the management
directors and DLJ were also excused from the meeting.
The independent directors entered into deliberations regarding the proposal
of the Second Interested Party following the clarifications and revisions
discussed with its representative. The independent directors determined that the
structures of the competing offers were no longer substantively different and
the only distinction to be made was the price per share to be paid. Based on the
stated position of the Second Interested Party that it would not increase the
proposed price per share in its offer, the independent directors determined that
prolonging the auction process would not be beneficial towards concluding a
transaction and that it would be appropriate to grant LGP a final opportunity to
submit a revised proposal. The management directors and DLJ were then invited to
rejoin the meeting. The independent directors then instructed DLJ to contact LGP
and make the request that LGP submit its best proposal.
The representatives of DLJ left the meeting and rejoined the teleconference
after speaking with representatives of LGP. DLJ conveyed to our board of
directors that LGP wanted to know at what price per share we would definitively
commit to a period of exclusivity in order to negotiate and enter into
definitive transaction documentation. Thereafter the management directors and
DLJ were excused from the meeting. The independent directors deliberated and
concluded that at a price of $16.50 per share we would commit to a short period
of exclusivity. The independent directors also determined that BancBoston
Robertson Stephens should be engaged, if available, on appropriate terms, to
render a fairness opinion with respect to any proposed transaction. The
management directors and DLJ were invited to rejoin the meeting. The independent
directors instructed DLJ to contact LGP and state the price at which we were
willing to commit to an exclusivity period.
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The representatives of DLJ left the meeting and rejoined the call after
speaking with the principals of LGP. DLJ informed the board that LGP raised its
offer price to $16.50 per share, subject to execution of an exclusivity
agreement.
On July 13, 1999 LGP submitted a revised proposal with the basic terms of
the merger as set forth herein. We negotiated and entered into an exclusivity
agreement with LGP providing, among other things, that for a period of ten days
we would not solicit or engage in discussions with any third party with respect
to a possible transaction for the acquisition of all or a substantial portion of
White Cap, our business or assets. The Exclusivity Agreement provided for a
break-up fee of $12 million dollars in the event we entered into an agreement to
be acquired by a third party on or prior to August 23, 1999 based on a proposal
received during the ten day exclusivity period or a break-up fee of $6 million
dollars in the event we consummated a transaction by which we were acquired by a
third party on or prior to January 31, 2000 based on a proposal received during
the ten day exclusivity period.
From July 13, 1999 through July 22, 1999 a negotiating team for White Cap
led by Mark King and Hogan & Hartson negotiated a merger agreement with LGP and
its counsel. These negotiations included meetings held on July 15 and 16, 1999
in Orange County, California at which Mark King and Chris Lane, representatives
from LGP and its counsel and Hogan & Hartson were present. During this period we
also negotiated the terms of the commitment letter of the DLJ Finance Group and
the equity commitment letter of LGP. The management directors and certain other
members of management retained their own outside legal advisors for purposes of
advising them with respect to the merger and negotiating the terms of their
employment agreements, non-competition agreements and certain option and benefit
plans.
On July 13, 1999 BancBoston Robertson Stephens was contacted by us and
subsequently engaged to render a fairness opinion with respect to the
transaction proposed by LGP.
On July 18, 1999 the board of directors convened a telephonic meeting with
representatives of DLJ and Hogan & Hartson for informational purposes to review
the progress of the LGP negotiations and the transaction documentation to date.
The board of directors was informed that several issues remained unresolved, but
that there had been significant progress on the issues that were of the greatest
concern to the independent directors. The management directors reported on the
status and potential timetable of their negotiations with LGP with respect to
their employment agreements and related matters. The independent directors
decided to continue negotiation of the merger agreement terms, as well as the
terms of LGP's financing commitments. The independent directors emphasized to
our advisors the importance of the bridge financing being subject to as few
contingencies as was reasonably practicable.
On July 21, 1999 the board of directors held a telephonic meeting with
BancBoston Robertson Stephens, DLJ and Hogan & Hartson to consider the form of
merger agreement and related terms that had been negotiated with LGP. The board
of directors considered the terms and conditions of the proposed merger
agreement and bridge financing and equity commitment letters, as well as other
legal issues related to the merger. BancBoston Robertson Stephens made a
detailed financial presentation and delivered to the board of directors its
opinion that, as of July 21, 1999, the $16.50 per share cash merger
consideration was fair, from a financial point of view, to the public
stockholders (other than LGP and those members of our management that are to
retain our common stock).
Chris Lane provided a detailed explanation of the interests of our
management directors in the proposed transaction, including their continued
ownership of our common stock and newly issued preferred stock, participation in
certain incentive programs and the general terms of employment agreements to be
entered into by each of them. Thereafter, the management directors were excused
from the meeting.
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The independent directors together with DLJ discussed the terms of the
proposed merger agreement in detail and concluded that the $16.50 per share
price was the highest price LGP would be willing to pay and that LGP's financing
commitments were sufficiently firm. The independent directors also reviewed the
terms and effects of the voting agreements and considered the participation of
the management group in the merger. Thereafter, our financial advisors were
excused from the meeting. After considerable discussion, the independent
directors unanimously (other than Mr. Koll, who was not present) determined that
the terms of the merger agreement and the transactions contemplated thereby were
advisable, fair to and in the best interests of our stockholders (other than LGP
and those members of the management that are to retain our common stock),
determined that the merger agreement, the voting agreement and the other
transactions contemplated thereby not be subject to the restrictions on
"business combinations" imposed by Section 203 of Delaware General Corporation
Law, authorized (subject to settlement of certain remaining nonmaterial issues)
the execution of the merger agreement, recommended that the entire board of
directors approve the merger agreement and the transactions contemplated thereby
and determined that the board of directors should recommend that the
stockholders approve the merger agreement.
Immediately following the deliberations and authorizations of the
independent directors, the full board of directors reconvened to consider the
merger agreement and the transactions contemplated thereby. The independent
directors reported to the board of directors on its review of the merger
agreement, the voting agreement and the related financing commitments and the
determination of our independent directors of the proposed transaction as
advisable, fair to and in the best interests of the stockholders (other than LGP
and those members of our management that are to retain our common stock). After
being informed of the determinations and authorizations of the independent
directors, the board of directors unanimously (other than Mr. Koll, who was not
present) determined that the terms of the merger agreement and the transaction
contemplated thereby are advisable, fair to and in the best interests of our
stockholders (other than LGP and those members of our management that are to
retain our common stock), determined that the merger agreement, the voting
agreement and the other transactions contemplated thereby not be subject to the
restrictions on "business combinations" imposed by Section 203 of Delaware
General Corporation Law, authorized (subject to settlement of certain remaining
minor issues) the execution of the merger agreement and determined that our
board of directors should recommend that the stockholders approve the merger
agreement.
Thereafter, on July 22, 1999, White Cap and LGP executed and delivered the
merger agreement and publicly announced the proposed merger.
THE INDEPENDENT DIRECTORS' AND THE BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS AND THE INDEPENDENT DIRECTORS RECOMMEND THAT YOU VOTE
FOR THE MERGER. The independent directors have recommended to the board of
directors, and the board has approved, the merger agreement. The board and the
independent directors believe that the merger agreement is in the best interests
of White Cap and its stockholders and therefore recommend that you vote "FOR"
adoption and approval of the principal terms of the merger agreement. The board
and the independent directors base their recommendation on the following
factors:
- the terms and conditions of the merger agreement;
- our assets, obligations, operations, earnings and prospects and those of
the industry in which we compete;
- recent market prices of our common stock, recent trading activity and the
fact that the merger consideration to be paid to the stockholders
represents a premium over $10.88, the per share closing sale price of our
common stock on July 20, 1999, the day prior to the board's approval of
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the merger agreement, and a premium of $8.88 over the per share book value
of our common stock on June 26, 1999;
- an analysis of the business-to-business building products supply industry
generally;
- the results of the board's market solicitation to determine whether there
were other buyers for White Cap;
- a review of possible alternatives to the sale of White Cap, including
continuing to operate White Cap as a publicly-owned entity; and
- the written opinion of BancBoston Robertson Stephens, financial advisors
to the board, dated July 21, 1999, that, as of that date, and based on the
considerations set forth in the opinion, the payment of $16.50 per share
to the holders of our common stock is fair from a financial point of view
to White Cap's stockholders other than WC and its affiliates, the White
Cap management group and holders of dissenting shares.
OPINION OF WHITE CAP'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated July 13, 1999, White Cap hired
BancBoston Robertson Stephens Inc. to render an opinion as to the fairness of
the merger consideration, from a financial point of view, to the holders of
White Cap common stock other than WC or any of its affiliates, the White Cap
management group and holders of dissenting shares.
On July 21, 1999 at a meeting of the White Cap board held to evaluate the
proposed merger, BancBoston Robertson Stephens delivered to the White Cap board
its written opinion that, as of July 21, 1999 and based on the assumptions made,
the matters considered and the limitations on the review undertaken described in
the opinion, the merger consideration was fair from a financial point of view to
the holders of White Cap common stock other than WC and its affiliates, the
White Cap management group and holders of dissenting shares. No limitations were
imposed by the White Cap board on BancBoston Robertson Stephens with respect to
the investigations made or procedures followed by it in furnishing its opinion.
The merger consideration was determined through negotiations between the
respective managements of White Cap and WC. BancBoston Robertson Stephens was
not asked by, and did not recommend to, White Cap that any specific merger
consideration constituted the appropriate consideration for the merger.
The full text of the BancBoston Robertson Stephens opinion, which sets
forth, among other things, assumptions made, matters considered and limitations
on the review undertaken, is attached as APPENDIX B and is incorporated in this
proxy statement by reference. We urge White Cap stockholders to read the
BancBoston Robertson Stephens opinion in its entirety. The BancBoston Robertson
Stephens opinion was prepared for the benefit and use of the White Cap board in
its consideration of the merger and does not constitute a recommendation to
stockholders of White Cap as to how they should vote upon, or take any other
action with respect to, the merger.
The BancBoston Robertson Stephens opinion does not address:
- the relative merits of the merger and the other business strategies that
the White Cap board has considered or may be considering; or
- the underlying business decision of the White Cap board to proceed with
the merger.
The summary of the BancBoston Robertson Stephens opinion set forth in this
proxy statement is qualified in its entirety by reference to the full text of
the opinion provided in APPENDIX B.
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In connection with the preparation of the BancBoston Robertson Stephens
opinion, BancBoston Robertson Stephens, among other things:
- reviewed certain publicly available financial statements and other
business and financial information of White Cap;
- reviewed certain internal financial statements and other financial and
operating data concerning White Cap, prepared by the management of White
Cap;
- reviewed certain financial forecasts and other forward looking financial
information prepared by the management of White Cap;
- held discussions with the management of White Cap concerning the business,
past and current operations, financial condition and future prospects of
White Cap;
- reviewed the financial terms and conditions set forth in the merger
agreement;
- reviewed the stock price and trading history of White Cap common stock;
- compared the financial performance of White Cap and the prices and trading
activity of White Cap common stock with that of certain other publicly
traded companies comparable with White Cap;
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions it deemed relevant;
- prepared a discounted cash flow analysis of White Cap;
- prepared a leveraged acquisition analysis of White Cap;
- participated in discussions among representatives of White Cap and their
financial and legal advisors; and
- made such other studies and inquiries, and took into account such other
matters, as it deemed relevant, including an assessment of general
economic, market and monetary conditions.
In its review and analysis, and in arriving at its opinion, BancBoston
Robertson Stephens assumed and relied upon the accuracy and completeness of all
of the financial and other information provided to it (including information
furnished to it orally or otherwise discussed with it by the management of White
Cap) or publicly available and neither attempted to verify, nor assumed
responsibility for verifying, any of such information. BancBoston Robertson
Stephens relied upon the assurances of management of White Cap that they were
not aware of any facts that would make such information inaccurate or
misleading. Furthermore, BancBoston Robertson Stephens did not obtain or make,
or assume any responsibility for obtaining or making, any independent evaluation
or appraisal of the properties, assets or liabilities (contingent or otherwise)
of White Cap, nor was BancBoston Robertson Stephens furnished with any such
evaluation or appraisal. In connection with the preparation of its opinion,
BancBoston Robertson Stephens was not authorized to solicit, and did not
solicit, third-parties regarding alternatives to the merger.
With respect to the financial forecasts and projections (and the assumptions
and basis therefore) for White Cap that BancBoston Robertson Stephens reviewed,
upon the advice of the management of White Cap, BancBoston Robertson Stephens
assumed that such forecasts and projections:
- had been reasonably prepared in good faith on the basis of reasonable
assumptions;
- reflected the best available estimates and judgments as to the future
financial condition and performance of White Cap; and
- will be realized in the amounts and in the time periods estimated.
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In addition, BancBoston Robertson Stephens assumed that:
- the merger will be consummated upon the terms set forth in the merger
agreement without material alteration thereof; and
- the historical financial statements of White Cap reviewed by it had been
prepared and fairly presented in accordance with U.S. generally accepted
accounting principles consistently applied.
BancBoston Robertson Stephens relied as to all legal matters relevant to
rendering its opinion on the advice of counsel.
Although developments following the date of the BancBoston Robertson
Stephens opinion may affect the opinion, BancBoston Robertson Stephens assumed
no obligation to update, revise or reaffirm its opinion. The BancBoston
Robertson Stephens opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to BancBoston
Robertson Stephens as of, the date of the BancBoston Robertson Stephens opinion.
It should be understood that subsequent developments may affect the conclusion
expressed in the BancBoston Robertson Stephens opinion and that BancBoston
Robertson Stephens disclaims any undertaking or obligation to advise any person
of any change in any matter affecting the opinion which may come or be brought
to its attention after the date of the opinion. The BancBoston Robertson
Stephens opinion is limited to the fairness, from a financial point of view and
as of the date thereof, of the merger consideration to the holders of White Cap
common stock other than WC or any of its affiliates, the White Cap management
group and holders of dissenting shares. BancBoston Robertson Stephens does not
express any opinion as to:
- the value of any employee agreement or other arrangement entered into in
connection with the merger; or
- any tax or other consequences that might result from the merger.
The following is a summary of the material financial analyses performed by
BancBoston Robertson Stephens in connection with rendering the BancBoston
Robertson Stephens opinion. The summary of the financial analyses is not a
complete description of all of the analyses performed by BancBoston Robertson
Stephens. Certain of the information in this section is presented in a tabular
form. IN ORDER TO BETTER UNDERSTAND THE FINANCIAL ANALYSES PERFORMED BY
BANCBOSTON ROBERTSON STEPHENS, THESE TABLES MUST BE READ TOGETHER WITH THE TEXT
OF EACH SUMMARY. THE BANCBOSTON ROBERTSON STEPHENS OPINION IS BASED UPON THE
TOTALITY OF THE VARIOUS ANALYSES PERFORMED BY BANCBOSTON ROBERTSON STEPHENS AND
NO PARTICULAR PORTION OF THE ANALYSES HAS ANY MERIT STANDING ALONE.
COMPARABLE COMPANIES ANALYSIS. Using publicly available information,
BancBoston Robertson Stephens analyzed, among other things, the total
capitalization and trading multiples of White Cap and selected publicly traded
companies that have similar business and operating profiles, including:
- Barnett, Inc.
- Building Materials Holding Corporation
- Cameron Ashley Building Products, Inc.
- Fastenal Inc.
- Hughes Supply, Inc.
- JLK Direct Distribution Inc.
- MSC Industrial Direct Co.
- W.W. Grainger, Inc.
- Wilmar Industries, Inc.
Multiples compared by BancBoston Robertson Stephens included total
capitalization to estimated revenues for calendar years 1999 and 2000, total
capitalization to estimated earnings before interest, taxes, depreciation and
amortization ("EBITDA") for calendar years 1999 and 2000 and market
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<PAGE>
capitalization to estimated net income for calendar years 1999 and 2000. All
multiples were based on closing stock prices as of July 20, 1999.
Using the ranges of multiples set forth in the table below that BancBoston
Robertson Stephens derived from multiples for the comparable companies, the
following White Cap equity values and White Cap equity values per share are
implied:
<TABLE>
<CAPTION>
IMPLIED WHITE CAP
IMPLIED WHITE CAP EQUITY VALUE PER
MULTIPLE RANGE EQUITY VALUE SHARE
-------------- -------------------------- --------------------
<S> <C> <C> <C>
1999E Revenues....................... 0.5x - 1.0x $ 112.9 - $281.0 million $ 9.97 - $24.83
2000E Revenues....................... 0.4x - 0.8x $ 112.8 - $280.9 million $ 9.97 - $24.82
1999E EBITDA......................... 5.0x - 8.0x $ 103.4 - $198.6 million $ 9.14 - $17.55
2000E EBITDA......................... 4.0x - 7.0x $ 113.3 - $239.7 million $ 10.01 - $21.18
1999E Net Income..................... 8.0x - 12.0x $ 103.2 - $154.8 million $ 9.12 - $13.68
2000E Net Income..................... 7.0x - 10.0x $ 123.6 - $176.5 million $ 10.92 - $15.60
</TABLE>
BancBoston Robertson Stephens also applied a typical control premium of
25.0%-- 35.0% to the results of the foregoing analysis, which implied the
following White Cap equity values and White Cap equity values per share:
<TABLE>
<CAPTION>
IMPLIED WHITE CAP
IMPLIED WHITE CAP EQUITY VALUE PER
PREMIUM RANGE EQUITY VALUE SHARE
------------------- --------------------------- --------------------
<S> <C> <C> <C>
1999E Revenues................. 25.0% - 35.0% $ 141.1 - $379.3 million $ 12.47 - $33.51
2000E Revenues................. 25.0% - 35.0% $ 141.1 - $379.2 million $ 12.46 - $33.50
1999E EBITDA................... 25.0% - 35.0% $ 129.3 - $268.2 million $ 11.43 - $23.69
2000E EBITDA................... 25.0% - 35.0% $ 141.6 - $323.6 million $ 12.51 - $28.59
1999E Net Income............... 25.0% - 35.0% $ 129.0 - $209.0 million $ 11.40 - $18.46
2000E Net Income............... 25.0% - 35.0% $ 154.5 - $238.3 million $ 13.65 - $21.06
</TABLE>
PRECEDENT TRANSACTION ANALYSIS. Using publicly available information,
BancBoston Robertson Stephens analyzed the consideration offered and the implied
transaction value multiples paid or proposed to be paid in selected acquisition
transactions in the business to business professional contractor retailer
industry, including:
- Knipp Brothers/Building Materials Holding Corporation (May 7, 1999)
- Morgan Products Ltd./Anderson Corp. (March 10, 1999)
- W.C. Caye Co., Inc., State Wholesale Supply, Inc., Turf and Water Works
Supply Co./Hughes Supply, Inc. (March 12, 1999)
- Consolidated Lumber Company/Crane Co. (July 1, 1998)
- API Supply Co./Cameron Ashley Building Products, Inc. (June 15, 1998)
- Strong Tool Co./JLK Direct Distribution Inc. (May 1, 1998)
- Lone Star Plywood & Door Corp./Building Materials Holding Corp. (November
12, 1997)
- RSI Wholesale, Inc./CRH PLC (September 30, 1997)
- Century Maintenance Supply/Investor Group (July 8, 1998)
- Bois Daigle, Ltd./Cameron Ashley Building Products, Inc. (May 7, 1997)
- Strober Organization Inc./Hamilton Acquisition LLC (March 31, 1997)
- Bowen Supply Inc./Kevco Inc. (February 28, 1997)
- Consolidated Forest Products/Kevco (February 27, 1997)
- Tennessee Building Products/Morgan Products Ltd. (September 3, 1996)
- Allied Building Products/CRH PLC (July 3, 1996)
- Southwest Stainless, Inc./Hughes Supply, Inc. (May 13, 1996)
23
<PAGE>
In analyzing these "precedent transactions," BancBoston Robertson Stephens
compared, among other things, the total consideration in such transactions as a
multiple of the preceding twelve months ("LTM") revenues, LTM EBIT and LTM
EBITDA. All multiples for the precedent transactions were based on public
information available at the time of the announcement. Based on this information
and other publicly available information, the following table illustrates the
implied White Cap equity valuations and White Cap equity values per share
derived from applying a range of multiples that BancBoston Robertson Stephens
derived from the precedent transactions:
<TABLE>
<CAPTION>
IMPLIED WHITE CAP
IMPLIED WHITE CAP EQUITY VALUE PER
MULTIPLE RANGE EQUITY VALUE SHARE
-------------- ----------------- --------------------
<S> <C> <C> <C>
LTM revenues............................ 0.5x - 1.0x $ 96.9 - $249.0 $ 8.56 - $22.00
LTM EBIT................................ 7.0x - 11.0x $ 94.6 - $180.2 $ 8.36 - $15.93
NTM EBITDA.............................. 6.0x - 10.0x $ 110.9 - $221.7 $ 9.80 - $19.59
</TABLE>
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to White Cap.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the acquisition, public trading and other values of the comparable
companies, precedent transactions or the business segment, company or
transactions to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. BancBoston Robertson Stephens performed a
discounted cash flow analysis of the after-tax free cash flows of White Cap
using a range of earnings estimates and exit EBITDA multiples for years 2000 to
2005. BancBoston Robertson Stephens first discounted the projected, after-tax
free cash flows through December 31, 2005 using discount rates ranging from 15%
to 21%. White Cap after-tax free cash-flows were calculated as the after-tax
operating earnings of White Cap adjusted to add back non-cash expenses and
deduct uses of cash not reflected in the income statement. BancBoston Robertson
Stephens then added to the present value of the cash flows the terminal value of
White Cap at December 31, 2005, discounted back at the same discount rate to
represent a present value. The terminal value was computed by multiplying the
projected EBITDA for White Cap in calendar year 2005 by exit EBITDA multiples
ranging from 7.0x to 8.0x. The range of exit EBITDA multiples selected reflect
BancBoston Robertson Stephens' judgment as to an appropriate range of multiples
at the end of the reference period. The following table summarizes the resulting
implied White Cap equity valuations and implied White Cap equity values per
share using a range of exit EBITDA multiples of 7.0x-8.0x:
DISCOUNTED CASH FLOW ANALYSIS
(IN MILLIONS, ASSUMING ACQUISITIONS)
<TABLE>
<CAPTION>
IMPLIED WHITE CAP
IMPLIED WHITE CAP EQUITY VALUE PER
DISCOUNT RATES EQUITY VALUE SHARE
- - - -------------- ---------------------------- --------------------
<S> <C> <C>
17% - 21% $151.4 - $254.4 million $13.37 - $22.48
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS
(IN MILLIONS, ASSUMING NO ACQUISITIONS)
<TABLE>
<CAPTION>
IMPLIED WHITE CAP
IMPLIED WHITE CAP EQUITY VALUE PER
DISCOUNT RATES EQUITY VALUE SHARE
- - - -------------- -------------------------- --------------------
<S> <C> <C>
15% - 19% $157.3 - $231.1 million $13.90 - $20.42
</TABLE>
24
<PAGE>
LEVERAGED ACQUISITION ANALYSIS. BancBoston Robertson Stephens also
performed a leveraged acquisition analysis to ascertain the price that would be
attractive to a potential financial buyer based upon current market conditions.
For this analysis, BancBoston Robertson Stephens reviewed financial projections
of White Cap management and assumed the following in performing this analysis:
- a White Cap capital structure comprised of approximately $110 million in
equity and $135 million in debt;
- an equity investment that would achieve a 30% to 40% rate of return over a
three to five year period; and
- an exit EBITDA multiple of 8.5x LTM EBITDA.
Based on these assumptions, this analysis implied a range of White Cap equity
values per share of $15.00 to $17.00.
OTHER FACTORS AND COMPARATIVE ANALYSES. In rendering its opinion,
BancBoston Robertson Stephens considered certain other factors and conducted
certain other comparative analyses, including, among other things a review of:
- the history of trading prices and volume for White Cap common stock for
the period from July 20, 1998 to July 20, 1999; and
- selected published analysts' reports on White Cap, including analysts'
estimates as to the earnings growth potential of White Cap.
While the foregoing summary describes certain analyses and factors that
BancBoston Robertson Stephens deemed material in its presentation to the White
Cap board, it is not a comprehensive description of all analyses and factors
considered by BancBoston Robertson Stephens. The preparation of a fairness
opinion is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. BancBoston Robertson Stephens
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
evaluation process underlying the BancBoston Robertson Stephens opinion. Several
analytical methodologies were employed and no one method of analysis should be
regarded as critical to the overall conclusion reached by BancBoston Robertson
Stephens. Each analytical technique has inherent strengths and weaknesses, and
the nature of the available information may further affect the value of
particular techniques. The conclusions reached by BancBoston Robertson Stephens
are based on all analyses and factors taken as a whole and also on application
of BancBoston Robertson Stephens' own experience and judgment. Such conclusions
may involve significant elements of subjective judgment and qualitative
analysis. BancBoston Robertson Stephens therefore gives no opinion as to the
value or merit standing alone of any one or more parts of the analysis it
performed. In performing its analyses, BancBoston Robertson Stephens considered
general economic, market and financial conditions and other matters, many of
which are beyond the control of White Cap. The analyses performed by BancBoston
Robertson Stephens are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than those suggested
by such analyses. Accordingly, analyses relating to the value of a business do
not purport to be appraisals or to reflect the prices at which the business
actually may be purchased. Furthermore, no opinion is being expressed as to the
prices at which shares of White Cap common stock may be traded at any future
time.
The engagement letter between BancBoston Robertson Stephens and White Cap
provides that, for its services, BancBoston Robertson Stephens is entitled to
receive a fee of $500,000, of which $250,000 was payable upon its engagement and
$250,000 was payable upon delivery of the BancBoston
25
<PAGE>
Robertson Stephens opinion. White Cap has also agreed to reimburse BancBoston
Robertson Stephens for certain of its out-of-pocket expenses, including legal
fees, and to indemnify and hold harmless BancBoston Robertson Stephens and its
affiliates and any director, employee or agent of BancBoston Robertson Stephens
or any of its affiliates, or any person controlling BancBoston Robertson
Stephens or its affiliates for certain losses, claims, damages, expenses and
liabilities relating to or arising out of services provided by BancBoston
Robertson Stephens as financial advisor to White Cap. The terms of the fee
arrangement with BancBoston Robertson Stephens, which White Cap and BancBoston
Robertson Stephens believe are customary in transactions of this nature, were
negotiated at arm's length between White Cap and BancBoston Robertson Stephens,
and the White Cap board was aware of such fee arrangements. BancBoston Robertson
Stephens has provided certain investment banking services to White Cap for which
it has been paid fees, including acting as co-managing underwriter for an
offering of White Cap securities. BancBoston Robertson Stephens maintains a
market in the shares of White Cap common stock. In the ordinary course of its
business, BancBoston Robertson Stephens may trade in White Cap's securities and
securities for its own account and the account of its customers and,
accordingly, may at any time hold a long or short position in White Cap's
securities. BancBoston N.A., an affiliate of BancBoston Robertson Stephens, has
invested in one of the funds of Leonard Green & Partners, L.P., which indirectly
controls WC, and has acted as syndication agent and senior lender to certain
companies controlled by Leonard Green & Partners, L.P. BancBoston Robertson
Stephens is the general partner of Bayview Investors L.P., a private equity
investment fund that owns approximately 1.8% of the outstanding shares of White
Cap common stock. BancBoston Robertson Stephens' employees make up a majority of
the limited partners in Bayview Investors, L.P.
BancBoston Robertson Stephens was retained based on BancBoston Robertson
Stephens' experience as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally, as well as BancBoston
Robertson Stephens' investment banking relationship and familiarity with White
Cap.
BancBoston Robertson Stephens is an internationally recognized investment
banking firm. As part of its investment banking business, BancBoston Robertson
Stephens is frequently engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
other purposes.
PURPOSE AND REASONS OF LGP AND THE MANAGEMENT GROUP FOR THE MERGER TRANSACTION
Green and the management group are engaging in the transactions contemplated
by the merger agreement in order to acquire 100% of our equity. When the merger
is completed, members of the management group will continue to hold a portion of
their investment in White Cap through ownership of both common and preferred
stock. Members of the management group will be able to receive cash proceeds
from the merger for the remainder of their investment in White Cap on the same
terms as our other stockholders.
As a result of the merger, excluding the exercise of warrants that may be
issued to finance the merger or the exercise of any stock option grants, Green
will acquire approximately 84% of White Cap's outstanding common stock and 84%
of White Cap's outstanding preferred stock, for an investment of $84.5 million.
Upon completion of the merger, the management group will, for an investment
valued at $16.0 million, own approximately 16% of the outstanding shares of
White Cap's common stock and preferred stock. These percentages reflect the
planned exchange by the management group of a part of their common stock for
preferred stock, immediately following the merger. See "Special Factors--Purpose
and Reasons of the Management Group and LGP for the Merger Transaction."
As a private company, we will have greater flexibility to undergo
fluctuations in short-term earnings and to focus on our long-term value by
pursuing our growth strategy, including making capital
26
<PAGE>
expenditure and acquisition decisions, without the constraint of the public
market's emphasis on quarterly results.
POSITION OF THE MANAGEMENT GROUP AS TO FAIRNESS OF THE MERGER TRANSACTION
The members of the management group have considered the analyses of and the
factors examined by the independent directors and the board described in detail
in "Special Factors--The Independent Directors' And The Board of Directors'
Recommendation." The members of the management group believe that these analyses
and factors, when considered together with the determination of the independent
directors and the opinion of BancBoston Robertson Stephens, provide a reasonable
basis for them to believe that the merger is fair to White Cap's stockholders.
Members of the management group are directors and executive officers of White
Cap and have an interest in the contemplated merger transaction. No member of
the management group has assigned specific relative weights to the factors
considered in reaching his belief as to fairness. See "Special
Factors--Interests Of Directors And Officers In The Merger That Are Different
From Your Interests Or Which May Present Conflicts Of Interest."
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS OR WHICH MAY PRESENT CONFLICTS OF INTEREST
When you consider the board's recommendations with respect to the merger
transaction, you should be aware that some officers and directors of White Cap
and its affiliates are members of the management group and have interests in
connection with the merger transaction which may present them with actual or
potential conflicts of interest as summarized below. The independent directors
and the board were aware of these interests and considered them among the other
matters described under "Special Factors--The Independent Directors' And The
Board of Directors' Recommendation."
POST-MERGER TRANSACTION OWNERSHIP OF WHITE CAP. We expect the following
individuals and entities to hold the indicated number and percent of shares of
White Cap's common stock or other securities outstanding immediately after the
merger:
<TABLE>
<CAPTION>
WHITE CAP WHITE CAP
NAME OF INDIVIDUAL OR ENTITY PREFERRED STOCK (1) COMMON STOCK (2)
- - - -------------------------------------------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Green Equity Investors III, L.P......................... 2,185,321 84.1% 1,808,368 84.1%
Greg Grosch............................................. 347,122 13.4% 287,245 13.4%
Chris Lane.............................................. 18,970 0.7% 15,698 0.7%
Richard Gagnon.......................................... 19,636 0.8% 16,249 0.8%
Dan Tsujioka............................................ 24,424 0.9% 20,211 0.9%
Brian Etter............................................. 1,080 0.0% 893 0.0%
Jack Karg............................................... 3,447 0.1% 2,852 0.1%
Management Group........................................ 414,679 15.9% 343,148 15.9%
</TABLE>
- - - ------------------------
(1) For the terms of our preferred stock, see "The Merger--Financing."
(2) The percentages are computed based upon the total number of shares of our
common stock outstanding after the merger.
27
<PAGE>
The information provided below with respect to beneficial ownership of our
common stock has been determined as of August 13, 1999 and includes all options
exercisable within 60 days of that date. However, information as to the receipt
of merger consideration for shares subject to outstanding options has been
determined after giving effect to acceleration of the vesting of all outstanding
options as a result of the merger.
Green is deemed the beneficial owner of 4,879,772 shares, or approximately
45.5% of our common stock because of its rights under the voting agreement
described under "Stockholders Voting Agreement," which was signed in connection
with the merger agreement. Information regarding Green and its affiliates is set
forth under "Certain Information Concerning LGP." When the merger is completed,
Green, as the sole stockholder of WC, will hold 1,808,368 shares, or 84.1%, of
our common stock.
Mr. Greg Grosch, the Chairman of the Board, President and Chief Executive
Officer of White Cap, beneficially owns 2,701,689 shares, or approximately
25.2%, of White Cap common stock. Some of these shares are subject to stock
options granted to Mr. Grosch. Out of his total beneficial holdings, Mr. Grosch
will retain 813,187 continuing shares of White Cap common stock which will not
be converted into the right to receive $16.50 per share. Mr. Grosch will receive
$16.50 per share or, for shares that are subject to options, $16.50 per share
less the option exercise price, for approximately 1,906,502 shares of White Cap
common stock, totaling $31,269,783.
Mr. Chris Lane, Chief Financial Officer and Director of White Cap,
beneficially owns 159,760 shares, or approximately 1.5% of White Cap common
stock. Some of these shares are subject to stock options granted to Mr. Lane.
Out of his total beneficial holdings, Mr. Lane will retain 44,440 continuing
shares of White Cap common stock which will not be converted into the right to
receive $16.50 per share in the merger. Mr. Lane will receive $16.50 per share
or, for shares that are subject to options, $16.50 per share less the option
exercise price, for approximately 133,320 shares of White Cap common stock,
totaling $2,012,280.
Mr. Richard Gagnon, Senior Vice President and National Sales Manager of
White Cap, beneficially owns 176,000 shares, or approximately 1.6%, of White Cap
common stock. Some of these shares are subject to stock options granted to Mr.
Gagnon. Out of his total beneficial holdings, Mr. Gagnon will retain 46,000
continuing shares of White Cap common stock which will not be converted into the
right to receive $16.50 per share in the merger. Mr. Gagnon will receive $16.50
per share or, for shares subject to options, $16.50 per share less the option
exercise price, for approximately 138,000 shares of White Cap common stock,
totaling $2,198,250.
Mr. Dan Tsujioka, Executive Vice President and Director of White Cap,
beneficially owns 195,655 shares, or approximately 1.8%, of White Cap common
stock granted to Mr. Tsujioka. Some of these shares are subject to stock
options. Out of his total beneficial holdings, Mr. Tsujioka will retain 57,216
continuing shares of White Cap common stock which will not be converted into the
right to receive $16.50 per share in the merger. Mr. Tsujioka will receive
$16.50 per share or, for shares that are subject to options, $16.50 per share
less the option exercise price, for approximately 171,646 shares of White Cap
common stock, totaling $2,550,380.
Mr. Brian Etter, Vice President, Finance and Operations of White Cap,
beneficially owns 11,374 shares of White Cap common stock. Some of these shares
are subject to stock options granted to Mr. Etter. Out of his total beneficial
holdings, Mr. Etter will retain 2,529 continuing shares of White Cap common
stock which will not be converted into the right to receive $16.50 per share in
the merger. Mr. Etter will receive $16.50 per share or, for shares that are
subject to options, $16.50 per share less the option exercise price, for 22,761
shares of White Cap common stock, totaling $260,127.
Mr. Jack Karg, Chief Operations Officer of White Cap, beneficially owns
16,377 shares of White Cap common stock. All of these shares are subject to
stock options granted to Mr. Karg. Out of his
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<PAGE>
total beneficial holdings, Mr. Karg will retain 8,074 continuing shares of White
Cap common stock which will not be converted into the right to receive $16.50
per share in the merger. Mr. Karg will receive $16.50 per share or, for shares
that are subject to options, $16.50 per share less the option exercise price,
for approximately 24,221 shares of White Cap common stock, totaling $279,097.
TREATMENT OF STOCK OPTIONS. As described directly above, some of the
directors and executive officers of White Cap hold options to purchase our
common stock that will be terminated upon the effectiveness of the merger. These
individuals will receive cash for these options according to the terms of the
merger agreement. Prior to the effective time, we have agreed to take all
necessary action, including obtaining the option holder's consent, to cancel all
outstanding options to purchase our common stock, whether or not currently
exercisable. Upon the surrender and cancellation of each of these options, each
option holder will be entitled to receive cash equal to the difference between
$16.50 per share and the per share exercise price of his or her options. See
"The Merger--Treatment of Stock Options" and "Principal Stockholders and Stock
Ownership of Management." As of August 13, 1999, there were options outstanding
to purchase an aggregate of 719,982 shares of our common stock at a weighted
average exercise price of $4.44 per share. These options were held by 349
persons.
EMPLOYMENT AGREEMENTS. Each of the members of the management group has
agreed to continue to be an officer and employee of White Cap's principal
operating subsidiary, Industries, after the merger. In accordance with the
merger agreement, Greg Grosch, Richard Gagnon, and Chris Lane have agreed to
enter into amended and restated employment agreements with Industries, and Dan
Tsujioka, Jack Karg, and Brian Etter have agreed to enter into employment
agreements with Industries.
Each of the employment agreements, which are described below, contains
noncompetition and confidentiality covenants, and provides that the executive is
eligible to participate in Industries' employee benefit, profit sharing, stock
option, incentive compensation, bonus, vacation and other perquisite plans and
programs. In addition, each of the employment agreements provides for an annual
base salary increase to the executive equal to the sum of the California
Consumer Price Index for the previous year plus 3%. The following description of
the employment agreements is qualified by reference to the actual employment
agreements which are included as exhibits to the merger agreement and attached
to this proxy statement as part of APPENDIX A.
Mr. Grosch's amended and restated employment agreement has an original term
of five years, which is automatically extendable for one-year terms unless
otherwise terminated by Industries or Mr. Grosch. The agreement provides for a
base salary of $400,000 per year, to be increased on April 1 of each fiscal
year. If Industries' terminates Mr. Grosch's employment without cause or if Mr.
Grosch resigns with good reason, in each case as defined in the agreement, Mr.
Grosch would receive his base salary during the remainder of the original term
of the agreement, plus a supplemental severance payment equal to the product of
the remaining term, multiplied by an amount equal to Mr. Grosch's target bonus
for the fiscal year in which his employment terminates.
Mr. Gagnon's amended and restated employment agreement with Industries has
an original term of five years, which is automatically extendable for one-year
terms unless otherwise terminated by Industries or Mr. Gagnon. The agreement
provides for a base salary of $320,000 per year, to be increased on January 1 of
each calendar year, commencing January 1, 2000. In addition, Mr. Gagnon is
entitled to receive an annual bonus at the end of each full fiscal year of
employment based upon the percentage change in EBITDA for a particular year.
EBITDA means earnings before interest, taxes, depreciation and amortization. If
Industries terminates Mr. Gagnon's employment without cause or if Mr. Gagnon
resigns with good reason, in each case as defined in the agreement, Mr. Gagnon
would receive (i) his base salary for the next 12 months, or the remainder of
the term of the employment agreement, whichever is less, and (ii) a prorated
portion of any bonus earned through the date of termination for the calendar
year in which the termination occurs.
29
<PAGE>
Mr. Lane's amended and restated employment agreement with Industries has a
one-year term. The agreement provides for a base salary of $328,235 per year, to
be increased on January 1, 2000. If Industries terminates Mr. Lane's employment
without cause or if Mr. Lane resigns with good reason, in each case as defined
in the agreement, Mr. Lane would receive his base salary during the remainder of
the one-year term.
Messrs. Tsujioka, Karg and Etter each have each agreed to enter into
five-year employment agreements with Industries. These agreements provide annual
base salaries of $205,275 to Mr. Tsujioka, $161,109 to Mr. Karg, and $130,404 to
Mr. Etter. The base salaries will be increased on April 1 of each fiscal year,
starting April 1, 2000. If Industries terminates any of these executives's
employment without cause or if any of these executives resigns with good reason,
in each case as defined in the executive's agreement, the executive would
receive his base salary for the next 12 months or the remainder of the term of
the executive's employment agreement, whichever is less.
NON-QUALIFIED OPTION PLANS: Upon completion of the merger, members of the
management group and other White Cap employees will be eligible for additional
compensation in the form of grants of non-qualified stock options of White Cap.
The stockholders agreement described below under "Stockholders Agreement"
provides that we will adopt two option plans, reserving an aggregate of 10% of
our fully-diluted common stock for these plans, and excluding warrants that may
be issued in connection with a bridge financing. Stock options under both plans
will vest over a five-year period, at 20% on each of the first, second, third,
fourth and fifth anniversary dates of final allocation, and will be granted at
an exercise price set at fair market value as determined at the time of the
grants. We will allocate a substantial majority of options under the first plan
promptly after the merger becomes effective. Under the second plan, we will
allocate option grants to members of management and employees of White Cap,
based upon our operating performance over a five-year period and achievement of
financial targets. Vesting under both plans will accelerate upon change of
control, death or disability, and will be subject to other typical terms.
STOCKHOLDERS AGREEMENT. When the merger is completed, White Cap, all
members of the management group and Green will become parties to a stockholders
agreement, which is described below under "The Merger--Financing."
INDEMNIFICATION AND INSURANCE. The merger agreement provides that all
rights to indemnification or exculpation in favor of any of our directors or
officers, as provided in our articles of incorporation or bylaws in effect on
the date of the merger agreement, shall survive the merger with respect to
matters occurring at or prior to the effective time. In addition, we are
obligated for a period of at least six years after the effective time to
continue to provide, or to provide insurance coverage that is comparable to, the
directors and officers liability insurance that is currently in place for claims
arising from facts or events which occurred at or before the effective time. In
no event, however, are we obligated to spend annually more than 175% of the
current cost of this coverage to satisfy our obligations.
INDEPENDENT DIRECTORS. The independent directors are Messrs. King, Johnson,
Hamilton, Koll, and Jacobs. From early June, 1999 through the execution of the
merger agreement, Mr. Koll did not participate in any substantive deliberations
or discussions in connection with the merger transaction. See "Special
Factors--Background Of The Merger Transaction."
CERTAIN EFFECTS OF THE MERGER
As a result of the merger, stockholders other than those in the management
group will not be able to continue their equity interest in White Cap and
therefore will not share in the future earnings and potential growth of White
Cap. When the merger is completed, our common stock will no longer be traded in
the over-the-counter market, price quotations will no longer be available and
the registration
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<PAGE>
of the common stock under the Securities Exchange Act of 1934 will terminate.
Until we register securities under the Securities Act of 1933, the termination
of registration of our common stock under the Exchange Act will reduce the
information we are required to furnish to the Securities and Exchange Commission
and will make certain of the provisions of the Exchange Act, such as the short-
swing profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy or information statement in connection with stockholders
meetings, no longer applicable.
In contrast to the foregoing, the 971,446 continuing shares held by the
management group will remain outstanding and will not be canceled as a result of
the merger. Immediately after the time that the merger becomes effective,
members of the management group will exchange a portion of those shares for
newly-issued shares of our preferred stock. Thus, the management group will
share in the future earnings and potential growth of White Cap through its
ownership of both common and preferred stock. Members of the management group
are also entering into employment agreements with Industries upon completion of
the merger. See "Special Factors--Interests Of Directors And Officers In The
Merger That Are Different From Your Interests Or Which May Present Conflicts of
Interest."
Green will also have an ownership interest in White Cap as a result of the
merger. See "The Merger--Financing." Green's and the management group's
investment in White Cap following the merger involves substantial risk because
of the limited liquidity of their investment, our high debt-to-equity ratio and
the consequent substantial fixed charges that we will incur after the merger.
However, if we achieve our projections, the value of Green's and the management
group's equity investment could be considerably greater than its original cost.
Further, even if the projections are not met, Green and the management group may
still earn a substantial return on their investment. See "Forward Looking
Information."
CONDUCT OF WHITE CAP'S BUSINESS AFTER THE MERGER
LGP and the management group continue to evaluate our business, assets,
practices, operations, properties, corporate structure, capitalization,
management and personnel and to discuss what further changes, if any, will be
desirable in these areas. Subject to the foregoing, LGP and the management group
expect that our, post-merger, day-to-day business and operations will be
conducted substantially as they are currently being conducted. LGP and the
management group currently do not intend to dispose of any of our assets, other
than in the ordinary course of business. Additionally, LGP and the management
group currently do not contemplate making any material change in the composition
of our existing management. See "The Merger--Financing."
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THE PROPOSAL
The terms and conditions of the merger are contained in the merger
agreement, which is included as APPENDIX A to this proxy statement. The
following is a summary of the material terms of the merger. You should read the
actual provisions of the merger agreement by referring to APPENDIX A.
VOTE REQUIRED; RECORD DATE
A majority of the outstanding shares of our common stock entitled to vote,
represented in person or by proxy, is required for there to be a quorum at the
special meeting. A quorum is the minimum number of stockholders required to
transact business or take a vote. Under the terms of the merger agreement, the
affirmative vote of holders of a majority of the outstanding shares of our
common stock entitled to vote at the special meeting is required to approve the
principal terms of the merger agreement. The holders of 45.5% of our common
stock, including members of the management group, have agreed to vote their
shares in favor of the merger and for adoption of the merger agreement, and in
favor of any other matter necessary to complete the transactions contemplated by
the merger agreement. All of our other directors and executive officers have
advised us that they intend to vote all of their shares in favor of the merger.
See "Special Factors--Interests Of Directors And Officers In The Merger That Are
Different From Your Interests Or Which May Present Conflicts of Interest."
Except for the recommendation of the board contained in this proxy
statement, to our knowledge after reasonable inquiry, none of our executive
officers, directors or affiliates has made a recommendation in support of or
opposed to the merger transaction.
Our board of directors has fixed as the record date for
determining the White Cap stockholders entitled to notice of and to vote at the
special meeting. Therefore, only stockholders of record at the close of business
on the record date will receive notice of and be able to vote at the special
meeting. At the close of business on the record date, there were shares
of our common stock outstanding held by record holders. A majority of these
shares must be present at the special meeting, either in person or by proxy, in
order to transact business at the meeting. Each share of outstanding common
stock entitles its holder to one vote.
Stockholders of White Cap common stock present in person at the special
meeting but not voting, and shares for which we have received proxies but with
respect to which holders of these shares have abstained, will be counted as
present at the special meeting for the purpose of determining whether or not a
quorum exists. Brokers who hold shares in nominee or "street" name for customers
who are the beneficial owners of the shares may not give a proxy to vote shares
held for these customers on the matters to be voted at the special meeting
without specific instructions from the beneficial owners.
Broker non-votes will be counted for purposes of determining whether a
quorum exists. However, abstentions and broker non-votes will have the same
effect as a vote against approval of the proposals in this proxy statement.
Therefore, we urge you to complete, date, and sign the accompanying proxy and
return it promptly in the enclosed postage-paid envelope.
As contemplated by the merger agreement, you may be entitled to appraisal
rights. See "Rights of Dissenting Stockholders." A copy of the text of Section
262 of the Delaware General Corporation Law, which governs appraisal rights, is
attached to this proxy statement as APPENDIX D.
EFFECTIVE TIME
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of Delaware. We refer generally to the date and time
of effectiveness of the merger in this proxy statement as the effective time. We
expect the effective time to occur as soon as practicable after the special
meeting, subject to approval of the principal terms of the merger agreement at
the special
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meeting and satisfaction or waiver of the terms and conditions set forth in the
merger agreement. See "The Merger--Conditions."
THE MERGER
The merger agreement provides that, subject to conditions summarized below,
WC, a privately held Delaware corporation organized by LGP, will merge with and
into White Cap. Following the merger, WC will cease to exist as a separate
entity, and White Cap will continue as the surviving corporation.
CONVERSION OF SECURITIES
At the effective time, each share of issued and outstanding common stock
immediately prior to the effective time, will, by virtue of the merger, convert
into the right to receive an amount equal to $16.50 in cash, without interest,
other than 971,446 shares of common stock held by the management group,
dissenting shares or shares held by WC to be canceled. Except for this right to
receive cash, from and after the effective time, all shares, other than the
continuing shares held by the management group, by virtue of the merger and
without any action on the part of the holders, will no longer be outstanding and
will cease to exist. Each holder of a certificate formerly representing any
shares, other than those representing the continuing shares or dissenting shares
will, after the effective time, cease to have any rights with respect to those
shares other than the right to receive $16.50 cash per share for those shares
upon surrender of the certificate.
TREATMENT OF STOCK OPTIONS
At or before the effective time, we will terminate our 1997 Long Term
Incentive and Stock Option Plan and our 1997 Long-Term Equity Incentive Plan and
all options to purchase our common stock granted under those plans. To the
extent such options have not been previously exercised or canceled at the
effective time, we will pay each consenting option holder, for in-the-money
vested and unvested options cash equal to the difference between the option
exercise price and $16.50 per share multiplied by the number of shares subject
to such options held by the option holder. This payment will be made at or as
promptly as possible after the effective time. We will cancel each option that
has an exercise price of equal to or greater than $16.50 per share at the
effective time. The payment will be contingent upon completion of the merger and
subject to withholding of applicable income and other taxes.
PAYMENT FOR SHARES
At the effective time, we will deposit, or cause to be deposited with the
disbursing agent (a bank or trust company to be designated by us), all amounts
necessary for the disbursing agent to make payments under the merger agreement
in consideration of shares issued and outstanding immediately prior to the
effective time, to those who are to receive the merger consideration of $16.50
per share. Promptly after the effective time, we will mail to each person who
was, at the effective time, a holder of record of shares, a letter of
transmittal and instructions to effect the surrender of the share certificates
which, immediately prior to the effective time, represented the record holder's
shares in exchange for payment of the $16.50 per share merger consideration. YOU
SHOULD NOT FORWARD SHARE CERTIFICATES WITH THE ENCLOSED PROXY CARD. YOU SHOULD
SURRENDER CERTIFICATES REPRESENTING SHARES OF COMMON STOCK ONLY AFTER RECEIVING
INSTRUCTIONS FROM THE DISBURSING AGENT.
Upon surrender to the disbursing agent of the share certificates, together
with the letter of transmittal duly completed in accordance with the
instructions, and only upon such surrender, the disbursing agent will promptly
cause to be paid to non-dissenting stockholders a check in the amount to which
they are entitled, after giving effect to any required tax withholdings. The
disbursing agent will
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<PAGE>
pay the merger consideration attributable to any certificates representing
shares outstanding prior to the effective time which have been lost or
destroyed, but only after receiving evidence satisfactory to the disbursing
agent of ownership of those shares and of appropriate indemnification.
We will not pay any interest upon the surrender of any certificate. The
disbursing agent will not make payments to any person who is not the registered
holder of the certificate surrendered unless the certificate is properly
endorsed and otherwise in proper form for transfer. Further, the person
requesting such payment will be required to pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the certificate surrendered or establish to the satisfaction of the
disbursing agent that such tax has been paid or is not payable. Six months
following the effective time, we may cause the disbursing agent to deliver to us
any funds, including any interest received with respect to those funds, which we
have made available to the disbursing agent and which the agent has not
disbursed. Thereafter such holders will be entitled to look only to us for
payment of the merger consideration. Any amounts remaining unclaimed by holders
of common stock seven years after the effective time shall be our property, to
the extent permitted by applicable law. Neither the disbursing agent nor any
party to the merger agreement will be liable to any holder of certificates
formerly representing shares for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law. Except as
described in this paragraph, we will pay all charges and expenses, including
those of the disbursing agent, in connection with the exchange of shares for the
merger consideration.
TRANSFER OF SHARES
At or after the effective time, we will not record transfers of any shares
that were entitled to receive the merger consideration on the stock transfer
books. If, after the effective time, a former stockholder presents us with
certificates representing such shares, we will cancel and exchange such shares
for $16.50 cash per share, without interest.
CONDITIONS
The respective obligations of each party to effect the merger are subject to
the satisfaction or waiver of each of the following conditions:
- stockholders who hold a majority of our outstanding common stock must
approve the merger;
- the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1978 must have expired or terminated; and
- there must be no provision of any applicable law nor any judgment, order,
decree or injunction prohibiting or restraining completion of the merger.
Our obligations to effect the merger are subject to the satisfaction of each
of the following conditions:
- the representations and warranties made by WC in the merger agreement must
be true and correct in all material respects at the effective time of the
merger. However, if a representation or warranty has a specific date, it
need only be true as of that date;
- WC must complete its obligations under the merger agreement at or prior to
the effective time of the merger; and
- an independent advisor must recommend to our board of directors that the
merger is fair from a financial point of view to us and to our
stockholders.
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WC's obligations to effect the merger are subject to the satisfaction of
each of the following conditions by the effective time of the merger:
- the representations and warranties made by us in the merger agreement must
be true and correct in all material respects. However, if a representation
or warranty carries a specific date, it need only be true as of that date;
- White Cap must complete its obligations contained in the merger agreement
on or prior to the effective time of the merger;
- WC must obtain the financing for the merger described under "The
Merger--Financing;" this condition will be satisfied if the parties to the
commitment letters, as described in that section, or the parties to any
replacement letters, are ready to perform those commitments;
- the percent of dissenting shares must not equal 10% or more of the shares
outstanding;
- accounting practices or policies must not change after the date of the
merger agreement in such a way that WC could reasonably conclude that the
merger would not be recorded as a recapitalization for financial reporting
purposes;
- the voting agreement described in "The Merger--Stockholders Voting
Agreement" must be effective;
- each member of management described under "Interests Of Directors And
Officers In The Merger That Are Different From Your Interests" must enter
into the employment agreements described there and the stockholders
agreement described under "The Merger--Financing;"
- White Cap's board must determine that the merger is not subject to the
special rules relating to transactions with "interested stockholders" as
described in the certificate of incorporation; and
- no change, event, occurrence, development or circumstance can occur after
the date of the merger agreement which, individually or as a whole, can
reasonably be expected to have a material adverse effect on White Cap.
REPRESENTATIONS AND WARRANTIES
We have made representations in the merger agreement regarding, among other
things:
- our organization and good standing;
- our authority to enter into the transaction;
- our capitalization;
- our financial statements;
- the absence of certain changes in our business since March 27, 1999;
- the content and submission of forms and reports required to be filed by us
with the Securities and Exchange Commission;
- required governmental and other consents and approvals;
- our compliance with all applicable laws;
- the absence of litigation to which we are a party;
- the status of tax matters and contracts, related party transactions,
labor, and employee benefits; and
- the absence of undisclosed liabilities and environmental matters.
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WC has made representations and warranties in the merger agreement
regarding, among other things:
- its organization and good standing;
- its authority to enter into the transaction;
- its capitalization;
- its compliance with all applicable laws;
- required governmental and other consents and approvals;
- the accuracy of information supplied by WC for submission on forms and
reports required to be filed by White Cap with the Securities and Exchange
Commission;
- the financing for the merger, brokers and finders; and
- the absence of prior activities and absence of litigation to which WC is a
party.
The representations and warranties of the parties in the merger agreement
will expire when the merger is completed.
COVENANTS
In the merger agreement, we agreed, prior to the merger, to conduct business
only in the ordinary and usual course consistent with past practice and to use
reasonable best efforts to maintain our business organization, governmental
permits and relationships with employees, customers, suppliers and others with
whom we do business. In addition, we agreed not to take any of the following
actions without the prior consent of WC:
- amend our charter documents;
- enter into transactions such as acquisitions, borrowings outside of the
ordinary course, pledges or encumbrances, or make capital expenditures
exceeding $5,000,000 in total;
- split, reclassify or combine our shares or make dividends, distributions
or repurchases of shares;
- adopt or amend employee benefit plans, bonuses or similar matters or
increase compensation, except with respect to non-officers in specific
instances;
- revalue our assets or inventory;
- make changes in accounting methods or tax elections;
- issue additional stock; or
- adopt a plan of liquidation, dissolution or merger, other than the merger
described in this proxy statement, or alter the structure of White Cap or
its subsidiaries.
WC and White Cap will use their reasonable best efforts to complete the
merger.
NONSOLICITATION COVENANT
The merger agreement provides that neither we nor our affiliates will permit
our officers, directors, employees, representatives or agents to encourage or
engage in negotiations, or provide non-public information to any party or group
concerning any of the following:
- the acquisition of White Cap by merger;
- the sale of a material portion of our assets;
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- the acquisition of 10% or more of our common stock by a party or group;
- our adoption of a plan of liquidation, payment of an extraordinary
dividend or repurchase of more than 10% of our common stock; or
- our acquisition of any businesses the annual revenue, net income or assets
of which are 10% or more than those of White Cap.
However, our board of directors may inquire into any proposal described
above which the board determines in good faith, based in part upon legal advice,
is necessary to comply with its fiduciary duties. We agree to notify WC promptly
and keep it up to date as to any such proposals or inquiries.
In addition, the board of directors has agreed not to withdraw its
recommendation of the merger or to enter into any agreement for a third party
acquisition (meaning the transactions highlighted above), unless it determines
in good faith, based in part upon legal advice, that its fiduciary duties
require such action. Before doing so, however, the board must provide WC with
two business days to make a counter-offer. The board may withdraw its
recommendation and terminate the merger agreement if WC does not make an offer,
or if the board concludes, based in part upon advice of a financial advisor of
national reputation, that WC's offer is not at least as favorable as the
proposal for a third party acquisition. The board may only withdraw its
recommendation if the merger agreement is first terminated and if we have paid
WC the amounts described under "The Merger--Termination Fee."
INDEMNIFICATION AND INSURANCE
All rights to indemnification or exculpation belonging to our directors and
officers under our certificate of incorporation or bylaws, as they exist on the
date of the merger agreement, will continue to apply to all matters that
occurred before the effective time of the merger. In addition, we are required
to use reasonable commercial efforts to keep our directors' and officers'
liability insurance policies in effect for six years after the effective time of
the merger. However, we may substitute other policies for at least the same
amounts and comparable coverage as the policies currently in effect. We will not
be required to pay insurance premiums in excess of 175% of the premiums we
currently pay.
EXPENSES
The parties agreed to pay their own costs and expenses in connection with
the merger transaction. If the merger is not completed in accordance with the
merger agreement, we will reimburse WC for all of its reasonable out-of-pocket
expenses incurred in connection with the merger transaction. This payment and
reimbursement arrangement will not be available to WC if:
- WC fails to perform its obligations under the merger agreement, and does
not cure this failure within 20 days of notification;
- WC breaches any of its material representations and warranties and does
not cure the breach within 20 days of notification; or
- WC fails to obtain the financing anticipated under the merger agreement,
but only if this failure is not caused by circumstances which adversely
affected White Cap and which arose after the date of the merger agreement.
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TERMINATION, AMENDMENT AND WAIVER
TERMINATION BY EITHER PARTY. At any time before the effective time of the
merger, the board of directors of White Cap and WC may mutually terminate the
merger. The parties may also terminate the merger agreement if:
- the merger has not become effective on or before January 31, 2000;
- any court or other governmental entity has prohibited or enjoined the
merger in a final and nonappealable decision; or
- our stockholders fail to approve the merger agreement at the special
meeting.
TERMINATION BY WC. WC may terminate the merger agreement before its
effective time if:
- our board of directors withdraws or adversely modifies its recommendation
for the merger agreement;
- our board of directors approves a third party acquisition, as described
under "The Merger-- Nonsolicitation Covenant;"
- a third party acquisition occurs; or
- we, or any of our officers, directors, employees, representatives or
agents, take any of the prohibited actions described under "The
Merger--Nonsolicitation Covenant."
TERMINATION BY WHITE CAP. White Cap may terminate the merger agreement
before the effective time of the merger by providing written notice to WC that
it has approved any good faith proposal for a third party acquisition as
described under "The Merger--Nonsolicitation Covenant."
AMENDMENT AND WAIVER. The parties may modify or amend the merger by written
agreement as long as they comply with the provisions of applicable law. This
ability to modify or amend is also limited in two situations:
- once our stockholders have approved the principal terms of the merger
agreement, any adverse amendment of the merger consideration will require
a second approval by our stockholders; and
- after the merger certificate has been filed, the indemnification and
insurance provisions may not be waived or amended.
TERMINATION FEE
If WC or White Cap terminates the merger agreement as described under
"Termination by WC" or "Termination by White Cap" above, we must immediately pay
WC a break-up fee of twelve million dollars ($12,000,000). This is not a
penalty, but rather, it represents liquidated damages, calculated to compensate
WC for the costs incurred, efforts expended and opportunities foregone while
negotiating the merger agreement.
In addition, we must pay WC the termination fee if the merger agreement is
terminated because we do not obtain the required favorable stockholder vote,
because the special meeting was never noticed or held by us, but only if we
either engage in, or receive a proposal for, a third party acquisition before
the termination.
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FINANCING
GENERAL. We expect financing for the merger to be provided by a combination
of debt and equity as follows:
<TABLE>
<S> <C>
Revolving Credit Facility (1)......................................... $ 5,360,867
Senior Subordinated Notes............................................. 120,000,000
Senior Discount Debentures............................................ 30,000,000
Preferred Stock....................................................... 65,000,000
Common Stock (including continuing shares)............................ 35,500,000
-----------
Total................................................................. $255,860,867
-----------
-----------
</TABLE>
(1) The revolving credit facility will provide for up to $100,000,000 in
borrowings.
MANAGEMENT GROUP FINANCING. Members of the management group will retain
continuing shares at the values shown below and thereby relieve us of the need
to finance the payment of merger consideration for these shares totaling
approximately $16.0 million. The members will exchange a portion of those
continuing shares for our preferred stock at the values shown below.
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK
NAME OF INDIVIDUAL OR ENTITY INVESTMENT INVESTMENT
- - - ------------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Greg Grosch....................................................... $ 4,739,543 $ 8,678,050
Chris Lane........................................................ 259,017 474,250
Rick Gagnon....................................................... 268,109 490,900
Dan Tsujioka...................................................... 333,482 610,600
Brian Etter....................................................... 14,735 27,000
Jack Karg......................................................... 47,058 86,175
</TABLE>
LGP EQUITY FINANCING. In a letter dated July 20, 1999 addressed to White
Cap, LGP has committed, subject to the financing to be provided by DLJ and
immediately prior to the completion of the merger, to contribute $84.5 million
in cash to WC in exchange for 1,808,368 shares of WC common stock and 2,185,321
shares of WC preferred stock. This letter is filed as an exhibit to the Schedule
13D filed in connection with LGP's acquisition of beneficial ownership of shares
of our common stock. As a result of the merger, White Cap will receive the $84.5
million, and Green will receive an equal number of shares of common and
preferred stock of White Cap, in exchange for its WC common and preferred stock,
which will automatically be converted into White Cap common and preferred stock
by virtue of the merger.
STOCKHOLDERS AGREEMENT. Immediately prior to the completion of the merger,
Green, White Cap and the management group will enter into a stockholders
agreement, the form of which is an exhibit to the merger agreement. The
stockholders agreement restricts the ability to freely transfer White Cap
securities held by Green and members of the management group, and establishes a
right of first refusal in favor of Green and White Cap, in the event members of
the management group seek to transfer any of their securities to a third party
pursuant to a good faith offer. In the event any members of the management
group, other than Chris Lane, cease to be employed by Industries during the five
years after the merger, Green or White Cap may purchase a portion of their
securities at specified prices. In addition, Green has drag-along rights,
meaning that, under some circumstances, if Green desires to sell any of its
securities to a third party, it may compel members of the management group to do
the same. Also, members of the management group have tag-along rights to
participate in some sales by Green of its securities to a third party, meaning
that, under some circumstances, Green may be required to include a portion of
the management group's securities in such a sale. Further, the stockholders
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agreement grants demand and piggyback registration rights, under specific
circumstances, to Green and the management group. The grant of demand
registration rights generally means that both Green and members of the
management group may compel us to register securities owned by them under the
Securities Act of 1933. The grant of piggyback registration rights generally
means that if we propose to register any of our securities under the Securities
Act of 1933, Green or the members of the management group may request that we
include securities owned by them in our subsequent filing with the Securities
and Exchange Commission. The stockholders agreement also grants three nominees
of Green and two nominees of the management group, one of whom will be Greg
Grosch as long as he serves as President and Chief Executive Officer of White
Cap, rights to be elected to our board of directors. In the event that we issue
providers of the financing described below warrants or other equity securities
in White Cap, those providers may become parties to this stockholders agreement.
SENIOR DISCOUNT DEBENTURES. As part of the financing for the merger, LGP has
committed to purchase at least $30 million of our senior discount debentures due
2010. LGP's commitment is subject to receipt of the DLJ financing described
below. The debentures will be unsecured and effectively subordinated to all of
our indebtedness described below. The debentures will be redeemable after four
years at a premium, and are also redeemable in part with the proceeds of a
public offering by us. LGP expects the debentures to contain covenants that
limit the ability of White Cap and its subsidiaries to:
- incur additional debt;
- create some types of liens;
- sell some types of assets and subsidiary stock; and
- effect some types of mergers and consolidations.
REVOLVING CREDIT FACILITY. DLJ has provided a commitment, dated July 20,
1999, which we refer to as the DLJ Letter, to provide working capital financing
to us or our principal subsidiary, Industries, upon completion of the merger
through a revolving credit facility. The DLJ Letter is filed as an exhibit to
the Schedule 13D. We expect the credit facility to have the following features:
- maximum availability of $100 million, subject to sublimits in amounts to
be determined for letters of credit, of which up to $10 million will be
available to finance the merger transaction;
- five-year term;
- secured by all of our and our subsidiaries' existing and after-acquired
inventories, accounts receivable, equipment and other assets, including a
pledge of capital stock;
- guaranteed by all direct and indirect domestic subsidiaries;
- interest at alternative fluctuating rates at our option, of either the
Base Rate or reserve-adjusted LIBOR rate (in each case as defined in the
DLJ Letter) and, in each case, plus an applicable margin;
- required payment of various commitment and other fees; and
- customary financial and other credit document covenants including
restrictions on the payment of dividends, stock repurchases, other
indebtedness, and liens.
The availability of the credit contemplated by the DLJ Letter depends upon
satisfaction of a number of conditions, including
- negotiation and execution of documentation;
- receipt of material governmental approvals;
- receipt of the equity financing to be provided by LGP, as described above;
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- the purchase by LGP of the senior discount debentures due 2010, as
described above;
- there having been no material adverse change in our financial condition or
business;
- and there having been no material adverse change in current financial,
banking or capital market conditions that could reasonably be expected to
materially impair syndication of the credit.
PREFERRED STOCK. The preferred stock will be entitled to a dividend of 10%
per year, payable quarterly. Dividends will be payable as determined by our
board of directors, in cash, or, if not paid, will accumulate and increase the
preferred stock liquidation preference. The preferred stock will rank senior to
all of our classes of common stock and all of our classes of preferred stock
designated to be junior. Shares of preferred stock are mandatorily redeemable in
whole after 20.5 years at the liquidation preference, including accumulated
dividends. The holders of preferred stock shall have no voting rights, except:
- as required by state and other applicable law; and
- the right by a majority of the outstanding shares of preferred stock,
voting as a separate class, to approve the issuance of any securities
ranking senior or equal to the preferred stock with respect to dividends
or upon a liquidation, and to approve any adverse amendment to our
articles of incorporation.
SENIOR SUBORDINATED NOTES, SENIOR FACILITIES. We expect to issue, or to
cause Industries to issue, $120.0 million of senior subordinated debt securities
in an offering exempt from registration under the Securities Act of 1933. If we
are unable to sell these securities, DLJ has committed, in lieu of its
commitment to provide the $100 million revolving credit facility described
above, to provide $70 million of bridge term loans and a $30 million bridge
revolving credit facility, and to purchase $50 million in increasing rate bridge
notes. The bridge term loan and the bridge revolving credit facility, if issued,
will be our senior debt guaranteed by all of our direct and indirect domestic
subsidiaries, and secured by first priority perfected liens on substantially all
of our and our subsidiaries' existing and after-acquired property. The interest
rate on these bridge facilities will be calculated as described under "Revolving
Credit Facility," but with higher applicable margins. The increasing rate bridge
notes, if issued, will be our senior subordinated obligations.
EXPENSES OF THE TRANSACTION. The estimated costs and fees in connection with
the merger transaction, financing and the related transactions, which will be
paid by us are as follows:
<TABLE>
<S> <C>
Financial advisory fees............................................ $8,163,829
Bridge loan commitment fees........................................ 500,000
Placement agent fees and expenses.................................. 3,300,000
Bank commitment fees............................................... 1,875,000
Legal and accounting fees.......................................... 2,350,000
Printing and mailing fees.......................................... 200,000
SEC filing fees.................................................... 33,926
Miscellaneous...................................................... 1,077,245
Total.............................................................. $17,500,000
----------
----------
</TABLE>
See "Special Factors--Opinion Of White Cap's Financial Advisor" for a
description of the fees to be paid BancBoston Robertson Stephens in connection
with their engagement.
For a description of our obligation to pay or reimburse WC for expenses
incurred by them in connection with the merger transaction, see "The
Merger--Expenses."
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STOCKHOLDERS VOTING AGREEMENT
The following summary of the stockholders voting agreement highlights
important selected information. You should refer to the text of the voting
agreement attached to this proxy statement as APPENDIX C for a more complete
description. The voting agreement provides that current holders of 45.5% of the
fully-diluted shares of our common stock, including members of the management
group, will:
- vote their shares in favor of the merger and adopting the merger
agreement, and in favor of any other matter necessary for completion of
the transactions contemplated by the merger agreement;
- vote against any other merger agreement, consolidation, recapitalization,
sale of assets or similar extraordinary transaction involving White Cap or
any third party acquisition, described in "The Merger--Nonsolicitation
Covenant;"
- not offer to sell, assign, transfer or otherwise dispose of any of their
shares of common stock; and
- not directly or indirectly solicit, encourage, enter into or conduct
discussions with any person or group concerning a third party acquisition.
Each White Cap stockholder executing the voting agreement has executed an
irrevocable proxy to vote his or her shares in favor of the merger and the
adoption of the merger agreement.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Act, and the rules promulgated under the Act by
the Federal Trade Commission, which is commonly known as FTC, we cannot complete
the merger transaction until certain notifications are given and certain
information is furnished to the FTC and the Antitrust Division of the Department
of Justice, and until specified waiting period requirements are satisfied. White
Cap and WC filed premerger notification and report forms with the FTC and the
Antitrust Division in , 1999. In the notification and report forms,
the parties requested early termination of the waiting period under the
Hart-Scott-Rodino Act.
We are not aware of any license, regulatory permit or lease which is
material to our business and which is likely to be adversely affected by the
merger transaction or of any approval or other action by any state, federal or
foreign government or governmental agency that would be required prior to
effecting the merger transaction.
ACCOUNTING TREATMENT
We will treat the merger as a recapitalization for accounting purposes. A
recapitalization is a transaction structured to transfer the controlling
interests of an operating entity to a new investor, with some owners also
retaining an ownership interest. The transaction results in no change in the
accounting basis of the assets and liabilities presented in the stand-alone
financial statements of the operating entity. The consideration for the shares
is accounted for as a reduction in equity.
APPRAISAL RIGHTS
If the merger is completed, and you are a shareholder of record of common
stock who objects to the terms of the merger, you may seek an appraisal under
Section 262 of the Delaware General Corporation Law for the judicially
determined fair value of your shares. Following is a summary of the principal
provisions of Section 262. As this is not a complete description, a copy of
Section 262 is attached to this proxy statement as APPENDIX D. You should review
Section 262 carefully. If you fail to
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<PAGE>
take any action required by Section 262, you will terminate or waive your rights
to appraisal under Section 262.
If you elect to exercise your appraisal rights, you must:
- deliver a written demand for appraisal to us before our stockholders vote
on the merger agreement; and
- not vote in favor of adopting the merger agreement.
You must deliver your demand to White Cap Industries, Inc. at 3120 Airway
Avenue, Costa Mesa, CA 92626, Attention: Chris Lane, Chief Financial Officer.
Your proxy or vote against adoption of the merger agreement does not constitute
a demand. If you elect to make a demand, you must do so by a separate written
demand that reasonably informs us of your identity as the holder of record and
of your intention to demand appraisal of your common stock. If you leave your
proxy blank, we will vote it in favor of adoption of the merger agreement.
Therefore, if you elect to exercise your appraisal rights, you must not leave
your proxy blank. Rather, you must vote AGAINST adoption of the merger agreement
or ABSTAIN from voting for or against adoption of the merger agreement.
Only if you are the holder of record of common stock will you be entitled to
demand appraisal rights for common stock registered in your name. The demand
must be executed by or for you as the holder of record, fully and correctly, as
your name appears on your stock certificates. An authorized agent, including one
of two or more joint owners, may execute the demand for appraisal for you as a
holder of record; however, the agent must identify you and expressly disclose
the fact that, in executing the demand, the agent is acting as agent for you.
If a holder of record, such as a broker, holds common stock as nominee for
beneficial owners, the holder may exercise his or her right of appraisal with
respect to common stock held for all or less than all of such beneficial owners.
In this case, the written demand should state the number of shares of common
stock covered by the demand. If no number of shares of common stock is expressly
mentioned, we will presume it covers all shares of common stock outstanding in
the name of the holder of record.
Within 10 days after the effective time, we will send notice of the
effectiveness of the merger to each person who satisfied the above conditions
prior to the effective time.
Within 120 days after the effective time, White Cap or any stockholder who
has satisfied the above conditions may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the common stock. If you
are seeking to exercise your appraisal rights, you should not assume that we
will file a petition to appraise the value of your common stock or that we will
initiate any negotiations with respect to the fair value of your common stock.
Accordingly, you should initiate all necessary action if you wish to perfect
your appraisal rights within the time periods specified in Section 262.
Within 120 days after the effective time, if you have complied with the
requirements for exercise of appraisal rights, as discussed above, you will be
entitled, upon written request, to receive a statement from us setting forth:
- the aggregate number of shares of common stock not voted in favor of the
merger and with respect to which demands for appraisal have been made; and
- the aggregate number of holders of such common stock.
We must mail this statement within 10 days after we receive your written
request to do so. If a petition for an appraisal is timely filed, after a
hearing on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the value of the
common stock owned by those stockholders. The court will determine fair value
exclusive of any
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<PAGE>
element of value arising from the accomplishment or expectation of the merger
and will determine the amount of interest, if any, to be paid upon the value of
the common stock of the stockholders entitled to appraisal. Any judicial
determination of the fair value of common stock could be based upon
considerations other than or in addition to the price paid in the merger and the
market value of common stock, including asset values, the investment value of
the common stock and any other valuation considerations generally accepted in
the investment community. This judicial determination of value could be more
than, less than or the same as the consideration paid under the merger
agreement. The court may also order that all or a portion of any stockholder's
expenses incurred in connection with an appraisal proceeding, including
reasonable attorneys' fees and fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all common stock
entitled to appraisal.
If you demand an appraisal in compliance with Section 262, you will not,
after the effective time, be entitled to vote the shares subject to this demand
for any purpose. You will also not have the right to dividends or other
distributions on that common stock, other than those payable or deemed to be
payable to stockholders of record as of a date prior to the effective time.
You will lose your right to appraisal if you do not file a petition within
120 days after the effective time, or if you deliver a written withdrawal of
your demand for an appraisal and an acceptance of the merger to White Cap. Any
attempt to withdraw made more than 60 days after the effective time will require
our written approval.
You will be entitled to receive the consideration you would have been paid
under the merger agreement if:
- you do not perfect your appraisal rights; or
- you withdraw your demand for appraisal rights.
If you correctly follow the procedures described above and perfect your
right of appraisal after instituting a timely appraisal, your appraisal
proceeding cannot be dismissed without the approval of the Delaware court.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes material United States federal income
tax considerations relevant to the merger. This discussion is based on current
provisions of the Internal Revenue Code of 1986, existing and proposed
regulations under the Code and current administrative rulings and court
decisions, all of which may change, possibly with retroactive effect. Any such
change could alter the tax considerations described here. This discussion does
not deal with all tax considerations that may be relevant to holders subject to
special tax rules, including but not limited to financial institutions,
broker-dealers, persons who are not citizens or residents of the United States
or who are foreign corporations, foreign partnerships or foreign estates or
trusts as to the United States, persons who hold their shares as part of a
"straddle" or other integrated instrument and holders of options or holders who
acquired their stock through the exercise of an employee stock option or
otherwise as compensation.
The receipt of cash in exchange for our common stock in the merger will be a
taxable transaction for federal income tax purposes. Except as provided in the
following paragraph, each holder will recognize gain or loss per share equal to
the difference between $16.50 and the holder's basis per share of common stock.
A holder generally must determine the amount, character and timing of such gain
or loss separately with respect to each block of shares the holder owns. If a
holder holds our common stock as a capital asset, the gain or loss from the
exchange will be a capital gain or loss. This gain or loss will be long-term if
the holder has held the shares for more than one year. Under current law, the
federal government taxes net long-term capital gains of non-corporate taxpayers
at a maximum income tax rate of 20%.
A holder of our common stock who receives cash consideration for a portion
of such holder's common stock in the merger, and who also continues to own
shares of White Cap stock (either directly or constructively) after the merger,
generally will not recognize gain or loss in the above manner, but instead will
be subject to dividend or capital gain treatment on the cash received in the
transaction depending on the specific facts and circumstances with respect to
such holder. Therefore, any holder of our common stock who will continue to own
shares of White Cap stock after the merger, either directly or constructively by
reason of the ownership of such stock by a related person or entity, should
consult his or her own tax advisor in connection with the proposed merger.
A holder of our common stock who receives cash in the merger may be subject
to 31% backup withholding unless the holder:
- is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or
- provides a correct taxpayer identification number, certifies on IRS Form
W-9 or Substitute Form W-9 that he or she is not subject to backup
withholding and otherwise complies with applicable requirements of the
backup withholding rules.
The IRS may impose penalties as well as backup withholding on a holder who
does not provide his or her correct taxpayer identification number to us or to
our disbursing agent. Backup withholding is not an additional tax. Rather, a
holder may credit any amount withheld under these rules against the holder's
federal income tax liability, provided that the holder gives certain required
information to the IRS. When required, we (or our disbursing agent) will report
to the holders of our common stock and to the IRS the amount of any payments
made pursuant to the merger and the amount of any tax withheld from such
payments.
THIS TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED
UPON CURRENT LAW. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE
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<PAGE>
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS.
PENDING LITIGATION RELATED TO THE MERGER
White Cap and some of its officers and directors have been named as
defendants in three purported class actions filed in the Court of Chancery in
the State of Delaware. The actions are as follows:
- Anthony Casey v. White Cap Industries, Inc., Greg Grosch, Dan Tsujioka,
Chris Lane, Mark King, James Johnson, Charles Hamilton, Donald M. Koll,
Douglas C. Jacobs and Leonard Green & Partners, L.P.; Case No. 17329NC.
- Ruth Grenning v. Greg Grosch, Dan Tsujioka, Chris Lane, Mark King, James
Johnson, Charles Hamilton and White Cap Industries, Inc.; Case No.
17331NC.
- Tammy Newman v. White Cap Industries, Inc., Greg Grosch, Dan Tsujioka,
Chris Lane, Mark King, James Johnson, Charles Hamilton, Donald M. Koll,
Douglas C. Jacobs and Leonard Green & Partners L.P.; Case No. 17335NC.
Each of the three actions is similar and the complaint in each action
essentially alleges that by entering into the merger agreement, the defendants
are depriving the public stockholders of White Cap of their equity interest in
White Cap at a grossly unfair and inadequate price and are usurping White Cap's
growth and future prospects to the defendants' own benefit. Each complaint
alleges that defendants have breached fiduciary duties and seeks remedies in the
nature of an injunction against the merger, an order compelling the defendants
to perform their fiduciary duties, and, if the merger is consummated, an award
of damages in an unspecified amount.
White Cap and the other defendants have not yet formally responded to the
complaints, but deny the material allegations of the complaints and believe that
the three actions are without merit. White Cap and the other defendants believe
that they have properly fulfilled all fiduciary duties owed to the stockholders
of White Cap and that the merger is in the best interests of White Cap's
stockholders. White Cap and the other defendants therefore intend to vigorously
defend against all three actions.
BUSINESS OF WHITE CAP
We are one of the leading business-to-business retailers to professional
contractors in the western United States. We offer over 30,000 stock keeping
units of specialty tools and materials oriented to professional contractors. We
target medium and large-sized professional contractors, including professional
concrete, framing, waterproofing, landscaping, grading, electrical, mechanical
and general contractors. We market our products through our branch locations,
our highly experienced outside sales force, our toll-free centralized
fulfillment center, and through the strategic distribution of its in-stock
catalogs. As of March 27, 1999, we operated 40 branch locations.
We sell a wide variety of products oriented to professional contractors,
including construction materials, hand tools, fasteners, structural connectors,
power tools, light construction equipment, steel reinforcing bar, referred to in
this proxy statement as rebar, bulk and collated gun nails and specialty
cementatious products. In addition, at certain branches we provide rental
services on selected items such as forms, brackets and braces used in the
construction of concrete "tilt-up" buildings and poured in place projects, as
well as power tools and miscellaneous light construction equipment. Our products
are used by professional contractors in new construction, maintenance and repair
projects.
We believe that we have developed a business model that differs
substantially from that of traditional contractor suppliers and large home
center retailers. The model is based on offering superior customer service and
convenient "one-stop" shopping at our branch locations. Unlike
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traditional contractor suppliers, who typically fill orders from warehouses not
accessible to customers, our customers shop at our branch locations where they
can browse through the warehouse aisles and adjacent outdoor yards. Our typical
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.
Our focus on merchandising exposes customers to a wide range of product
offerings and promotes significant add-on sales. As a result, approximately 50%
of our net sales are generated from "walk-in" and "will call" business. Our
customers can also select items from our in-stock catalogs, distributed to
approximately 80,000 professional contractors, listing approximately 9,000 of
the best selling stock keeping units maintained in stock. Our customers can
order products by phone, fax, at a sales branch or through the outside sales
force. Our highly experienced sales force maintains frequent customer contact,
providing pro-oriented services on and off the job site. Through our high
in-stock position and sophisticated inventory management systems, we are able to
fulfill approximately 95% of the items included in each customer order and
provide same-day or next day delivery.
OPERATIONS
SALES FORCE/CUSTOMER SERVICE. We have approximately 300 salespersons
committed to providing the highest level of customer service. This highly
skilled and knowledgeable sales force is important to our success because the
salespersons' relationships with their customers and their emphasis on customer
service contribute to customer loyalty and repeat business. Our 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. Our inside sales force can
also locate hard-to-find products and process special orders. Our 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. Our highly experienced outside
sales force plays an integral part in our efforts to add new customers and
generate additional revenue from existing customers. Our outside sales force has
an average of 15 years industry experience, an average tenure of over six years
with us, and sells our products on an exclusive basis. In addition to the
outside and inside sales force, counter sales personnel at each branch location
service the "walk-in" and "will call" business. Our salespersons regularly
receive product training both from internal and external sources to ensure they
are current on all product developments. As a result, our sales force can
provide product recommendations as well as job site assistance and instruction.
Approximately 90% of our outside sales force is paid on a 100% commission basis.
We believe that our increased geographic presence will allow our sales force to
more effectively serve medium and large-sized professional contractors with
projects in multiple regions throughout the western United States.
PRODUCTS. We offer our customers over 30,000 stock keeping units through
our 40 branch locations. We sell 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. We
sell certain products, including waterproofing products, construction adhesives
and collated nails, under our own private label. These products accounted for
approximately 4% of sales for the year ended March 27, 1999 and serve to
increase recognition of the White Cap name. In addition, in some branch
locations we provide 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. Professional contractors use our products in new
construction, maintenance and repair projects. In 1998, we established a
toll-free centralized service center, known as White Cap Direct, which enables
our customers to phone or fax in orders and have the orders shipped directly to
their location. White Cap Direct expands the product offering to customers
without having to stock the items in each location.
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STORE DESIGN. Highly trained sales personnel staff all of our branches. Our
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. However, we adjust store size to the sales volume of the
market served. The majority of our 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. We believe that the
open warehouse design of our branches, where our customers can browse through
the aisles, gives us a competitive advantage over most traditional contractor
suppliers whose branches have small showrooms and sales counters. Therefore,
many of the acquired branches have been or are being converted to the open
warehouse format.
We converted seven acquired branches to the open warehouse model during the
year ended March 27, 1999. The ongoing conversion process is scheduled based on
seasonality to minimize the disruption of day-to-day operations.
CUSTOMERS. We sell to a variety of professional general and specialty
building trade contractors in all three of the customer categories described
above. Our primary customers include general, concrete, framing, waterproofing,
landscape, grading, electrical and mechanical contractors. We believe that the
professional relationships maintained through our outside sales force with our
customers are of critical importance. Approximately 35% of our revenues are from
contractors engaged in residential construction. The other 65% of our revenues
are from commercial or infrastructure construction.
As of March 27, 1999, approximately 28,000 of our customers had purchased at
least one item during the past year. This includes customers that do not have
established credit accounts and pay upon purchase. No one customer generates
more than 2% of net sales. For the fiscal year ended March 27, 1999, our top ten
customers in the aggregate generated approximately 5% of net sales.
MARKETING. We use innovative retail merchandising techniques not previously
utilized in marketing to medium and large-sized professional contractors. We
were among the first in our industry to utilize "business-to-business" retail
marketing techniques and the "open warehouse" merchandising concept in our sales
branches. Typical retail merchandising techniques used by our branch offices
include the strategic placement of product groups, innovative product displays
and video monitors showing product demonstration tapes. In addition, we use
frequent in-store promotional events, such as power tool demo days, product
seminars and customer appreciation days, as additional marketing techniques.
Both White Cap and our recently acquired companies publish in-stock
catalogs. The most recent edition includes approximately 9,000 of the best
selling stock keeping units. The current edition of our catalog includes stock
keeping units not previously carried by us, many of which were previously
carried by the recently acquired companies. Our professionally prepared catalog
has over 570 pages creatively displaying the broad array of the products we
carry. The outside sales force distributes the catalogs to approximately 80,000
professional contractors, and the catalogs are distributed in the branches as
well. We also publish a number of specialty catalogs including a "Cal Trans-DOT"
and a tilt-up and concrete accessories catalog. These specialized catalogs are
unique to the industry and are valuable reference tools for the specialized
contractors that use them. In addition, we publish monthly the Contractor Trader
which features sale pricing on selected products as well as tips and articles of
interest to the industry. We distribute the Contractor Trader to over 100,000
professional contractors and other industry participants.
ELECTRONIC COMMERCE. We currently sell a limited product offering via the
internet and will expand that offering over the next year. Additionally, we
offer a large number of products priced specifically for large municipalities
via a business to business web site.
JOB-SITE/YARD DELIVERY. Our customers ordinarily receive next business day
delivery via our fleet of delivery trucks. We believe this is crucial to
professional contractors who rely on our reputation for on-time delivery in
order to meet their critical "just-in-time" ordering requirements and strict job
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production schedules. In addition, the majority of our branch managers and
outside sales force are provided with our vehicles, usually standard pickup
trucks, which may be used to supplement our fleet of delivery trucks and to
provide "rush" or special delivery services. Additionally, we utilize courier
services for rush deliveries. We can also access the full product lines of most
of our suppliers for drop-shipment to our customers.
SUPPLIERS. We enjoy well-established relationships with all of our key
suppliers and have maintained many of these relationships for over 10 years. We
are one of the primary distributors for many industry brand names. In some of
the markets that we serve, we have exclusive or semi-exclusive product
distribution agreements, which give us a competitive advantage on specific
product lines. Management believes that outstanding supplier relationships and
our position in the marketplace allow us to have one of the lowest inventory
costs in the industry. Many of the products we carry are not carried by our
competitors, because our competitors cannot provide technical assistance in the
field. In addition, architects specify many of our products for particular
projects because of the efforts of our professional outside sales force working
in conjunction with the manufacturer's architectural and/or engineering sales
representatives. Many of our top suppliers differentiate White Cap as an
"industrial distributor" as opposed to a "DIY retailer." In some instances this
gives us access to a manufacturer's "full product line," lower prices and more
favorable credit terms.
We purchase from more than 2,800 suppliers, 98% of which are manufacturers.
No one supplier accounts for more than 10% of our purchases.
CUSTOMER CREDIT
Approximately 90% of our sales are on open account, managed by our in-house
credit department. We offer our customers several credit options. Each in-house
account is opened and credit terms are set according to the customer's
creditworthiness and purchasing profile after review by our 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 us to file a
preliminary lien notice with the owner of the real property, the lender and the
general contractor notifying them that we have extended credit for materials
used in the improvement of real property. A properly filed preliminary notice
gives us certain legal remedies, including lien rights, which allow us to look
beyond our customer for the recovery of a past due job-based receivable.
Historically, we have experienced a net accounts receivable write-off rate
averaging 0.3% of net sales over the period from January 1992 to March 1999. We
believe our collection performance can be attributed to:
- a credit department with extensive experience in construction credit;
- a real-time highly customized accounts receivable software package;
- thorough screening of all new accounts; and
- the ongoing monitoring and reevaluation of existing accounts.
MANAGEMENT INFORMATION SYSTEMS
We have made substantial investments in computer hardware and the
development of computer software applications, which we believe allows us to
achieve cost savings, deliver superior customer service and centrally manage our
operations. As part of the integration of the White Cap business model at
acquired companies, branches are linked to our central computer system and are
converted to our software applications, including point-of-sale, order
processing, order fulfillment, inventory management, purchasing and financial
reporting. We continually develop and enhance our software
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applications. Our customized software package provides order entry, purchasing,
inventory control, accounts receivable, accounts payable, rental management and
financial reporting. The software also provides a fully integrated
distribution/warehouse management system.
Our inventory management software is designed to minimize our cost of goods
sold by forecasting and analyzing sales history for every stock keeping unit in
our 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 our customer support software,
our customer service representatives can inform customers on a real-time basis
of our in-stock position and recommend an array of substitute products for
discontinued or out-of-stock items. In addition, our system can accept and
cross-reference the product codes of suppliers and manufacturers, Universal
Product Codes and our own proprietary product codes. We are implementing an
electronic catalog and EDI in order to streamline purchasing, accounts
receivable and accounts payable.
EMPLOYEES
As of March 27, 1999, we had 997 employees, consisting of 183 employed at
our Costa Mesa, California headquarters and 814 at our branch locations. Our
sales force consists of approximately 300 inside, outside and counter-personnel
sales professionals. We are not subject to collective bargaining agreements, and
consider our relations with our employees to be satisfactory.
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
Our common stock is traded on the Nasdaq National Market (symbol: WHCP). The
following table sets forth the high and low sales prices per share for each
quarterly period for the two most recent fiscal years and for the first quarter
of 1999.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended March 31, 1998:
Third Quarter................................................................... $ 24.125 $ 16.250
Fourth Quarter.................................................................. $ 23.000 $ 14.750
Fiscal Year Ended March 27, 1999:
First Quarter................................................................... $ 25.000 $ 17.750
Second Quarter.................................................................. $ 19.375 $ 9.250
Third Quarter................................................................... $ 15.750 $ 6.625
Fourth Quarter.................................................................. $ 17.000 $ 10.250
Fiscal Year Ended March 31, 2000:
First Quarter................................................................... $ 14.875 $ 9.500
</TABLE>
On July 21, 1999, the last trading day prior to the announcement of the
execution of the merger agreement, the closing price per share of our common
stock as reported by Nasdaq was $11.06. On September , 1999, the last trading
day prior to printing of this Proxy Statement, the closing price per share of
our common stock as reported by Nasdaq was $ .
As of May 28, 1999, there were approximately 185 holders of record of our
common stock.
We do not currently pay cash dividends on our common stock and intend to
retain earnings for use in the operation and expansion of our business.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of White
Cap as of and for each of the three fiscal years in the period ended March 27,
1999, for the fiscal years ended December 31, 1994 and December 31, 1995, for
the three months ended March 31, 1996 (derived from the audited historical
consolidated financial statements of White Cap) and for the three months ended
June 27, 1998 and June 26, 1999, respectively. This financial data should be
read in conjunction with the financial statements of White Cap and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included or incorporated elsewhere in this proxy statement.
<TABLE>
<CAPTION>
THREE
YEARS ENDED MONTHS YEARS ENDED
DECEMBER 31, ENDED -------------------------------------
-------------------- MARCH 31, MARCH 31, MARCH 31, MARCH 27,
1994 1995 1996 1997 1998 1999
--------- --------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (A):
Net sales.......................................... $ 69,508 $ 77,840 $ 19,511 $ 101,770 $ 186,727 $ 292,313
Cost of sales.................................... 49,420 53,961 13,627 69,740 126,760 196,411
--------- --------- ----------- ----------- ----------- -----------
Gross profit..................................... 20,088 23,879 5,884 32,030 59,967 95,902
Selling, general and administrative expenses..... 17,918 20,517 5,670 27,375 49,262 75,270
Non-recurring charge............................. -- -- -- -- 1,426 --
--------- --------- ----------- ----------- ----------- -----------
Income from operations........................... 2,170 3,362 214 4,655 9,279 20,632
Interest expense, net............................ 822 1,385 442 2,273 4,507 3,835
--------- --------- ----------- ----------- ----------- -----------
Income (loss) before income tax and extraordinary
charges........................................ 1,348 1,977 (228) 2,382 4,772 16,797
Income tax provision (benefit)(b)................ 30 40 -- (414) 1,938 6,644
--------- --------- ----------- ----------- ----------- -----------
Net income (loss) before extraordinary charges... 1,318 1,937 (228) 2,796 2,834 10,153
Extraordinary item net of tax benefit............ -- -- -- -- 5,999 --
--------- --------- ----------- ----------- ----------- -----------
Net income (loss) after extraordinary item....... $ 1,318 $ 1,937 $ (228) $ 2,796 $ (3,165) $ 10,153
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
Basic income (loss) per share.................... $ 1.26 $ 1.86 $ (0.22) $ 2.63 $ (0.68) $ 0.95
Diluted income (loss) per share.................. $ 1.26 $ 1.86 $ (0.22) $ 1.88 $ (0.39) $ 0.91
Basic weighted average shares outstanding........ 1,044 1,044 1,044 1,044 5,170 10,656
Diluted weighted average shares outstanding...... 1,044 1,044 1,044 1,458 8,949 11,106
BALANCE SHEET DATA:
Working capital.................................. $ 10,840 $ 12,712 $ 14,566 $ 17,410 $ 34,626 $ 57,969
Total assets..................................... 26,750 36,192 35,287 62,292 118,280 173,192
Long-term debt, net.............................. 10,472 15,815 18,095 38,888 17,080 52,965
Total stockholders' equity (deficit)............. 3,639 4,528 3,945 (3,030) 66,054 78,746
Book value per share (c)......................... $ 7.34
Ratio of earnings to fixed
charges (d).................................... 1.85x 4.08x
Ratio of earnings to fixed charges and preferred
stock
dividends (e).................................. 1.67x 4.08x
<CAPTION>
THREE MONTHS ENDED
------------------------
JUNE 27, JUNE 26,
1998 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (A):
Net sales.......................................... $ 68,637 $ 80,515
Cost of sales.................................... 46,563 54,130
----------- -----------
Gross profit..................................... 22,074 26,385
Selling, general and administrative expenses..... 16,882 20,405
Non-recurring charge............................. -- --
----------- -----------
Income from operations........................... 5,192 5,980
Interest expense, net............................ 881 1,019
----------- -----------
Income (loss) before income tax and extraordinary
charges........................................ 4,311 4,961
Income tax provision (benefit)(b)................ 1,707 1,960
----------- -----------
Net income (loss) before extraordinary charges... 2,604 3,001
Extraordinary item net of tax benefit............ -- --
----------- -----------
Net income (loss) after extraordinary item....... $ 2,604 $ 3,001
----------- -----------
----------- -----------
Basic income (loss) per share.................... $ 0.25 $ 0.28
Diluted income (loss) per share.................. $ 0.23 $ 0.27
Basic weighted average shares outstanding........ 10,601 10,724
Diluted weighted average shares outstanding...... 11,112 11,193
BALANCE SHEET DATA:
Working capital.................................. $ 46,178 $ 62,192
Total assets..................................... 163,920 180,390
Long-term debt, net.............................. 42,773 54,029
Total stockholders' equity (deficit)............. 71,044 81,772
Book value per share (c)......................... $ 7.62
Ratio of earnings to fixed
charges (d).................................... 4.42x 4.29x
Ratio of earnings to fixed charges and preferred
stock
dividends (e).................................. 4.42x 4.29x
</TABLE>
- - - ------------------------------
(a) White Cap changed its fiscal year end to March 31, effective March 31, 1996.
Subsequently, effective April 1, 1998, White Cap changed its fiscal year to
a 52 or a 53 week period ending on the Saturday nearest to March 31.
(b) Reflects S Corporation status until February 28, 1997, when White Cap
converted to C Corporation status and recorded a tax benefit of
approximately $500,000 to establish net deferred tax assets.
(c) Represents total stockholders' equity divided by the number of shares
outstanding at the balance sheet date.
(d) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, the amortization of debt issue
costs and that portion of operating rental expense representative of the
interest factor.
(e) For the purpose of determining the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes
and fixed charges. Fixed charges consist of interest on indebtedness, the
amortization of debt issue costs and that portion of operating rental
expense representative of the interest factor. Preferred stock dividends are
also included in the pro forma fixed charge amounts. Preferred stock
dividends have been "grossed up" to a pre-income tax basis to provide
comparability to other components of the ratio.
51
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
We have provided on the following pages the unaudited pro forma condensed
consolidated financial statements of White Cap Industries, Inc., which have been
derived by the application of pro forma adjustments to White Cap's historical
consolidated financial statements incorporated by reference in this proxy
statement. The pro forma condensed consolidated balance sheets give effect to
the merger and related transactions, including the merger financing, redemption
of certain outstanding shares, settlement of outstanding stock options and
payment of estimated fees and costs, as if such transactions had occurred as of
March 27, 1999 and June 26, 1999. The pro forma condensed consolidated
statements of income for the periods presented give effect to the merger and
related transactions as if such transactions were consummated as of April 1,
1998 for the fiscal year ended March 27, 1999 and for the fiscal quarter ended
June 26, 1999. The adjustments are described in the accompanying notes. You
should not consider the pro forma condensed consolidated financial statements
indicative of actual results that would have been achieved had the merger and
related transactions been consummated on the date or for the periods indicated
and these financial statements do not purport to indicate balance sheet data or
results of operations as of or for any future period. You should read this data
in conjunction with White Cap's historical financial statements and the notes to
such statements incorporated in this proxy statement by reference. See
"Incorporation By Reference" on page 62.
We applied the pro forma adjustments to the respective historical
consolidated financial statements to reflect the accounting for the merger as a
recapitalization. Accordingly, the historical bases of White Cap's assets and
liabilities have not been impacted by the transaction.
52
<PAGE>
WHITE CAP INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 26, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents..................................................... $ 1,174 $ --(a) $ 1,174
Accounts receivable, net...................................................... 49,729 -- 49,729
Inventories................................................................... 49,824 -- 49,824
Prepaid expenses and other.................................................... 1,172 -- 1,172
Deferred income taxes......................................................... 2,553 3,757(b) 6,310
---------- ----------
104,452 108,209
Property and equipment, net................................................... 13,034 -- 13,034
Rental equipment, net......................................................... 6,031 -- 6,031
Intangible and other assets, net.............................................. 56,873 11,562(c) 68,435
---------- ----------
$ 180,390 $ 195,709
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Current portion of long-term debt............................................. $ 703 $ 5,361(a) $ 6,064
Accounts payable.............................................................. 32,848 -- 32,848
Accrued liabilities........................................................... 8,709 -- 8,709
---------- ----------
42,260 47,621
Long-term debt, net of current portion.......................................... 54,029 (51,400)(a) 2,629
Senior subordinated notes....................................................... -- 120,000(a) 120,000
Senior discount debentures...................................................... -- 30,000(a) 30,000
Deferred income taxes........................................................... 2,329 -- 2,329
---------- ----------
Total liabilities........................................................... 56,358 154,958
Mandatorily redeemable preferred stock.......................................... -- 65,000 (a)(d 65,000
Total stockholders' equity (deficit)............................................ 81,772 (153,642)(d) (71,870)
---------- ----------
$ 180,390 $ 195,709
---------- ----------
---------- ----------
Book value (deficit) per common share(e).......................................... $ 7.62 $ (33.43)
---------- ----------
---------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheets
53
<PAGE>
WHITE CAP INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 27, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents..................................................... $ 1,994 $ --(a) $ 1,994
Accounts receivable, net...................................................... 42,434 -- 42,434
Inventories................................................................... 48,940 -- 48,940
Prepaid expenses and other.................................................... 1,200 -- 1,200
Deferred income taxes......................................................... 2,553 3,781(b) 6,334
---------- ----------
97,121 100,902
Property and equipment, net................................................... 12,806 -- 12,806
Rental equipment, net......................................................... 6,071 -- 6,071
Intangible and other assets, net.............................................. 57,194 11,500(c) 68,694
---------- ----------
$ 173,192 $ 188,473
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Current portion of long-term debt............................................. $ 707 $ 4,361(a) $ 5,068
Accounts payable.............................................................. 31,117 -- 31,117
Accrued liabilities........................................................... 7,328 -- 7,328
---------- ----------
39,152 43,513
Long-term debt, net of current portion.......................................... 52,965 (50,400)(a) 2,565
Senior subordinated notes....................................................... -- 120,000)(a) 120,000
Senior discount debentures...................................................... -- 30,000(a) 30,000
Deferred income taxes........................................................... 2,329 -- 2,329
---------- ----------
Total liabilities........................................................... 55,294 154,894
Mandatorily redeemable preferred stock.......................................... -- 65,000 (a)(d 65,000
Total stockholders' equity (deficit)............................................ 78,746 (153,680)(d) (74,934)
---------- ----------
$ 173,192 $ 188,473
---------- ----------
---------- ----------
Book value (deficit) per common share(e).......................................... $ 7.34 $ (34.85)
---------- ----------
---------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheets
54
<PAGE>
WHITE CAP INDUSTRIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The unaudited pro forma financial data has been derived by the application
of pro forma adjustments to White Cap's historical financial statements as of
the dates noted. The merger has been accounted for as a recapitalization which
will have no net impact on the historical bases of White Cap's assets and
liabilities.
(a) Sources and uses of cash are as follows:
<TABLE>
<CAPTION>
MARCH 27, JUNE 26,
1999 1999
---------- ----------
<S> <C> <C>
SOURCES OF CASH:
Proceeds from new revolving credit facility....................................... $ 4,361 $ 5,361
Proceeds from issuance of senior subordinated notes............................... 120,000 120,000
Proceeds from issuance of senior discount debentures.............................. 30,000 30,000
Proceeds from issuance of preferred stock--Green Equity Investors III, L.P........ 54,633 54,633
Proceeds from issuance of common stock--Green Equity Investors III, L.P........... 29,838 29,838
---------- ----------
$ 238,832 $ 239,832
---------- ----------
---------- ----------
USES OF CASH:
Redemption of outstanding common shares........................................... $ 160,947 $ 160,947
Redemption of outstanding common stock options.................................... 8,679 8,679
Redemption of preferred stock and other........................................... 1,306 1,306
Repayment of existing revolving credit facility................................... 50,400 51,400
Payment of fees and expenses...................................................... 17,500 17,500
---------- ----------
$ 238,832 $ 239,832
---------- ----------
---------- ----------
</TABLE>
(b) This adjustment represents the estimated tax benefit received by White Cap
on the settlement of stock options and the write-off of certain unamortized
debt issuance costs upon repayment of the existing revolving credit
facility in connection with the transaction.
(c) This adjustment represents the portion of the estimated transaction fees
and costs attributable to the Revolving Credit Facility, Senior
Subordinated Notes and Senior Discount Debentures which will be amortized
over the life of the related debt. Such estimated deferred debt issuance
costs include estimated fees and costs payable to banks, underwriters,
outside professionals and related advisors. This adjustment also reflects
the write-off of certain unamortized debt issuance costs related to the
existing revolving credit facility to be repaid in connection with the
transaction.
(d) This adjustment represents the net change in equity resulting from the
merger as follows:
<TABLE>
<CAPTION>
MARCH 27, JUNE 26,
1999 1999
----------- -----------
<S> <C> <C>
Redemption of shares of common stock............................................ $ (160,947) $ (160,947)
Rollover of management common shares to preferred shares........................ (10,367) (10,367)
Issuance of shares of common stock to Green Equity Investors III, L.P........... 29,838 29,838
Estimated transaction fees and costs............................................ (5,107) (5,107)
Settlement of stock options, net of tax benefit of $3,428....................... (5,251) (5,251)
Write-off of unamortized deferred financing costs, net of tax benefit........... (540) (502)
Redemption of preferred stock and other......................................... (1,306) (1,306)
----------- -----------
$ (153,680) $ (153,642)
----------- -----------
----------- -----------
</TABLE>
(e) Represents total stockholders' equity divided by the number of shares
outstanding at the balance sheet date.
55
<PAGE>
WHITE CAP INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 27, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AND RATIO DATA
<S> <C> <C> <C>
Net sales........................................................................ $ 292,313 $ -- $ 292,313
Cost of sales.................................................................... 196,411 -- 196,411
----------- -------- ----------
Gross profit................................................................... 95,902 -- 95,902
Selling, general & administrative................................................ 75,270 1,000 (a)(b 76,270
----------- -------- ----------
Income from operations......................................................... 20,632 (1,000) 19,632
Interest expense, net............................................................ 3,835 16,367(c) 20,202
----------- -------- ----------
Income (loss) before income taxes.............................................. 16,797 (17,367) (570)
Income tax provision (benefit)................................................... 6,644 (6,877)(d) (233)
----------- -------- ----------
Net income (loss).............................................................. $ 10,153 $ (10,490) $ (337)
----------- -------- ----------
----------- -------- ----------
Basic income (loss) per share:
Income (loss) per share........................................................ $ 0.95 $ (3.29)(g)
Basic weighted average shares outstanding(e)................................... 10,656(f) 2,081
Diluted income (loss) per share:
Income (loss) per share........................................................ $ 0.91 $ (3.29)(g)
Diluted weighted average shares outstanding.................................... 11,106(f) 2,081
Ratio of earnings to fixed charges(h).......................................... 4.08x
-----------
-----------
Deficiency in earnings to cover fixed charges(h)................................. $ (570)
----------
----------
Deficiency in earnings to cover fixed charges and preferred dividends(i)......... $ (11,314)
----------
----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
56
<PAGE>
WHITE CAP INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 26, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C>
Net sales........................................................................ $ 80,515 $ -- $ 80,515
Cost of sales.................................................................... 54,130 -- 54,130
----------- -------- ----------
Gross profit................................................................... 26,385 -- 26,385
Selling, general & administrative................................................ 20,405 250 (a)(b 20,655
----------- -------- ----------
Income from operations......................................................... 5,980 (250) 5,730
Interest expense, net............................................................ 1,019 4,079(c) 5,098
----------- -------- ----------
Income before income taxes..................................................... 4,961 (4,329) 632
Income tax provision............................................................. 1,960 (1,710)(d) 250
----------- -------- ----------
Net income..................................................................... $ 3,001 $ (2,619) $ 382
----------- -------- ----------
----------- -------- ----------
Basic income (loss) per share:
Income (loss) per share........................................................ $ 0.28 $ (0.58)(g)
Basic weighted average shares outstanding(e)................................... 10,724(f) 2,149
Diluted income (loss) per share:
Income (loss) per share........................................................ $ 0.27 $ (0.58)(g)
Diluted weighted average shares outstanding.................................... 11,193(f) 2,149
Ratio of earnings to fixed charges(h)............................................ 4.29x 1.11x
----------- ----------
----------- ----------
Deficiency in earnings to cover fixed charges and preferred dividends(i)......... $ (2,054)
----------
----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
57
<PAGE>
WHITE CAP INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The unaudited pro forma financial data has been derived by the application of
pro forma adjustments to White Cap's historical financial statements for the
periods noted. The merger has been accounted for as a recapitalization which
will have no net impact on the historical bases of White Cap's assets and
liabilities.
(a) This adjustment represents an annual management fee to be paid to Leonard
Green & Partners, L.P., an affiliate of Green Equity Investors III, L.P.
(b) Upon completion of the transaction, all stock options outstanding will be
cancelled and converted to the right to receive a cash payment equal to the
excess of $16.50 over the exercise price per share. This payment of
approximately $8.7 million will be reflected as an expense to White Cap in
the period the merger is effected and has not been included in the pro forma
adjustment to the statements of operations. The tax benefit for this charge
is expected to be approximately $3.4 million, resulting in a net charge to
earnings of approximately $5.3 million.
The pro forma net loss also excludes an extraordinary loss of $540 (net of
income tax benefit of $291) for the write-off of deferred financing costs
related to an existing credit facility that will be repaid upon completion
of the transaction.
(c) The pro forma adjustment to interest expense for the periods presented
reflects a reduction for interest expense related to debt repaid; interest
expense, unused facility fee and administrative fees on the revolving credit
facility; interest expense on the senior subordinated notes; interest
expense on the senior discount debentures; and amortization of deferred debt
issuance costs.
The interest above is based upon a weighted average rate of 11.2% for the
year ended March 31, 1999 and for the three months ended June 26, 1999.
The deferred debt issuance costs reflect direct estimated costs associated
with obtaining the debt financing. These amounts are being amortized on a
straight-line basis over the estimated lives of 5, 10 and 11 years for the
revolving credit facility, senior subordinated notes and the senior discount
debentures, respectively.
Because the majority of the debt to be issued will bear fixed interest rates,
the impact of a change in the respective interest rates would not materially
impact the pro forma interest expense, pro forma net income (loss) or pro
forma net income (loss) per share.
(d) This adjustment represents the tax effect of the pro forma adjustment using
an effective tax rate of 39.6% for the year ended March 27, 1999 and 39.5%
for the three months ended June 26, 1999.
(e) The change in the number of basic shares used in computing earnings per
share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 27, 1999 JUNE 26, 1999
-------------- -------------
<S> <C> <C>
Historical shares outstanding prior to transaction........................ 10,656 10,724
Issuance of new shares to Green........................................... 1,808 1,808
Reduction in shares in connection with transaction........................ (10,383) (10,383)
------- -------------
Pro forma shares outstanding after the transaction........................ 2,081 2,149
------- -------------
------- -------------
</TABLE>
58
<PAGE>
WHITE CAP INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(f) The number of shares used in computing historical earnings per share is as
follows:
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL THREE MONTHS
YEAR ENDED ENDED
MARCH 27, 1999 JUNE 26, 1999
--------------- -------------
<S> <C> <C>
Basic shares outstanding.................................................. 10,656 10,724
Options................................................................... 450 469
------ ------
Diluted shares outstanding................................................ 11,106 11,193
------ ------
------ ------
</TABLE>
(g) The net (loss) income available to common shareholders on a pro forma basis
is determined as follows:
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THREE MONTHS
YEAR ENDED ENDED
MARCH 27, 1999 JUNE 26, 1999
--------------- -------------
<S> <C> <C>
Net (loss) income......................................................... (337) 382
Preferred stock dividends................................................. (6,500) (1,625)
------ ------
Loss available to common shareholders..................................... (6,837) (1,243)
------ ------
------ ------
</TABLE>
(h) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, the amortization of debt issue
costs and that portion of operating rental expense representative of the
interest factor. The deficiency amount represents the amount of additional
earnings necessary for a ratio of 1.00x.
(i) For the purpose of determining the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes
and fixed charges. Fixed charges consist of interest on indebtedness, the
amortization of debt issue costs and that portion of operating rental
expense representative of the interest factor. Preferred stock dividends are
also included in the pro forma fixed charge amounts. Preferred stock
dividends have been "grossed up" to a pre-income tax basis to provide
comparability to other components of the ratio. The deficiency amount
represents the amount of additional earnings necessary for a ratio of 1.00x.
59
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We make forward-looking statements in this document that are subject to
risks and uncertainties. These forward-looking statements include information
about possible or assumed future results of our financial condition, operations,
plans, objectives and performance. Information included in oral statements or
other written statements made or to be made by us also contains statements that
are forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
these results may differ from those expressed in any forward-looking statements
made by or on behalf of White Cap. These risks and uncertainties include, but
are not limited to, those relating to domestic economic conditions, activities
of competitors, changes in federal or state tax laws and of the administration
of such laws and the general condition of the economy and its effect on the
securities market.
GENERAL
We generate our revenues by providing a wide variety of specialty tools and
construction materials to professional contractors. We are executing an
aggressive acquisition strategy by acquiring companies in related lines of
business. These acquisitions may change our products, product mix and operating
margins. While our management strategy, operating efficiencies and economies of
scale may present opportunities to reduce costs, such benefits may be partially
or completely offset by the cost of integration such as transitional, management
and administrative costs. As a result, historical operating figures may not be
indicative of future performance. In connection with our rapid expansion, we
expect to focus significant attention and resources on technological investments
that will increase productivity.
Our aggressive strategy has involved, and is expected to continue to
involve, the acquisition of companies in related lines of business. Acquisitions
may involve a number of special risks that could have a harmful effect on our
operations and financial performance, including adverse short-term effects on
our reported operating results; diversion of management's attention;
difficulties with the retention, hiring and training of key personnel; risks
associated with unanticipated problems or legal liabilities; and amortization of
acquired intangible assets.
Our business is subject to seasonal fluctuations. Our historical revenues
and profitability have been highest in the second fiscal quarter and lower in
the fourth quarter of its fiscal year. As our mix of businesses evolves through
future acquisitions, those seasonal fluctuations may change. In addition, the
timing and magnitude of costs related to such acquisitions, variations in the
prices we paid for the products we sell, the mix of products sold, weather and
general economic conditions may effect the quarterly results. Therefore, results
for any quarter do not necessarily indicate the results that we may achieve for
any subsequent fiscal quarter or for a full fiscal year.
This discussion and analysis of our results of operations and financial
condition should be read in conjunction with our consolidated financial
statements and the notes thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 26, 1999 COMPARED TO
THREE MONTHS ENDED JUNE 27, 1998
NET SALES. Net sales for the three months ended June 26, 1999, or the first
quarter of 1999, increased $11.9 million, or 17%, to $80.5 million compared to
$68.6 million for the three months ended June 27, 1998 ("first quarter 1998").
The growth in net sales compared to the prior year resulted from
60
<PAGE>
a 9% increase in same store sales, the expansion of product lines, the opening
of two new stores, and the acquisitions of Watts, Nyco, and Sun City.
GROSS PROFIT. Gross profit for the first quarter 1999 increased $4.3
million, or 20%, to $26.4 million compared to $22.1 million for the first
quarter 1998. The increase in gross profit resulted from increased net sales and
higher gross profit margins. The gross profit margin for the first quarter of
1999 was 32.8% compared to 32.2% for the first quarter of 1998. The higher gross
profit margin over the prior year resulted primarily from a change in product
mix and early payment discounts, partially offset by a decrease in rental
business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. These expenses increased $3.5
million or 21%, to $20.4 million for the first quarter 1999 compared to $16.9
million for the first quarter 1998. As a percent of sales, selling, general and
administrative expenses were 25.3% for the first quarter 1999 and 24.6% for the
first quarter of 1998.
Selling expenses increased $2.9 million, or 21%, to $16.6 million for the
first quarter 1999 from $13.7 million for the first quarter 1998. The following
factors contributed to this increase: the opening of two new branches, the
expansion of one branch, the remodeling of two branches, increased commissions
to the outside sales force due to the sales growth, and increased costs of
customer service, principally the addition of transportation, communication, and
branch personnel costs. Selling expenses as a percent of net sales for the first
quarter 1999 were 20.6% compared to 20.0% for the first quarter 1998.
General and administrative expenses increased $0.7 million, or 21%, to $3.8
million for the first quarter 1999 from $3.2 million for the first quarter 1998.
The increase in general and administrative expenses resulted primarily from
increased labor and administration costs to process and support the increased
sales volume. General and administrative expenses as a percentage of net sales
for the first quarter 1999 were 4.7%, as compared to 4.6% for the first quarter
1998. Exclusive of the effects of goodwill and covenant not to compete,
amortization of $0.5 million in the first quarter 1999 and $0.4 million in the
first quarter 1998, general and administrative expenses increased 22%.
INCOME FROM OPERATIONS. Income from operations for the first quarter 1999
increased $0.8 million, or 15%, to $6.0 million compared to $5.2 million for the
first quarter 1998. The increase in operating income for the first quarter 1999
compared to the first quarter 1998 primarily resulted from the increase in sales
and gross profit margin as a percent of sales, offset, in part, by the increase
in selling expenses as a percent of sales.
INTEREST EXPENSE, NET. Interest expense, net of interest income, increased
$0.1 million, or 16%, to $1.0 million in the first quarter 1999 from $0.9
million in the first quarter 1998. The increase in interest expense resulted
primarily from increased borrowing to obtain early payment discounts from
vendors.
NET INCOME. Net income for the first quarter 1999 was $3.0 million compared
to net income of $2.6 million for the first quarter 1998. This increase reflects
the cumulative effects of the increase in gross profit offset, in part, by the
increase in selling, general and administrative expenses, interest, and income
taxes.
FISCAL YEAR ENDED MARCH 27, 1999 COMPARED TO
THE FISCAL YEAR ENDED MARCH 31, 1998
NET SALES. Net sales for the fiscal year ended March 27, 1999 increased
$105.6 million, or approximately 57%, to $292.3 million compared to $186.7
million for the fiscal year ended March 31, 1998. The growth in net sales
compared to the prior year resulted primarily from a 13% increase in same store
sales, the expansion of product lines and the acquisition of Stop Supply, Viking
Distributing, Burke Concrete, JEF Supply, Sierra Supply, CCS Supply, Watts,
Nyco, and Sun City.
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<PAGE>
GROSS PROFIT. Gross profit for the fiscal year ended March 27, 1999
increased $35.9 million, or approximately 60%, to $95.9 million compared to
$60.0 million for the fiscal year ended March 31, 1998. The increase in gross
profit resulted from increased net sales and higher gross profit margins. The
gross profit margin was 32.8% for the fiscal year ended March 27, 1999 compared
to 32.1% for the fiscal year ended March 31, 1998. The higher gross margin
compared to the prior year resulted primarily from a change in product mix, an
increase in rental business obtained through acquisitions, early payment
discounts, and improved purchasing and rebate programs negotiated with vendors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the fiscal year ended March 27, 1999 increased $26.0
million, or approximately 53%, to $75.3 million compared to $49.3 million for
the fiscal year ended March 31, 1998. As a percent of sales, these expenses
decreased to 25.8% for the fiscal year ended March 27, 1999 compared to 26.4%
for the fiscal year ended March 31, 1998.
Selling expenses increased $23.2 million, or approximately 60%, to $61.8
million for the fiscal year ended March 27, 1999 from $38.6 million for the
fiscal year ended March 31, 1998. The increase resulted from the opening of
three new branches, the expansion of five branches, the remodeling of seven
branches, increased advertising, increased travel and transportation costs
associated with geographic expansion, increased commissions to the outside sales
force due to sales growth, and increased costs of customer service, principally
the addition of branch personnel. Selling expenses as a percent of net sales for
the fiscal year ended March 27, 1999 were 21.1% compared to 20.7% for the fiscal
year ended March 31, 1998.
General and administrative expenses increased $2.8 million, or approximately
26%, to $13.5 million for the fiscal year ended March 27, 1999 from $10.7
million for the fiscal year ended March 31, 1998. General and administrative
expenses as a percent of net sales for the fiscal year ended March 27, 1999 were
4.6% compared to 5.7% for the fiscal year ended March 31, 1998. Net of the
effect of goodwill and covenant not to compete charges, general and
administrative expenses as a percent of net sales for the fiscal year ended
March 27, 1999 were 4.0%, compared to 5.2% for the fiscal year ended March 31,
1998. The decrease in general and administrative expenses as a percent of net
sales resulted primarily from the increase in net sales and the elimination of
duplicate costs from acquired businesses.
INCOME FROM OPERATIONS. Income from operations for the fiscal year ended
March 27, 1999 increased $11.3 million, or approximately 122%, to $20.6 million
compared to $9.3 million for the fiscal year ended March 31, 1998. The operating
margin was 7.1% for the fiscal year ended March 27, 1999 compared to 5.0% for
the fiscal year ended March 31, 1998.
Income from operations for the fiscal year ended March 31, 1998 included
$1.4 million of non-recurring charges related to a $1.0 million one-time
guaranteed bonus and approximately $0.4 million of severance and contract
termination payments. Excluding the non-recurring charges, operating income was
$10.7 million or 5.7% as a percent of net sales for the fiscal year ended March
31, 1998. The increase in operating margin for the fiscal year ended March 27,
1999 compared to the fiscal year ended March 31, 1998, exclusive of the
non-recurring charges, resulted primarily from the reduction in selling, general
and administrative expenses as a percent of net sales and the increase in gross
margin.
INTEREST EXPENSE, NET. Interest expense, net of interest income, decreased
$0.7 million, or approximately 15%, to $3.8 million for the fiscal year ended
March 27, 1999 from $4.5 million for the fiscal year ended March 31, 1998. This
decrease resulted from a reduction of outstanding debt as a result of White
Cap's initial public offering which is partially offset by increased borrowings
to fund acquisitions and early payment discounts from vendors. Additionally,
White Cap entered into a new credit facility in October 1997 which substantially
reduced White Cap's interest rate.
NET INCOME. Net income increased $13.3 million, to $10.2 million for the
fiscal year ended March 27, 1999 compared to a net loss of $3.2 million for the
fiscal year ended March 31, 1998. The
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<PAGE>
increase resulted primarily from extraordinary and non-recurring charges
totaling $7.4 million for the fiscal year ended March 31, 1998 as well as the
cumulative effects of the increase in gross profit and the decrease in interest
expense partially offset by increased selling, general and administrative
expenses.
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO
THE FISCAL YEAR ENDED MARCH 31, 1997
NET SALES. Net sales for the fiscal year ended March 31, 1998 increased
$84.9 million, or approximately 83%, to $186.7 million compared to $101.8
million for the fiscal year ended March 31, 1997. The growth in net sales for
the fiscal year ended March 31, 1998 was the result of a 18.2% increase in same
store sales, the expansion of product lines and the acquisition of A-Y Supply,
Stop Supply, Viking Distributing, Burke Concrete Accessories, and JEF Supply.
GROSS PROFIT. Gross profit for the fiscal year ended March 31, 1998
increased $28.0 million, or approximately 88%, to $60.0 million compared to
$32.0 million for the fiscal year ended March 31, 1997. The increase in gross
profit resulted from increased net sales and higher gross profit margins. The
gross margin was 32.1% for the fiscal year ended March 31, 1998 compared to
31.4% for the fiscal year ended March 31, 1997. This margin improvement resulted
from the increase in rental business obtained through acquisitions and improved
purchasing and rebate programs negotiated with vendors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the fiscal year ended March 31, 1998 increased $21.9
million, or approximately 80%, to $49.3 million compared to $27.4 million for
the fiscal year ended March 31, 1997. Net of the effect of goodwill and covenant
not to compete charges, these expenses increased 77.3%. As a percent of sales,
these expenses decreased to 26.4% for the fiscal year ended March 31, 1998
versus 26.9% for the fiscal year ended March 31, 1997.
Selling expenses increased $17.7 million, or approximately 85%, to $38.6
million in the fiscal year ended March 31, 1998 from $20.9 million for the
fiscal year ended March 31, 1997. The increase resulted from increased
advertising and commissions to the outside sales force to support the sales
growth, increased costs of customer service, principally the addition of branch
personnel and training costs related to branch computer system conversions.
Selling expenses as a percent of net sales for the fiscal year ended March 31,
1998 was 20.7%, as compared to 20.5% for the fiscal year ended March 31, 1997.
General and administrative expenses increased $4.3 million, or approximately
67%, to $10.7 million for the fiscal year ended March 31, 1998 from $6.4 million
for the fiscal year ended March 31, 1997. Net of the effect of goodwill and
covenant not to compete charges, general and administrative expenses increased
53.7%. General and administrative expenses as a percentage of net sales for the
fiscal year ended March 31, 1998 was 5.7%, as compared to 6.3% for the fiscal
year ended March 31, 1997. The decrease in general and administrative expenses
as a percentage of sales resulted primarily from the increase in sales and the
elimination of duplicative overhead costs from acquired businesses.
NON-RECURRING CHARGES. White Cap recorded $1.4 million of non-recurring
charges during the fiscal year ended March 31, 1998. These charges included a
$1.0 million one-time guaranteed bonus and approximately $0.4 million of
severance and contract termination payments.
INCOME FROM OPERATIONS. Exclusive of the above non-recurring charges,
income from operations for the fiscal year ended March 31, 1998 increased $6.0
million, or approximately 128%, to $10.7 million compared to $4.7 million for
the fiscal year ended March 31, 1997. The operating margin, derived by dividing
operating income by net sales, was 5.7% for the fiscal year ended March 31, 1998
compared to 4.6% for the fiscal year ended March 31, 1997. The increase in
operating margin for the fiscal year ended March 31, 1998 compared to the fiscal
year ended March 31, 1997 resulted primarily
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<PAGE>
from the reduction in selling, general and administrative expense as a
percentage of sales and the increase in gross profit margins.
INTEREST EXPENSE, NET. Interest expense, net of interest income, increased
$2.2 million, or approximately 96%, to $4.5 million in the fiscal year ended
March 31, 1998 from $2.3 million for the fiscal year ended March 31, 1997. This
increase resulted primarily from the debt associated with the recently acquired
businesses.
EXTRAORDINARY ITEM. In connection with our initial public offering, we paid
off most of our outstanding debt. The payoff of debt resulted in prepayment
penalties of approximately $7.9 million, the write-off of deferred loan fees of
approximately $1.6 million and the incurrence of imputed interest charges of
approximately $0.3 million, net of a tax benefit of approximately $3.8 million.
NET INCOME (LOSS). Net income decreased $6.0 million, to a net loss of $3.2
million for the fiscal year ended March 31, 1998 compared to net income of $2.8
million for the fiscal year ended March 31, 1997. The decrease in net income
resulted primarily from one-time charges of $6.0 million associated with the
White Cap's prepayment of debt, including a tax benefit of approximately $3.8
million. In February of 1997, White Cap converted from an S Corporation to a C
Corporation for both federal and state purposes. At March 31, 1998, White Cap
had approximately $3.0 million in net operating loss carry forwards available to
offset future taxable income.
QUARTERLY RESULTS OF OPERATIONS; SEASONALITY
The following table sets forth certain unaudited quarterly consolidated
financial data for each of the eight consecutive quarters beginning July 1,
1997. This information was derived from unaudited consolidated financial
statements that include, in our opinion, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation when read in
conjunction with our consolidated financial statements and the notes to the
statements included elsewhere in this proxy statement. In the contractor supply
industry, seasonality generally affects quarterly sales performance.
Historically, our 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 results primarily from uncontrollable
weather conditions and a somewhat predictable annual construction cycle. We
manage the impact of seasonality trends by focusing on such critical issues as
staffing requirements and trends in inventory turns.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31 JUNE 27, SEPT. 26, DEC. 26 MAR. 27, JUNE 26,
1997 1997(B) 1998(C) 1998(D) 1998 1998(E) 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................ $ 48,695 $ 50,303 $ 50,418 $ 68,637 $ 79,401 $ 73,813 $ 70,462 80,515
Gross Profit............. 15,536 16,624 16,344 22,074 25,926 24,810 23,092 26,385
Income from operations... 3,806 1,773 1,659 5,192 6,595 5,109 3,733 5,980
Net income (loss)........ 1,152 (5,462) 741 2,604 3,401 2,509 1,639 3,001
Diluted earnings per
share.................. 0.17 (0.56) 0.07 0.23 0.31 0.23 0.14 0.27
</TABLE>
- - - ------------------------
(a) Includes the result of operations for Burke Concrete, which was acquired
effective November 1, 1997.
(b) Includes the result of operations for JEF Supply, which was acquired
effective February 1, 1998.
(c) Includes the result of operations for Sierra Supply and CCS Supply,
effective April 1, 1998, and Watts and Nyco, effective May 1, 1998.
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<PAGE>
(d) Includes the result of operations for Sun City, which was acquired effective
December 14, 1998.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES. At June 26, 1999, we had cash in the
amount of $1.2 million and working capital of $62.2 million. Our capitalization,
defined as the sum of long-term debt and stockholders' equity, at June 26, 1999,
was approximately $135.8 million.
Our sales growth, acquisitions, facilities and product line expansion have
created our primary capital needs. Cash from operations and bank borrowings
under our revolving and term credit facility have been our primary sources of
financing. In prior years, in addition to the above sources, we accessed
financing through senior and subordinated debt, the sale of preferred equity,
and proceeds from the initial public offering.
We expect our current cash on hand, cash flow from operations and additional
financing available under the credit facility to be sufficient to meet our
liquidity requirements for our operations through the remainder of the fiscal
year ended March 25, 2000. However, we intend to continue our current pursuit of
additional acquisitions, which we expect to fund through a combination of cash
and common stock. We cannot be sure that we will not need additional sources of
financing during the next twelve months or thereafter to fund our acquisition
program. Accordingly, we continuously evaluate our financing capabilities based
on changing market conditions and opportunities.
Our business is subject to seasonal fluctuations. Our historical revenues
and profitability have been lower in the last two quarters of its fiscal year.
As our mix of businesses evolves through future acquisitions, those seasonal
fluctuations may change. In addition, quarterly results also may be materially
affected by the timing of acquisitions, the timing and magnitude of costs
related to such acquisitions, variations in the prices paid by us for the
products it sells, the mix of products we sell, and general or regional economic
conditions. Therefore, results for any quarter do not necessarily predict the
results that we may achieve for any subsequent fiscal quarter or for a full
fiscal year.
YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. As the century date change occurs, these programs may recognize
the year 2000 as 1900, or not at all. If not corrected, computer systems and
applications could fail or create erroneous results by or at the year 2000.
We have developed plans to address possible exposures to us related to the
impact of the year 2000 issue on each of its internal systems and those of third
parties. We expect to implement these plans primarily with the use of internal
personnel.
Our internal systems consist of central operating and accounting systems,
which handle the majority of our business transactions, and other remote
operating systems, which have resulted from our acquisition program. Plans to
address the year 2000 issue with respect to our internal systems include an
assessment phase, a remediation phase and a testing phase.
We have completed an assessment of our central operating and accounting
systems. This assessment resulted in the identification of certain modifications
which were necessary to bring these systems into year 2000 compliance. We made
these modifications, and they are in the final testing phase. Final testing,
along with any further remediation efforts necessary to ensure year 2000
compliance, is scheduled for completion in fiscal 1999. Based on the results of
initial testing, with respect to these two systems, we do not expect the year
2000 issue to materially impact the operations or operating results of our
central operating and accounting system.
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<PAGE>
An assessment of our two remote operating systems in place as of March 27,
1999 is also complete. One of these systems is not year 2000 compliant. However,
we expect to convert this system to our central operating and accounting
systems. The remediation and testing phases for this remote operating system is
expected to be completed by September 30, 1999.
Management estimates total pretax costs relating to the year 2000 issue to
be approximately $300,000. Approximately 75% of these costs were incurred
through June 26, 1999 and the remaining costs are expected to be incurred
through March 2000. The estimate of $300,000 excludes costs of converting remote
operating systems to our central operating and accounting systems, because such
costs are not expected to be material or the conversion is scheduled to be
performed as part of our normal integration activities.
We believe our planning efforts are adequate to address the year 2000 issue
and that our greatest risks in this area are primarily those that we cannot
directly control, including the readiness of our major suppliers, customers and
service providers. If any of these entities fails to timely remediate their year
2000 issues, there could be disruptions in our supply of materials, our
customers' ability to conduct business and interruptions to our daily
operations. Management believes that our exposure to third party risk may be
minimized to some extent because we do not rely significantly on any one
supplier or customer. We cannot guarantee, however, that the systems of other
third parties on which our systems and operations rely will be corrected on a
timely basis and will not have a harmful effect on us.
Over the past year, we have been contacting our major suppliers, customers
and service providers regarding their year 2000 issues. However, we do not
currently have adequate information to assess the risk of these entities not
being able to provide goods and services to us. Because we believe this area is
among our greatest risks, as information is received and evaluated, we intend to
develop contingency plans as we deem necessary to safeguard our ongoing
operations. These plans may include identifying alternate suppliers or service
providers, stockpiling certain inventories if alternative suppliers are not
available, evaluating the impact and credit worthiness of non-compliant
customers and adding lending capacity if we deem this necessary to finance
higher levels of inventory or working capital on an interim basis.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 requires all derivatives to be
carried on the balance sheet at fair value. Changes in the fair value of
derivatives must be recognized in White Cap's Consolidated Statements of
Operations when they occur. However, there is an exception for derivatives that
qualify as hedges as defined by SFAS No. 133. If a derivative qualifies as a
hedge, a company can elect to use "hedge accounting" to eliminate or reduce the
income statement volatility that would arise from reporting changes in a
derivative's fair value. Adoption of SFAS No. 133 is not expected to materially
impact our reported financial results.
In March 1998, the American Institute of Certified Public Accounts issued
STATEMENT OF POSITION 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED FOR OR OBTAINED FOR INTERNAL USE. SOP No. 98-1 is effective for
companies beginning on January 1, 1999. SOP No. 98-1 requires the capitalization
of certain costs and the expensing of certain costs incurred after the date of
adoption in connection with developing or obtaining software. The adoption of
this statement at the beginning of the fiscal year should not have a material
effect on White Cap's future earnings and financial position.
In April 1998, the American Institute of Certified Public Accounts issued
STATEMENT OF POSITION 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP
No. 98-5." SOP No. 98-5 is effective for fiscal years ended after December 15,
1998. SOP No. 98-5 requires costs of start-up activities and organization costs
to be expensed as incurred. Non-capital expenditures incurred in connection with
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<PAGE>
opening new branches are expensed as incurred under White Cap's current policy
which conforms with SOP No. 98-5.
IMPACT OF INFLATION AND CHANGING PRICES
Although we cannot accurately determine the precise effect of inflation on
our operations, we do not believe inflation has had a material effect on sales
or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
long-term and short-term debt. Currently, we do not utilize interest rate swaps,
forward or option contracts on foreign currencies or commodities, or other types
of derivative financial instruments. The purpose of the following analysis is to
provide a framework to understand our sensitivity to hypothetical changes in
interest rates as of June 26, 1999. You should be aware that many of the
statements contained in this section are forward-looking and should be read in
conjunction with our disclosures under the heading "Forward-Looking Statements."
We utilize debt financing primarily for the purpose of strategic
acquisitions. Historically, we have borrowed under our revolving credit and term
debt facilities to fund these acquisitions. Borrowings under these facilities
are at variable rates.
We also have fixed rate debt in the form of capitalized leases. For fixed
rate debt, changes in interest rates generally affect the fair market value of
the debt, but not earnings or cash flows. Conversely, for variable rate debt,
changes in interest rates generally do not influence the fair market value of
the debt, but do affect future earnings and cash flows. Holding the variable
rate debt balance constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in interest
expense for the coming year of approximately $514,000.
The table below details the principal amount and the average interest rates
for debt for each category based upon the expected maturity dates. The carrying
value of the variable rate senior loan and security agreement approximates fair
value due to the frequency of repricing of this debt. Fixed rate debt consists
of capital leases with interest rates that approximate current market rates with
similar terms and maturities, and as a result, their carrying amounts
approximate fair value.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
-------------------------------------------------------------------- FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
--------- --------- --------- --------- --------- ------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate notes payable.............. $ 703 $ 624 $ 400 $ 418 $ 451 $ 736 $ 3,332 $ 3,332
Average interest rate................. 8.05% 7.38% 8.35% 8.25% 8.25% 8.25%
Variable rate senior loan and security
agreement (1)....................... -- -- -- 51,400 -- -- 51,400 51,400
</TABLE>
- - - ------------------------
(1) The average interest rate for the variable rate senior loan and security
agreement is based on LIBOR contracts purchased as of June 26, 1999, which
ranged in interest rates from 5.9% to 8.5%.
We do not believe that the future market rate risks related to the above
securities will have a materially adverse impact on our financial position,
results of operations or liquidity.
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<PAGE>
FORWARD LOOKING INFORMATION
We do not, as a matter of course, make public forecasts or projections as to
future financial results. However, in connection with the possible sale of the
company, our management prepared and provided to LGP, the independent directors,
DLJ, BancBoston Robertson Stephens and various financing sources projections for
fiscal years 2000 through 2005. See "The Merger--Financing."
We did not prepare these projections with a view to public disclosure or
compliance with published guidelines of the Securities and Exchange Commission
or the guidelines established by the American Institute of Certified Public
Accountants regarding projections. Our independent accountants, Arthur Andersen
LLP, have not performed any procedures with respect to the projections and
assume no responsibility for them. Neither White Cap, White Cap's board nor any
of White Cap's or the board's advisors, agents or representatives assumes any
responsibility for the accuracy of any of these projections and each believes
that, because projections of this type are based on a number of significant
uncertainties and contingencies, all of which are difficult to predict and most
of which will be beyond our control, it cannot assure you that any of these
projections will be realized. Nevertheless, we have no reason to doubt the
reasonableness of the assumptions underlying these projections.
We have presented below two sets of projections. Both sets of projections
are based upon a variety of assumptions, including our ability to achieve
strategic goals, objectives and targets over the applicable period. These
assumptions involve judgments with respect to future economic, competitive and
regulatory conditions, financial market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control.
The first set of projections incorporates the assumptions described above
and assume that we do not acquire any new businesses over the six year period
from 2000 to 2005. The second set of projections incorporates the assumptions
described above and also assumes that we pursue an aggressive acquisition
strategy over the six year period.
UNAUDITED PROJECTED INCOME STATEMENTS
(IN MILLIONS, ASSUMING NO ACQUISITIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH
2000 2001 2002 2003 2004 2005
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................................. $ 325.8 $ 363.2 $ 411.9 $ 472.3 $ 546.4 $ 633.8
Gross profit........................................... 107.8 120.0 135.6 155.0 178.9 207.5
Income from operations................................. 25.7 29.4 34.2 41.0 50.6 62.4
EBITDA(1).............................................. 30.6 34.2 39.3 46.3 56.2 68.9
</TABLE>
UNAUDITED PROJECTED INCOME STATEMENTS
(IN MILLIONS, ASSUMING ACQUISITIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH
2000 2001 2002 2003 2004 2005
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................................. $ 350.8 $ 443.2 $ 552.4 $ 679.4 $ 826.7 $ 992.0
Gross profit........................................... 116.6 148.0 184.8 227.5 277.0 332.4
Income from operations................................. 28.5 38.3 50.2 64.9 83.6 105.2
EBITDA(1).............................................. 33.9 44.9 58.0 74.1 94.0 117.8
</TABLE>
- - - ------------------------
(1) EBITDA means earnings before interest, taxes, depreciation and amortization.
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PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of White Cap's common stock as of August 13, 1999, by (i)
each person (or group of affiliated persons) who is known by White Cap to own
beneficially more than 5% of White Cap's common stock, (ii) each of White Cap's
directors and executive officers, and (iii) all directors and named executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF SHARES OF
COMMON COMMON STOCK
NAME STOCK BENEFICIALLY OWNED
- - - ----------------------------------------------------------- -------------- ---------------------
<S> <C> <C>
Greg Grosch................................................ 2,701,689(a) 25.2%
Dan Tsujioka............................................... 195,655(b) 1.8
Chris Lane................................................. 159,760(c) 1.5
Richard Gagnon............................................. 176,000(d) 1.6
Jack Karg.................................................. 16,377(e) *
Brian Etter................................................ 11,374(f) *
Mark M. King............................................... 938,994(g) 8.7
James A. Johnson........................................... 556,351(h) 5.2
Charles A. Hamilton........................................ 193,509(i) 1.8
Donald M. Koll............................................. 1,000(j) *
Douglas C. Jacobs.......................................... 1,000(j) *
Apex Investment Fund III, L.P. and
affiliate................................................ 556,351(h) 5.2
KRG Capital Partners, LLC.................................. 938,994(g) 8.7
Green Equity Investors III, L.P............................ 4,879,772(k) 45.5
All executive officers and
Directors as a Group (11 Persons)........................ 4,951,609 45.9
</TABLE>
- - - ------------------------
* Indicates less than 1%.
(a) Includes 269,967 shares held by trusts for the benefit of Mr. Grosch's
children and 2,000 shares subject to options owned by Mr. Grosch that are
currently exercisable or that will become exercisable within 60 days. Mr.
Grosch's business address is 3120 Airway Avenue, Costa Mesa, CA 92626.
(b) Includes 8,874 shares held by trusts for the benefit of Mr. Tsujioka's
children and 24,812 shares subject to options owned by Mr. Tsujioka that are
currently exercisable or that will become exercisable within 60 days. Mr.
Tsujioka's business address is 3120 Airway Avenue, Costa Mesa, CA 92626.
(c) Includes 21,750 shares held by Mr. Lane's wife and 2,000 shares subject to
options owned by Mr. Lane that are currently exercisable or that will become
exercisable within 60 days. Mr. Lane's business address is 3120 Airway
Avenue, Costa Mesa, CA 92626.
(d) Includes 2,000 shares subject to options owned by Mr. Gagnon that are
currently exercisable or that will become exercisable within 60 days. All of
the shares held by Mr. Gagnon were purchased from Mr. Grosch effective
February 25, 1997 but 69,600 of such shares remain subject to repurchase by
Mr. Grosch in the event Mr. Gagnon leaves the Company prior to February 25,
2001. 34,800 shares vest each year on February 25 and vested shares are no
longer subject to the repurchase right of Mr. Grosch. Mr. Gagnon's business
address is 3120 Airway Avenue, Costa Mesa, CA 92626.
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<PAGE>
(e) Includes 16,377 shares subject to options owned by Mr. Karg that are
currently exercisable or that will become exercisable within 60 days. Mr.
Karg's business address is 3120 Airway Avenue, Costa Mesa, CA 92626.
(f) Includes 10,874 shares subject to options owned by Mr. Etter that are
currently exercisable or that will become exercisable within 60 days. Mr.
Etter's business address is 3120 Airway Avenue, Costa Mesa, CA 92626.
(g) Includes 1,000 shares subject to options that are currently exercisable or
that will become exercisable within 60 days. Includes 937,994 shares held by
some 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 such 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 283,223
shares held directly by Mr. King, his wife, and a trust formed for the
benefit of their children. KRG Capital is located at 1515 Arapahoe Street,
Tower 1, Suite 1500, Denver, CO 80202. Mr. King's business address is 3120
Airway Avenue, Costa Mesa, CA 92626.
(h) Includes 515,778 shares held by Apex Investment Fund III, L.P. and 39,573
shares 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 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. Includes 1,000 shares subject to options that are
currently exercisable or that will become exercisable within 60 days. Apex
Management III, LLC is located at 233 South Wacker Drive, Suite 9500,
Chicago, IL 60606. Mr. Johnson's business address is 3120 Airway Avenue,
Costa Mesa, CA 92626.
(i) Includes 192,509 shares held by Bayview Investors, L.P. Mr. Hamilton was a
managing director of BancBoston Robertson Stephens, the general partner of
Bayview Investors, Ltd. Also includes 1,000 shares subject to options owned
by Mr. Hamilton that are currently exercisable or that will become
exercisable within 60 days. Mr. Hamilton's business address is 3120 Airway
Avenue, Costa Mesa, CA 92626.
(j) Includes 1,000 shares subject to options that are currently exercisable or
that will become exercisable within 60 days.
(k) Includes 4,879,772 shares beneficially held by WC Recapitalization Corp.
("WC"), an affiliate of Green, pursuant to a stockholders voting agreement
and irrevocable proxy which provides, among other things, that some
stockholders of White Cap holding in the aggregate 45.5% of the outstanding
common stock of White Cap agree to vote for the merger. The General Partner
of Green is GEI Capital III, LLC ("GEI"). LGP Management, Inc. ("LGPM") is
the general partner of Leonard Green & Partners, L.P. ("LGP"), which is an
affiliate of GEI and the management company of Green. As a result of their
relationship with Green, GEI, LGPM, WC and LGP each may be deemed to have
indirect beneficial ownership of the common stock with respect to which
Green has beneficial ownership. Each of GEI, LGPM and LGP disclaim
beneficial ownership of the common stock. The principal place of business of
each of Green, GEI, LGPM, WC and LGP is 11111 Santa Monica Boulevard, Suite
2000, Los Angeles, California 90025. Leonard I. Green, Jonathan D. Sokoloff,
John G. Danhakl, Gregory J. Annick, Peter J. Nolan and Jonathan A. Seiffer,
each may be deemed to control LGP and/or GEI. As such, Messrs. Green,
Sokoloff, Danhakl, Annick, Nolan and Seiffer may be deemed to have shared
beneficial ownership with respect to the common stock. However, such
individuals disclaim beneficial ownership of the common stock.
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CERTAIN INFORMATION CONCERNING LGP
The following information has been taken from a report on Schedule 13D
received by White Cap from LGP. LGP is an affiliate of Green, a Delaware limited
partnership that is the sole stockholder of WC. Green's general partner is GEI
Capital III, LLC, a Delaware limited liability company, or GEI. LGP Management,
Inc., a Delaware corporation we call LPGM, is the general partner of LGP, which
is an affiliate of GEI and the management company of Green. The principal place
of business of each of these entities is 11111 Santa Monica Boulevard, Suite
2000, Los Angeles, California 90025. Green is an investment partnership. Leonard
I. Green, Jonathan D. Sokoloff, John G. Danhakl, Gregory J. Annick, Peter J.
Nolan and Jonathan A. Seiffer, either directly or through one or more
intermediaries, may be deemed to control LGP and/or GEI.
PROXY SOLICITATION
We will pay all expenses incurred in connection with solicitation of the
enclosed proxy. In addition to solicitation by mail, our officers, directors and
regular employees, who will receive no additional compensation for their
services, may solicit proxies by mail, telephone, telegraph or personal call. In
addition, we have retained American Stock Transfer Corporation to solicit
proxies. We have requested brokers and nominees who hold stock in their names to
furnish this proxy material to their customers and we will reimburse such
brokers and nominees for their related out-of-pocket expenses.
STOCKHOLDER PROPOSALS
If the merger is not completed, we expect to hold our annual meeting of
stockholders in October, 1999. If you are a stockholder with a proposal that you
want to be presented at the 1999 annual meeting of stockholders, you must have
submitted your proposal, by registered or certified mail, to the attention of
our Secretary at our principal executive offices by April 28, 1999 in order for
us to consider your proposal for inclusion in our proxy statement and form of
proxy for the 1999 annual meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets as of March 31, 1998 and March 27, 1999, and
the related consolidated statements of income and cash flows for each of the
three fiscal years in the period ended March 27, 1999, incorporated by reference
in this proxy statement, have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their reports appearing in those audited
financial statements. A representative of Arthur Andersen LLP will be at the
special meeting to answer your questions and will have the opportunity to make a
statement if you desire.
OTHER MATTERS
Management knows of no other business to be presented at the special
meeting. If other matters do properly come before the meeting, or any
adjournment thereof, it is the intention of the persons named in the proxy to
vote on such matters according to their best judgment.
INCORPORATION BY REFERENCE
We filed the following documents with the Securities and Exchange Commission
(File No. 0-0022989) pursuant to the Exchange Act and incorporate them by
reference:
1. Our Annual Report on Form 10-K for the fiscal year ended March 27, 1999
(as amended);
2. Our Quarterly Report on Form 10-Q for the quarter ended June 26, 1999;
and
3. Our Current Report on Form 8-K filed July 26, 1999.
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All documents we have filed with the Securities and Exchange Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the date of the special meeting are incorporated by
reference into this proxy statement and shall be deemed a part hereof from the
date of filing such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this proxy statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
proxy statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR PROVIDED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER TO
WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL REQUEST TO THE
COMPANY AT 3120 AIRWAY AVENUE, COSTA MESA, CALIFORNIA 92626, ATTN: DAN TSUJIOKA
, SECRETARY (TELEPHONE NUMBER (714) 850-0900). SUCH DOCUMENTS WILL BE PROVIDED
TO SUCH PERSON BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE
BUSINESS DAY OF RECEIPT OF SUCH REQUEST. IN ORDER TO ENSURE DELIVERY OF THE
DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS SHOULD BE RECEIVED BY CHRIS
LANE, CHIEF FINANCIAL OFFICER.
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APPENDIX A
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
WHITE CAP INDUSTRIES, INC.
AND
WC RECAPITALIZATION CORP.
JULY 21, 1999
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE(S)
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<S> <C>
ARTICLE I DEFINITIONS.................................................................................... A-1
Section 1.1 Certain Definitions.................................................................. A-1
Section 1.2 Terms Generally...................................................................... A-4
ARTICLE II THE MERGER.................................................................................... A-5
Section 2.1 The Merger........................................................................... A-5
Section 2.2 Conversion (or Retention) of Shares.................................................. A-5
Section 2.3 Payment of Cash for Other Shares..................................................... A-6
Section 2.4 Proxy Materials...................................................................... A-7
Section 2.5 Exchange of Stock Certificates....................................................... A-8
Section 2.6 Dissenting Shares.................................................................... A-8
Section 2.7 Stock Options........................................................................ A-9
ARTICLE III THE SURVIVING CORPORATION.................................................................. A-9
Section 3.1 Certificate of Incorporation......................................................... A-9
Section 3.2 Bylaws............................................................................... A-9
Section 3.3 Directors and Officers............................................................... A-9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................... A-9
Section 4.1 Corporate Existence and Power........................................................ A-9
Section 4.2 Corporate Authorization.............................................................. A-10
Section 4.3 Governmental Authorization........................................................... A-10
Section 4.4 Non-contravention.................................................................... A-10
Section 4.5 Capitalization....................................................................... A-10
Section 4.6 Reports and Financial Statements..................................................... A-11
Section 4.7 Disclosure Documents................................................................. A-11
Section 4.8 Absence of Certain Changes or Events................................................. A-12
Section 4.9 No Undisclosed Material Liabilities.................................................. A-13
Section 4.10 Litigation.......................................................................... A-13
Section 4.11 Taxes............................................................................... A-13
Section 4.12 ERISA............................................................................... A-14
Section 4.13 Labor Matters....................................................................... A-15
Section 4.14 Compliance with Laws and Court Orders............................................... A-16
Section 4.15 Finders' Fees....................................................................... A-16
Section 4.16 Environmental Matters............................................................... A-16
Section 4.17 Subsidiaries........................................................................ A-17
Section 4.18 Year 2000 Program................................................................... A-17
Section 4.19 Insurance........................................................................... A-17
Section 4.20 Certain Business Practices.......................................................... A-18
Section 4.21 Suppliers and Customers............................................................. A-18
Section 4.22 Contracts........................................................................... A-18
Section 4.23 Disclosure.......................................................................... A-19
Section 4.24 Intellectual Property............................................................... A-19
Section 4.25 Related Party Transactions.......................................................... A-19
Section 4.26 Assets.............................................................................. A-20
Section 4.27 Delaware Section 203................................................................ A-20
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGERSUB.................................................. A-20
Section 5.1 Corporate Existence and Power........................................................ A-20
Section 5.2 Corporate Authorization.............................................................. A-20
Section 5.3 Governmental Authorization........................................................... A-21
Section 5.4 Non-Contravention.................................................................... A-21
Section 5.5 Disclosure Documents................................................................. A-21
Section 5.6 Litigation........................................................................... A-21
Section 5.7 Finders' Fees........................................................................ A-21
Section 5.8 Financing............................................................................ A-21
Section 5.9 Capitalization....................................................................... A-22
ARTICLE VI COVENANTS OF THE COMPANY.................................................................... A-22
Section 6.1 Conduct of the Company............................................................... A-22
Section 6.2 Stockholder Meeting; Proxy Material.................................................. A-24
Section 6.3 Access to Information; Right of Inspection........................................... A-24
Section 6.4 Other Potential Acquirers............................................................ A-24
Section 6.5 Resignation of Directors............................................................. A-25
Section 6.6 Notice............................................................................... A-25
ARTICLE VII COVENANTS OF MERGERSUB..................................................................... A-26
Section 7.1 Voting of Shares..................................................................... A-26
Section 7.2 Director and Officer Liability....................................................... A-26
ARTICLE VIII COVENANTS OF MERGERSUB AND THE COMPANY.................................................... A-26
Section 8.1 Reasonable Best Efforts.............................................................. A-26
Section 8.2 Certain Filings...................................................................... A-27
Section 8.3 Public Announcements................................................................. A-27
Section 8.4 Further Assurances................................................................... A-27
Section 8.5 Notices of Certain Events............................................................ A-28
ARTICLE IX CONDITIONS TO THE MERGER.................................................................... A-28
Section 9.1 Conditions to the Obligations of Each Party.......................................... A-28
Section 9.2 Conditions to the Obligations of MergerSub........................................... A-28
Section 9.3 Conditions to the Obligations of the Company......................................... A-29
ARTICLE X TERMINATION.................................................................................. A-30
Section 10.1 Termination......................................................................... A-30
Section 10.2 Termination Fee..................................................................... A-30
Section 10.3 Effect of Termination............................................................... A-31
ARTICLE XI MISCELLANEOUS............................................................................... A-31
Section 11.1 Notices............................................................................. A-31
Section 11.2 Survival of Representations and Warranties.......................................... A-32
Section 11.3 Amendments' No Waivers.............................................................. A-32
Section 11.4 Expenses............................................................................ A-33
Section 11.5 Transfer Taxes...................................................................... A-33
Section 11.6 Successors and Assigns.............................................................. A-33
Section 11.7 Governing Law....................................................................... A-33
Section 11.8 Counterparts; Effectiveness......................................................... A-33
</TABLE>
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Section 11.9 Severability........................................................................ A-33
Section 11.10 Specific Performance............................................................... A-33
Section 11.11 Entire Agreement; No Third-Party Beneficiaries..................................... A-33
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July 21,
1999 by and between White Cap Industries, Inc., a Delaware corporation (the
"Company") and WC Recapitalization Corp., a Delaware corporation ("MergerSub").
RECITALS
A. As of the date hereof, certain holders of outstanding capital stock of
the Company have entered into shareholder voting agreements (the "Voting
Agreements") and executed irrevocable proxies (the "Irrevocable Proxies")
constituting approximately forty-five percent (45%) of the outstanding capital
stock of the Company.
B. MergerSub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger (as defined
below) and also to prescribe certain conditions to the Merger.
C. It is intended that the Merger be recorded as a recapitalization for
financial reporting purposes.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the respective meanings set forth below:
"Balance Sheet" shall mean the consolidated balance sheet of the Company as
of March 27, 1999 (and the notes thereto) set forth in the Company's annual
report on Form 10-K for the fiscal year ended March 27, 1999.
"Balance Sheet Date" shall mean March 27, 1999.
"Benefit Arrangements" shall have the meaning set forth in Section 4.12(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Share Exchange Ratio" shall have the meaning set forth in Section
2.2(d).
"Common Shares" shall mean the shares of Common Stock.
"Common Stock" shall mean the capital stock of the Company designated as
common stock, $.01 par value per share.
"Company" shall mean White Cap Industries, Inc., a Delaware corporation.
"Company Intellectual Property Rights" shall have the meaning set forth in
Section 4.24.
"Company Proxy Statement" shall have the meaning set forth in Section 4.7.
"Company SEC Reports" shall have the meaning set forth in Section 4.6.
"Company Securities" shall have the meaning set forth in Section 4.5(b).
"Company Stockholder Meeting" shall have the meaning set forth in Section
6.2.
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"Confidentiality Agreement" shall mean the Confidentiality Agreement dated
as of April 15, 1999 by and between the Company and Leonard Green & Partners,
L.P.
"Contracts" shall have the meaning set forth in Section 4.22.
"Current Policies" shall have the meaning set forth in Section 7.2.
"Delaware Corporate Law" shall mean the Delaware General Corporation Law, as
amended.
"Director Options" shall mean the outstanding options to acquire Shares
granted to directors of the Company.
"Disbursing Agent" shall have the meaning set forth in Section 2.3.
"Disclosure Letter" shall have the meaning set forth in the preamble to
Article IV.
"Dissenting Shares" shall have the meaning set forth in Section 2.6.
"DLJ" shall mean Donaldson, Lufkin & Jenrette Securities Corporation.
"DLJ Senior Debt Fund" shall mean DLJ Capital Funding, Inc.
"Effective Time" shall have the meaning set forth in Section 2.1(b).
"Employee Benefit Plan" shall have the meaning set forth in Section 3(3) of
ERISA.
"Employee Options" shall mean the outstanding options to acquire Shares
granted to employees of the Company.
"Employee Plans" shall have the meaning set forth in Section 4.12(a).
"Environmental Laws" shall mean any and all applicable federal, state, local
and foreign statutes, Laws, regulations, ordinances, rules, judgments, orders,
decrees, codes, injunctions, permits, relating to human health, natural
resources, or the environment or to Releases of Hazardous Substances or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances or the
notification, clean-up or other remediation thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Expenses" shall have the meaning set forth in Section 10.2.
"Financing" shall have the meaning set forth in Section 5.8.
"Financing Letters" shall have the meaning set forth in Section 5.8.
"GAAP" shall mean generally accepted accounting principles, as in effect in
the United States, from time to time.
"Governmental Authority" shall mean any agency, public or regulatory
authority, instrumentality, department, commission, court, ministry, tribunal or
board of any government, whether foreign or domestic and whether national,
federal, tribal, provincial, state, regional, local or municipal, including
without limitation the United States Federal Communications Commission.
"Hazardous Substances" shall mean any wastes, substances, radiation, or
materials (whether solids, liquids or gases) (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic; (ii) which are
defined as "hazardous materials," "hazardous wastes," "hazardous substances,"
"wastes" or other similar designations in any Environmental Laws; (iii) without
limitation, which contain asbestos and asbestos-containing materials, lead-based
paints, urea-formaldehyde foam
A-2
<PAGE>
insulation, and petroleum or petroleum products (including, without limitation,
crude oil or any fraction thereof) or (iv) which pose a hazard to human health
and safety, natural resources, or the environment.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Insurance Policies" shall have the meaning set forth in Section 4.19.
"Irrevocable Proxies" shall have the meaning set forth in the Recitals.
"Law" shall mean statutes, common laws, rules, ordinances, regulations,
codes, licensing requirements, orders, judgments, injunctions, decrees,
licenses, agreements, settlements, governmental guidelines or interpretations,
permits, rules and bylaws of a Governmental Authority.
"Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Effect" shall mean with respect to the same or any similar
events, acts, conditions or occurrences, whether individually or in the
aggregate, a material adverse effect on (i) the business, financial condition,
results of operations, assets or liabilities of such party, (ii) the legality or
enforceability against a party to this Agreement or (iii) the ability of a party
to perform its obligations and to consummate the transactions under this
Agreement. An adverse change in the market price or trading volume of the Shares
shall not be deemed, by itself, to constitute a Material Adverse Effect.
"Merger" shall have the meaning set forth in Section 2.1(a).
"Merger Consideration" shall have the meaning set forth in Section 2.2(a).
"MergerSub" shall mean WC Recapitalization Corp., a Delaware corporation.
"MergerSub Common Shares" shall mean the common stock, $.01 par value, of
MergerSub.
"MergerSub Preferred Shares" shall mean the preferred stock of MergerSub.
"MergerSub Securities" shall have the meaning set forth in Section 5.9.
"New Financing Letters" shall have the meaning set forth in Section 5.8.
"Notice of Superior Proposal" shall have the meaning set forth in Section
6.4(b).
"Other Shares" shall have the meaning set forth in Section 2.2(a).
"Options" shall mean Employee Options and Director Options.
"Pension Plans" shall have the meaning set forth in Section 4.12(a).
"Permits" shall mean any licenses, franchises, permits, certificates,
consents, approvals or other similar authorizations affecting, or relating in
any way to, the assets or business of the Company.
"Person" shall mean any individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including
any government or political subdivision or any agency or instrumentality
thereof.
"Preferred Stock" shall have the meaning set forth in Section 2.2(c).
"Preferred Stock Exchange Ratio" shall have the meaning set forth in Section
2.2(d).
"Proceeding" shall have the meaning set forth in Section 4.10.
"Property" shall have the meaning set forth in Section 4.27.
"Related Parties" shall have the meaning set forth in Section 4.26.
A-3
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"Release" means any emission, spill, seepage, leak, escape, leaching,
discharge, injection, pumping, pouring, emptying, dumping, disposal, or release
of Hazardous Substances into or upon the environment, including the air, soil,
surface water, groundwater, the sewer, septic system, storm drain, publicly
owned treatment works, or waste treatment, storage, or disposal systems.
"Replacement Policies" shall have the meaning set forth in Section 7.2.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" shall mean the Common Stock and the Series B Preferred Stock of the
Company.
"Share Exchange Ratio" shall have the meaning set forth in Section 2.2(d).
"Subsidiary" shall mean any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by such Person.
"Superior Proposal" shall have the meaning set forth in Section 6.4(c).
"Surviving Corporation Shares" shall mean the common stock, $.01 par value,
of the Surviving Corporation.
"Surviving Corporation" shall have the meaning set forth in Section 2.1(a).
"System" has the meaning set forth in Section 4.18.
"Tax or Taxes" shall mean (A) all taxes, charges, fees, duties, levies,
penalties or other assessments, including, without limitation, income, gross
receipts, excise, real and personal property, sales, use, transfer, license,
payroll, withholding, social security, franchise, unemployment insurance,
workers' compensation, employer health tax or other taxes, fees, assessments or
charges of any kind whatsoever, imposed by any Governmental Authority and shall
include any interest, penalties or additions to tax attributable to any of the
foregoing, (B) any liability for payment of amounts described in clause (A)
whether as a result of transferee liability, of being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise through
operation of law, and (C) any liability for the payment of amounts described in
clauses (A) or (B) as a result of any tax sharing agreement, tax allocation
agreement, tax indemnity agreement, or other agreement that includes
indemnification for any tax liability.
"Tax Return" shall mean all returns, declarations, reports, forms,
estimates, information returns, statements or other documents (including any
related or supporting information) filed or required to be filed with or
supplied to any Governmental Authority in connection with any Taxes.
"Third Party" shall have the meaning set forth in Section 6.4(c).
"Third Party Acquisition" shall have the meaning set forth in Section
6.4(d).
"Voting Agreements" shall have the meaning set forth in the Recitals.
"Year 2000 Compliant" shall have the meaning set forth in Section 4.18.
Section 1.2 TERMS GENERALLY. The definitions in Sections 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation" even if not followed
actually by such phrase unless the context expressly provides otherwise. All
references herein to Sections, paragraphs and Exhibits and Schedules shall be
deemed references to Sections or paragraphs
A-4
<PAGE>
of or Exhibits or Schedules to this Agreement unless the context shall otherwise
require. Unless otherwise expressly defined, terms defined in this Agreement
shall have the same meanings when used in any Exhibit or Schedule and terms
defined in any Exhibit or Schedule shall have the same meanings when used in
this Agreement or in any other Exhibit or Schedule. The words "herein,"
"hereof," "hereto" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular provision of this Agreement.
ARTICLE II
THE MERGER
Section 2.1 THE MERGER.
(a) At the Effective Time, MergerSub shall be merged with and into the
Company in accordance with Delaware Corporate Law and the terms and conditions
hereof (the "Merger"). Upon consummation of the Merger, the separate existence
of MergerSub shall cease and the Company shall be the surviving corporation (the
"Surviving Corporation").
(b) As soon as practicable after satisfaction of (or, to the extent
permitted hereunder, waiver of) all conditions to the Merger, the Company and
MergerSub will file a certificate of merger with the Secretary of State of the
State of Delaware in accordance with Delaware Corporate Law and make all other
filings or recordings required by Law in connection with the Merger. The Merger
shall become effective at such time as the certificate of merger is certified by
the Secretary of State of the State of Delaware or at such later time as is
specified in the certificate of merger (the "Effective Time").
(c) The Merger shall have the effects set forth in Sections 251, 259 and 261
of Delaware Corporate Law.
Section 2.2 CONVERSION (OR RETENTION) OF SHARES. At the Effective Time,
pursuant to this Agreement and by virtue of the Merger and without any action on
the part of MergerSub, the Company or the holders of any of the following
securities:
(a) Each share of Common Stock issued and outstanding immediately prior to
the Effective Time (including shares of Common Stock issued upon the automatic
conversion provisions applicable to the Company's preferred stock pursuant to
Article IV of the Company's certificate of incorporation) other than: (i) any
shares of Common Stock to be canceled pursuant to Section 2.2(b) and (ii) each
share of Common Stock to remain outstanding pursuant to Section 2.2(c), shall be
canceled and shall be converted automatically into the right to receive an
amount equal to $16.50 in cash, without interest (the "Merger Consideration"),
payable to the holder thereof upon surrender of the certificate formerly
representing such share of common stock in the manner provided in Section 2.3;
the shares of Common Stock being converted into the right to receive the Merger
Consideration are hereinafter referred to as the "Other Shares."
(b) Each Share held in the treasury of the Company and each Share owned by
MergerSub, if any, immediately prior to the Effective Time shall be canceled
without any conversion thereof and no payment or distribution shall be made with
respect thereto.
(c) 813,187 shares of Common Stock registered in the name of Greg Grosch,
57,216 shares of Common Stock registered in the name of Dan Tsujioka, 46,000
shares of Common Stock registered in the name of Richard Gagnon, 44,440 shares
of Common Stock registered in the name of Chris Lane, 8,074 shares of Common
Stock registered in the name of Jack Karg and 2,529 shares of Common Stock
registered in the name of Brian Etter shall not be converted, exchanged or
canceled as provided above but shall remain outstanding as agreed upon in the
Voting Agreements. Immediately after the Effective Time, a portion of such
outstanding shares of Common Stock shall be exchanged for newly-issued shares of
preferred stock of the Company (the "Preferred Stock") such that, after such
exchange, the
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individuals referred to in the first sentence of this Section 2.3(c) in the
aggregate shall own Common Stock and Preferred Stock in the same proportion as
shall the sole stockholder of MergerSub. The terms of the Preferred Stock are
summarized in Annex 1 attached hereto.
(d) Each MergerSub Common Share that is issued and outstanding immediately
prior to the Effective Time shall be converted into one newly issued, fully paid
and nonassessable share of Common Stock (the "Common Share Exchange Ratio").
(e) Each MergerSub Preferred Share that is issued and outstanding
immediately prior to the Effective Time shall be converted into one newly
issued, fully paid and nonassessable share of Preferred Stock (the "Preferred
Share Exchange Ratio").
(f) If between the date of this Agreement and the Effective Time the number
of outstanding Shares shall have been changed into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split-up, combination, exchange of shares or
the like other than pursuant to the Merger, the amount of the Merger
Consideration, the Common Share Exchange Ratio and the Preferred Share Exchange
Ratio shall be correspondingly adjusted.
Section 2.3 PAYMENT OF CASH FOR OTHER SHARES.
(a) At the Effective Time, the Surviving Corporation shall irrevocably
deposit or cause to be deposited with a bank or trust company to be designated
by the Surviving Corporation which is organized and doing business under the
laws of the United States or any state thereof and has a combined capital and
surplus of at least $100,000,000 (the "Disbursing Agent"), as agent for the
holders of Other Shares, cash in the aggregate amount required to pay the Merger
Consideration in respect of the Other Shares outstanding immediately prior to
the Effective Time. Pending distribution pursuant to Section 2.3(b) hereof of
the cash deposited with the Disbursing Agent, such cash shall be held in trust
for the benefit of the holders of Other Shares and such cash shall not be used
for any other purposes; provided that the Surviving Corporation may direct the
Disbursing Agent to invest such cash, provided that such investments (i) shall
be obligations of or guaranteed by the United States of America, in commercial
paper obligations receiving the highest rating from either Moody's Investors
Services, Inc. or Standard & Poor's Corporation, or in certificates of deposit,
bank repurchase agreements or bankers acceptances of domestic commercial banks
with capital exceeding $250,000,000 (collectively "Permitted Investments") or in
money market funds which are invested solely in Permitted Investments and (ii)
shall have maturities that will not prevent or delay payments to be made
pursuant to Section 2.3(b) hereof. Each holder of a certificate or certificates
representing Other Shares canceled and extinguished at the Effective Time
pursuant to Section 2.2(a) hereof may thereafter surrender such certificate or
certificates to the Disbursing Agent, as agent for such holder of Other Shares,
to effect the exchange of such certificate or certificates on such holder's
behalf for a period ending six months after the Effective Time.
(b) After surrender to the Disbursing Agent of any certificate which prior
to the Effective Time shall have represented any Other Shares, the Disbursing
Agent shall promptly distribute to the person in whose name such certificate
shall have been registered, a check in the amount of the Merger Consideration
into which such Other Shares shall have been converted at the Effective Time
pursuant to Section 2.2(a) hereof. Until so surrendered and exchanged, each such
certificate shall, after the Effective Time, be deemed to represent only the
right to receive the Merger Consideration, and until such surrender and
exchange, no cash shall be paid to the holder of such outstanding certificate in
respect thereof. The Surviving Corporation shall promptly after the Effective
Time cause to be distributed to such holders appropriate materials to facilitate
such surrender.
(c) If payment is to be made to a Person other than the registered holder of
the Other Shares represented by the certificate or certificates surrendered in
exchange therefor, it shall be a condition to such payment that the certificate
or certificates so surrendered shall be properly endorsed or otherwise
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be in proper form for transfer and that the Person requesting such payment shall
pay to the Disbursing Agent any transfer or other taxes required as a result of
such payment to a Person other than the registered holder of such Other Shares
or establish to the satisfaction of the Disbursing Agent that such tax has been
paid or is not payable.
(d) After the Effective Time, there shall be no further transfers on the
stock transfer books of the Surviving Corporation of the Other Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing Other Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the consideration provided
for, and in accordance with the procedures set forth, in this Article II.
(e) If any cash deposited with the Disbursing Agent for purposes of payment
in exchange for Other Shares remains unclaimed six months after the Effective
Time, such cash shall be returned to the Surviving Corporation, upon demand, and
any such holder who has not converted his Other Shares into the Merger
Consideration prior to that time shall thereafter look only to the Surviving
Corporation for payment of the Merger Consideration. Notwithstanding the
foregoing, the Surviving Corporation shall not be liable to any holder of Other
Shares for any amount paid to a public official pursuant to applicable unclaimed
property laws. Any amounts remaining unclaimed by holders of Other Shares seven
(7) years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
Governmental Authority) shall, to the extent permitted by applicable Law, become
the property of the Surviving Corporation free and clear of any claims or
interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the Disbursing
Agent pursuant to Section 2.5(a) to pay for Other Shares for which dissenter's
rights have been perfected shall be returned to the Surviving Corporation, upon
demand.
(g) No dividends or other distributions with respect to capital stock of the
Surviving Corporation with a record date after the Effective Time shall be paid
to the holder of any unsurrendered certificate for Other Shares.
(h) From and after the Effective Time, the holders of Other Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Other Shares, other than the right to receive the
Merger Consideration as provided in this Agreement.
(i) In the event that any Other Share certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Other Share certificate to be lost, stolen or destroyed and, if
required by the Company, the posting by such holder of a bond in such reasonable
amount as the Company may direct as indemnity against any claim that may be made
against it with respect to such Other Share certificate, the Disbursing Agent
will issue in exchange for such lost, stolen or destroyed Other Share
certificate the Merger Consideration, cash in lieu of fractional Other Shares,
and unpaid dividends and distributions on Other Shares deliverable in respect
thereof pursuant to this Agreement and the Merger.
Section 2.4 PROXY MATERIALS. In connection with the Company Stockholder
Meeting, the Company shall prepare and file with the SEC the Company Proxy
Statement relating to the transactions contemplated by this Agreement and the
Merger and shall use its reasonable best efforts to respond to the comments of
the SEC and to cause the Company Proxy Statement to be mailed to the Company's
stockholders, all as soon as reasonably practicable; provided, that prior to the
filing of the Company Proxy Statement, the Company shall consult with MergerSub
with respect to such filings and shall afford MergerSub reasonable opportunity
to comment thereon. MergerSub shall provide the Company with any information for
inclusion in the Company Proxy Statement which may be required under applicable
law and which is reasonably requested by the Company. The Company shall promptly
notify MergerSub of the receipt of the comments of the SEC and of any request
from the SEC for
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amendments or supplements to the Company Proxy Statement or for additional
information, and will promptly supply MergerSub with copies of all
correspondence between the Company or its representatives, on the one hand, and
the SEC or members of its staff, on the other hand, with respect to the Company
Proxy Statement or the Merger. If at any time prior to the Company Stockholder
Meeting any event should occur which is required by applicable law to be set
forth in an amendment of, or a supplement to, the Company Proxy Statement, the
Company will promptly inform MergerSub. In such case, the Company, with the
cooperation of MergerSub, will, upon learning of such event, promptly prepare
and mail such amendment or supplement; provided, that prior to such mailing, the
Company shall consult with MergerSub with respect to such amendment or
supplement and shall afford MergerSub reasonable opportunity to comment thereon.
The Company will notify MergerSub at least 24 hours prior to the mailing of the
Company Proxy Statement, or any amendment or supplement thereto, to the
stockholders of the Company.
Section 2.5 EXCHANGE OF STOCK CERTIFICATES. Immediately after the
Effective Time, the Surviving Corporation shall deliver to the record holder of
the certificates which immediately prior to the Effective Time represented all
the outstanding shares of MergerSub Common Shares that were converted into the
right to receive shares of Common Stock or Preferred Stock in accordance with
Section 2.2(d), in exchange for such certificates, duly endorsed in blank, share
certificates, registered in the name of such record holder, representing the
number of shares of Common Stock and Preferred Stock to which such record holder
is so entitled by virtue of Section 2.2(d). Such certificate will bear a legend
restricting the transferability of such shares to the extent contemplated by the
Stockholders Agreement referred to in Section 9.2(h), which restrictions include
restrictions designed to assure the Surviving Corporation that these shares will
not be offered or sold in contravention of any federal or state securities laws.
Section 2.6 DISSENTING SHARES. Notwithstanding Section 2.2, Shares which
are issued and outstanding immediately prior to the Effective Time and which are
held by a holder who has not voted such Shares in favor of the Merger and who
has delivered a written demand for relief as a dissenting stockholder in the
manner provided by Delaware Corporate Law and who, as of the Effective Time,
shall not have effectively withdrawn or lost such right to relief as a
dissenting stockholder ("Dissenting Shares") shall not be converted into a right
to receive the Merger Consideration. The holders thereof shall be entitled only
to such rights as are granted by Section 262 of Delaware Corporate Law. Each
holder of Dissenting Shares who becomes entitled to payment for such Shares
pursuant to Section 262 of Delaware Corporate Law shall receive payment therefor
from the Surviving Corporation in accordance with Delaware Corporate Law;
provided, however, that if any such holder of Dissenting Shares (i) shall have
failed to establish his entitlement to relief as a dissenting stockholder as
provided in Section 262 of Delaware Corporate Law, (ii) shall have effectively
withdrawn his demand for relief as a dissenting stockholder with respect to such
Shares or lost his right to relief as a dissenting stockholder and payment for
his Shares under Section 262 of Delaware Corporate Law or (iii) shall have
failed to file a complaint with the appropriate court seeking relief as to
determination of the value of all Dissenting Shares within the time provided in
Section 262 of Delaware Corporate Law, such holder shall forfeit the right to
relief as a dissenting stockholder with respect to such Shares and each such
Share shall be converted into the right to receive the appropriate Merger
Consideration without interest thereon, from the Surviving Corporation as
provided in Section 2.2. The Company shall give MergerSub prompt notice of any
demands received by the Company for relief as a dissenting stockholder and
MergerSub shall have the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of MergerSub, make any payment with respect to, or settle
or offer to settle, any such demands.
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Section 2.7 STOCK OPTIONS.
(a) Each Option that has an exercise price of equal to or greater than
$16.50 shall be canceled at the Effective Time.
(b) Immediately prior to the Effective Time, all other outstanding Options
shall be canceled and, in lieu thereof, as soon as reasonably practicable as of
or after the Effective Time, the holders of such Options shall receive a cash
payment from the Company equal to the product of (i) the total number of Shares
previously subject to such Option and (ii) the excess of the Merger
Consideration that would be paid with respect to the Share subject to such
Option if the Option were exercised over the exercise price per Share subject to
such Option, as reduced by any required withholding of taxes.
(c) Prior to the Effective Time, the Company shall (i) take all steps
necessary to cause the Company's stock option plans to be terminated on or prior
to the Effective Time and to otherwise make any amendments to the terms of such
stock option plans that are necessary to give effect to the transactions
contemplated by this Agreement, and (ii) use all necessary efforts to obtain at
the earliest practicable date all written consents from holders of Options to
the cancellation of such holder's Options to take effect at the Effective Time.
Notwithstanding any other provision of this Section, payment may be withheld in
respect of any Director Option or Employee Option until necessary or appropriate
consents are obtained with respect to such Director Option or Employee Option.
ARTICLE III
THE SURVIVING CORPORATION
Section 3.1 CERTIFICATE OF INCORPORATION. The certificate of incorporation
of the Company in effect immediately prior to the Effective Time shall be
amended as of the Effective Time as set forth in EXHIBIT A, and, as so amended,
shall be the certificate of incorporation of the Surviving Corporation until
amended in accordance therewith and with applicable law.
Section 3.2 BYLAWS. The bylaws of MergerSub in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance therewith and in accordance with applicable law.
Section 3.3 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable Law, (i) the directors of MergerSub at the Effective Time shall be
the directors of the Surviving Corporation and (ii) the officers of the Company
at the Effective Time shall be the officers of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to MergerSub that except as set forth in
the corresponding sections or subsections of the Disclosure Letter delivered to
MergerSub by the Company concurrently with entering into this Agreement (the
"Disclosure Letter"):
Section 4.1 CORPORATE EXISTENCE AND POWER. Each of the Company and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers required to carry on its business as now conducted. Each of the
Company and its Subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, be reasonably likely
to have a Material Adverse Effect on the Company. Without limiting the
generality of the foregoing, the Company and it Subsidiaries are qualified to do
business in the states shown on Section 4.1 of the
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Disclosure Letter. The Company has heretofore made available to MergerSub true
and complete copies of the currently effective amended and restated certificate
of incorporation and bylaws or similar organizational documents of the Company
and its Subsidiaries (as the same may be amended and restated as of the date
hereof).
Section 4.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby (i) are within the Company's corporate
powers and (ii) except for the adoption of this Agreement by the affirmative
vote of a majority in voting interests of the Shares, have been duly authorized
by all necessary corporate and stockholder action. This Agreement has been duly
and validly executed and delivered by the Company and constitutes a valid, legal
and binding agreement of the Company enforceable against the Company in
accordance with its terms, except (i) as rights to indemnity hereunder may be
limited by federal or state securities laws or the public policies embodied
therein, (ii) as such enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally, and (iii) as the remedy of specific performance and
other forms of injunctive relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (i) the filing of a
certificate of merger in accordance with Delaware Corporate Law; (ii) compliance
with any applicable requirements of the HSR Act; (iii) compliance with the
applicable requirements of the Exchange Act; (iv) compliance with the applicable
requirements of the Securities Act; (v) compliance with any applicable foreign
or state securities or Blue Sky laws; (vi) the filing of appropriate documents
with the relevant authorities of the jurisdictions in which the Company is
qualified to do business; and (vii) such other items (A) required solely by
reason of the participation of MergerSub in the Merger or (B) that, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company.
Section 4.4 NON-CONTRAVENTION. Other than as set forth in Section 4.4 of
the Disclosure Letter, the execution, delivery and performance by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby do not and will not (i) contravene or conflict with the
certificate of incorporation or bylaws of the Company or any of its
Subsidiaries, (ii) contravene or conflict with or constitute a violation of any
provision of any Law, regulation, judgment, writ, injunction, order or decree of
any court or Governmental Authority binding upon or applicable to the Company or
any of its Subsidiaries or any of their respective properties or assets, (iii)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Company or any of its
Subsidiaries or to a loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement, contract or other
instrument binding upon the Company or any of its Subsidiaries, or (iv) result
in the creation or imposition of any Lien on any asset of the Company or any of
its Subsidiaries except, in the case of clauses (ii), (iii) and (iv), for any
such violation, failure to obtain any such consent or other action, default,
right, loss or Lien that would not result in any cost, loss or damage to the
Company in excess of Two Million Dollars ($2,000,000) in the aggregate.
Section 4.5 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (i) 20,000,000
shares of Common Stock of which as of July 15, 1999 there were 10,725,791 shares
issued and outstanding and (ii) 60,000 shares of Series B Preferred Stock,
$6,000 par value, all of which as of July 15, 1999 were issued and outstanding.
As of July 15, 1999 there were outstanding Options to purchase an aggregate of
726,640 Common Shares (of which Options to purchase an aggregate of 148,068
Common Shares were vested
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and exercisable). All outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
(b) Except as set forth in this Section 4.5 and except for changes since
July 15, 1999 resulting from the exercise of Options outstanding on such date,
there are no outstanding (i) shares of capital stock or other voting securities
of the Company, (ii) securities of the Company convertible into or exchangeable
for shares of capital stock or voting securities of the Company or its
Subsidiaries, (iii) options or other rights to acquire from the Company or its
Subsidiaries, or obligations of the Company or its Subsidiaries to issue, any
shares of capital stock, voting securities or securities convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
and (iv) no equity equivalent interests in the ownership or earnings of the
Company or its Subsidiaries or other similar rights (the items in clauses
(b)(i), (ii), (iii) and (iv) being referred to collectively as the "Company
Securities"). Except as set forth on Section 4.5 of the Disclosure Letter, there
are no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any Company Securities. There are no stockholder
agreements, voting trusts or other agreements or understandings to which the
Company or any of its Subsidiaries is a party or by which it is bound relating
to the voting or registration of any shares of capital stock of the Company or
any of its Subsidiaries or any preemptive rights with respect thereto.
Section 4.6 REPORTS AND FINANCIAL STATEMENTS.
(a) The Company has timely filed with the SEC all forms, reports, schedules,
statements and other documents required to be filed by it since August 15, 1997
under the Securities Act or the Exchange Act (such documents, as supplemented or
amended since the time of filing, the "Company SEC Reports"). As of their
respective dates, the Company SEC Reports, including without limitation, any
financial statements or schedules included or incorporated by reference therein,
at the time filed (and, in the case of registration statements and proxy
statements, on the dates of effectiveness and the dates of mailing,
respectively) (i) complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and (ii) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited consolidated interim
financial statements included or incorporated by reference in the Company SEC
Reports (including any related notes and schedules) fairly present, in all
material respects, the financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the results of their operations and
their cash flows for the periods set forth therein, in each case in accordance
with past practice and GAAP consistently applied during the periods involved
(except as otherwise disclosed in the notes thereto and subject, where
appropriate, to normal year-end adjustments that would not be material in amount
or effect).
(b) The Company has heretofore made available or promptly will make
available to MergerSub a complete and correct copy of any amendments or
modifications to any Company SEC Reports filed prior to the date hereof which
are required to be filed with the SEC but have not yet been filed with the SEC.
Section 4.7 DISCLOSURE DOCUMENTS. The proxy statement (the "Company Proxy
Statement") to be filed with the SEC in connection with the Merger will not, at
the date it is first mailed to stockholders of the Company or at the time of the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Company Proxy Statement will comply as to
form in all material respects with the requirements of the Securities Act and
the Exchange Act. No representation is made by the Company with respect to
statements made in the Company Proxy Statement based on information supplied by
MergerSub for inclusion therein.
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Section 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Since the Balance Sheet Date, and except as discussed in the Company SEC
Reports, the business of the Company and its Subsidiaries has been conducted in
all material respects in the ordinary course consistent with past practice,
neither the Company nor any of its Subsidiaries has engaged in any transaction
or series of related transactions material to the Company and its Subsidiaries
taken as a whole other than in the ordinary course consistent with past
practice, and there has not been any event, occurrence or development, alone or
taken together with all other existing facts, that, individually or in the
aggregate, has had, or would reasonably be expected to have, a Material Adverse
Effect on the Company.
(b) Without limiting the generality of the foregoing Section 4.8(a), since
the Balance Sheet Date and except as disclosed in the Company SEC Reports or
Section 4.8 of the Disclosure Letter, there has not been:
(i) any damage, destruction or loss to any of the assets or properties
of the Company or any of its Subsidiaries that, individually or in the
aggregate, has a Material Adverse Effect on the Company;
(ii) any declaration, setting aside or payment of any dividend or
distribution or capital return in respect of any shares of the Company's
capital stock or any redemption, purchase or other acquisition by the
Company or any of its Subsidiaries of any shares of the Company's capital
stock or any repurchase, redemption or other purchase by the Company or any
of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries, or any amendment of any material term of any outstanding
security of the Company or any of its Subsidiaries;
(iii) any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any of
the assets of the Company or any of its Subsidiaries for consideration in
the aggregate in excess of One Million Dollars ($1,000,000) or other than in
the ordinary course of business consistent with past practices;
(iv) any acquisition (by merger, consolidation, or acquisition of stock
or assets) by the Company or any of its Subsidiaries of any corporation,
partnership or other business organization or division thereof or any equity
interest therein for consideration, or any loans or advances to any Person
in excess of One Million Dollars ($1,000,000) in the aggregate;
(v) any incurrence of or guarantee with respect to any indebtedness for
borrowed money by the Company or any of its Subsidiaries other than pursuant
to the Company's existing credit facilities in the ordinary course of
business or any creation or assumption by the Company or any of its
Subsidiaries of any material Lien on any material asset;
(vi) any material change in any method of accounting or accounting
practice used by the Company or any of its Subsidiaries, other than such
changes required by a change in law or generally accepted accounting
principles;
(vii) (A) any employment, deferred compensation, severance or similar
agreement entered into or amended by the Company or any of its Subsidiaries
and any employee, in each case other than sales commission agreements and
product promotional agreements entered into in the ordinary course of
business consistent with past practice, (B) any increase in the compensation
payable or to become payable by it to any of its directors or officers or
generally applicable to all or any category of the Company's employees, (C)
any increase in the coverage or benefits available under any vacation pay,
company awards, salary continuation or disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or
other employee benefit plan, payment or arrangement made to, for or with any
of the directors or officers of the Company or generally applicable to all
or any category of the Company's employees or
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(D) severance pay arrangements made to, for or with such directors, officers
or employees other than, in the case of (B) and (C) above, increases in the
ordinary course of business consistent with past practice and that in the
aggregate have not resulted in a material increase in the benefits or
compensation expense of the Company or any of its Subsidiaries;
(viii) any revaluing in any material respect any of the assets of the
Company or any of its Subsidiaries, including without limitation writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(ix) any loan, advance or capital contribution made by the Company or
any of its Subsidiaries to, or investment in, any person other than loans,
advances or capital contributions, or investments of the Company made in the
ordinary course of business consistent with past practices; or
(x) any agreement to take any actions specified in this Section 4.8(b),
except for this Agreement.
Section 4.9 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities
of the Company or any of its Subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, which
would be required by generally accepted accounting principles to be reflected on
a consolidated balance sheet of the Company (including the notes thereto), other
than liabilities and obligations which, individual or in the aggregate, will not
have a Material Adverse Effect on the Company, and other than:
(i) liabilities disclosed in the Company SEC Reports filed prior to the
date hereof;
(ii) actual trade payables incurred in the ordinary course of business
consistent with past practices;
(iii) liabilities incurred to perform this Agreement; and
(iv) those set forth in Section 4.9 of the Disclosure Letter.
Section 4.10 LITIGATION. Except as set forth in the Company SEC Reports
filed prior to the date hereof, (a) there is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any of its Subsidiaries or their respective
properties before any court or arbitrator or any Governmental Authority which,
if determined adversely, would reasonably be expected to have a Material Adverse
Effect on the Company (a "Proceeding") and (b) to the knowledge of the Company,
there is no basis for any such Proceeding.
Section 4.11 TAXES.
(a) Except as set forth on Section 4.11 to the Disclosure Letter, the
Company:
(i) has timely paid or caused to be paid all Taxes required to be paid
by it (including, but not limited to, any such Taxes shown due on any Tax
Return). The accrual for current Taxes payable in the latest financial
statements included or incorporated by reference in the Company SEC Reports
is adequate to cover all Taxes attributable to periods or portions thereof
ending on the date of such financial statements, and no Taxes attributable
to periods following the date of such financial statements have been
incurred other than in the ordinary course of business;
(ii) has filed or caused to be filed in a timely and proper manner
(within any applicable extension periods) all Tax Returns required to be
filed by it with the appropriate taxing authority in all jurisdictions in
which such Tax Returns are required to be filed, and all Tax Returns filed
by the Company are true, correct and complete and accurately set forth all
items to the extent required to be included therein; and
(iii) has not requested or caused to be requested any extension of time
within which to file any material Tax Return, which Tax Return has not since
been filed.
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(b) The Company has made available to MergerSub true, correct and complete
copies of all federal Tax Returns filed by or on behalf of the Company or any of
its Subsidiaries through the date hereof for the periods ending on or before
March 31, 1998.
(c) Except as set forth in Section 4.11 to the Disclosure Letter:
(i) the Company has not been notified by the Internal Revenue Service or
any other taxing authority that any issues have been raised by the Internal
Revenue Service or any other taxing authority in connection with any Tax
Return filed by or on behalf of the Company;
(ii) there are no pending Tax audits and no waivers of statutes of
limitations have been given or requested;
(iii) no Liens have been filed against the Company, except for Liens for
current Taxes not yet due and payable for which adequate reserves have been
provided for in the latest balance sheet of the Company;
(iv) no unresolved deficiencies or additions to Taxes have been
proposed, asserted, or assessed against the Company;
(v) the Company has not received notice within the last three years from
any taxing authority in a jurisdiction in which the Company does not file
Tax Returns that the Company is or may be subject to taxation by that
jurisdiction;
(vi) the Company has withheld and paid all Taxes required to be withheld
and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party;
(vii) the Company is not a party to a Tax sharing, Tax allocation or
similar agreement and is not bound by any closing agreement, offer in
compromise or other agreement with any Tax authority; and
(viii) except in accordance with past practice, the Company has not taken
any action that would have the effect of deferring any taxable income of the
Company from any taxable period or portion thereof ending before the
Effective Time to any period following the Effective Time. The Company is
not required to include in its income any adjustment pursuant to Section 481
of the Code following the Effective Time.
Section 4.12 ERISA.
(a) Section 4.12(a) of the Disclosure Letter sets forth a list identifying
each "Employee Benefit Plan" (as defined in Section 3(3) of ERISA), material
benefit arrangement, plan, or policy, including without limitation, (i) each
deferred compensation plan, (ii) each equity compensation plan, (iii) each plan
or arrangement providing severance benefits ("Benefit Arrangements") which (i)
is subject to any provision of ERISA or (ii) is maintained, administered or
contributed to by the Company or any affiliate (as defined below) within the
last three (3) years, under which the Company has any liability. The most recent
copies of such plans (and, if applicable, related trust agreements) and all
amendments thereto have been made available to MergerSub together with (A) the
most recent annual reports (Form 5500 including applicable schedules and
financial reports) or ERISA alternative compliance statements prepared in
connection with any such plan and (B) the most recent actuarial valuation report
prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans." For purposes of this Section 4.12,
"affiliate" of any Person means any other Person which, together with such
Person, would be treated as a single employer under Section 414 of the Code.
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the "Pension Plans")
are identified as such in the list referred to above.
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(b) Neither the Company nor any of its affiliates maintains or contributes
to or has maintained or contributed to within the last five (5) years a Pension
Plan subject to Title IV of ERISA or Section 412 of the Code. Nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any Employee Plan has or will make the Company or any
Subsidiary, any officer or director of the Company or any Subsidiary subject to
any liability under Title I of ERISA or liable for any tax pursuant to Section
4975 of the Code that could have a Material Adverse Effect.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service to the effect that such Employee Plan is so qualified and no amendments
have been adopted since the receipt of such determination letter that would
result in the revocation of such letter. The Company has made available to
MergerSub copies of the most recent Internal Revenue Service determination
letters with respect to each such Plan. Nothing has occurred since the date of
the most recent Internal Revenue Service determination letters that would
adversely affect the tax-qualified status of any Plan. Each Employee Plan has
been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including but
not limited to ERISA and the Code, which are applicable to such Plan other than
any non-compliance which could not have a Material Adverse Effect.
(d) Except as set forth on Section 4.12(d) of the Disclosure Letter, there
is no contract, agreement, plan or arrangement covering any employee or former
employee of the Company or any of its affiliates that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code or that could
obligate the Company to make any payments that will not be fully deductible by
virtue of Section 162(m) of the Code.
(e) Except as disclosed in writing to MergerSub on Section 4.12(e) of the
Disclosure Letter, there has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or any of its affiliates
relating to, or change in employee participation or coverage under, any Employee
Plan or Benefit Arrangement which would increase materially the expense of
maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended on the Balance
Sheet Date.
(f) Except as disclosed on Section 4.12(f) of the Disclosure Letter, the
Company is not a party to or subject to (i) any employment contract or
arrangement providing for annual future compensation of $200,000 or more with
any officer, consultant, director or employee, or that have a remaining term in
excess of one year or are not cancelable (without material penalty, cost or
other liability) within one year; (ii) any severance agreements, programs and
policies with or relating to its employees except programs and policies required
to be maintained by law; or (iii) any plans, programs, agreements and other
arrangements with or relating to its employees which contain change in control
provisions. The Company has made available to MergerSub copies (or descriptions
in detail reasonably satisfactory to MergerSub) of all such agreements, plans,
programs and other arrangements.
(g) Except as disclosed in Section 4.12(g) of the Disclosure Letter, there
will be no payment, accrual of additional benefits, acceleration of payments or
vesting in any benefit under any Employee Plan or similar agreement or
arrangement disclosed in this Agreement solely by reason of the Company's
entering into this Agreement or in connection with the transactions contemplated
by this Agreement.
Section 4.13 LABOR MATTERS.
(a) There are no strikes, slowdowns, work stoppages, lockouts, union
organizational campaigns or other protected concerted activity under the
National Labor Relations Act or, to the knowledge of Company, threats thereof,
by or with respect to any employees of the Company or any of its
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Subsidiaries which could have a Material Adverse Effect on the Company. There
are no controversies pending or, to the knowledge of the Company, threatened
between the Company or any of its Subsidiaries and any of their respective
employees, which controversies have or would reasonably be expected to have a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or its Subsidiaries
except as disclosed in Section 4.13 of the Disclosure Letter. There are no
pending or, to the knowledge of the Company, threatened charges or complaints
against the Company or its Subsidiaries by the National Labor Relations Board or
any comparable state agency which, if adversely determined, would have a
Material Adverse Effect on the Company.
Section 4.14 COMPLIANCE WITH LAWS AND COURT ORDERS. Neither the Company
nor its Subsidiaries is in violation of, nor has it since January 1, 1997
violated, and to the knowledge of the Company nothing is under investigation
with respect to or has been threatened to be charged with or given notice of any
violation of, any applicable Law, except for possible violations that have not
had and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. This Section does not
relate to matters with respect to Taxes or Environmental Laws which are
exclusively the subject of Sections 4.11 and 4.16, respectively.
Section 4.15 FINDERS' FEES. With the exception of fees payable to DLJ and
BancBoston Robertson Stephens Inc., there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf, of the Company or any of its Subsidiaries who might be entitled to
any fee or commission from the Company or any of its affiliates upon
consummation of the transactions contemplated by this Agreement.
Section 4.16 ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Company SEC Reports or on Section 4.16 of the
Disclosure Letter:
(i) the Company is and has at all times been in compliance in all
material respects with all Environmental Laws;
(ii) except in accordance with Permits, there has been no Release of
Hazardous Substances at any real property that is or was owned or operated
by the Company during the period of such ownership or operation except for
Releases which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company;
(iii) no notice, demand, request for information, citation, summons,
complaint or order has been received by, or, to the knowledge of the
Company, is pending or threatened by any Person against, the Company nor has
any penalty been assessed against the Company with respect to any alleged
violation of any Environmental Law;
(iv) the Company has not disposed or arranged for the disposal of
Hazardous Substances on any third party property that has resulted in or may
reasonably be expected to result in the Company to material liability under
any Environmental Law; and
(v) no underground tanks, asbestos-containing material or
polychlorinated biphenyls are or have been located on real property that is
owned or operated by the Company nor were any underground tanks,
asbestos-containing material or polychlorinated biphenyls located on real
property formerly owned or operated by the Company during the period of the
Company's ownership or operations of such real property, or to the knowledge
of the Company, prior to the period of the Company's ownership or operations
of such real property.
(b) There are no material Permits issued pursuant to or required under any
Environmental Law which require the consent, notification, approval or other
action of any Person to remain in full force and effect following consummation
of the transactions contemplated hereby. A true and complete list
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of all material Permits issued pursuant to or required under Environmental Laws
is set out in Section 4.16 of the Disclosure Letter attached hereto.
(c) There has been no written report of any environmental investigation,
study, audit, test, review or other analysis conducted of which the Company has
knowledge and has in its possession or control relating to the business of the
Company or any real property that is owned or operated by the Company which has
not been made available to MergerSub.
(d) The Company has not agreed to assume, undertake or provide
indemnification for any liability of any other person under any Environmental
Law, including any obligation for corrective or remedial action.
Section 4.17 SUBSIDIARIES. Section 4.17 of the Disclosure Letter lists
each Subsidiary of the Company together with the jurisdiction of incorporation
of each Subsidiary and the percentage of each Subsidiary's outstanding capital
stock or other equity interests owned by the Company or another Subsidiary of
the Company. Except as disclosed in the Company SEC Reports, all the outstanding
shares of capital stock of each Subsidiary have been validly issued, are fully
paid and nonassessable and are owned by the Company, by another Subsidiary or by
the Company and another such Subsidiary, free and clear of all Liens or any
other limitation or restriction. Except for the capital stock of the
Subsidiaries and except for the ownership interests set forth in the Company SEC
Reports, the Company does not own directly or indirectly, any capital stock or
other ownership interest in any other Person.
Section 4.18 YEAR 2000 PROGRAM.
(a) Except as described in Section 4.18 of the Disclosure Letter or
otherwise disclosed in the Company SEC Reports, to the knowledge of the Company,
the Company's central operating and accounting systems described in the
Company's most recently filed Form 10-K (the "System") are Year 2000 Compliant.
(b) "Year 2000 Compliant" means the System:
(i) will accurately input, process and output all date and time data,
whether from years in the same century or in different centuries, including
by yielding correct results in arithmetic operations, comparisons,
sequencing and sorting of date and time data and in leap year calculations;
and
(ii) will not operate abnormally or cease to operate, return an error
message or otherwise fail due to date- or time-related processing relating
to the then current date being on or after January 1, 2000 or any other
date.
(c) To the Company's knowledge, no inability exists on the part of any
material System supplier or material service provider to timely ensure that the
Company's System is Year 2000 Compliant.
Section 4.19 INSURANCE. Each of the Company and its Subsidiaries maintains
insurance policies (the "Insurance Policies") against all risks of a character
and in such amounts as are usually insured against by similarly situated
companies in the same or similar businesses. Each Insurance Policy is in full
force and effect and is valid, outstanding and enforceable, and all premiums due
thereon have been paid in full. None of the Insurance Policies will terminate or
lapse (or be affected in any other materially adverse manner) by reason of the
transactions contemplated by this Agreement. Each of the Company and its
Subsidiaries has complied in all material respects with the provisions of each
Insurance Policy under which it is the insured party. No insurer under any
Insurance Policy has canceled or generally disclaimed liability under any such
policy or, to the Company's knowledge, indicated any intent to do so or not to
renew any such policy. All material claims under the Insurance Policies have
been filed in a timely fashion.
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Section 4.20 CERTAIN BUSINESS PRACTICES. None of the Company, any of its
Subsidiaries or any directors, officers, agents or employees of the Company or
any of its Subsidiaries has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment. Neither the Company nor any of its Subsidiaries
has participated in any boycotts.
Section 4.21 SUPPLIERS AND CUSTOMERS. The documents and information
supplied by the Company to MergerSub or any of its representatives in connection
with this Agreement with respect to relationships and volumes of business done
with its significant suppliers and customers are accurate in all material
respects. During the last twelve (12) months, the Company has received no
notices of termination or material alteration of a contract or business
relationship, or written threats of any such action from any of the five (5)
largest suppliers or the five (5) largest customers of the Company and its
Subsidiaries.
Section 4.22 CONTRACTS. (a) Section 4.22 of the Disclosure Letter contains
a complete and accurate list of all contracts (written or oral), undertakings,
commitments or agreements (other than contracts, undertakings, commitments or
agreements for employee benefit matters set forth in Section 4.12 of the
Disclosure Letter and real property leases set forth in Section 4.26 of the
Disclosure Letter) of the following categories to which the Company or any of
its Subsidiaries is a party or by which any of them is bound (collectively, and
together with the contracts, undertakings, commitments or agreements for
employee benefit matters set forth in Section 4.12 of the Disclosure Letter and
the real property leases set forth in Section 4.26 of the Disclosure Letter, the
"Contracts"):
(i) Contracts requiring annual expenditures by or liabilities of the
Company and its Subsidiaries in excess of Five Hundred Thousand Dollars
($500,000) which have a remaining term in excess of one hundred eighty (180)
days or are not cancelable (without material penalty, cost or other
liability) within one hundred eighty (180) days;
(ii) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments relating to the lending of money, whether
as borrower, lender or guarantor, in excess of Two Hundred Fifty Thousand
Dollars ($250,000).
(iii) Contracts containing covenants limiting the freedom of the Company
or any of its Subsidiaries to engage in any line of business (other than
prohibitions against engaging in business relating to specific product
lines) or compete with any person, in any product line or line of business,
or operate at any location;
(iv) joint venture or partnership agreements or joint development or
similar agreements pursuant to which any third party has been entitled or is
reasonably expected to be entitled to share in profits or losses of the
Company or its Subsidiaries;
(v) Contracts with any federal, state or local government which have a
remaining term in excess of one year or are not cancelable (without material
penalty, cost or other liability) within one year;
(vi) other Contract or commitment in which the Company or any of its
Subsidiaries has granted manufacturing rights or exclusive marketing rights
relating to any product or service, any group of products or services or any
territory; and
(vii) to the knowledge of the Company, as of the date hereof any other
Contract the performance of which could be reasonably expected to require
expenditures by the Company or any of its Subsidiaries in excess of Five
Hundred Thousand Dollars ($500,000).
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(b) Except as set forth in Section 4.22 of the Disclosure Letter, true and
complete copies of the written Contracts and descriptions of verbal Contracts,
if any, have been delivered or made available to MergerSub. Each of the
Contracts is a valid and binding obligation of the Company and, to the Company's
knowledge without any investigation, the other parties thereto, enforceable
against the Company in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium, reorganization, arrangement or
similar laws affecting creditors' rights generally and by general principles of
equity. To the knowledge of the Company, except for the execution of this
Agreement and the consummation of the transactions contemplated hereby and
thereby, no event has occurred which would, on notice or lapse of time or both,
entitle the holder of any indebtedness issued pursuant to a Contract identified
in Section 4.22 of the Disclosure Letter in response to paragraph (ii) above to
accelerate, or which does accelerate, the maturity of any such indebtedness.
(c) None of the Company or its Subsidiaries is in breach, default or
violation (and no event has occurred or not occurred through the Company's
action or inaction or, to the knowledge of the Company, through the action or
inaction of any third parties, which with notice or the lapse of time or both
would constitute a breach, default or violation) of any term, condition or
provision of any Contract to which the Company or any of its Subsidiaries is now
a party or by which any of them or any of their respective properties or assets
may be bound, except for violations, breaches or defaults that, individually or
in the aggregate, would not have a Material Adverse Effect on the Company.
Section 4.23 DISCLOSURE. None of the representations or warranties made by
the Company herein or in any schedule hereto, including the Disclosure Letter,
or in any certificate furnished by the Company pursuant to this Agreement, or in
the Company SEC Reports, when all such documents are read together in their
entirety, contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which made, not misleading.
Section 4.24 INTELLECTUAL PROPERTY.
(a) Each of the Company and its Subsidiaries owns or possesses adequate
licenses or other valid rights to use all existing United States and foreign
patents, trademarks, trade names, service marks, copyrights, trade secrets and
applications therefor (the "Company Intellectual Property Rights") except where
the failure to own or possess valid rights to use such Company Intellectual
Property Rights would not have a Material Adverse Effect on the Company.
(b) The validity of the Company Intellectual Property Rights and the title
thereto of the Company or any Subsidiary, as the case may be, is not being
questioned in any pending litigation proceeding to which the Company or any
Subsidiary is a party nor, to the knowledge of the Company, is any such
litigation proceeding threatened. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company and except as set forth in Section 4.24 of the Disclosure Letter, the
conduct of the business of the Company and its Subsidiaries as now conducted
does not, to the knowledge of the Company, infringe any valid patents,
trademarks, trade names, service marks or copyrights of others, and the
consummation of the transactions completed by this Agreement will not result in
the loss or impairment of any Company Intellectual Property Rights.
Section 4.25 RELATED PARTY TRANSACTIONS. Except as set forth in the
Company SEC Reports or Section 4.25 of the Disclosure Letter, (a) no beneficial
owner of 5% or more of the Company's outstanding capital stock, or (b) officer
or director of the Company or (c) any Person (other than the Company) in which
any such beneficial owner, officer or director owns any beneficial interest
(other than a publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than 1% of the
stock of which is beneficially owned by all such Persons) (collectively,
"Related Parties") has any interest in: (i) any contract, arrangement or
understanding with, or relating to, the business or operations of, the Company
or any of its Subsidiaries; (ii) any loan,
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arrangement, understanding, agreement or contract for or relating to
indebtedness of the Company or any of its Subsidiaries; or (iii) any property
(real, personal or mixed), tangible or intangible, used in the business or
operations of the Company or any of its Subsidiaries, excluding any such
contract, arrangement, understanding or agreement constituting an Employee Plan.
Following the Effective Time, except for obligations set forth in this
Agreement, neither the Company nor any of its Subsidiaries will have any
obligations to any Related Party except for (i) accrued salary for the pay
period commencing immediately prior to the Effective Time and (ii) the
obligations set forth in the Company SEC Reports and Section 4.25 of the
Disclosure Letter.
Section 4.26 ASSETS.
(a) The assets and properties of the Company and its Subsidiaries,
considered as a whole, constitute all of the material assets and properties
which are reasonably required for the business and operations of the Company and
its Subsidiaries as presently conducted. The Company and its Subsidiaries have
good and marketable title to or a valid leasehold estate in (i) all personal
properties and assets reflected on the Company's Balance Sheet at the Balance
Sheet Date (except for properties or assets subsequently sold in the ordinary
course of business consistent with past practice), except as would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(b) Section 4.26 of the Disclosure Letter sets forth (i) a complete and
accurate list of each improved and unimproved real property (a "Property") owned
or leased by the Company or any of its Subsidiaries, and the current use of such
Property and indicating whether the Property is owned or leased, (ii) a complete
and accurate list of all leases pursuant to which the Company or any of its
Subsidiaries lease personal property and which require an annual expenditure by
the Company or any of its Subsidiaries individually in excess of One Hundred
Thousand Dollars ($100,000) or which are not cancelable (without material
penalty, cost or other liability) within one year and (iii) with respect to each
lease for real property, the term (including renewal options) and current fixed
rent.
(c) Except as set forth in Section 4.26 of the Disclosure Letter, there are
no pending or, to the knowledge of the Company, threatened condemnation or
similar proceedings relating to any of the Properties of the Company and its
Subsidiaries, except for such proceedings which would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
Section 4.27 DELAWARE SECTION 203. The provisions of Section 203 of
Delaware Corporate Law will not apply to this Agreement, as it may be amended
from time to time, or any of the transactions contemplated hereby. The Company
has heretofore delivered to MergerSub a complete and correct copy of the
resolutions of the Board of Directors of the Company to the effect that pursuant
to 203(a)(1) of the Delaware Corporate Law, the restrictions contained in
Section 203 of Delaware Corporate Law are and shall be inapplicable to the
Merger and the transactions contemplated by this Agreement, as it may be amended
from time to time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGERSUB
MergerSub represents and warrants to the Company that:
Section 5.1 CORPORATE EXISTENCE AND POWER. MergerSub is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers to execute and
deliver this Agreement and to consummate the Merger and the transactions
contemplated hereby. Since the date of its incorporation, MergerSub has not
engaged in any activities other than in connection with or as contemplated by
this Agreement and the Merger or in connection with arranging any financing
required to consummate the transactions contemplated hereby.
Section 5.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by MergerSub of this Agreement and the consummation by MergerSub of
the transactions contemplated hereby are
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within the corporate powers of MergerSub and have been duly authorized by all
necessary corporate and stockholder action. This Agreement constitutes a valid
and binding agreement of MergerSub.
Section 5.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by MergerSub of this Agreement and the consummation by MergerSub of
the transactions contemplated by this Agreement require no action by or in
respect of, or filing with, any Governmental Authority other than (a) the filing
of a certificate of merger in accordance with Delaware Corporate Law, (b)
compliance with any applicable requirements of the HSR Act; (c) compliance with
the applicable requirements of the Exchange Act; (d) compliance with the
applicable requirements of the Securities Act; (e) compliance with any
applicable foreign or state securities or Blue Sky laws; and (f) such other
items the failure of which to be obtained will not have a Material Adverse
Effect on MergerSub.
Section 5.4 NON-CONTRAVENTION. The execution, delivery and performance by
MergerSub of this Agreement and the consummation by MergerSub of the
transactions contemplated hereby do not and will not (a) contravene or conflict
with the certificate of incorporation or bylaws of MergerSub, (b) contravene,
conflict with or constitute a violation of any provision of law, regulation,
judgment, order or decree binding upon MergerSub, or (c) constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of MergerSub or to a loss of any benefit to which
MergerSub is entitled under any agreement, contract or other instrument binding
upon MergerSub which in the aggregate would have a Material Adverse Effect on
MergerSub.
Section 5.5 DISCLOSURE DOCUMENTS. None of the information supplied or to
be supplied by MergerSub for inclusion in the Company Proxy Statement will, at
the date it is first mailed to stockholders of the Company or at the time of the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
Section 5.6 LITIGATION. There is no action, suit or proceeding, claim,
arbitration or investigation against MergerSub pending or, to MergerSub's
knowledge, threatened against MergerSub or any of its properties, assets or
rights before any court, arbitrator or administrative or environmental body,
which could prevent MergerSub from consummating the transactions contemplated by
this Agreement.
Section 5.7 FINDERS' FEES. Except for the parties providing the Financing,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of MergerSub who would be
entitled to any fee or commission from MergerSub or any of its affiliates upon
consummation of the transactions contemplated by this Agreement.
Section 5.8 FINANCING. MergerSub shall have at the Closing sufficient cash
through a combination of committed capital from its investors and commitments
from financial institutions, subject to the conditions set forth in the
Financing Letters (as defined below), to enable it to pay the full Merger
Consideration as provided herein, to make all other necessary payments by it in
connection with the Merger (including the repayment of certain outstanding
indebtedness of the Surviving Corporation) and to pay all of the related fees
and expenses (the "Financing"). The Company shall use all reasonable efforts to
cooperate with and assist MergerSub in obtaining the Financing. The parties
acknowledge that financing letters from the following Persons have been
delivered to the Board of Directors of the Company: (y) Leonard Green &
Partners, L.P. and (z) DLJ Capital Funding, Inc. and DLJ Bridge Finance, Inc.
(collectively, the "Financing Letters"). Notwithstanding anything in this
Section 5.8 to the contrary, the Financing Letters delivered to the Board of
Directors of the Company on or before the date of this Agreement may be
superseded at the option of MergerSub after the date hereof but prior to the
Effective Time by letters (the "New Financing Letters") delivered to the Board
of Directors of the Company which contemplate co-investment by a third party,
which New Financing Letters shall be identical in all material respects to the
Financing Letters except for changes necessary to reflect the co-investment,
provided that the terms of the New Financing Letters shall not have any
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adverse effect upon the ability to consummate, or expand upon the conditions
precedent to, the Financing as set forth in the Financing Letters. In such
event, the term "Financing Letters" as used herein shall be deemed to refer to
the New Financing Letters.
Section 5.9 CAPITALIZATION. As of the date hereof, the authorized capital
shares of MergerSub consists of 1,000 shares of common stock, $.01 par value per
share, of which as of the date hereof there were outstanding 10 shares.
Immediately prior to the Effective Time, the authorized capital shares of
MergerSub will consist of (i) 3,500,000 shares of common stock, $.01 par value
per share, of which immediately prior to the Effective Time there will be
outstanding 2,151,516 shares and (ii) 21,000,000 shares of preferred stock, of
which immediately prior to the Effective Time there will be 2,600,000 shares
outstanding. All outstanding capital stock of MergerSub have been duly
authorized and validly issued and are fully paid and nonassessable. As of the
moment immediately prior to the Effective Time, except as set forth in this
Section 5.9, there will be, (A) no capital stock or other voting securities of
MergerSub, (B) no securities of MergerSub convertible into or exchangeable for
capital stock of MergerSub and (C) no options or other rights to acquire from
MergerSub, and no obligation of MergerSub to issue any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of MergerSub (the items referred to in clauses (A), (B) and
(C) being referred to collectively as the "MergerSub Securities"). There are no
outstanding obligations of MergerSub to repurchase. redeem or otherwise acquire
any MergerSub Securities.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 CONDUCT OF THE COMPANY. Except for matters set forth in
Section 6.1 of the Disclosure Letter or as otherwise contemplated by or
specifically provided in this Agreement, without the prior written consent of
MergerSub (which shall not be unreasonably withheld) from the date hereof to the
Effective Time, the Company shall carry on its business in the ordinary and
usual course of business and consistent with past practice and shall use its
reasonable best commercial efforts to (i) preserve intact its present business
organization, (ii) maintain in effect all material federal, state and local
Permits that are required for the Company or any of its Subsidiaries to carry on
its business, (iii) keep available the services of its key officers and
employees and (iv) maintain satisfactory relationships with its customers,
lenders, suppliers and others having material business relationships with it.
Without limiting the generality of the foregoing, and except for matters set
forth in Section 6.1 of the Disclosure Letter attached hereto or as otherwise
contemplated by or specifically provided in this Agreement, without the prior
written consent of MergerSub (which shall not be unreasonably withheld), prior
to the Effective Time, the Company shall not and shall not permit its
Subsidiaries to:
(a) adopt any change in its amended and restated certificate of
incorporation or bylaws or comparable organizational documents;
(b) except pursuant to existing agreements or arrangements (i) acquire (by
merger, consolidation, acquisition of stock or assets, joint venture or
otherwise of a direct or indirect ownership interest or investment) any
corporation, partnership or other business organization or division thereof, or
sell, lease or otherwise dispose of a material amount of assets (excluding sales
of inventory or other assets in the ordinary course of business) or securities;
(ii) waive, release, grant, or transfer any rights of material value; (iii)
modify or change in any material respect any material Permit; (iv) except to
refund or refinance commercial paper, incur, assume or prepay any indebtedness
for borrowed money except in the ordinary course of business, consistent with
past practice; (v) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for any indebtedness
for borrowed money or trade payables of any other Person, except in the ordinary
course of business consistent with past practice; (vi) make any loans, advances
or capital contributions to, or investments in, any other Person, except in the
ordinary course of business, consistent with past
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practice; (vii) authorize any capital expenditure or expenditures not in the
ordinary course of business that have not been authorized and approved prior to
the date hereof (other than the Company's computer upgrade currently in process)
which (A) individually is in excess of Five Hundred Thousand Dollars ($500,000)
or (B) in the aggregate, from the date hereof to and including October 31, 1999,
are in excess of Two Million Dollars ($2,000,000) or (C) in the aggregate,
inclusive of amounts in clause (B) above, from the date hereof to and including
January 31, 2000, are in excess of Five Million Dollars ($5,000,000); (viii)
pledge or otherwise encumber shares of capital stock of the Company or any of
its Subsidiaries; (ix) mortgage or pledge any of its material assets, tangible
or intangible, or create or suffer to exist any material Lien thereupon; (x)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice that would be material to the Company and
its Subsidiaries, taken as a whole; or (xi) amend, modify or waive in any
material respects any right under any material contract of the Company or any of
its Subsidiaries;
(c) take any action that would result in any representation and warranty of
the Company hereunder becoming untrue in any material respects as of the
Effective Time;
(d) split, combine or reclassify any shares of, declare, set aside or pay
any dividend (including, without limitation, an extraordinary dividend) or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of Company Securities or redeem, repurchase or otherwise acquire or
offer to redeem, repurchase, or otherwise acquire any Company Securities;
(e) adopt or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or employee benefit plan, agreement, trust, plan, fund or other
arrangement for the benefit and welfare of any director, officer or employee, or
increase in any manner the compensation or fringe benefits of any director,
officer or any class of employees (or support any portion thereof) or pay any
benefit not required by any existing plan or arrangement (including, without
limitation, the granting of stock options or stock appreciation rights or the
removal of existing restrictions in any benefit plans or agreements); provided,
however, that notwithstanding the foregoing, the Company shall be entitled to
adopt or amend any bonus, profit sharing, compensation, severance, deferred
compensation, termination of employment agreement for the benefit and welfare of
any individual employee (excluding officers), or increase in any manner the
compensation or fringe benefits of any such employee in each case in the
ordinary course of business and consistent with past practice;
(f) except as required by applicable Law or GAAP, revalue in any material
respect any of its assets, including writing down the value of inventory in any
material manner or write-off of notes or accounts receivable in any material
manner;
(g) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent or
otherwise) other than the payment, discharge or satisfaction in the ordinary
course of business, consistent with past practices, or as otherwise required by
the terms thereof;
(h) make any material Tax election or settle or compromise any material Tax
liability;
(i) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or results of
operations of the Company, except insofar as may have been required by a change
in GAAP;
(j) authorize for issuance, issue, sell, deliver or agree or commit to issue
sell or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any Company
Securities (except bank loans) or equity equivalents;
(k) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its Subsidiaries (other than the Merger);
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(l) alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure of ownership of any Subsidiary; or
(m) agree or commit to do any of the foregoing.
Section 6.2 STOCKHOLDER MEETING; PROXY MATERIAL. The Company shall cause a
meeting of its stockholders (the "Company Stockholder Meeting") to be duly
called and held as soon as reasonably practicable for the purpose of voting on
the adoption of this Agreement and the Merger. In connection with such meeting,
the Company (i) will as promptly as practicable prepare and file with the SEC,
will use its reasonable best efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable, the Company
Proxy Statement and all other proxy materials for such meeting, (ii) will use
its reasonable best efforts to obtain the necessary vote for adoption by its
stockholders of this Agreement and the Merger and shall take all other action
necessary or, in the reasonable opinion of MergerSub, advisable to secure any
vote of stockholders required by Delaware Corporate Law to effect the Merger and
(iii) will otherwise comply with all legal requirements applicable to such
meeting.
Section 6.3 ACCESS TO INFORMATION; RIGHT OF INSPECTION. From the date
hereof until the Effective Time, the Company will give MergerSub, its counsel,
financial advisors, auditors and other authorized representatives full access to
the offices, properties, books and records of the Company (so long as such
access does not unreasonably interfere with the operations of the Company), will
furnish to MergerSub, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct the
Company's employees, counsel and financial advisors to cooperate with MergerSub
in its investigation of the business of the Company; provided that any
information provided to MergerSub pursuant to this Section 6.3 shall be subject
to the Confidentiality Agreement.
Section 6.4 OTHER POTENTIAL ACQUIRERS.
(a) Neither the Company nor any of its affiliates shall, nor shall the
Company authorize or permit any of its or their respective officers, directors,
employees, representatives or agents to, directly or indirectly, encourage,
solicit or engage in discussions or negotiations with or provide any non-public
information to any person or group (other than MergerSub or its affiliates or
any designees of MergerSub or its affiliates) concerning any Third Party
Acquisition; provided, however, that nothing herein shall prevent the Board of
Directors of the Company from (i) taking and disclosing to the Company's
stockholders a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender or exchange offer; and (ii)
conducting such "due diligence" inquiries (which shall be in writing to the
extent possible) in response to any Third Party Acquisition proposal as the
Board of Directors of the Company determines in its good faith judgment, after
consultation with and based, among other things, upon the advice of legal
counsel, may be required in order to comply with its fiduciary duties. The
Company shall immediately notify the MergerSub in the event it receives any
proposal or inquiry concerning a Third Party Acquisition, including the terms
and conditions thereof and the identity of the party submitting such proposal,
and shall promptly update MergerSub of the status and any material developments
concerning the same, including furnishing copies of any such written inquiries.
(b) Except as set forth in this Section 6.4(b), the Board of Directors of
the Company shall not withdraw its recommendation of the transactions
contemplated hereby or approve or recommend, or cause the Company to enter into
any agreement with respect to, any Third Party Acquisition. If the Board of
Directors of the Company, by a majority disinterested vote determines in its
good faith judgment after consultation with and based, among other things, upon
the advice of legal counsel, that it is required to do so in order to comply
with its fiduciary duties, the Board of Directors of the Company may withdraw
its recommendation of the transactions contemplated hereby or approve or
recommend a Superior Proposal (as defined in subsection (c) below), but in each
case only (i) after providing written notice to MergerSub (a "Notice of Superior
Proposal") advising MergerSub that the
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Board of Directors of the Company has received a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal and (ii) if MergerSub does not, within two
(2) business days of MergerSub's receipt of the Notice of Superior Proposal,
make an offer that the Board of Directors of the Company by a majority
disinterested vote determines in its good faith judgment (after receipt of
written advice of a financial adviser of nationally recognized reputation
consistent with such determination) to be at least as favorable to the Company's
stockholders as such Superior Proposal; provided, however, that the Company
shall not be entitled to enter into any agreement with respect to a Superior
Proposal unless and until this Agreement is terminated by its terms pursuant to
Section 10.1 and the Company has paid all amounts due to MergerSub pursuant to
Section 10.2. Any disclosure that the Board of Directors of the Company may be
compelled to make with respect to the receipt of a proposal for a Third Party
Acquisition or otherwise in order to comply with its fiduciary duties or Rule
14d-9 or 14e-2 will not constitute a violation of this Agreement, provided that
such disclosure states that no action will be taken by the Board of Directors of
the Company in violation of this Section 6.4(b).
(c) For the purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than MergerSub or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
any material portion of the assets of the Company and its Subsidiaries taken as
a whole, other than the sale of its products in the ordinary course of business
consistent with past practices; (iii) the acquisition by a Third Party of ten
percent (10%) or more of the outstanding Common Stock or the issuance by the
Company of preferred stock of a new series containing terms which are
inconsistent with the consummation of the transactions contemplated by this
Agreement; (iv) the adoption by the Company of a plan of liquidation or the
declaration or payment of an extraordinary dividend; (v) the repurchase by the
Company or any of its Subsidiaries of more than ten percent (10%) of the
outstanding Shares; or (vi) the acquisition by the Company or any of its
Subsidiaries by merger, purchase of stock or assets, joint venture or otherwise
of a direct or indirect ownership interest or investment in any business whose
annual revenues, net income or assets is equal or greater than ten percent (10%)
of the annual revenues, net income or assets of the Company, other than any such
acquisition to which MergerSub has consented pursuant to Section 6.1(b). For
purposes of this Agreement, a "Superior Proposal" means any bona fide proposal
to acquire directly or indirectly for consideration consisting of cash and/ or
securities more than ten percent (10%) of the Shares then outstanding or all or
substantially all the assets of the Company and otherwise for a consideration
higher than the Merger Consideration and on terms that the Board of Directors of
the Company by a majority vote determines in its good faith judgment (after
receipt of written advice of a financial advisor of nationally recognized
reputation consistent with such determination) to be more favorable to the
Company's stockholders than the Merger.
Section 6.5 RESIGNATION OF DIRECTORS. Prior to the Effective Time, the
Company shall deliver to MergerSub evidence satisfactory to MergerSub of the
resignation of all directors of the Company (other than Greg Grosch) effective
at the Effective Time.
Section 6.6 NOTICE. Promptly after the date hereof, the Company shall
deliver to the holders of shares of its preferred stock in accordance with
Section D(d)(iii)(D)(a) of Article IV of the Company's certificate of
incorporation written notice of the pendency of an Automatic Conversion Event
within the meaning of Section D(d)(iii)(D)(a) of Article IV of the Company's
certificate of incorporation.
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ARTICLE VII
COVENANTS OF MERGERSUB
Section 7.1 VOTING OF SHARES. MergerSub agrees to vote all Shares
beneficially owned by it (including, without limitation, the shares subject to
the Voting Agreements) in favor of adoption of this Agreement at the Company
Stockholder Meeting.
Section 7.2 DIRECTOR AND OFFICER LIABILITY. The Surviving Corporation
shall honor all of the Company's obligations to indemnify and hold harmless
(including any obligations to advance funds for expenses) the present and former
officers and directors of the Company in respect of acts or omissions occurring
prior to the Effective Time to the extent provided under the Company's articles
of incorporation and bylaws in effect on the date hereof, and such obligations
shall survive the Merger and shall continue in full force and effect in
accordance with the terms of the Surviving Corporation's articles of
incorporation and bylaws from the Effective Time until the expiration of the
applicable statue of limitations with respect to any claims against such
directors or officers arising out of such acts or omissions; provided that such
indemnification shall be subject to any limitation imposed from time to time
under applicable Law. For a period of 6 years after the Effective Time, the
Surviving Corporation shall cause to be maintained the current policies of
officers' and directors' liability insurance maintained by the Company (the
"Current Policies") (provided that the Surviving Corporation may substitute
therefor policies with reputable and financially sound carriers of at least the
same coverage and amount containing terms and conditions that are no less
favorable (the "Replacement Policies")) in respect of acts or omissions
occurring prior to the Effective Time covering each such Person currently
covered by such Current Policies; provided, however, that in no event will the
Surviving Corporation be required to expend in excess of 175% of the annual
premium currently paid by the Company for such coverage (or such coverage as is
available for 175% of such annual premium); provided further that if the annual
premium required to cause the Current Policies to be maintained as provided in
this Section 7.2 exceeds 175% of the annual premium currently paid by the
Company, any present or former officer or director of the Company who desires to
be covered by the Current Policies may so elect and shall be covered by the
Current Policies so long as such former officer or director pays the portion of
the premium for such Current Policies in excess of the amount which the
Surviving Corporation is obligated to pay pursuant to this Section 7.2.
ARTICLE VIII
COVENANTS OF MERGERSUB AND THE COMPANY
The parties hereto agree that:
Section 8.1 REASONABLE BEST EFFORTS. Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Each party shall
also refrain from taking, directly or indirectly, any action which would impair
such party's ability to consummate the Merger and the other transactions
contemplated hereby. Without limiting the foregoing, the Company shall use its
reasonable best efforts to (i) take all action necessary so that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger or any of the other transactions contemplated by this Agreement and
(ii) if any state takeover statute or similar statute or regulation becomes
applicable to any of the foregoing, take all action necessary so that the Merger
and the other transactions contemplated by this Agreement may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the Merger and
the other transactions contemplated by this Agreement. Notwithstanding the
foregoing, the Board of Directors of the Company shall not be prohibited form
taking any action permitted by Section 6.4.
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Section 8.2 CERTAIN FILINGS.
(a) The Company and MergerSub shall cooperate with one another (i) in
determining whether any action by or in respect of, or filing with, any
Governmental Authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and (ii) in seeking any such actions, consent approvals or waivers or
making any such filings, furnishing information required in connection therewith
or with the Company Proxy Statement and seeking to obtain any such actions,
consents, approvals or waivers, provided, however, that the Company shall not be
required to make any material monetary expenditure or grant any material
accommodation (financial or otherwise) in connection with any of the foregoing.
(b) The Company and MergerSub shall (i) use their respective reasonable best
efforts to take or cause to be taken, (A) all actions necessary, proper or
advisable by such party with respect to the prompt preparation and filing with
the SEC of the Company Proxy Statement, (B) such actions as may be required to
have the Company Proxy Statement cleared by the SEC, as promptly as practicable,
and (C) such actions as may be required to be taken under the Exchange Act and
state securities or applicable Blue Sky Laws in connection with the Merger and
(ii) promptly prepare and file all necessary documentation, effect all necessary
applications, notices, petitions and filings, and use all reasonable efforts to
obtain all necessary permits, consents, approvals and authorizations of
Governmental Authorities (including, without limitation, any filing under the
HSR Act or any other applicable antitrust law or regulation).
(c) The Company agrees to provide and will cause its Subsidiaries and its
and their respective officers, employees and advisors to provide, (i) prior to
the Effective Date, all documents that MergerSub may reasonably request relating
to the existence of the Company and the authority of the Company for this
Agreement, all in form and substance reasonably satisfactory to MergerSub and
(ii) all necessary cooperation in connection with the arrangement of any
financing to be consummated contemporaneous with or at or after the Effective
Date in respect of the transactions contemplated by this Agreement, including
(x) participation in meetings, and due diligence sessions, (y) furnishing
information required to be included in the preparation of offering memoranda,
private placement memoranda, prospectuses and similar documents and (z) the
execution and delivery of any commitment letters, underwriting or placement
agreements, pledge and security documents, other definitive financing documents,
or other requested certificates or documents, including a certificate of the
chief financial officer of the Company with respect to solvency matters, comfort
letters of accountants and legal opinions as may be requested by MergerSub;
provided that the form and substance of any of the material documents referred
to in clause (y) and the terms and conditions of any of the material agreements
and other documents referred to in clause (z) shall be substantially consistent
with the terms and conditions of the Financing required to satisfy the condition
precedent set forth in Section 9.2(c).
Section 8.3 PUBLIC ANNOUNCEMENTS. MergerSub and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby (other
than following a change, if any, of the Board of Directors of the Company's
recommendation of the Merger (in accordance with Section 6.4(b))), and except
for any press release or public statement as may be required by applicable Law
or any listing agreement with Nasdaq, will not issue any such press release or
make any such public statement prior to such consultation.
Section 8.4 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or MergerSub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or MergerSub, any other actions and things to vest,
perfect or
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confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets of
the Company acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
Section 8.5 NOTICES OF CERTAIN EVENTS. Each of the parties hereto shall
promptly notify the other party of:
(i) the receipt by such party of any notice or other communication from
any Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) the receipt by such party of any notice or other communication from
any Governmental Authority in connection with the transactions contemplated
by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to the best of such party's knowledge threatened against, or affecting
such party which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to this Agreement or which relate
to the consummation of the transactions contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO THE MERGER
Section 9.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of the Company and MergerSub to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) This Agreement shall have been approved in accordance with the Delaware
Corporation Law by the affirmative vote of the holders of a majority in voting
interests of the Shares;
(b) Any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated; and
(c) No provision of any applicable Law and no judgment, order, decree or
injunction shall prohibit or restrain the consummation of the Merger; provided,
however, that the Company and MergerSub shall each use their reasonable best
efforts to have any such judgment, order, decree or injunction vacated.
Section 9.2 CONDITIONS TO THE OBLIGATIONS OF MERGERSUB. The obligations of
MergerSub to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) The Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained in
this Agreement shall be true in all material respects at and as of the Effective
Time (provided that representations made as of a specific date shall be required
to be true as of such date only) as if made at and as of such time and MergerSub
shall have received a certificate signed by the Chief Executive Officer and the
Chief Financial Officer of the Company to his knowledge to the foregoing effect;
(b) There shall not be pending (i) any action or proceeding by any
Governmental Authority or (ii) any action or proceeding by any other Person, in
any case referred to in clauses (i) and (ii), before any court or Governmental
Authority that has reasonable likelihood of success seeking to (w) make illegal,
to delay materially or otherwise directly or indirectly to restrain or prohibit
the consummation of the Merger or seeking to obtain material damages, (x)
restrain or prohibit MergerSub's (including its affiliates) ownership or
operation of all or any material portion of the business or assets of the
Surviving Corporation or the Company, or to compel MergerSub or any of its
affiliates to dispose of or hold separate all or any material portion of the
business or assets of the Surviving Corporation or the Company, (y) impose or
confirm material limitations on the ability of MergerSub or any of its
affiliates
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to effectively control the business or operations of the Surviving Corporation
or the Company or effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote any Shares acquired or
owned by MergerSub or any of its affiliates on all matters properly presented to
the Company's stockholders, or (z) require divestiture by MergerSub or any of
its affiliates of any material amount of Shares, and no court, arbitrator or
Governmental Authority shall have issued any judgment, order, decree or
injunction, and there shall not be any statute, rule or regulation, that, in the
sole judgment of MergerSub is likely, directly or indirectly, to result in any
of the consequences referred to in the preceding clauses (w) through (z);
provided, however, that MergerSub shall use its reasonable best efforts to have
any such judgment, order, decree or injunction vacated;
(c) MergerSub shall have obtained the Financing pursuant to Section 5.8, it
being acknowledged that if the parties to the Financing Letters or New Financing
Letters other than Leonard Green & Partners, L.P. are prepared to perform
thereon, the condition contained in this Section 9.2(c) shall be deemed to have
been satisfied;
(d) The aggregate number of Shares of the Company on the Effective Time of
the Merger, the holders of which have demanded purchase of their shares from the
Company in accordance with the provisions of the Delaware Corporate Law, shall
not equal 10% or more of the shares of the Company outstanding as of the record
date for the Company Stockholder Meeting;
(e) No change in accounting practices or policies after the date hereof
shall cause MergerSub reasonably to conclude that the Merger will not be
recorded as a recapitalization for financial reporting purposes;
(f) The Voting Agreements and the Irrevocable Proxies shall be in full force
and effect;
(g) Each of the individuals referred to in Section 2.2(c) shall have
executed and delivered to MergerSub an employment agreement substantially in the
form of EXHIBIT B;
(h) Each of the individuals referred to in Section 2.2(c) shall have
executed and delivered to MergerSub a Stockholders Agreement substantially in
the form of EXHIBIT C;
(i) The Board of Directors of the Company shall have made a determination
pursuant to Section E of Article XI of the Company's certificate of
incorporation that the transactions contemplated hereby meet the requirements of
Section C of such Article XI; and
(j) Since the date of this Agreement, there shall not have occurred any
change, event, occurrence, development or circumstance which, individually or in
the aggregate, has had, or would reasonably be expected to have, a Material
Adverse Effect on the Company.
Section 9.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to consummate the Merger is subject to the satisfaction of the
following further conditions:
(a) MergerSub shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of MergerSub contained in
this Agreement and in any certificate or other writing delivered by it pursuant
hereto shall be true in all material respects at and as of the Effective Time
(provided that representations made as of a specific date shall be required to
be true as of such date only) as if made at and as of such time and the Company
shall have received a certificate signed by the President or any Vice President
of MergerSub to the foregoing effect; and
(b) The Board of Directors of the Company shall have received advice,
reasonably satisfactory to the Board, from an independent advisor to the effect
that the transactions contemplated herein are fair and reasonable to the Company
and its stockholders.
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ARTICLE X
TERMINATION
Section 10.1 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(a) By mutual written consent of the Company on the one hand and MergerSub
on the other hand;
(b) By either the Company or MergerSub, if the Merger has not been
consummated by January 31, 2000, provided that the party seeking to exercise
such right is not then in breach in any material respect of any of its
obligations under this Agreement;
(c) By either the Company or MergerSub, if MergerSub (in the case of
termination by the Company) or the Company (in the case of termination by
MergerSub) shall have breached in any material respect any of its covenants or
obligations under this Agreement or any representation or warranty of MergerSub
(in the case of termination by the Company) or of the Company (in the case of
termination by MergerSub) shall have been incorrect in any material respect when
made or at any time prior to the Effective Time (unless such breach is capable
of cure and, in such case, the breaching party shall not have cured such breach
within 15 days after the receipt of written notice from the non-breaching party
to the breaching party of such breach);
(d) By either the Company or MergerSub, if any court of competent
jurisdiction in the United States or other United States federal or state
Governmental Entity shall have issued a final order, decree or ruling, or taken
any other final action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action is or shall have become
nonappealable;
(e) By MergerSub (i) if prior to the consummation of the Merger, the Board
of Directors of the Company shall have withdrawn, or modified or changed in a
manner adverse to MergerSub its approval or recommendation of this Agreement or
the Merger or shall have approved a Third Party Acquisition; provided, that
MergerSub shall not be entitled to terminate this Agreement pursuant to this
Section 10.1(e) solely as a result of the Company or the Board of Directors of
the Company making such disclosure to the Company's stockholders as, in good
faith judgment of the Board of Directors of the Company, after receiving advice
from outside counsel, is required under applicable law; or (ii) if there shall
have occurred a Third Party Acquisition; or (iii) if the Company, or any of the
Company's officers, directors, employees, representatives or agents, shall take
any of the actions described in the first sentence of Section 6.4(a) hereof,
other than the proviso thereto;
(f) By the Company if the Company has approved a Superior Proposal in
accordance with Section 6.4(b), provided the Company has complied with all
provisions thereof, including the notice provisions therein, and that it makes
simultaneous payment of the Expenses and the Termination Fee; or
(g) By either the Company or MergerSub if, at a duly held stockholders
meeting of the Company or any adjournment thereof at which this Agreement is
voted upon, the requisite stockholder vote in favor of the adoption of this
Agreement shall not have been obtained.
The party desiring to terminate this Agreement pursuant to Sections 10.1(b)
through (g) shall give written notice of such termination to the other party in
accordance with Section 11.1.
Section 10.2 TERMINATION FEE.
(a) Notwithstanding any other provision of this Agreement, if this Agreement
is terminated pursuant to any of Sections 10.1(e) or 10.l(f), then the Company
shall immediately pay to MergerSub a break-up fee of Twelve Million Dollars
($12,000,000) (the "Termination Fee"). The parties hereto agree
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that the Termination Fee is not a penalty, but rather is liquidated damages in a
reasonable amount that will compensate MergerSub for the costs incurred, efforts
expended and opportunities foregone while negotiating this Agreement and in
reliance on this Agreement and on the expectation of the consummation of the
transactions contemplated hereby, which amount would otherwise be impossible to
calculate with precision. In addition, if this Agreement is terminated pursuant
to Section 10.1(g), or because the stockholder's meeting contemplated therein
was never noticed or held by the Company, then in the event that, after the date
hereof and prior to such termination, either (A) a Third Party Acquisition
described in Section 6.4(c)(iii) occurs, or (B) any Third Party shall have made,
proposed, communicated or disclosed an intention to make a proposal with respect
to a Third Party Acquisition (and, if the stockholder's meeting contemplated by
Section 10.1(g) was held, in the additional circumstance where MergerSub was
unable, despite using commercially reasonable efforts, to exercise its rights
under the Voting Agreements to vote the shares covered thereby in favor of the
adoption of this Agreement) then the Company shall immediately pay to MergerSub
the Termination Fee.
(b) The Company shall pay, or reimburse MergerSub, upon submission of one or
more statements therefor, accompanied by reasonable supporting documentation,
for the amount of all out of pocket costs, fees and expenses reasonably incurred
by any of them or on their behalf arising out of, in connection with, or related
to this Agreement, the Merger and the consummation of all transactions
contemplated by this Agreement (including, without limitation, HSR Act and other
filing fees, fees and expenses of printers, accountants, financial advisors,
attorneys, consultants and appraisers, or any Person providing or proposing to
provide Financing, as well as commitment and other fees, charges and expenses of
any such Person) (the "Expenses"); provided, however, that the Company shall not
be required to pay or reimburse MergerSub for Expenses if (x) MergerSub fails in
any material respect to perform any of its material obligations under this
Agreement and has not cured such non-performance within 20 days after MergerSub
has received written notice from the Company specifying the nature of such
non-performance, or (y) MergerSub has materially breached any of the material
representations or warranties made by it in Article V, and such breach is not
cured (if the same is susceptible of being cured) within 20 days after MergerSub
has received written notice from the Company specifying the nature of such
breach or (z) the condition to closing set forth in Section 9.2(c) has not been
fulfilled, other than by reason of the failure of the Company to fulfill the
condition to closing set forth in Section 9.2(j).
Section 10.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 10.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto except to the extent that such
termination results from the willful and material breach by a party of any
representation, warranty or covenant contained in this Agreement except that the
xagreements contained in the last proviso of Section 6.3 and Sections 10.2,
10.3, 11.1, 11.4 and 11.7 shall survive the termination hereof.
ARTICLE XI
MISCELLANEOUS
Section 11.1 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given,
if to MergerSub, to:
WC Recapitalization Corp.
11111 Santa Monica Boulevard,
Suite 2000
Los Angeles, California 90025
Attention: Peter Nolan
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Telephone: (310) 954-0444
Facsimile: (310) 954-0404
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue,
Suite 4800
Los Angeles, California 90071
Attention: Jennifer Bellah Maguire, Esq.
Telephone: (213) 229-7000
Facsimile: (213) 229-7520
if to the Company, to:
White Cap Industries, Inc.
3120 Airway Avenue
Costa Mesa, CA 92626
Attention: Greg Grosch
Telephone: (714) 850-0900
Facsimile: (714) 859-1634
with a copy to:
Hogan & Hartson L.L.P.
1200 Seventeenth Street, Suite 1500
Denver, Colorado 80202
Attention: Steven A. Cohen
Telephone: (303) 899-7300
Facsimile: (303) 899-7333
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received or (ii) if given by any other
means when delivered at the address specified in this Section 11.1.
Section 11.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall survive until (but not beyond) the
Effective Time. This Section 11.2 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Effective
Time.
Section 11.3 AMENDMENTS' NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment by the Company and MergerSub or in the case
of a waiver, by the party against whom the waiver is to be effective; provided
that after the adoption of this Agreement by the stockholders of the Company,
there shall be no amendment that by law requires further approval by the
stockholders of the Company without the further approval of such stockholders.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
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Section 11.4 EXPENSES. Except as provided in Sections 6.4 and 10.2, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
Section 11.5 TRANSFER TAXES. All stock transfer, real estate transfer,
documentary, stamp, recording and other similar taxes (including interest,
penalties and additions to any such Taxes) ("Transfer Taxes") incurred in
connection with the transactions contemplated by this Agreement shall be paid by
either MergerSub or the Surviving Corporation, and the Company shall cooperate
with MergerSub in preparing, executing and filing any returns with respect to
such Transfer Taxes.
Section 11.6 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
Section 11.7 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware.
Section 11.8 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 11.9 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 11.10. SPECIFIC PERFORMANCE. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
Section 11.11 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, (i) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (ii) except for the
provisions of Article II and Section 7.2, is not intended to confer upon any
Person other than the parties any rights or remedies.
[Signature Page Follows]
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
<TABLE>
<S> <C> <C>
THE COMPANY
WHITE CAP INDUSTRIES, INC.
By: /s/ GREG GROSCH
-----------------------------------------
Name: Greg Grosch
Title:
MERGERSUB
WC RECAPITALIZATION CORP.
By: /s/ PETER J. NOLAN
-----------------------------------------
Name: Peter J. Nolan
Title: President
</TABLE>
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EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WHITE CAP INDUSTRIES, INC.
(A DELAWARE CORPORATION)
The undersigned, for the purpose of amending and restating the Certificate
of Incorporation of White Cap Industries, Inc., a Delaware corporation (the
"Corporation"), does hereby certify that:
1. The date of filing of the Corporation's original Certificate of
Incorporation with the Secretary of State of the State of Delaware was ,
under the name White Cap Holdings, Inc.
2. This Amended and Restated Certificate of Incorporation has been duly
adopted pursuant to the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
3. The Certificate of Incorporation of the Corporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
NAME OF CORPORATION
The name of this corporation is:
White Cap Industries, Inc.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington 19801, County of New
Castle, and the name of its registered agent 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 Delaware General Corporation
Law.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
SECTION 1. AUTHORIZED SHARES. The Corporation shall be authorized to issue
two classes of shares of stock to be designated, respectively, "Preferred Stock"
and "Common Stock"; the total number of shares that the Corporation shall have
authority to issue is Two Hundred Forty-Five Million (245,000,000); the total
number of shares of Preferred Stock shall be Two Hundred Ten Million
(210,000,000); and the total number of shares of Common Stock shall be
Thirty-Five Million (35,000,000), and each such share shall have a par value of
one cent ($.01).
SECTION 2. PREFERRED STOCK. The shares of Preferred Stock may be issued from
time to time in one or more series. The Board of Directors of the Corporation
(the "Board") is hereby vested with authority to fix by resolution or
resolutions prior to the issuance thereof, the designations and the powers,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including, without
limitation, the dividend rate, conversion or exchange rights, redemption price,
voting rights and liquidation preference, of any series of shares of
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Preferred Stock, and to fix the number of shares constituting any such series,
and to increase or decrease the number of shares of any such series (but not
below the number of shares thereof then outstanding). In case the number of
shares of any such series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution or resolutions originally fixing the number of shares of such series.
SECTION 3. DISTRIBUTIONS UPON LIQUIDATION. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of each series of Preferred Stock
shall be entitled to receive, out of the net assets of the Corporation, an
amount for each share of such series of Preferred Stock equal to the amount
fixed and determined by the Board in the resolution or resolutions creating such
series and providing for the issuance of such shares, and no more, before any of
the assets of the Corporation shall be distributed or paid over to the holders
of Common Stock. After payment in full of said amounts to the holders of
Preferred Stock of all series, the remaining assets and funds of the Corporation
shall be divided among and paid to the holders of shares of Common Stock. If,
upon such dissolution, liquidation or winding up, the assets of the Corporation
distributable as aforesaid among the holders of Preferred Stock of all series
shall be insufficient to permit full payment to them of said preferential
amounts, then such assets shall be distributed ratably among such holders of
Preferred Stock in proportion to the respective total amounts that they shall be
entitled to receive as provided in this Section 3.
ARTICLE V
ANNUAL MEETINGS OF STOCKHOLDERS
The annual meeting of stockholders shall be held at such time, on such date
and at such place (within or without the State of Delaware) as provided in the
bylaws of the Corporation. Subject to any requirement of applicable law, the
books of the Corporation may be kept outside the State of Delaware at such place
or places as may be designated from time to time by the Board or in the bylaws
of the Corporation.
ARTICLE VI
CALL OF SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of stockholders of the Corporation for any purpose or
purposes may be called at any time (i) by a majority of the members of the Board
or (ii) by a committee of the Board that has been duly designated by the Board
and whose power and authority, as provided in a resolution by the Board or in
the bylaws of the Corporation, includes the power to call such meetings; but
such special meetings of stockholders of the Corporation may not be called by
any other person or persons or in any other manner; PROVIDED, HOWEVER, that if
and to the extent that any special meeting of stockholders may be called by any
other Person or Persons specified in any certificate of designations filed under
Section 151(g) of the Delaware General Corporation Law (or its successor statute
as in effect from time to time), then such special meeting may also be called by
the person or persons, in the manner, at the times and for the purposes so
specified.
ARTICLE VII
ELECTION OF DIRECTORS AND OTHER STOCKHOLDER ACTION
Any election of directors need not be by written ballot unless the bylaws of
the Corporation shall so provide. No action required to be taken or which may be
taken at any meeting of the stockholders of the Corporation may be taken without
a meeting, and the power of stockholders to consent in writing without a meeting
to the taking of any action is denied.
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ARTICLE VIII
ELECTION OF DIRECTORS
SECTION 1. BALLOT. Elections of directors need not be by written ballot
unless the bylaws of the Corporation shall so provide.
SECTION 2. ELECTION OF DIRECTORS BY PREFERRED STOCKHOLDERS. During any
period when the holders of any Preferred Stock or any one or more series
thereof, voting as a class, shall be entitled to elect a specified number of
directors, by reason of dividend arrearages or other provisions giving them the
right to do so, then and during such time as such right continues (a) the then
otherwise authorized number of directors shall be increased by such specified
number of directors, and the holders of such Preferred Stock or such series
thereof, voting as a class, shall be entitled to elect the additional directors
so provided for, pursuant to the provisions of such Preferred Stock or series;
and (b) each such additional director shall serve for such term, and have such
voting powers, as shall be stated in the provisions pertaining to such Preferred
Stock or series; PROVIDED, HOWEVER, that, notwithstanding the foregoing, any
such director's term shall earlier expire upon the due election and
qualification of a successor to such director or upon any resignation,
disqualification or removal of such director in accordance with law. Whenever
the holders of shares of any series of Preferred Stock are divested of such
rights to elect a specified number of directors pursuant to the resolution or
resolutions of the Board creating such series and providing for the issuance of
such shares, the terms of office of all directors elected by the holders of such
series of Preferred Stock pursuant to such rights, or elected to fill any
vacancies resulting from the death, resignation or removal of directors so
elected by the holders of such series of Preferred Stock, shall forthwith
terminate and the authorized number of directors shall be reduced accordingly.
SECTION 3. STOCKHOLDER NOMINEES. Nominations by stockholders of persons for
election to the Board shall be made only in accordance with the procedures set
forth in the bylaws of the Corporation.
SECTION 4. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director, or the entire Board, may be
removed from office with or without cause, at any time, and only by the
affirmative vote of the holders of a majority of the shares of voting stock then
outstanding.
ARTICLE IX
LIABILITY AND INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (the "Delaware Law"), a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The Corporation
shall indemnify, in the manner and to the fullest extent permitted by the
Delaware Law, any person (or the estate of any person) who is or was a party to,
or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise. The Corporation may indemnify, in the manner
and to the fullest extent permitted by the Delaware Law, any person (or the
estate of any person) who is or was a party to, or is threatened to be made a
party to, any threatened, pending or completed action, suit or proceeding,
whether or not by or in the right of the Corporation, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. Expenses
incurred by any such director, officer, employee or agent in defending any such
action, suit or proceeding may be
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advanced by the Corporation prior to the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified as authorized by the
Delaware Law and this Article IX. The Corporation may, to the fullest extent
permitted by the Delaware Law, purchase and maintain insurance on behalf of any
such director, officer, employee or agent against any liability which may be
asserted against such person. To the fullest extent permitted by the Delaware
Law, the indemnification provided herein shall include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement and, in the
manner provided by the Delaware Law, any such expenses may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such expenses to
the fullest extent permitted by the Delaware Law, nor shall it be deemed
exclusive of any other rights to which any person seeking indemnification from
the Corporation may be entitled under any agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
No repeal or modification of the foregoing paragraph shall adversely affect
any right or protection of a director of the Corporation existing by virtue of
the foregoing paragraph at the time of such repeal or modification.
ARTICLE X
CREDITOR COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application of this Corporation or of any
creditor or stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under the provisions
of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated
Certificate of Incorporation on behalf of the Corporation and does hereby verify
and affirm, under penalty of perjury, that this Amended and Restated Certificate
of Incorporation is the act and deed of the Corporation and that the facts
stated herein are true as of , 1999.
WHITE CAP INDUSTRIES, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE>
EXHIBIT B-1
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"),
effective as of , 1999, by and between WHITE CAP INDUSTRIES II,
INC., a Delaware corporation (the "Company"), and GREG GROSCH, an individual
("Executive"), amends and restates the Amended and Restated Employment
Agreement, entered into as of November 1, 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 the date of this Agreement and ending as
provided in Section 5 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 will have the same
position with White Cap Industries, Inc. ("Holdings")) 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.
(a) Executive's base salary shall be $400,000 (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 on April 1 of each fiscal year, commencing April 1, 2000, 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
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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. Executive shall be entitled to participate in the Company's
Bonus Plan in effect from time to time which shall initially be as described in
the Stockholders Agreement of even date herewith among Executive, Holdings and
the other parties named therein.
5. TERM.
(a) The Employment Period shall end on , 2004 ("Original
Term") unless extended pursuant to Section 5(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 such date for
Cause (as hereinafter defined) or without Cause; and (iii) the Employment
Period may be terminated by Executive at any time for Good Reason or by his
resignation. 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.
(b) The Employment Period shall automatically extend for successive one
year periods (each, a "Supplemental Term") following , 2004
unless either party delivers written notice to the other party no later than
, 2004 with respect to the Original Term or 60 days 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 remainder of the Original Term or the Supplemental Term, as the case may
be, plus a supplemental severance payment equal to the product of such
remaining number of years, multiplied by the Deemed Bonus. The "Deemed
Bonus" will be an amount equal to Executive's target bonus for the fiscal
year in which Executive's employment terminates deeming that the relevant
performance triggers are met.
(d) If the Employment Period is terminated by the Company for Cause (as
defined herein) or is terminated as a result of Executive's resignation
without Good Reason, Executive shall be entitled to receive Executive's Base
Salary only through the date of termination of employment.
(e) 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 the Deemed Bonus (based on the number of days
in such bonus period prior to the termination date). 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
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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.
(f) The amount of Base Salary payable pursuant to Section 6(c) 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 Section 6(e) shall be paid within 30 days
following the termination of the Employment Period. The amount of any Deemed
Bonus payable pursuant to Section 6(c) or 6(e) shall be paid in accordance
with the Employer's normal payroll procedures as to bonuses as applied to
Executive as if he remained an employee of Employer.
(g) 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 his employment for any reason whatsoever, Executive shall
have the right to receive any accrued but unused vacation time and any and
all Benefits (to the extent required by the terms of such Benefits) due
employee pursuant to Section 3(a) as of termination. This Section 6(g) shall
have no effect on Executive's equity ownership (including stock options) in
the Company, which shall be governed by the terms of such options and of a
Stockholders Agreement between Executive, the Company and certain other
parties.
(h) For purposes of the Agreement, "Cause" shall mean (i) 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 the Company, (ii) willful misconduct by Executive causing material
harm to the 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 (iii) 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.
(i) For purposes of this Agreement, "Good Reason" means (i) 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, (ii) a reduction of compensation and
benefits that would substantially diminish the aggregate value of
Executive's compensation and benefits or (iii) relocation of the Executive's
office outside of a 25-mile radius of Costa Mesa without the Executive's
consent.
(j) Nothing in this Agreement shall be deemed to limit or otherwise
abrogate the Company's obligation to make the payments under Section 5(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 Green Equity Investors III, L.P. and its
co-investors ("GEI") or its affiliates or a group in which GEI 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 5(c) above and the Company shall be obligated to make the
specified payments pursuant to Section 5(c) upon consummation of the
transaction pursuant to which the Company is selling substantially all of
its assets.
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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 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 the
Company, White Cap Industries, Inc. ("Holdings") or any subsidiary which
Executive may then possess or have under Executive's control. In the performance
of his duties, the Executive has previously had, and may be expected in the
future to have, access to confidential or proprietary information with respect
to third parties which is subject to a duty on the Company's part to maintain
the confidentiality of such information and to use it only for certain limited
purposes (the "Third-Party Information"). Except in the performance of his
duties to the Company or its subsidiaries, the Executive shall not, during the
Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Third-Party Information. For purposes of
this Section 6, "Company" includes the Company, Holdings, and any subsidiary of
either.
7. NON-SOLICITATION. During the period ending on the later of (i) the second
anniversary of the date of the termination of Executive's employment and (ii)
the third anniversary of the effective date hereof, Executive shall not directly
or indirectly through another entity (A) induce or attempt to induce any
employee of the Company or any subsidiary to leave the employ of the Company or
such subsidiary or (B) 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 direct or indirect subsidiary of
Holdings any time during the one-year period prior to such hiring. In addition,
during the period ending on the first anniversary of the termination of
Executive's employment (the "Non-Interference Period"), Executive shall not,
directly or indirectly though another entity, 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. NONCOMPETITION. During the Non-Interference Period, the Executive will
not, directly or indirectly, engage in the business of sales, service, rental
and marketing of tools and materials to professional contractors and builders
(the "Company Business") anywhere in the states of the United States that are
west of the Mississippi River. The definition of Company Business does not
include "DIY home improvement" retailers, such as Home Depot or Home Base as
such companies are presently constituted. The Executive will be deemed to be
engaged in the Company Business if he engages in the Company Business directly
as an employee or consultant, or owns, manages, operates, joins or controls or
participates in the ownership, management or control of any other entity which
is engaged in the Company Business; PROVIDED, HOWEVER, that the Executive will
not be deemed to engage in any of the businesses of any publicly-traded
corporation solely by reason of his ownership of less than 5% of the outstanding
stock of such entity. Notwithstanding the foregoing, the provisions of this
Section 8 and of the last sentence of Section 7 shall only apply if Executive
continues to receive his Base Salary in effect immediately prior to termination
of his employment during the Non-Interference Period, unless his employment was
terminated for Cause or Executive resigned without Good Reason.
9. ENFORCEMENT. If, at the time of enforcement of Sections 7 or 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
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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 and/or Holdings or their
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 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 an 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 or any such
affiliate. 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
commercially reasonable 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 an 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, Holdings, 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
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not, without Executive's prior written consent, assign rights or delegate its
obligations under this Agreement.
14. SURVIVAL. Sections 7, 8, 9 and 10 shall survive and continue in full
force in accordance with their terms, notwithstanding any termination of the
Employment Period.
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, Corp. 3120 Airway Drive Costa Mesa,
California 92626
NOTICES TO THE COMPANY:
White Cap Industries II, Inc. c/o Leonard Green & Partners, L.P. 11111 Santa
Monica Boulevard, Suite 2000 Los Angeles, California 90025 Attention: Peter J.
Nolan
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 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 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 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.
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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.
22. 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 Employer's Nondisclosure and Invention and
Copyright Assignment Agreement, a copy of which is attached as Exhibit B.
Executive's execution of the Employer's 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 Employer and
thereafter, any other reasonable confidentiality and nondisclosure agreements
concerning the Company and any of its affiliates which the Employer 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.
WHITE CAP INDUSTRIES II, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
______________________________________
Greg Grosch
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EXHIBIT A
1. Five weeks' paid vacation;
2. Health and Dental Insurance in the plans of Executive's choice paid for by
the Company;
3. Participation in the Company's 401(k) Plan;
4. $2,000,000 Term Life Insurance with respect to which Executive shall
designate the beneficiary;
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 paid for by the Company; and
8. Health Club Membership, and associated expenses.
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EXHIBIT B-2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
, 1999 by and between WHITE CAP INDUSTRIES II, INC., a Delaware
corporation (the "Company" and "Employer"), and DAN TSUJIOKA, an individual
("Executive").
R E C I T A L S
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 on the date of this Agreement and ending as
provided in Section 5 hereof (the "Employment Period").
2. POSITION AND DUTIES.
(a) During the Employment Period, Executive shall serve as Executive
Vice President of Merchandising of the Company (and will have the same
position with White Cap Industries, Inc. ("Holdings")) 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 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.
(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) Executive's Base Salary shall be $205,275 per annum. Executive's
Base 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 April 1 of each fiscal year, commencing April 1, 2000, 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
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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. Executive will participate in the Company's Bonus Plan in effect
from time to time which shall initially be as described in the Stockholders
Agreement of even date herewith among Executive, Holdings and the other parties
named therein.
5. TERM.
(a) The Employment Period shall end on the fifth anniversary hereof;
provided that (i) the Employment Period shall terminate 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 at any time with Good Reason or by his
resignation. 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 of the Company 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.
(b) If the Employment Period is terminated without Cause by the Company
or by Executive with Good Reason, 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) 12 months and (ii) the remainder of the
Employment Period. 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 12 months from the
date of termination on the basis in effect at the date of termination of the
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
12 months from the date of termination on the basis in effect at the date of
Executive's employment at the Company's expense.
(c) If the Employment Period is terminated by the Company for Cause or
is terminated as a result of Executive's resignation without Good Reason,
Executive shall be entitled to receive Executive's Base Salary only through
the date of termination.
(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 Executive's Base Salary through
the date of termination.
(e) The amount of Base Salary payable pursuant to Sections 5(b) shall be
payable in accordance with the Company's normal payroll procedures applied
to Executive as if he remained an employee of the Company.
(f) All of Executive's rights to any other employee benefit hereunder
(except as expressly provided in the relevant plan, 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
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but unused vacation time and any and all benefits due Executive pursuant to
Section 3(a) as of termination.
(g) For purposes of the Agreement, "Cause" shall mean (i) 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 the Company, (ii) willful misconduct by Executive causing material
harm to the 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 (iii) 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.
(h) For purposes of this Agreement, "Good Reason" means (i) 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, (ii) a reduction of compensation and
benefits that would substantially diminish the aggregate value of
Executive's compensation and benefits, or (iii) relocation of Executive's
office outside of a 25-mile radius of Costa Mesa without Executive's
consent.
(i) 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 Green Equity Investors III, L.P. and its
co-investors ("GEI") or its affiliates or a group in which GEI 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 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 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 of the Company or the President of the Company
and Chief Executive Officer of Holdings, 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 and Holdings at the termination of
the Employment Period, or at any other time as the Company and/or Holdings
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 and/or Holdings or
any subsidiary which Executive may then possess or have under Executive's
control. In the performance of his duties,
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the Executive has previously had, and may be expected in the future to have,
access to confidential or proprietary information with respect to third
parties which is subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes (the "Third-Party Information"). Except in the performance of his
duties to the Company or its subsidiaries, the Executive shall not, during
the Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Third-Party Information. For purposes
of this Section 6, "Company" includes the Company, Holdings, and any
subsidiary of either.
7. NON-SOLICITATION. During the period ending on the later of (i) the second
anniversary of the termination of Executive's employment and (ii) the third
anniversary of the effective date hereof, Executive shall not directly or
indirectly through another entity (A) induce or attempt to induce any employee
of the Company or any subsidiary to leave the employ of the Company or such
subsidiary or (B) 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 direct or indirect subsidiary of the
Company or Holdings at any time during the one-year period prior to such hiring.
In addition, during the period ending on the first anniversary of the
termination of Executive's employment (the "Non-Interference Period"), Executive
shall not, directly or indirectly through another entity, 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. NONCOMPETITION. During the Non-Interference Period, the Executive will
not, directly or indirectly, engage in the business of sales, service, rental
and marketing of tools and materials to professional contractors and builders
(the "Company Business") anywhere in the states of the United States that are
west of the Mississippi River. The definition of Company Business does not
include "DIY home improvement" retailers, such as Home Depot or Home Base as
such companies are presently constituted. The Executive will be deemed to be
engaged in the Company Business if he engages in the Company Business directly
as an employee or consultant, owns, manages, operates, joins or controls or
participates in the ownership, management or control of any other entity which
is engaged in the Company Business; PROVIDED, HOWEVER, that the Executive will
not be deemed to engage in any of the businesses of any publicly-traded
corporation solely by reason of his ownership of less than 5% of the outstanding
stock of such entity. Notwithstanding the foregoing, the provisions of this
Section 8 and of the last sentence of Section 7 shall only apply if Executive
continues to receive his Base Salary in effect immediately prior to termination
of his employment during the Non-Interference Period, unless his employment was
terminated for Cause or Executive resigns without Good Reason..
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 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 and/or Holdings or their 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 and Holdings
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
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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 and
Holdings, 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 the
Company is a party or by which the Company 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. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to
the benefit of and be enforceable by Executive, the Company and Holdings 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.
12. SURVIVAL. Sections 5 through 10 survive and continue in full force in
accordance with their terms, notwithstanding any termination of the Employment
Period.
13. 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:
Dan Tsujioka
39 Rockington
Newport Beach, CA 92660
IF TO THE COMPANY:
White Cap Industries II, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: Peter J. Nolan
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.
14. 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.
A-51
<PAGE>
15. COMPLETE AGREEMENT. This Agreement 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.
16. 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.
17. CHOICE OF LAW. This Agreement will be governed by the internal law and
not the laws of conflicts, of the State of California.
18. 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 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.
19. AMENDMENT AND WAIVER. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Holdings 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.
20. 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 Employer's Nondisclosure and Invention and Copyright
Assignment Agreement, a copy of which is attached as Exhibit B. Executive's
execution of the Employer's 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 Employee and thereafter, any other reasonable
confidentiality and nondisclosure agreements concerning the Company and any of
their affiliates which the Employer promulgates for other key employees and
executives of the Company.
21. INDEMNIFICATION. During Executive's term as an 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 or any such
affiliate. 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
commercially reasonable 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 an officer of the Company, the Company shall
cause Executive to be named as an insured party under such policy.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
WHITE CAP INDUSTRIES II, INC.,
a Delaware corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
EXECUTIVE:
______________________________________
Dan Tsujioka
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<PAGE>
EXHIBIT A
1. Four weeks' paid vacation;
2. Health, medical and dental insurance paid for by the Company;
3. $800 car allowance per month;
4. Disability insurance paid for by the Company; and
5. Company obtains and pays premiums for life insurance policy equal to
Executive's annual Base Salary in effect from time to time; beneficiary to
be determined by Executive.
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<PAGE>
EXHIBIT B-3
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "AGREEMENT") is entered
into as of , 1999 by and between WHITE CAP INDUSTRIES II, INC., a
Delaware corporation (the "COMPANY"), and RICK GAGNON, an individual
("EXECUTIVE").
RECITALS
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:
AGREEMENT
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 the date of this Agreement 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 will have the
same position with White Cap Industries, Inc. ("Holdings")) 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. Executive's services pursuant to this Agreement shall be
performed in San Juan Capistrano, California, and at such other facilities
of the Company as are necessary for the Executive to perform his duties
hereunder.
(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
$320,000 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, 2000, 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.
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<PAGE>
(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. 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 30
days following the receipt of the Company's year-end audit, 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" shall be determined by the
Board of Directors based upon 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
and subject to approval by the Board of Directors. "FUTURE EBITDA" shall be
determined by the Board of Directors based upon 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. "EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization, and will be defined so as to exclude extraordinary expenses such
as those associated with an acquisition or with the present recapitalization.
5. TERM.
(a) The Employment Period shall end on the fifth anniversary hereof
("ORIGINAL TERM") unless extended as provided below; PROVIDED that (i) the
Employment Period shall terminate 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
at any time by Executive for Good Reason or by his resignation. 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. 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 120 days prior to the end of the third 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>
(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
the 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 Employment Period, as the case may be and (ii) a prorated
portion of any bonus earned through the date of such termination for the
calendar year in which the termination occurs. 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 eighteen (18) 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 resignation without Good Reason,
Executive shall be entitled to receive Executive's Base Salary only through
the date of termination.
(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 18 months of Executive's then Base
Salary and (ii) a prorated portion of any bonus payable earned through the
date of such termination for the calendar year in which the termination
occurs. 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 (d)
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 bonus payable pursuant to Sections 5(b) and (d) shall be
payable in accordance with the terms of Section 4.
(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 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 (to the extent required by the terms of such Benefits) due
Executive pursuant to Section 3(a) as of termination.
(g) For purposes of this Agreement, "CAUSE" shall mean (i) 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 the Company, (ii) willful misconduct by Executive causing
material harm to the 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 (iii) 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.
(h) For purposes of this Agreement, "GOOD REASON" means (i) the
assignment to Executive of duties substantially and materially inconsistent
with the position and nature of Executive's
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<PAGE>
employment as set forth in Section 2(a) of this Agreement, (ii) a reduction
of compensation and benefits that would substantially diminish the aggregate
value of Executive's compensation and benefits or (iii) relocation of the
Executive's office outside of a 25-mile radius of San Juan Capistrano,
California without the Executive's consent.
(i) 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 Green Equity Investors III, L.P. and its
co-investors ("GEI"), or its affiliates, or a group in which GEI 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 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. In the performance of his
duties, the Executive has previously had, and may be expected in the future to
have, access to confidential or proprietary information with respect to third
parties which is subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes (the "THIRD-PARTY INFORMATION"). Except in the performance of his
duties to the Company or its subsidiaries, the Executive shall not, during the
Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Third-Party Information. For purposes of
this Section 6, "COMPANY" includes the Company, Holdings, and any subsidiary of
either.
7. NON-SOLICITATION. During the period ending on the later of (i) the second
anniversary of the date of the termination of Executive's employment and (ii)
the third anniversary of the effective date hereof, Executive shall not directly
or indirectly through another entity (A) induce or attempt to induce any
employee of the Company or any subsidiary to leave the employ of the Company or
such subsidiary or (B) 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 direct or indirect subsidiary of
Holdings at any time during the one-year period prior to such hiring. In
addition, during the period ending on the first anniversary of the termination
of Executive's employment (the "NON-INTERFERENCE PERIOD"), Executive shall not,
directly or indirectly though another entity, induce or
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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. NONCOMPETITION. During the Non-Interference Period, the Executive will
not, directly or indirectly, engage in the business of sales, service, rental
and marketing of tools and materials to professional contractors and builders
(the "Company Business") anywhere in the states of the United States that are
west of the Mississippi River. The definition of Company Business does not
include "DIY home improvement" retailers, such as Home Depot or Home Base as
such companies are presently constituted. The Executive will be deemed to be
engaged in the Company Business if he engages in the Company Business directly
as an employee or consultant, or owns, manages, operates, joins or controls or
participates in the ownership, management or control of any other entity which
is engaged in the Company Business; PROVIDED, HOWEVER, that the Executive will
not be deemed to engage in any of the businesses of any publicly-traded
corporation solely by reason of his ownership of less than 5% of the outstanding
stock of such entity. Notwithstanding the foregoing, the provisions of this
Section 8 and of the last sentence of Section 7 shall only apply if Executive
continues to receive his Base Salary in effect immediately prior to termination
of his employment during the Non-Interference Period, unless his employment was
terminated for Cause or Executive resigned without Good Reason.
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 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 and/or Holdings or their 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. 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 tinder this Agreement.
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<PAGE>
12. SURVIVAL. Sections 5 through 10 shall survive and continue in full force
in accordance with their terms, notwithstanding any termination of the
Employment Period.
13. 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.
<TABLE>
<S> <C>
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 II, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: Peter J. Nolan
</TABLE>
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.
14. 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.
15. COMPLETE AGREEMENT. This Agreement 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.
16. 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.
17. CHOICE OF LAW. This Agreement will be governed by the internal law and
not the laws of conflicts, of the State of California.
18. 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.
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19. 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.
20. 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 B. 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 nondisclosure agreements concerning the Company and any of
its affiliates which the Company promulgates for other key employees and
executives of the Company.
21. INDEMNIFICATION. During Executive's term as an 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 or any such
affiliate. 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
commercially reasonable 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 an officer of the Company, the Company shall
cause Executive to be named as an insured party under such policy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY: WHITE CAP INDUSTRIES II, INC.,
a Delaware corporation
By:___________________________________
Greg Grosch
President
EXECUTIVE: ______________________________________
RICHARD GAGNON
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EXHIBIT A
1. Three weeks' paid vacation;
2. Health and Dental Insurance in the plans of Executive's choice paid for by
the Company;
3. Participation in the Company's 401(k) Plan;
4. Seven paid holidays yearly;
5. Participation in the Disability Insurance Plan offered to other employees of
the Company;
6. Health Club Membership, and associated expenses;
7. Company to provide a car and pay car insurance, maintenance and gas; and
8. Company obtains and pays premiums for life insurance policy equal to
Executive's annual base salary in effect from time to time; beneficiary to
be determined by Executive.
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EXHIBIT B-4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of , 1999 by and between WHITE CAP INDUSTRIES II, INC., a
Delaware corporation (the "Company" and "Employer"), and CHRIS LANE, an
individual ("Executive") and amends and restates the Employment Agreement
between the Company and Executive dated April 18, 1997.
R E C I T A L S
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 on the date of this Agreement and ending as provided in Section
4 hereof (the "Employment Period").
2. POSITION AND DUTIES.
(a) During the Employment Period, Executive shall serve as a Chief
Financial Officer and Senior Vice President of Finance of the Company (and
will have the same position with White Cap Industries, Inc. ("Holdings"))
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.
(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 and as provided
hereinbelow) 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. Notwithstanding the foregoing, the Company acknowledges and agrees
that Executive shall have the right to: (i) oversee Executive's business of
providing accounting, merger and acquisition, and consulting services
unrelated to the Company including, without limitation, Executive's
involvement in KRG Capital and its various funds and investments (KRG and
its funds and investments are referred to herein collectively as "KRG") and
(ii) participate in other passive investment activities including, without
limitation, activities related to KRG (the activities permitted by clauses
(i) and (ii) are collectively referred to herein as the "Permitted
Activities"), PROVIDED and only so long as Executive commits to and provides
at least eighty percent (80%) of his full business time and attention to the
business and affairs of the Company, and such Permitted Activities do not
(a) interfere with, or impair, Executive's discharge of his duties to the
Company, or (b) violate the provisions of Section 7. For this purpose, the
determination of whether Executive is providing at least eighty percent
(80%) of his full business time and attention to the business and affairs of
the Company shall be determined by the President of the Company, whose
determination shall take into account the spirit and intent of this section.
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3. BASE SALARY AND BENEFITS.
(a) Executive's Base Salary shall be $328,235 per annum. Executive's
Base 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, 2000, 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, which benefits shall include annual dues
for membership in a health club selected by Executive. Executive shall be
entitled to participate in the Company's Bonus Plan in effect from time to
time which shall initially be as described in the Stockholders Agreement of
even date herewith among Executive, Holdings and the other parties named
therein.
(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. TERM.
(a) The Employment Period shall end on the first anniversary hereof;
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 at any time with
Good Reason or by his resignation. 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 of the Company 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.
(b) If the Employment Period is terminated without Cause by the Company
or by Executive with Good Reason, the Executive shall be entitled to receive
his Base Salary (determined in accordance with Section 3(a)) during the
remainder of the Employment Period. 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 six (6) months from the date of termination on the basis in effect
at the date of termination of the 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 at
the Company's expense.
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(c) If the Employment Period is terminated by the Company for Cause or
is terminated as a result of Executive's resignation without Good Reason,
Executive shall be entitled to receive Executive's Base Salary only through
the date of termination.
(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 Executive's Base Salary through
the date of termination. The Executive and his dependents shall also be
entitled to any continuation of coverage rights under any applicable law.
(e) The amount of Base Salary payable pursuant to Sections 4(b) shall be
payable in accordance with the Company's normal payroll procedures applied
to Executive as if he remained an employee of the Company.
(f) All of Executive's rights to any other employee benefit hereunder
(except as expressly provided in the relevant plan, 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 Executive pursuant to
Section 3(a) as of termination.
(g) For purposes of the Agreement, "Cause" shall mean (i) 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 the Company, (ii) willful misconduct by Executive causing material
harm to the 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 (iii) 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.
(h) For purposes of this Agreement, "Good Reason" means (i) 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, (ii) a reduction of compensation and
benefits that would substantially diminish the aggregate value of
Executive's compensation and benefits or (iii) relocation of the Executive's
office outside of a 25-mile radius of Costa Mesa without the Executive's
consent.
(i) Nothing in this Agreement shall be deemed to limit or otherwise
abrogate the Company's obligation to make the payments under Section 4(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 Green Equity Investors III, L.P. and its
co-investors ("GEI") or its affiliates or a group in which GEI 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 4(b) above and the Company shall be obligated to make the
specified payments pursuant to Section 4(b) upon consummation of the
transaction pursuant to which the Company is selling substantially all of
its assets.
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5. 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 of the Company or the
President of the Company and Chief Executive Officer of Holdings, 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 and/or Holdings 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 which Executive may then possess or
have under Executive's control. In the performance of his duties, the Executive
has previously had, and may be expected in the future to have, access to
confidential or proprietary information with respect to third parties which is
subject to a duty on the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes (the "Third Party
Information"). Except in the performance of his duties to the Company or its
subsidiaries, the Executive shall not, during the Term and at all times
thereafter, directly or indirectly for any reason whatsoever, disclose or use
any such Third Party Information. For purposes of this Section 5, "Company"
includes the Company, Holdings, and any subsidiary of either.
6. NON-SOLICITATION. During the period ending on the later of (i) the second
anniversary of the termination of Executive's employment and (ii) the third
anniversary of the effective date hereof, Executive shall not directly or
indirectly through another entity (A) induce or attempt to induce any employee
of the Company or any subsidiary to leave the employ of the Company or such
subsidiary or (B) 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 direct or indirect subsidiary of
Holdings at any time during the one-year period prior to such hiring. In
addition, during the period ending on the first anniversary of the termination
of Executive's employment (the "Non-Interference Period"), Executive shall not,
directly or indirectly through another entity, 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.
7. NONCOMPETITION. During the Non-Interference Period, the Executive will
not, directly or indirectly, engage in the business of selling, servicing,
renting or marketing, to professional contractors or builders, of (i) tools or
materials and/or (ii) rebar or steel fabrication services (collectively, the
"Company Business") anywhere in the states of the United States. Except for the
activities described in clause (ii) of the preceding sentence, the Company
Business does not include the combined Manufacture and distribution or sale of
any tools or materials by an entity that does not sell or distribute any tools
or materials to professional contractors or builders except those it
Manufactures. In addition, nothing in this Agreement will prohibit or restrict
the Executive's ownership of an interest in, or provision of any services to,
any of the following entities affiliated with KRG Capital Partners LLC ("KRG"):
Terramarc Industries, Inc., Modtech Holdings, Inc., Global Employment Solutions
Inc. or either company currently or previously under letters of intent with KRG,
which companies are in the traffic control systems and manufacturing and
distribution of concrete forming chemicals and related products businesses,
respectively. A business which "Manufactures" its own goods (either entirely, or
as an assembler or integrator) or has a third party manufacture goods for sale
on a branded label basis shall be deemed to be Manufacturing its own goods. The
definition of Company Business does not include "DIY home improvement"
retailers, such as Home Depot or Home Base as such companies are presently
constituted. The Executive will be deemed to be engaged in the Company Business
if he
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engages in the Company Business directly or as an employee or consultant, owns,
manages, operates, joins or controls or participates in the ownership,
management or control of any other entity which is engaged in the Company
Business; or refers to any entity an acquisition opportunity in the Company
Business; PROVIDED, HOWEVER, that the Executive will not be deemed to engage in
any of the businesses of any publicly-traded corporation solely by reason of his
ownership of less than 5% of the outstanding stock of such entity.
Notwithstanding the foregoing, the provisions of this Section 7 and of the last
sentence of Section 6 shall only apply if Executive continues to receive his
Base Salary in effect immediately prior to termination of his employment during
the Non-Interference Period, unless his employment was terminated for Cause or
Executive resigned without Good Reason.
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 and/or Holdings or their 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 and Holdings
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 and Holdings,
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 the
Company is a party or by which the Company 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 Holdings 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 5, 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.
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IF TO EXECUTIVE:
Chris Lane
19241 Willowbrook Lane
Trabuco Canyon, CA 92679
IF TO THE COMPANY:
White Cap Industries II, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: Peter J. Nolan
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 in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
14. COMPLETE AGREEMENT. This Agreement 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 Holdings and
Executive, and no course of conduct or
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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 Employer's Nondisclosure and Invention and
Copyright Assignment Agreement, a copy of which is attached as Exhibit B.
Executive's execution of the Employer's 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 Employee and
thereafter, any other reasonable confidentiality and nondisclosure agreements
concerning the Company and any of their affiliates which the Employer
promulgates for other key employees and executives of the Company.
20. INDEMNIFICATION. During Executive's term as an 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 or any such
affiliate. 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
commercially reasonable 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 an officer of the Company, the Company shall
cause Executive to be named as an insured party under such policy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
WHITE CAP INDUSTRIES II, INC.,
a Delaware corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
EXECUTIVE:
______________________________________
Chris Lane
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EXHIBIT A
1. Five weeks' paid vacation;
2. Health and Dental Insurance in the plans of Executive's choice paid for by
the Company;
3. Participation in the Company's 401(k) Plan;
4. Seven paid holidays yearly;
5. Participation in the Disability Insurance Plan offered to other employees of
the Company paid for by the Company;
6. Health Club Membership, and associated expenses; and
7. Company obtains and pays premiums for life insurance policy equal to
Executive's annual Base Salary in effect from time to time; beneficiary to
be determined by Executive.
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EXHIBIT B-5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
______________, 1999 by and between WHITE CAP INDUSTRIES II, INC., a Delaware
corporation (the "Company" and "Employer"), and JACK KARG, an individual
("Executive").
R E C I T A L S
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 on the date of this Agreement and ending as
provided in Section 5 hereof (the "Employment Period").
2. POSITION AND DUTIES.
(a) During the Employment Period, Executive shall serve as Chief
Operations Officer of the Company (and will have the same position with White
Cap Industries, Inc. ("Holdings")) 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 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.
(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) Executive's Base Salary shall be $161,109 per annum. Executive's
Base 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 April 1 of each fiscal year, commencing April 1, 2000, 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
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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. Executive will participate in the Company's bonus Plan in
effect from time to time which shall initially be as described in the
Stockholders Agreement of even date herewith among Executive, Holdings and the
other parties named therein.
5. TERM.
(a) The Employment Period shall end on the fifth anniversary hereof;
provided that (i) the Employment Period shall terminate 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 at any time with Good Reason or by his resignation. 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 of the
Company 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.
(b) If the Employment Period is terminated without Cause by the Company
or by Executive with Good Reason, 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) 12 months and (ii) the remainder of the Employment Period.
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 12 months from the date of termination on the
basis in effect at the date of termination of the 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 12 months from the date of termination on the
basis in effect at the date of Executive's employment at the Company's expense.
(c) If the Employment Period is terminated by the Company for Cause or
is terminated as a result of Executive's resignation without Good Reason,
Executive shall be entitled to receive Executive's Base Salary only through the
date of termination.
(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 Executive's Base Salary through the
date of termination.
(e) The amount of Base Salary payable pursuant to Sections 5(b) and (d)
shall be payable in accordance with the Company's normal payroll procedures
applied to Executive as if he remained an employee of the Company.
(f) All of Executive's rights to any other employee benefit hereunder
(except as expressly provided in the relevant plan, 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 Executive pursuant to Section 3(a) as
of termination.
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(g) For purposes of the Agreement, "Cause" shall mean (i) 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 the
Company, (ii) willful misconduct by Executive causing material harm to the
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 (iii) 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.
(h) For purposes of this Agreement, "Good Reason" means (i) 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, (ii) a reduction of compensation and benefits that would
substantially diminish the aggregate value of Executive's compensation and
benefits or (iii) relocation of Executive's office outside of a 25-mile radius
of Costa Mesa without Executive's consent.
(i) 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
Green Equity Investors III, L.P. and its co-investors ("GEI") or its affiliates
or a group in which GEI 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 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 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 of the Company or the
President of the Company and Chief Executive Officer of Holdings, 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 and Holdings at the
termination of the Employment Period, or at any other time as the Company and/or
Holdings 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 and/or Holdings or any
subsidiary which Executive may then possess or have under Executive's control.
In the performance of his duties, the Executive has previously had, and may be
expected in the future to have, access to confidential or proprietary
information with respect to third parties which is subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes (the "Third-Party Information"). Except in the
performance of his duties to the Company or its subsidiaries, the Executive
shall not, during the Term and at all times thereafter,
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directly or indirectly for any reason whatsoever, disclose or use any such
Third-Party Information. For purposes of this Section 6, "Company" includes the
Company, Holdings, and any subsidiary of either.
7. NON-SOLICITATION. During the period ending on the later of (i) the
second anniversary of the termination of Executive's employment and (ii) the
third anniversary of the effective date hereof, Executive shall not directly or
indirectly through another entity (A) induce or attempt to induce any employee
of the Company or any subsidiary to leave the employ of the Company or such
subsidiary or (B) 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 direct or indirect subsidiary of
Holdings at any time during the one-year period prior to such hiring. In
addition, during the period ending on the first anniversary of the termination
of Executive's employment (the "Non-Interference Period"), Executive shall not,
directly or indirectly through another entity, 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. NONCOMPETITION. During the Non-Interference Period, the Executive will
not, directly or indirectly, engage in the business of sales, service, rental
and marketing of tools and materials to professional contractors and builders
(the "Company Business") anywhere in the states of the United States that are
west of the Mississippi River. The definition of Company Business does not
include "DIY home improvement" retailers, such as Home Depot or Home Base as
such companies are presently constituted. The Executive will be deemed to be
engaged in the Company Business if he engages in the Company Business directly
as an employee or consultant, owns, manages, operates, joins or controls or
participates in the ownership, management or control of any other entity which
is engaged in the Company Business; PROVIDED, HOWEVER, that the Executive will
not be deemed to engage in any of the businesses of any publicly-traded
corporation solely by reason of his ownership of less than 5% of the outstanding
stock of such entity. Notwithstanding the foregoing, the provisions of this
Section 8 and of the last sentence of Section 7 shall only apply if Executive
continues to receive his Base Salary in effect immediately prior to termination
of his employment during the Non-Interference Period, unless his employment was
terminated for Cause or Executive resigned without Good Reason.
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 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 and/or Holdings or their 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 and Holdings
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 and Holdings, 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
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or cause a default under any contract, agreement, instrument, order, judgment or
decree to which the Company is a party or by which the Company 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. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to
the benefit of and be enforceable by Executive, the Company and Holdings 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.
12. SURVIVAL. Sections 5 through 10 survive and continue in full force in
accordance with their terms, notwithstanding any termination of the Employment
Period.
13. 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:
Jack Karg
28322 Gitano
Mission Viejo, CA 92692
If to the Company:
White Cap Industries II, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: Peter J. Nolan
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.
14. 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.
15. COMPLETE AGREEMENT. This Agreement 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.
16. 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.
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17. CHOICE OF LAW. This Agreement will be governed by the internal law and
not the laws of conflicts, of the State of California.
18. 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 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.
19. AMENDMENT AND WAIVER. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Holdings 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.
20. 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 Employer's Nondisclosure and Invention and Copyright
Assignment Agreement, a copy of which is attached as Exhibit B. Executive's
execution of the Employer's 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 Employee and thereafter, any other reasonable
confidentiality and nondisclosure agreements concerning the Company and any of
their affiliates which the Employer promulgates for other key employees and
executives of the Company.
21. INDEMNIFICATION. During Executive's term as an 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 or any such
affiliate. 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
commercially reasonable 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 an officer of the Company, the Company shall
cause Executive to be named as an insured party under such policy.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
WHITE CAP INDUSTRIES II, INC.,
a Delaware corporation
By:___________________________________
Name:_________________________________
Title:________________________________
EXECUTIVE:
______________________________________
Jack Karg
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EXHIBIT A
1. Four weeks' paid vacation;
2. Health, medical and dental insurance paid for by the Company;
3. Company to provide car and pay car insurance, maintenance and gas;
4. Disability insurance paid for by the Company; and
5. Company obtains and pays premiums for life insurance policy equal to
Executive's annual Base Salary in effect from time to time; beneficiary to
be determined by Executive.
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EXHIBIT B-6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
______________, 1999 by and between WHITE CAP INDUSTRIES II, INC., a Delaware
corporation (the "Company" and "Employer"), and BRIAN ETTER, an individual
("Executive").
R E C I T A L S
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 on the date of this Agreement and ending as
provided in Section 5 hereof (the "Employment Period").
2. POSITION AND DUTIES.
(a) During the Employment Period, Executive shall serve as Vice
President, Finance and Operations of the Company (and will have the same
position with White Cap Industries, Inc. ("Holdings")) 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 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. In the event Executive's
duties and responsibilities are increased to a level commensurate with a chief
financial officer, the Company agrees to increase Executive's Base Salary to a
level to be determined in good faith by the Board of Directors of the Company.
(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) Executive's Base Salary shall be $130,404 per annum. Executive's
Base 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 April 1 of each fiscal year, commencing April 1, 2000, 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.
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(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. Executive will participate in the Company's bonus Plan in
effect from time to time which shall initially be as described in the
Stockholders Agreement of even date herewith among Executive, Holdings and the
other parties named therein.
5. TERM.
(a) The Employment Period shall end on the fifth anniversary hereof;
provided that (i) the Employment Period shall terminate 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 at any time with Good Reason or by his resignation. 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 of the
Company 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.
(b) If the Employment Period is terminated without Cause by the Company
or by Executive with Good Reason, 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) 12 months and (ii) the remainder of the Employment Period.
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 12 months from the date of termination on the
basis in effect at the date of termination of the 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 12 months from the date of termination on the
basis in effect at the date of Executive's employment at the Company's expense.
(c) If the Employment Period is terminated by the Company for Cause or
is terminated as a result of Executive's resignation without Good Reason,
Executive shall be entitled to receive Executive's Base Salary only through the
date of termination.
(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 Executive's Base Salary through the
date of termination.
(e) The amount of Base Salary payable pursuant to Sections 5(b) shall be
payable in accordance with the Company's normal payroll procedures applied to
Executive as if he remained an employee of the Company.
(f) All of Executive's rights to any other employee benefit hereunder
(except as expressly provided in the relevant plan, 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
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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 the Agreement, "Cause" shall mean (i) 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 the
Company, (ii) willful misconduct by Executive causing material harm to the
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 (iii) 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.
(h) For purposes of this Agreement, "Good Reason" means (i) 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, (ii) a reduction of compensation and benefits that would
substantially diminish the aggregate value of Executive's compensation and
benefits or (iii) relocation of Executive's office outside of a 25-mile radius
of Costa Mesa without Executive's consent.
(i) 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
Green Equity Investors III, L.P. and its co-investors ("GEI") or its affiliates
or a group in which GEI 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 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 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 of the Company or the
President of the Company and Chief Executive Officer of Holdings, 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 and Holdings at the
termination of the Employment Period, or at any other time as the Company and/or
Holdings 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 and/or Holdings or any
subsidiary which Executive may then possess or have under Executive's control.
In the performance of his duties, the Executive has previously had, and may be
expected in the future to have, access to confidential or proprietary
information with respect to third parties which is subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain
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limited purposes (the "Third-Party Information"). Except in the performance of
his duties to the Company or its subsidiaries, the Executive shall not, during
the Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Third-Party Information. For purposes of
this Section 6, "Company" includes the Company, Holdings, and any subsidiary of
either.
7. NON-SOLICITATION. During the period ending on the later of (i) the
second anniversary of the termination of Executive's employment and (ii) the
third anniversary of the effective date hereof, Executive shall not directly or
indirectly through another entity (A) induce or attempt to induce any employee
of the Company or any subsidiary to leave the employ of the Company or such
subsidiary or (B) 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 direct or indirect subsidiary of
Holdings at any time during the one-year period prior to such hiring. In
addition, during the period ending on the first anniversary of the termination
of Executive's employment (the "Non-Interference Period"), Executive shall not,
directly or indirectly through another entity, 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. NONCOMPETITION. During the Non-Interference Period, the Executive will
not, directly or indirectly, engage in the business of sales, service, rental
and marketing of tools and materials to professional contractors and builders
(the "Company Business") anywhere in the states of the United States that are
west of the Mississippi River. The definition of Company Business does not
include "DIY home improvement" retailers, such as Home Depot or Home Base as
such companies are presently constituted. The Executive will be deemed to be
engaged in the Company Business if he engages in the Company Business directly
as an employee or consultant, owns, manages, operates, joins or controls or
participates in the ownership, management or control of any other entity which
is engaged in the Company Business; PROVIDED, HOWEVER, that the Executive will
not be deemed to engage in any of the businesses of any publicly-traded
corporation solely by reason of his ownership of less than 5% of the outstanding
stock of such entity. Notwithstanding the foregoing, the provisions of this
Section 8 and of the last sentence of Section 7 shall only apply if Executive
continues to receive his Base Salary in effect immediately prior to termination
of his employment during the Non-Interference Period, unless his employment was
terminated for Cause or Executive resigned without Good Reason.
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 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 and/or Holdings or their 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 and Holdings, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms.
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(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 the Company
is a party or by which the Company 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. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to
the benefit of and be enforceable by Executive, the Company and Holdings 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.
12. SURVIVAL. Sections 5 through 10 survive and continue in full force in
accordance with their terms, notwithstanding any termination of the Employment
Period.
13. 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.
<TABLE>
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If to Executive:
- - - -----------------------------------------------------------------
Brian Etter
8253 Deershire Court
Orange, CA 92869
If to the Company:
- - - -----------------------------------------------------------------
White Cap Industries II, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: Peter J. Nolan
</TABLE>
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.
14. 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.
15. COMPLETE AGREEMENT. This Agreement 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.
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16. 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.
17. CHOICE OF LAW. This Agreement will be governed by the internal law and
not the laws of conflicts, of the State of California.
18. 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 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.
19. AMENDMENT AND WAIVER. The provisions of this Agreement may be amended
or waived only with the prior written consent of the Company and Holdings 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.
20. 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 Employer's Nondisclosure and Invention and
Copyright Assignment Agreement, a copy of which is attached as Exhibit B.
Executive's execution of the Employer's 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 Employee and
thereafter, any other reasonable confidentiality and nondisclosure agreements
concerning the Company and any of their affiliates which the Employer
promulgates for other key employees and executives of the Company.
21. INDEMNIFICATION. During Executive's term as an 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 or any such
affiliate. 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
commercially reasonable 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 an officer of the Company, the Company shall
cause Executive to be named as an insured party under such policy.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
WHITE CAP INDUSTRIES II, INC.,
a Delaware corporation
By:___________________________________
Name:_________________________________
Title:________________________________
EXECUTIVE:
______________________________________
Brian Etter
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<PAGE>
EXHIBIT A
1. Three weeks' paid vacation;
2. Health, medical and dental insurance paid for by the Company;
3. $600 car allowance per month;
4. Company obtains and pays premiums for $1,000,000 life insurance policy the
beneficiary of which shall be determined by the Executive; and
5. Disability insurance paid for by the Company.
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<PAGE>
EXHIBIT C
FORM OF
STOCKHOLDERS AGREEMENT
DATED AS OF _________________, 1999
among
GREEN EQUITY INVESTORS III, L.P.
WHITE CAP INDUSTRIES, INC.
and
CERTAIN STOCKHOLDERS
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TABLE OF CONTENTS
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ARTICLE 1. BOARD OF DIRECTORS........................................................................... 1
1.1 Board of Directors....................................................................... 1
1.2 Incentive Plans.......................................................................... 1
ARTICLE 2. RESTRICTIONS ON TRANSFER..................................................................... 1
2.1 General Restrictions on Transfer......................................................... 1
2.2 Compliance with Securities Laws.......................................................... 2
2.3 Agreement to be Bound.................................................................... 2
2.4 Tag-Along Rights for the Management Parties.............................................. 2
2.4.1 Right to Participate in Sale........................................................... 2
2.4.2 Sale Notice............................................................................ 3
2.4.3 Tag-Along Notice....................................................................... 4
2.4.4 Delivery of Certificates............................................................... 4
2.4.5 Exempt Transfers....................................................................... 4
2.5 Cooperation.............................................................................. 4
2.6 Improper Transfer........................................................................ 5
2.7 Involuntary Transfer..................................................................... 5
2.8 First Option............................................................................. 5
2.8.1 First Option........................................................................... 5
2.8.2 No Waiver.............................................................................. 6
2.8.3 Exempt Transfers....................................................................... 6
2.9 Call Option.............................................................................. 6
ARTICLE 3. DRAG-ALONG SALES............................................................................. 8
3.1 Right of Purchaser to Require Sale....................................................... 8
3.2 Drag-Along Notice........................................................................ 9
3.3 Delivery of Certificates................................................................. 9
3.4 Consideration............................................................................ 9
3.5 Cooperation.............................................................................. 9
ARTICLE 4. REGISTRATION RIGHTS.......................................................................... 10
4.1 Definitions.............................................................................. 10
4.2 Demand Registrations..................................................................... 11
4.2.1 Number of Registrations................................................................ 11
4.2.2 Registration........................................................................... 12
4.2.3 Inclusion of Registrable Shares........................................................ 13
4.2.4 Priority on Demand Registrations....................................................... 13
4.2.5 Compliance............................................................................. 14
4.3 Piggyback Registration................................................................... 14
4.3.1 Right to Include Registrable Shares.................................................... 14
4.3.2 Priority on Piggyback Registrations.................................................... 14
4.4 Registration Statement................................................................... 16
4.5 Registration Procedures.................................................................. 17
4.6 Holdback Agreements...................................................................... 21
4.7 Registration Expenses.................................................................... 21
4.8 Conditions to Holder's Rights............................................................ 22
4.8.1 Cooperation............................................................................ 22
4.8.2 Undertakings........................................................................... 22
</TABLE>
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4.8.3 Indemnification........................................................................ 22
4.9 Indemnification.......................................................................... 22
4.9.1 Indemnification by the Company......................................................... 23
4.9.2 Indemnification by Holders of Registrable Shares....................................... 24
4.9.3 Conduct of Indemnification Proceedings................................................. 24
4.9.4 Contribution........................................................................... 24
4.9.5 Underwriting Agreement to Govern....................................................... 25
4.10 Rule 144................................................................................ 25
ARTICLE 5. REPRESENTATIONS AND WARRANTIES............................................................... 25
5.1 Representations and Warranties of the Company............................................ 25
5.1.1 Organization........................................................................... 25
5.l.2 Authority.............................................................................. 25
5.1.3 Binding Obligation..................................................................... 25
5.1.4 No Conflict............................................................................ 26
5.2 Representations and Warranties of the Stockholders....................................... 26
5.2.1 Organization........................................................................... 26
5.2.2 Authority.............................................................................. 26
5.2.3 Binding Obligation..................................................................... 26
5.2.4 No Conflict............................................................................ 26
ARTICLE 6. TERMINATION OF AGREEMENT..................................................................... 26
6.1 Termination.............................................................................. 26
ARTICLE 7. GENERAL...................................................................................... 26
7.1 Recapitalization, Exchanges, etc., Affecting the Shares.................................. 26
7.2 Injunctive Relief........................................................................ 26
7.3 Notices.................................................................................. 27
7.4 Legend................................................................................... 27
7.5 Transferees Bound........................................................................ 27
7.6 Amendment; Waiver........................................................................ 28
7.7 Additional Documents; Further Changes.................................................... 28
7.8 No Third-Party Benefits.................................................................. 28
7.9 Successors and Assigns................................................................... 28
7.10 Severability............................................................................ 28
7.11 Integration............................................................................. 28
7.12 Governing Law........................................................................... 28
7.13 Attorneys' Fees......................................................................... 28
7.14 Headings................................................................................ 29
7.15 Information for Notices................................................................. 29
7.16 Counterparts............................................................................ 29
7.17 Consent to Jurisdiction................................................................. 29
7.18 No Inconsistent Agreements.............................................................. 29
7.19 Certain Distributions Exempt............................................................ 29
7.20 Certain Limitations..................................................................... 29
7.21 Loan by the Company in the Event of Certain Liability................................... 29
7.22 Information Regarding Beneficial Ownership.............................................. 30
7.23 No Tax Advice........................................................................... 30
</TABLE>
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<PAGE>
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "AGREEMENT") is entered into as of
, 1999, by and among Green Equity Investors III, L.P., a Delaware
limited partnership (the "PURCHASER"), , ,
, and (collectively, the "MANAGEMENT STOCKHOLDERS"
and individually, a "MANAGEMENT STOCKHOLDER") and White Cap Industries, Inc., a
Delaware corporation (the "COMPANY"). Each of the parties to this Agreement
(other than the Company) and any other Person (as defined in Section 4.1) who
shall become a party to or agree to be bound by the terms of this Agreement
after the date hereof is sometimes hereinafter referred to as a "STOCKHOLDER".
RECITALS
Concurrently with the execution of this Agreement, the Company and WC
Recapitalization Corp., a wholly-owned subsidiary of the Purchaser ("MERGERSUB")
will consummate the transactions contemplated by that certain Agreement and Plan
of Merger dated July , 1999 (the "MERGER AGREEMENT") . The execution and
delivery of this Agreement is a condition to the MergerSub's obligations under
the Merger Agreement.
Following the consummation of the transactions contemplated by the Merger
Agreement, the Purchaser and the Management Stockholders will own shares
of Common Stock, par value $.01 per share, of the Company (the "COMMON STOCK")
and Purchaser and the Management Stockholders will own shares of
Preferred Stock of the Company (the "PREFERRED STOCK"). Shares of Common Stock
are collectively referred to as the "COMMON SHARES," shares of Preferred Stock
are collectively referred to as the "PREFERRED SHARES" and Common Shares and
Preferred Shares are collectively referred to as the "SHARES".
The Company and each of the Stockholders desire, for their mutual benefit
and protection, to enter into this Agreement to set forth their respective
rights and obligations with respect to their Shares (whether issued or acquired
hereafter, including all shares of Common Stock issuable upon the exercise of
warrants, options or other rights to acquire shares of Common Stock, or upon the
conversion or exchange of any security ("RIGHTS")).
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1. BOARD OF DIRECTORS
1.1 BOARD OF DIRECTORS. The Board of Directors of the Company to be
constituted upon the consummation of the transactions contemplated by the Merger
Agreement will include , , ,
, and [three nominees of the Purchaser and two
nominees of the Management Stockholders]. Each Stockholder agrees to vote all
shares of capital stock owned by such Stockholder from time to time at each
election of members of the Board of Directors of the Company in favor of two
nominees selected by the Management Stockholders (one of whom shall be Greg
Grosch, so long as he serves as President and Chief Executive Officer of the
Company).
1.2 INCENTIVE PLANS. On or promptly after the date hereof, the Company
will adopt the bonus plan and stock option plan as summarized on Exhibit A
hereto.
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ARTICLE 2. RESTRICTIONS ON TRANSFER
2.1 GENERAL RESTRICTIONS ON TRANSFER. Each Stockholder agrees that such
Stockholder will not, directly or indirectly, sell, hypothecate, give, bequeath,
transfer, assign, pledge or in any other way whatsoever encumber or dispose of
(any such event, a "TRANSFER") any Shares now or hereafter at any time owned by
such Stockholder (or any interest therein) to another Person ("TRANSFEREE"), to
the extent such Transfer is prohibited by this Agreement. The Company shall not
transfer upon its books any Shares to any Person to the extent prohibited by
this Agreement and any purported transfer in violation hereof shall be null and
void and of no effect. Each Management Stockholder represents and warrants to
the Purchaser and the Company that the Shares owned by such Management
Stockholder were acquired by such Management Stockholder for investment only and
not with a view to any public distribution thereof, and there is not any current
plan or intention on the part of such Management Stockholder to offer to sell,
exchange or otherwise dispose of the Shares owned by such Management Stockholder
in violation of any of the registration requirements of the Securities Act of
1933, as amended, or any comparable state of foreign securities laws.
2.2 COMPLIANCE WITH SECURITIES LAWS. No Stockholder shall Transfer any
Shares, and the Company shall not transfer on its books any Shares, unless (a)
the Transfer is pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or any similar federal statute, and the
rules and regulations of the Commission (as defined in Section 4.1) thereunder,
all as the same shall be in effect at the time (the "SECURITIES ACT") and is in
compliance with any applicable state securities or blue sky laws or (b) such
Stockholder shall have furnished the Company with an opinion of counsel, to the
extent reasonably required by the Company, which opinion and counsel shall be
reasonably satisfactory to the Company, to the effect that no such registration
is required because of the availability of an exemption from registration under
the Securities Act; PROVIDED that any Transfer by a Stockholder which is a
state-sponsored employee benefit plan to a successor trust or fiduciary or
pursuant to a statutory reconstitution or which is permitted hereunder pursuant
to the provisions of Section 2.8.3(i) shall be expressly permitted and no
opinions of counsel shall be required in connection therewith. As used in this
Agreement, the term "AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with such Person. For purposes of this Agreement, the term "CONTROL,"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY,"
and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
2.3 AGREEMENT TO BE BOUND. No Transfer of Shares by a Stockholder shall be
effective (and the Company shall not transfer on its books any Shares) unless
(i) the certificates representing such Shares issued to the Transferee shall
bear the legend provided in Section 7.4, if required by such Section 7.4, and
(ii) the Transferee shall have executed and delivered to the Company, as a
condition precedent to such Transfer, an instrument or instruments in form and
substance satisfactory to the Company confirming that the Transferee agrees to
be bound by the terms of this Agreement and accepts the rights and obligations
set forth hereunder, PROVIDED, HOWEVER, that the conditions set forth in this
Section 2.3 shall not apply to any sale of Shares pursuant to an effective
registration statement under the Securities Act or, PROVIDED such sale is (x)
not to an affiliate of the Company and (y) not made prior to a Public Offering
Event (as defined in Section 2.4.5), pursuant to Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or any other similar
regulation hereafter adopted by the SEC ("RULE 144").
2.4 TAG-ALONG RIGHTS FOR THE MANAGEMENT PARTIES.
2.4.1 RIGHT TO PARTICIPATE IN SALE. (a) Purchaser, its affiliates and its
limited partner transferees are sometimes referred to in this Agreement,
collectively, as the "PURCHASER PARTIES" and, individually,
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as a "PURCHASER PARTY." The Management Stockholders and their respective
spouses, descendants and ancestors and any trusts solely for the benefit of any
or all of the foregoing are sometimes referred to in this Agreement,
collectively, as the "MANAGEMENT PARTIES" and, individually, as a "MANAGEMENT
PARTY." If all previous transfers for value of Common Shares and/or Preferred
Shares made by any Purchaser Party, together with any transfers for value of
Common Shares and/or Preferred Shares proposed to be made by any Purchaser
Party, results in the transfer, in the aggregate for all such transactions, of
at least ten percent (10%) of the outstanding Common Shares or Preferred Shares,
as the case may be (such sale or other disposition for value being referred to
as a "TAG-ALONG SALE"), then such Purchaser Parties shall afford the Management
Parties (each, individually, a "TAG-ALONG STOCKHOLDER" and, collectively, the
"TAG-ALONG STOCKHOLDERS") the opportunity to participate proportionately in such
Tag-Along Sale in accordance with this Section 2.4. The number (the "TAG-ALONG
ALLOTMENT") of Common Shares that each Tag-Along Stockholder will be entitled to
include in such Tag-Along Sale shall be determined by multiplying (i) the number
of Common Shares held by such Tag-Along Stockholder as of the close of business
on the day immediately prior to the Tag-Along Notice Date (as hereinafter
defined) by (ii) a fraction, the numerator of which shall equal the number of
Common Shares proposed by the Purchaser Parties to be sold or otherwise disposed
of pursuant to the Tag-Along Sale and the denominator of which shall equal the
total number of Common Shares that are beneficially owned by the Purchaser
Parties as of the close of business on the day immediately prior to the
Tag-Along Notice Date (the "COMMON SHARES PURCHASER FRACTION"). The Tag-Along
Allotment of Preferred Shares shall be determined by multiplying (i) the number
of Preferred Shares held by such Tag-Along Stockholder as of the close of
business on the day immediately prior to the Tag-Along Notice Date (as
hereinafter defined) by (ii) a fraction, the numerator of which shall equal the
number of Preferred Shares proposed by the Purchaser Parties to be sold or
otherwise disposed of pursuant to the Tag-Along Sale and the denominator of
which shall equal the total number of Preferred Shares that are beneficially
owned by the Purchaser Parties as of the close of business on the day
immediately prior to the Tag-Along Notice Date (the "PREFERRED SHARES PURCHASER
FRACTION"). Notwithstanding the foregoing, if any of the Management Parties
fails to elect to participate in a Tag-Along Sale, Purchaser shall give notice
of such failure to the other Tag-Along Stockholders. Such notice shall be made
by telephone and confirmed in writing within two (2) days. The other Tag-Along
Stockholders shall have three (3) days from the date such notice was given to
agree to sell their pro rata share of any unsold portion. For purposes of this
Section 2.4.1, (i) a Tag-Along Stockholder's pro rata share of any unsold
portion of Common Shares shall be equal to the number of shares obtained by
DIVIDING (A) the Common Shares Purchaser Fraction TIMES the total number of
Common Shares that are held by the Management Parties that are not participating
in the Tag-Along Sale BY (B) the number of Tag-Along Stockholders that are
participating in the Tag-Along Sale with respect to Common Shares and (ii) a
Tag-Along Stockholder's pro rata share of any unsold portion of Preferred Shares
shall be equal to the number of shares obtained by DIVIDING (A) the Preferred
Shares Purchaser Fraction TIMES the total number of Preferred Shares that are
held by the Management Parties that are not participating in the Tag-Along Sale
BY (B) the number of Tag-Along Stockholders that are participating in the
Tag-Along Sale with respect to Preferred Shares.
2.4.2 SALE NOTICE. The relevant Purchaser Parties shall provide each
Tag-Along Stockholder and the Company with written notice (the "TAG-ALONG SALE
NOTICE") not more than sixty (60) days nor less than thirty (30) days prior to
the proposed date of the Tag-Along Sale (the "TAG-ALONG SALE DATE"). Each
Tag-Along Sale Notice shall be accompanied by a copy of any written agreement
relating to the Tag-Along Sale and shall set forth: (i) the name and address of
each proposed Transferee of Shares in the Tag-Along Sale; (ii) the number of
Common Shares and/or Preferred Shares proposed to be Transferred by such
Purchaser Parties; (iii) the proposed amount and form of consideration to be
paid for such Shares and the terms and conditions of payment offered by each
proposed Transferee; (iv) the aggregate number of Common Shares and/or Preferred
Shares held of record by the Purchaser Parties as of the close of business on
the day immediately prior to the date of the Tag-Along Notice (the "TAG-
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ALONG NOTICE DATE"); (v) the Tag-Along Stockholder's Tag-Along Allotment
assuming the Tag-Along Stockholder elected to sell the maximum number of Common
Shares and/or Preferred Shares possible; (vi) confirmation that the proposed
Transferee has been informed of the "Tag-Along Rights" provided for herein and
has agreed to purchase Shares from any Tag-Along Stockholder in accordance with
the terms hereof; and (vii) the Tag-Along Sale Date.
2.4.3 TAG-ALONG NOTICE. Any Tag-Along Stockholder wishing to participate
in the Tag-Along Sale shall provide written notice (the "TAG-ALONG NOTICE") to
the relevant Purchaser Parties no more than ten (10) business days after receipt
of the Tag-Along Sale Notice. The Tag-Along Notice shall set forth the number of
Shares that such Tag-Along Stockholder elects to include in the Tag-Along Sale,
which shall not exceed such Tag-Along Stockholder's applicable Tag-Along
Allotment. The Tag-Along Notice given by any Tag-Along Stockholder shall
constitute such Tag-Along Stockholder's binding agreement to sell the Shares
specified in the Tag-Along Notice on the terms and conditions applicable to the
Tag-Along Sale; PROVIDED, HOWEVER, that in the event that there is any material
change in the terms and conditions of such Tag-Along Sale applicable to the
Tag-Along Stockholder (including, but not limited to, any decrease in the
purchase price that occurs other than pursuant to an adjustment mechanism set
forth in the agreement relating to the Tag-Along Sale) after such Tag-Along
Stockholder gives its Tag-Along Notice, then, notwithstanding anything herein to
the contrary, the Tag-Along Stockholder shall have the right to withdraw from
participation in the Tag-Along Sale with respect to all of its Shares affected
thereby. If the proposed Transferee does not consummate the purchase of all of
the Shares requested to be included in the Tag-Along Sale by any Tag-Along
Stockholder on the same terms and conditions applicable to the Purchaser
Parties, then such Purchaser Parties shall not consummate the Tag-Along Sale of
any of its Shares to such Transferee, unless the Shares of such Purchaser
Parties and the Tag-Along Stockholders to be sold are reduced or limited PRO
RATA in proportion to the respective number of Shares actually sold in any such
Tag-Along Sale and all other terms and conditions of the Tag-Along Sale are the
same for such Purchaser Parties and the Tag-Along Stockholders.
If a Tag-Along Notice from any Tag-Along Stockholder is not received by
such Purchaser Parties within the ten (10) business day period specified above,
such Purchaser Parties shall have the right to consummate the Tag-Along Sale
without the participation of such Tag-Along Stockholder, but only on terms and
conditions which are no more favorable in any material respect to such Purchaser
Parties (and, in any event, at no greater a purchase price, except as the
purchase price may be adjusted pursuant to the agreement relating to the
relevant Tag-Along Sale) than as stated in the Tag-Along Sale Notice and only if
such Tag-Along Sale occurs on a date within sixty (60) days of the Tag-Along
Sale Date. If such Tag-Along Sale does not occur within such sixty (60) day
period, the Shares that were to be subject to such Tag-Along Sale thereafter
shall continue to be subject to all of the restrictions contained in this
Section 2.4.
2.4.4 DELIVERY OF CERTIFICATES. On the Tag-Along Sale Date, each Tag-Along
Stockholder shall deliver a certificate or certificates for the Shares to be
sold by such Tag-Along Stockholder in connection with the Tag-Along Sale, duly
endorsed for transfer with signatures guaranteed, to the Transferee in the
manner and at the address indicated in the Tag-Along Notice against delivery of
the purchase price for such Shares.
2.4.5 EXEMPT TRANSFERS. The provisions of this Section 2.4 shall not
apply:
(i) to any sale or other disposition of Shares by and exclusively among
Purchaser Parties;
(ii) to any sale of Shares to the public pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144; or
(iii) from and after a Public Offering Event. For the purposes of this
Agreement, a "PUBLIC OFFERING EVENT" shall mean the first date after which
at least twenty percent (20%) of the Company's outstanding shares of Common
Stock is publicly held and such Common Stock is listed
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or admitted to trading on a national securities exchange or quoted on the
National Association of Securities Dealers, Inc.'s National Market System or
Small Capitalization System.
2.5 COOPERATION. (i) The Company will provide reasonable assistance to
any Management Party or any Purchaser Party seeking to sell its Shares, PROVIDED
that the Company shall not be required to provide any confidential information
to any prospective purchaser who has not executed a confidentiality agreement in
form reasonably satisfactory to the Company. Any reasonable out-of-pocket costs
to the Company of providing such assistance shall be paid pro rata by each
Stockholder seeking to sell its Shares. The Company will also cooperate with any
Management Party or any Purchaser Party in having all stop transfer instructions
or notations and restrictive legends lifted in connection with the sale (other
than to an affiliate of the Company) of Shares pursuant to Rule 144 promulgated
under the Securities Act; PROVIDED that in such a case the selling Stockholder
shall be required to provide the Company with the opinion provided for in
Section 2.2(b).
(ii) Any Management Party seeking to sell its Shares shall enter into an
agreement in connection with a Tag-Along Sale containing customary
representations, warranties, indemnities and agreements as requested by the
purchaser in such Tag-Along Sale.
2.6 IMPROPER TRANSFER. Any attempt to Transfer or otherwise encumber any
Shares in violation of this Agreement shall be null and void and neither the
Company nor any transfer agent of such Shares shall give any effect to such
attempted Transfer or encumbrance in its stock records.
2.7 INVOLUNTARY TRANSFER. In the case of any Transfer of title or
beneficial ownership of Shares upon default, foreclosure, forfeit, court order,
or otherwise than by a voluntary decision on the part of a Stockholder (an
"INVOLUNTARY TRANSFER"), such Stockholder (or his legal representatives) shall
promptly (but in no event later than two (2) Business Days after such
Involuntary Transfer) furnish written notice to the Company indicating that the
Involuntary Transfer has occurred, specifying the name of the Person to whom
such Shares have been transferred, giving a detailed description of the
circumstances giving rise to, and stating the legal basis for, the Involuntary
Transfer.
2.8 FIRST OPTION.
2.8.1 FIRST OPTION. (a) No Management Party shall Transfer any Shares
except as specifically permitted by this Section 2.8. If at any time any
Management Party (a "SELLING PARTY") desires to sell or otherwise dispose of for
value all or any part of the Shares held by such Selling Party, and such Selling
Party shall have received an irrevocable and unconditional bona fide arm's
length written offer (the "BONA FIDE OFFER") for the purchase of such Shares for
consideration from any third party unaffiliated with such Selling Party (an
"OUTSIDE PARTY"), the Selling Party shall provide written notice (the "SALE
NOTICE") to each of (i) Purchaser (together with its assigns, the "PURCHASER
BUYER") and (ii) the Company (each of Purchaser Buyer and the Company a
"POTENTIAL BUYER") setting forth such desire to sell or otherwise dispose of for
value such Shares, which Sale Notice shall be accompanied by a photocopy of the
original Bona Fide Offer and shall set forth at least the name and address of
the Outside Party and the price and terms of such Bona Fide Offer. Upon the
giving of such Sale Notice, each Potential Buyer shall, subject to the
priorities set forth below, have the option (which option (the "PURCHASE
OPTION"), in the case of Purchaser only, shall be assignable at Purchaser's sole
discretion) to purchase all, but not less than all, of such Shares specified in
the Sale Notice, on the same terms and conditions, including but not limited to
the offer price for the Shares, of the Bona Fide Offer. Each Potential Buyer
shall have thirty (30) days from receipt of the Sale Notice to provide written
notice (the "ACCEPTANCE NOTICE") to such Selling Party of its desire to exercise
such Purchase Option. If more than one Potential Buyer shall deliver an
Acceptance Notice within such thirty (30) day period, the priority as among the
Potential Buyers to match the Bona Fide Offer and purchase such Shares shall be,
to the extent such Potential Buyers have delivered Acceptance Notices, FIRST,
the Purchaser Buyer and, SECOND, the Company.
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If a Potential Buyer or Potential Buyers, as applicable, elects to
purchase, in the aggregate, all of the Shares covered by the Bona Fide Offer on
the terms and conditions set forth in the Sale Notice, the Potential Buyer(s)
entitled to purchase such Shares (the "CHOSEN BUYER(S)") shall be determined in
accordance with the priorities set forth above and such Chosen Buyer(s) shall be
obligated to purchase, and such Selling Party shall be obligated to sell, such
Shares at the price and terms specified in the Sale Notice. The closing of the
purchase by the Chosen Buyer(s) shall be held on a Business Day within ninety
days (90) days after the giving of the relevant Acceptance Notice, at the
principal offices of the Chosen Buyer(s), or at such other time and place as may
be mutually agreed to by the Chosen Buyer(s) and the Selling Party.
If no Acceptance Notice(s) is (are) delivered within the periods
specified above by one or more Potential Buyer(s), as applicable, with respect
to all (but not less than all) of the Shares included in the Sale Notice, the
Selling Party shall, upon compliance with the provisions of Section 2.3, have
the right to consummate the sale of all (but not less than all) of the Shares
covered by the Sale Notice to the Outside Party but only at the price and upon
terms and conditions no less favorable to the Selling Party than those contained
in the Sale Notice (PROVIDED that the purchase price must be payable solely in
cash) and only if such sale occurs on a date within ninety (90) days of the date
of the Sale Notice; PROVIDED, HOWEVER, that in the event the Selling Party has
not so transferred all (but not less than all) of such Shares to the Outside
Party within such ninety-day period, then such Shares thereafter shall continue
to be subject to all of the restrictions contained in this Agreement.
2.8.2 NO WAIVER. Any election in any instance by any Potential Buyer not
to exercise its option rights under this Section 2.8 shall not constitute a
waiver of such rights with respect to) any other proposed Transfer of Shares.
2.8.3 EXEMPT TRANSFERS. The provisions of this Section 2.8 shall not
apply:
(i) to any Transfer of Shares by Greg Grosch, Dan Tsujioka, Richard
Gagnon, Chris Lane, Jack Karg, and Brian Etter (each, a "MANAGEMENT PERSON")
to the spouse of any of them, any direct lineal descendant or ancestor of
either of them or any trust solely for the benefit of any or all of the
foregoing or any beneficiary, PROVIDED that each of the following conditions
shall be satisfied:
(A) after giving effect to such Transfer, sole voting power with
respect to such Transferred Shares shall be held by the Transferor
Management Person; and
(B) the Transferee of such Transferred Shares shall have executed and
delivered to the Company, as a condition precedent to such Transfer, an
instrument or instruments in form and substance satisfactory to the
Company confirming that the Transferee agrees to be bound by the terms of
this Agreement and accepts the rights and obligations set forth in this
Agreement; or
(ii) to any sale of Shares by an Management Party to the public
pursuant to an effective registration statement under the Securities Act.
2.9 CALL OPTION. The Management Stockholders (except for Chris Lane who
shall be governed by the next sentence) each agree for themselves and all
Management Parties who acquire their shares that the Company and the Purchaser
Buyer will have a call, which call will, as to each Management Person, expire as
to 20% of the Common Shares owned by such Person on the date hereof upon the
first anniversary hereof, and ratably thereafter at the end of every month
through the fifth anniversary of the date hereof (the "CALL OPTION") on their
respective Common Shares (the "CALLABLE SECURITIES") upon the termination of
such Management Stockholder's (or, if a Management Party is a Transferee of a
Management Person, the Management Person's) employment with the Company for
voluntary termination or resignation, dismissal, involuntary termination, death,
Retirement, Permanent Disability, termination for Cause, or termination for
other than Cause (each, a "CALL EVENT"). The Call Option
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and the provisions of this Section 2.9 shall only apply to any Common Shares
owned by Chris Lane if Chris Lane shall have either (1) materially breached the
terms of that certain Amended and Restated Employment Agreement, dated as of the
date hereof, by and between the Company and Chris Lane (the "LANE EMPLOYMENT
AGREEMENT") or (2) resigned his employment under the Lane Employment Agreement
without Good Reason, as defined therein, prior to its one year expiration date
(as applied to Chris Lane, the events in subclauses (1) and (2) shall each be
deemed to be a "CALL EVENT"). Upon the occurrence of a Call Event, the Company
and the Purchaser Buyer may exercise the Call Option by written notice (an
"OPTION NOTICE") delivered to the Management Party within 90 days after such
Call Event, elect to purchase and, upon the giving of such notice the Chosen
Buyer will be obligated to purchase and the Management Party ("SELLER") will be
obligated to sell all or any lesser portion indicated in the Option Notice of
the Callable Securities owned at the time of the Call Event by the Seller. For
purposes of determining the Chosen Buyer (which term shall have the same meaning
as set forth in Section 2.8.1 in the context of a Call Option), the priority as
among the Company and the Purchaser Buyer to purchase the Callable Securities
shall be, FIRST, the Company and, SECOND, the Purchaser Buyer. In the event that
the Chosen Buyer elects to and does exercise the Call Option as provided in this
Section 2.9, the Chosen Buyer will be obligated to purchase a pro rata portion
of the Preferred Shares (or any Company instrument exchanged for the Preferred
Shares) owned at the time of the Call Event by the Seller (relative to the
Callable Securities then owned by the Seller). The consideration for the
Callable Securities, and, if applicable, the Preferred Shares referred to in the
previous sentence shall be calculated as set forth below:
(i) in the case of resignation without Good Reason, or termination of
employment for Cause, the consideration will be the lesser of Cost and Fair
Market Value; and
(ii) in the case of any other termination (including termination for
other than Cause, resignation for Good Reason, death, Retirement or
Permanent Disability) the consideration will be the greater of Cost and Fair
Market Value.
In the event the Company or any Purchaser Buyer elects not to participate in
the purchase of Callable Securities pursuant to the Call Option, the same
procedures as to allocation as are set forth in Section 2.8 in respect of the
First Option will govern. The closing for all purchases and sales of Callable
Securities and any Preferred Shares pursuant to this Section 2.9 will be at the
principal executive offices of the Company on the 60th day after the giving of
the Option Notice. The applicable purchase price for the Callable Securities and
any Preferred Shares will be paid in cash or by cashier's check. The Seller will
cause the Callable Securities and any Preferred Shares to be delivered to the
Chosen Buyer at the closing free and clear of all liens, charges or encumbrances
of any kind except those which shall continue to apply to such Shares by the
terms of this Agreement. Such Seller will take all such actions as the Chosen
Buyer reasonably requests to vest in the Chosen Buyer title to the Callable
Securities and any Preferred Shares free of any lien, charge or encumbrance
incurred by or through the Seller.
For purposes of this Section 2.9, the following terms have the following
meanings:
"CAUSE" means, as to a Management Person, (i) if such Person is a party
to an employment agreement with the Company, a material violation of any
provision thereof which constitutes cause thereunder; (ii) such Person engaging
in conduct which is fraudulent with respect to the Company or any of its
subsidiaries; (iii) such Person's gross negligence in the performance or
non-performance of his or her duties or responsibilities; (iv) such Person's
engagement in misconduct that is materially injurious or materially damaging to
the Company or any of its subsidiaries or the reputation of the Company or any
of its subsidiaries or (v) such Person's consideration of or plea for nolo
contendere to a crime involving moral turpitude; PROVIDED, HOWEVER, that in
respect of clauses (i) and (iii) the Company has given at least thirty (30)
days' prior written notice to the Management Person describing the alleged
breach or gross negligence and such Person has failed to cure the breach or
deficiency
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within such thirty (30) day period. Notwithstanding the foregoing, if a
Management Person has entered into an employment agreement with the Company
which contains a different definition of "Cause" than that contained in the
immediately preceding sentence, the term "Cause" as used in this Agreement,
shall be deemed to refer, as to such Management Person, to the definition of
"Cause" as contained in such employment agreement.
"COST" means (i) in respect of the Common Shares, the cash
consideration per share of Common Shares paid (or deemed invested) by a
Management Person pursuant to the Merger Agreement and (ii) in respect of the
Preferred Shares, the liquidation value per share attributable to any Preferred
Shares plus accrued and unpaid dividends thereon.
"FAIR MARKET VALUE" of Common Shares means the fair market value,
without discount for minority position in the Company, determined as of the time
of the Call Event by the Company's Board of Directors in the exercise of good
faith and consistent with contemporaneous valuations for other purposes. In the
event a Management Person disputes the determination of Fair Market Value, such
valuation (which shall be made without discount for minority position in the
Company and without reference to prior valuations made by the Company's Board of
Directors) will be made by an investment banking or appraisal firm of national
reputation mutually acceptable to the Company and the Management Person, the
fees and expenses of which will be borne by the Company, if its proposed
valuation was lower than the expert's, and by the Management Person, if the
Company's proposed valuation was higher than the expert's. "FAIR MARKET VALUE"of
any Preferred Shares shall be deemed to refer to the liquidation value
attributable to such Preferred Shares, plus accrued and unpaid dividends
thereon.
"GOOD REASON" means assignment to a Management Person of duties and
responsibilities that are substantially inconsistent with the scope of their
duties and responsibilities theretofore. Notwithstanding the foregoing, if a
Management Person has entered into an employment agreement with the Company
which contains a different definition of "Good Reason" than that contained in
the immediately preceding sentence, the definition of "Good Reason" as used in
this Agreement shall be deemed to refer, as to such Management Person, to the
definition of Good Reason contained in such employment agreement.
"PERMANENT DISABILITY" of a Management Person means that (i) the Person
becomes physically or mentally incapacitated or disabled so that he is unable to
perform for the Company substantially the same services as he performed prior to
incurring such incapacity or disability, and (ii) such incapacity or disability
continues for a period of 120 days, whether or not consecutive, over a period of
six consecutive months; provided, however, that (x) the Company, at its option
and expense, shall be entitled to retain a physician to confirm the existence of
such incapacity or disability, and (y) the determination of such physician shall
be binding upon the Company and the Management Person; and
"RETIREMENT" means retirement pursuant to the Company's standard
retirement policy in effect from time to time but in no event prior to the age
of 65, unless pursuant to a specific determination by the Board of Directors of
the Company.
ARTICLE 3. DRAG-ALONG SALES.
3.1 RIGHT OF PURCHASER TO REQUIRE SALE. Notwithstanding any other
provision of this Agreement, if some or all Purchaser Parties (the "DRAG-ALONG
SELLERS") receive an offer in writing from a third Person or third Persons who
are not affiliates of any of the Drag-Along Sellers (a "THIRD PARTY") (x) to
purchase all or substantially all of the Common Shares then owned by the
Purchaser Parties, or (y) to purchase 50% or more in the aggregate of the
outstanding Common Shares or Preferred Shares of any class, in each case, in one
or more related transactions (a "DRAG-ALONG 50% SALE"), or (z) to effect a
business combination of the Company with such Third Party or the purchase or
other acquisition of all
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or substantially all of the assets of the Company by such Third Party (an
"ACQUISITION PROPOSAL"), and the Purchaser Parties desire to accept or cause the
Company to accept such Acquisition Proposal, then, upon the demand of a majority
of the Drag-Along Sellers, each Management Party (the "REQUIRED SELLERS") shall
be required to sell to such Third Party a number of shares of Common Stock or
Preferred Stock, as applicable, if any, equal to the number of shares specified
in the applicable Drag-Along Notice (as defined below), at the same price and on
the same purchase terms and conditions as the Drag-Along Sellers have agreed to
with such Third Party, including, without limitation, no greater indemnification
liability on a pro rata basis than the Drag-Along Sellers have agreed to with
such Third Party, or, as the case may be, vote all of the Common Shares
beneficially owned by such Management Party in favor of such Acquisition
Proposal and take all other necessary or desirable actions within their control
(including, without limitation, by attending meetings in person or by proxy for
the purpose of obtaining a quorum and executing of written consents in lieu of
meetings), to cause the approval of such Acquisition Proposal.
3.2 DRAG-ALONG NOTICE. Prior to making any Drag-Along Sale, the Drag-Along
Sellers shall promptly provide each Required Seller with written notice (the
"DRAG-ALONG NOTICE") not more than thirty (30) or less than fifteen (15) days
prior to the proposed date of the Drag-Along Sale (the "DRAG-ALONG SALE DATE").
The Drag-Along Notice shall set forth: (i) the name and address of the Third
Party; (ii) the name and address of each member of the Drag-Along Sellers; (iii)
the proposed amount and form of consideration to be paid per Common Share and/or
Preferred Share and the terms and conditions of payment offered by the Third
Party; (iv) the number of Common Shares and Preferred Shares held of record as
of the close of business on the date of the Drag-Along Sale Notice (the
"DRAG-ALONG NOTICE DATE") by the Required Seller to whom the notice is sent; (v)
the aggregate number of Common Shares and Preferred Shares held of record as of
the Drag-Along Notice Date by the Drag-Along Sellers; (vi) confirmation that the
Drag-Along Sellers are selling all or substantially all of the aggregate number
of Common Shares and/or Preferred Shares then held by them to the Third Party;
(vii) the Drag-Along Sale Date; and (viii) confirmation that the proposed Third
Party has agreed to purchase the Required Sellers' shares of Common Stock and/or
Preferred Stock in accordance with the terms hereof.
3.3 DELIVERY OF CERTIFICATES. On the Drag-Along Sale Date, each Required
Seller shall deliver a certificate or certificates for all of its shares of
Common Stock and/or Preferred Stock duly endorsed for transfer with signatures
guaranteed, to such Third Party in the manner and at the address indicated in
the Drag-Along Notice against delivery of the purchase price for such Required
Seller's shares of Common Stock and/or Preferred Stock.
3.4 CONSIDERATION. The provisions of this Section 3 shall apply regardless
of the form of consideration received in the Drag-Along Sale.
3.5 COOPERATION. The Management Parties shall cooperate in good faith with
the Drag-Along Sellers in connection with the consummation of the Drag-Along
Sale, including, without limitation, by executing a document containing such
customary representations, warranties, indemnities and agreements as requested
by any Third Party in connection with the Drag Along Sale.
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ARTICLE 4. REGISTRATION RIGHTS.
4.1 DEFINITIONS.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"DEMAND REGISTRATION" means a Common Demand Registration and/or a Preferred
Demand Registration, as applicable.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder.
"HOLDER" means a Holder of Registrable Shares. A Person is deemed to be a
Holder of Registrable Shares whenever such Person owns Registrable Shares;
PROVIDED, HOWEVER, that unless the Company is otherwise notified by the Holder
of Registrable Shares, the Holder of Registrable Shares shall be deemed to be
that Person set forth on the books and records of the Company or the registrar
for such Registrable Shares.
"MANAGEMENT HOLDER" means a Holder of Registrable Management Shares,
including a Transferee of Registrable Management Shares if (i) the Transfer to
such Transferee is not prohibited by this Agreement, and (ii) the Shares
Transferred to such Transferee continue to be Registrable Shares.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"PREFERRED STOCK REGISTRATION" means the registration of any Registrable
Purchaser Preferred Shares on Form S-1, Form S-3 or any other Form used for
resale of securities in accordance with the provisions of the Act, in each case
in connection with a public offering under the Act.
"PURCHASER HOLDER" means a Holder of Registrable Purchaser Shares,
including a Transferee of Registrable Purchaser Shares if (i) the Transfer to
such Transferee is not prohibited by this Agreement, and (ii) the Shares
Transferred to such transferee continue to be Registrable Shares.
"REGISTRABLE COMMON PURCHASER SHARES" means the shares of Common Stock
issued pursuant to the Merger Agreement to Purchaser or subsequently acquired by
any Purchaser Party (and any securities issued or issuable with respect to such
Common Stock by way of stock dividends or stock splits or in connection with a
combination of shares, recapitalization, merger, consolidation, or other
reorganization or otherwise); and "REGISTRABLE COMMON MANAGEMENT SHARES" means
the shares of Common Stock owned by the Management Parties on the date hereof
immediately following the Closing under the Merger Agreement or subsequently
acquired by any Management Party (and any securities issued or issuable with
respect to such Common Stock by way of stock dividends or stock splits or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization or otherwise) (collectively, together
with the Registrable Common Purchaser Shares, the "REGISTRABLE COMMON SHARES").
"REGISTRABLE MANAGEMENT SHARES" means Registrable Common Management Shares
and Registrable Preferred Management Shares.
"REGISTRABLE PREFERRED PURCHASER SHARES" means the shares of Preferred
Stock issued pursuant to the Merger Agreement to Purchaser or subsequently
acquired by any Purchaser Party (and any securities issued or issuable with
respect to such Preferred Stock by way of stock dividends or stock splits or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization or otherwise); and "REGISTRABLE PREFERRED
MANAGEMENT SHARES" means the shares of
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Preferred Stock owned by the Management Parties on the date hereof immediately
following the Closing under the Merger Agreement or subsequently acquired by any
Management Party (and any securities issued or issuable with respect to such
Preferred Stock by way of stock dividends or stock splits or in connection with
a combination of shares, recapitalization, merger, consolidation, or other
reorganization or otherwise) (collectively, together with the Registrable
Preferred Purchaser Shares, the "REGISTRABLE PREFERRED SHARES").
"REGISTRABLE PURCHASER SHARES" means the Registrable Common Purchaser
Shares and the Registrable Preferred Purchaser Shares.
"REGISTRABLE SHARES" means the Registrable Common Shares and the
Registrable Preferred Shares; PROVIDED, HOWEVER, that any such shares will cease
to be Registrable Shares when (i) a registration statement covering such
Registrable Shares has been declared effective and such Registrable Shares have
been disposed of pursuant to such effective registration statement, or (ii) such
Registrable Shares are distributed to the public pursuant to Rule 144.
"SELLING HOLDER" means, with respect to any registration statement, any
Holder whose Registrable Shares are included therein.
4.2 DEMAND REGISTRATIONS.
4.2.1 NUMBER OF REGISTRATIONS.
(a) (i) PURCHASER HOLDERS' DEMAND RIGHTS.
(A) Purchaser Holders shall be entitled to make written request (any
such written request pursuant to this Section 4.2 by either Purchaser Holders or
Management Holders, a "DEMAND") of the Company to register (any such Demand by
either Purchaser Holders or Management Holders to register Registrable Common
Shares pursuant to this Section 4.2, a "COMMON DEMAND REGISTRATION") of all or
part of their Registrable Common Purchaser Shares under the Securities Act
(including, but not limited to, a shelf registration under Rule 415 promulgated
under the Securities Act); PROVIDED, HOWEVER, that not more than an aggregate of
four (4) Demand Registrations with respect to the Registrable Common Purchaser
Shares may be made pursuant to the rights granted by this Section
4.2.1(a)(i)(A).
(B) Purchaser Holders shall be entitled to Demand the Company to
register (any such Demand by either the Purchaser Holders or Management Holders
to register Registrable Preferred Shares pursuant to this Section 4.2, a
"PREFERRED DEMAND REGISTRATION") all or part of their Registrable Preferred
Purchaser Shares under the Securities Act (including, but not limited to, a
shelf registration under Rule 415 promulgated under the Securities Act);
PROVIDED, HOWEVER, that not more than an aggregate of four (4) Preferred Demand
Registrations with respect to the Registrable Preferred Purchaser Shares may be
made pursuant to the rights granted by this Section 4.2.1(a)(i)(B).
(ii) MANAGEMENT HOLDERS' DEMAND RIGHTS.
(A) Commencing on the date that is six (6) months after a Public
Offering Event, Management Holders holding an aggregate number of Registrable
Common Management Shares at least equal to fifty-one percent (51%) of the number
of Registrable Common Management Shares on the date thereof shall be entitled to
Demand of the Company a Common Demand Registration; PROVIDED, HOWEVER, that not
more than one (1) Common Demand Registration with respect to the Registrable
Common Management Shares may be made pursuant to the rights granted by this
Section 4.2.1(a)(ii)(A).
(B) Commencing on the date that is six (6) months after a Preferred
Stock Registration, Management Holders holding an aggregate number of
Registrable Preferred Management Shares at least equal to fifty-one percent
(51%) of the number of Registrable Preferred Management Shares on
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the date thereof shall be entitled to Demand of the Company a Preferred Demand
Registration; PROVIDED, HOWEVER, that not more than one (1) Preferred Demand
Registration with respect to the Registrable Preferred Management Shares may be
made pursuant to the rights granted by this Section 4.2.1(a)(ii)(B).
(b) SELECTION OF UNDERWRITER. Any Demand Registration hereunder shall
be on any appropriate form under the Securities Act permitting registration of
such Registrable Shares for resale by the Selling Holders in the manner or
manners designated by them (including, without limitation, pursuant to one or
more underwritten offerings). The determination of whether the offering will
involve an underwritten offering, and the selection of investment bankers and
managers, if any, and counsel, shall be made by Holders of a majority of the
Registrable Shares to be included in such registration, PROVIDED, HOWEVER, that
the selection of investment bankers and managers, if any, and counsel so
selected shall be reasonably satisfactory to the Company. If requested, the
Company shall enter into an underwriting or purchase agreement with an
investment banking firm in connection with a Demand Registration, containing
representations, warranties, indemnities and agreements then customarily
included in underwriting or purchase agreements by such underwriter with respect
to secondary distributions of securities.
4.2.2 REGISTRATION.The Company shall file a registration statement with
respect to each Demand Registration and use its best efforts to cause the same
to be declared effective as promptly as practicable following such Demand, but
not later than one hundred twenty (120) days thereafter. Unless all of the
Registrable Shares covered by the registration statement have earlier been sold
or withdrawn from sale, the Company shall keep any such Registration Statement
effective for a period of at least one hundred eighty (180) days after such
registration statement is first declared effective plus a period equal to (x)
any period during which the Selling Holders are prohibited from making sales
because of any stop order, injunction or other order or requirement of the
Commission or any other governmental agency or court plus (y) any Demand
Suspension Period (as defined below) plus (z) any holdback period pursuant to
Section 4.6 that occurs while the registration statement is effective (the
"DEMAND PERIOD") and a registration will not count as a Demand Registration
unless it is declared effective by the Commission and remains effective until
the earlier of such time as all of the Registrable Shares included in such
registration have been sold or disposed of or withdrawn from sale by the Selling
Holders or the expiration of the Demand Period or, if the registration remains
effective for a shorter period, the Selling Holders have sold at least eighty
percent (80%) of their Registrable Shares included in such Demand Registration.
In addition, a request for registration shall not be deemed to constitute a
Demand Registration if: (i) the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such Demand
Registration are not satisfied other than by reason of some act or omission by
the Selling Holders; (ii) the Company voluntarily takes any action that would
result in the Selling Holders not being able to sell such Registrable Shares
covered thereby during the Demand Period; (iii) after it has become effective,
such Demand Registration becomes subject to any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court and
such order, injunction or requirement is not promptly withdrawn or lifted, and
such Demand Registration has not otherwise remained effective for the Demand
Period (including effective periods both before and after the order, injunction
or requirement is made or imposed); or (iv) such Demand Registration does not
involve an underwritten offering and the Selling Holders determine not to
proceed following any delay imposed hereunder by the Company; PROVIDED, HOWEVER,
that prior to such a delay under this clause (iv), the Selling Holders have not
sold more than eighty percent (80%) of the Registrable Shares included in such
Demand Registration. Notwithstanding the foregoing, the Company may, at any
time, delay the filing or delay or suspend the effectiveness of the Demand
Registration or, without suspending such effectiveness, instruct the Selling
Holders not to sell any securities included in the Demand Registration, if the
Company shall have determined in good faith (as evidenced by a resolution of the
Board of Directors of the Company delivered to the Selling Holders) that
proceeding with the Demand Registration at
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such time may have a material adverse effect on the Company or the Company shall
have determined upon the advice of counsel that it would be required to disclose
any actions taken by the Company in good faith and for valid business reasons,
including without limitation, the acquisition or divestiture of assets, which
disclosure may have a material adverse effect on the Company or on such actions
(a "DEMAND SUSPENSION PERIOD"), by providing the Selling Holders with written
notice of such Demand Suspension Period and the reasons therefor. The Company
shall use its best efforts to provide such notice at least ten (10) days prior
to the commencement of such a Demand Suspension Period; PROVIDED, HOWEVER, that
in any event the Company shall provide such notice no later than the
commencement of such Demand Suspension Period; and PROVIDED, FURTHER, that in no
event shall the Demand Suspension Periods exceed fifty (50) days in any twelve
(12) month period.
The Company further agrees to supplement or amend such registration
statement with respect to such Demand Registration, as required by the
registration form utilized by the Company or by the instructions applicable to
such registration form or by the Securities Act for the registration of
securities or as reasonably requested (which request shall result in the filing
of a supplement or amendment subject to approval thereof by the Company, which
approval shall not be unreasonably withheld) by any Selling Holder or any
managing underwriter of Registrable Shares to which such Demand Registration
relates, and the Company agrees to furnish to the Selling Holders (and any
managing underwriter) copies, in substantially the form proposed to be used
and/or filed, of any such supplement or amendment prior to its being used and/or
filed with the Commission. The Company shall amend or supplement the
registration statement with respect to such Demand Registration no less
frequently than every forty five (45) days to update the list of Selling Holders
pursuant to written requests by such Holders.
4.2.3 INCLUSION OF REGISTRABLE SHARES. Any written request for a Demand
shall specify the number of Registrable Common Purchaser Shares, Registrable
Preferred Purchaser Shares, Registrable Common Management Shares, or Registrable
Preferred Management Shares as applicable, to be registered and the intended
methods of disposition thereof. Within ten (10) days after receipt of such
Demand, the Company shall give written notice of such registration request to
all Holders of Registrable Common Purchaser Shares, Registrable Preferred
Purchaser Shares, Registrable Common Management Shares, or Registrable Preferred
Management Shares, as applicable, which have not made the Demand, and the
Company shall include in such registration all Registrable Common Purchaser
Shares, Registrable Preferred Purchaser Shares, Registrable Common Management
Shares, or Registrable Preferred Management Shares, as applicable, with respect
to which the Company has received written requests for inclusion therein within
fifteen (15) days after the date on which such notice is given. Each such
request shall also specify the aggregate number of Registrable Common Purchaser
Shares, Registrable Preferred Purchaser Shares, Registrable Common Management
Shares, or Registrable Preferred Management Shares, as applicable, to be
registered. The Company may also include in such Demand Registration shares of
Common Stock for the account of the Company and any other Persons who hold
shares of Common Stock.
4.2.4 PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is an
underwritten registration and the managing underwriters of such offering
determine that the aggregate number of (i) Registrable Shares of the Selling
Holders exercising their rights to participate in the Demand Registration on a
demand basis, pursuant to this Section 4.2; (ii) Shares of the Company; and
(iii) Shares of any other Persons entitled to participate in such Demand
Registration, in each case proposed to be included in such registration
statement, exceeds the maximum number of Shares that can reasonably be expected
to be sold within a price range acceptable to the Company and the Purchaser
Holders that are the Selling Holders, then the number of shares to be offered
for the account of the Company and for the account of all such other Persons,
other than holders of Registrable Shares participating on a demand basis,
participating in such registration shall be reduced or limited PRO RATA (and to
zero, if necessary) in proportion to the respective number of Shares
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requested to be registered to the extent necessary to reduce the total number of
Shares requested to be included in such registration statement to the maximum
number of Shares that can reasonably be expected to be included therein and
still satisfy such price requirement. If the foregoing market "cutback" does not
reduce the aggregate number of Shares proposed to be included in the
registration statement to the maximum number of Shares that can reasonably be
expected to be sold within the price range acceptable to the Company and the
Selling Holders, the Company shall include in such registration, Registrable
Shares of such Selling Holders PRO RATA among all such Selling Holders on the
basis of the number of Registrable Shares of the Company requested to be
included by all such Selling Holders. Any request for registration with respect
to which such a market "cutback" with respect to such Selling Holders occurs
shall be deemed to constitute a Demand Registration for all purposes of this
Article 4; PROVIDED, HOWEVER, that if any such market "cutback" occurs with
respect to a Demand Registration and all such Selling Holders are not able to
sell at least eighty percent (80%) of the Registrable Shares which such Holders
proposed to sell pursuant to such Demand Registration, then such request for
registration will not count against the number of Demands to which the Purchaser
Holders are entitled pursuant to Section 4.2 hereof.
4.2.5 COMPLIANCE. Notwithstanding any other provisions hereof, the
Company shall use its best efforts to ensure that (i) any registration statement
filed in connection with a Demand Registration, and any amendment thereto, and
any prospectus forming a part thereof, and any supplement thereto, complies in
all material respects with the Securities Act and the rules and regulations
thereunder, (ii) any registration statement filed in connection with a Demand
Registration, and any amendment thereto, does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any registration statement
filed in connection with a Demand Registration, and any supplement to such
prospectus, does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading.
4.3 PIGGYBACK REGISTRATION.
4.3.1 RIGHT TO INCLUDE REGISTRABLE SHARES. If the Company at any time
proposes to register any of its equity securities under the Securities Act,
whether or not for sale for its own account, on a form and in a manner which
would permit registration of Registrable Shares for a public offering under the
Act (other than on a registration statement (i) on Form S-4 or Form S-8 or any
successor form thereto or (ii) filed in connection with an exchange offer), the
Company shall give written notice of the proposed registration to each Holder at
least fifteen (15) days prior to the filing thereof, and each Holder shall have
the right to request that all or any part of its Registrable Shares be included
in such registration by giving written notice to the Company within fifteen (15)
days after the giving of such notice by the Company. If the registration
statement is to cover an underwritten offering, such Registrable Shares shall be
included in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. Notwithstanding the foregoing, a
Management Holder may not request the registration of its Registrable Management
Shares if such Registrable Management Shares may, at the time (or within thirty
days thereafter), be distributed to the public pursuant to paragraph (k), as
such paragraph may be amended from time to time, or any other similar provision
hereafter adopted by the SEC, of Rule 144.
4.3.2. PRIORITY ON PIGGYBACK REGISTRATIONS.
(a) COMPANY REGISTRATIONS. If the registration is an underwritten
primary registration on behalf of the Company and the managing underwriter(s) of
such offering determine in their good faith judgment that the aggregate number
of securities, including Registrable Shares, of the Company which all Holders
and all other security holders of the Company, pursuant to contractual rights to
participate in such registration (the "OTHER HOLDERS"), propose to include in
such registration statement exceeds
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the maximum number of securities, including Registrable Shares, that can
reasonably be expected to be sold in such offering without materially and
adversely affecting the marketability of the offering or the selling price to be
obtained, the Company will include in such registration, first, the shares of
Common Stock or other securities which the Company proposes to sell and, second,
the Registrable Shares of such Selling Holders and other securities to be sold
for the account of Other Holders, PRO RATA among all such Selling Holders and
Other Holders, taken together, on the basis of the number of Registrable Shares
or other securities of the Company requested to be included by all Selling
Holders and Other Holders who have requested that securities owned by them be so
included (it being agreed and understood, however, that such managing
underwriter(s) shall have the right to eliminate entirely the participation in
such registration of all Selling Holders and Other Holders).
(b) SELLING HOLDERS' REGISTRATION. (i) If the registration is an
underwritten secondary registration on behalf of Selling Holders that are
Purchaser Holders pursuant to Section 4.2 hereof, and the managing
underwriter(s) determine that the aggregate number of securities which all
Selling Holders, the Company and all Other Holders propose to include in such
registration exceeds the maximum number of securities that can reasonably be
expected to be sold within the price range acceptable to the Company and the
Selling Holders, the Company will include in such registration, first, the
Registrable Purchaser Shares of the Selling Holders participating in such
registration on a demand basis in accordance with Section 4.2.4 hereof, and,
second, any securities to be sold for the account of the Company, securities to
be sold for the account of the Selling Holders that are either Purchaser Holders
or Management Holders and that are participating in such offering on a piggyback
basis and any securities to be sold for the account of the Other Holders
electing to include securities in such registration, PRO RATA among the Company,
all such Selling Holders and all such Other Holders, taken together, on the
basis of the number of Shares or other securities to be sold by the Company in
the absence of such PRO RATION, number of Registrable Shares or other securities
requested to be included by all such Selling Holders and the number of Shares or
other securities requested to be included by all such Other Holders (it being
agreed and understood, however, that such managing underwriter(s) shall have the
right to eliminate entirely the participation therein of the Company and of all
such Selling Holders and Other Holders).
(ii) If the registration is an underwritten secondary registration on
behalf of Selling Holders that are Management Holders pursuant to Section 4.2
hereof, and the managing underwriter(s) determine that the aggregate number of
securities which all Selling Holders, the Company and all Other Holders propose
to include in such registration exceeds the maximum number of securities that
can reasonably be expected to be sold within the price range acceptable to the
Company and the Management Holders that are Selling Holders, the Company will
include in such registration, first, the Registrable Management Shares of the
Selling Holders participating in such registration on a demand basis in
accordance with Section 4.2.4 hereof, and, second, any securities to be sold for
the account of the Company, securities to be sold for the account of the Selling
Holders that are either Purchaser Holders or Management Holders and that are
participating in such offering on a piggyback basis and any securities to be
sold for the account of the Other Holders electing to include securities in such
registration, PRO RATA among the Company, all such Selling Holders and all such
Other Holders, taken together, on the basis of the number of Shares or other
securities to be sold by the Company in the absence of such PRO RATION, number
of Registrable Shares or other securities requested to be included by all such
Selling Holders and the number of Shares or other securities requested to be
included by all such Other Holders (it being agreed and understood, however,
that such managing underwriter(s) shall have the right to eliminate entirely the
participation therein of the Company and of all such Selling Holders and Other
Holders).
(c) OTHER HOLDERS' REGISTRATION. If the registration is an underwritten
secondary registration on behalf of any of the Other Holders pursuant to demand
registration rights and the managing underwriters determine that the aggregate
number of securities which all Selling Holders, the Company
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and all Other Holders propose to include in such registration exceeds the
maximum number of securities that should be included therein, the Company will
include in such registration, first, the securities to be sold for the account
of the Other Holders demanding registration (but only to the extent such Other
Holders are entitled to demand inclusion thereof pursuant to demand registration
rights), second, any securities to be sold for the account of the Company, and,
third, the Registrable Shares of such Selling Holders and other securities to be
sold for the account of the Other Holders electing to include (but not being
entitled pursuant to demand registration rights to demand inclusion of)
securities in such registration, PRO RATA among all such Selling Holders and
Other Holders, taken together, on the basis of the number of Registrable Shares
or other securities of the Company requested to be included by all Selling
Holders and such Other Holders who have requested that securities owned by them
be included (it being agreed and understood, however, that such managing
underwriter(s) shall have the right to eliminate entirely the participation
therein of all such Selling Holders and Other Holders with respect to such
securities since they are not entitled to demand inclusion of such securities
pursuant to demand registration rights).
(d) UNDERWRITERS. Registrable Shares proposed to be registered and sold
for the account of any Selling Holder pursuant to a piggyback registration shall
be sold to prospective underwriters selected or approved by the Company, and on
the terms and subject to the conditions of one or more underwriting agreements
negotiated between the Company, the Selling Holders, if any, and/or Other
Holders demanding registration and such prospective underwriters. The Selling
Holders shall be permitted to withdraw all or a part of the Registrable Shares
held by such Selling Holders which were to be included in such piggyback
registration at any time prior to the effective date of such registration. The
Company may withdraw any registration statement for such registration at any
time before it becomes effective, or postpone the offering of securities,
without obligation or liability to any Selling Holder participating on a
piggy-back basis.
4.4 REGISTRATION STATEMENT. In connection with any registration of
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will furnish each Selling Holder and each underwriter, if any, with a
copy of the registration statement and all amendments thereto and will supply
each such Selling Holder with copies of any prospectus included therein
(including a preliminary prospectus and all amendments and supplements thereto),
in each case including all exhibits, and such other documents as may be
reasonably requested, in such quantities as may be reasonably necessary for the
purposes of the proposed sale or distribution covered by such registration (the
Company hereby consenting to the use in accordance with all applicable law of
each such registration statement (or amendment or post-effective amendment
thereto) and each such prospectus (or preliminary prospectus or supplement
thereto) by each such Selling Holder and the underwriters, if any, in connection
with the offering and sale of the Registrable Shares covered by such
registration statement or prospectus). The Company shall not, however, be
required to maintain the registration statement relating to a Demand
Registration and to supply copies of a prospectus for a period beyond the Demand
Period, and, at the end of such period, the Company may register any Registrable
Shares covered by such registration statement and not then sold or distributed.
In connection with any such registration of Registrable Shares, the Company
will, at the request of the managing underwriter with respect thereto (or, if
not an underwritten offering, at the request of Selling Holders holding a
majority of the Registrable Shares to be included in the registration) use its
best efforts to register or qualify such Registrable Shares for sale under the
securities laws of such states as is reasonably requested to permit the
distribution of such Registrable Shares and to use its reasonable efforts to
keep each such registration or qualification effective during the period such
registration statement is required to be kept effective and to do such other
acts or things reasonably necessary to enable the disposition in such
jurisdictions of the securities covered by the applicable registration statement
in accordance with applicable "blue sky" securities laws of such jurisdictions;
PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction or become
subject to taxation in any jurisdiction.
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In connection with any offering of Registrable Shares registered pursuant to
this Agreement, the Company shall (i) furnish each Selling Holder, at the
Company's expense and at least three (3) business days prior to the sale of any
Registrable Shares to the underwriters, with unlegended certificates in a form
eligible for deposit with The Depository Trust Company representing ownership of
the Registrable Shares which are sold pursuant to the registration statement, in
such denominations and registered in such names as the managing underwriter, if
any, or such Selling Holder shall reasonably request, and (ii) instruct the
transfer agent and registrar of the Common Stock to release any stop transfer
orders with respect to the Registrable Shares so sold.
4.5 REGISTRATION PROCEDURES. In connection with the Company's
obligations to effect a registration pursuant to Sections 4.2 and 4.3 (but
subject to the last sentence of Section 4.3.2(d) and PROVIDED that any time
periods set forth in this Section 4.5 regarding effective periods and the like
shall apply only in the event of a Demand Registration), the Company will as
expeditiously as is reasonably practicable:
(i) prepare and file with the Commission as soon as practicable (in the
case of a Demand Registration) a registration statement with respect to such
Registrable Shares, on a form available for the sale of the Registrable Shares
by the Holders thereof in accordance with the intended method or methods of
distribution thereof and use its commercially reasonable efforts to cause each
such registration statement to become and remain effective; PROVIDED, that
before filing a registration statement or prospectus or any amendments or
supplements thereto (including documents that would be incorporated or deemed to
be incorporated therein by reference) and, whether or not filed pursuant to
Section 4.2 or 4.3, the Company will furnish to the Holders of the Registrable
Shares covered by such registration statement and the underwriters, if any, and
any attorney, accountant or other agent retained by the Holders of Registrable
Shares covered by such registration statement, copies of all such documents
proposed to be filed, which documents will be subject to the review and comment
of such Holders, such counsel and underwriters, if any. The Company will not
file any registration statement or any amendment thereto or any prospectus or
any supplement thereto in connection with a Demand Registration pursuant to
Section 4.2 (including such documents incorporated by reference and proposed to
be filed after the initial filing of the registration statement) to which the
Holders of a majority of the Registrable Shares covered by such registration
statement or the underwriters, if any, shall reasonably and timely object;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to such registration statement and such supplements to
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective (to the extent otherwise required by this
Agreement) and to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
until such time as all of such securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement or the expiration of the Demand Period (in
the case of a Demand Registration), whichever occurs earlier; PROVIDED, HOWEVER,
that the only remedy for any failure to keep the registration statement so
effective shall be as set forth in Section 4.2.2 and PROVIDED, FURTHER, that the
Company will have no obligation to a Selling Holder participating on a
"piggyback" basis in a registration statement that has become effective to keep
such registration statement effective for a period beyond 120 days from the
effective date of such registration statement;
(iii) cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD");
(iv) notify each Selling Holder and the managing underwriter, if any,
promptly (and in any event within three (3) business days): (A) when the
prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the registration statement or any post-effective
amendment, when the same has become effective; (B) of any request by the
Commission or any other
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federal or state governmental authority for any amendments or supplements to the
registration statement or the prospectus or for additional information; (C) of
the issuance by the Commission of any stop order suspending the effectiveness of
the registration statement or the initiation of any proceedings for that
purpose; (D) if, at any time prior to the closing contemplated by an
underwriting agreement entered into in connection with such registration
statement, that the representations and warranties of the Company contained in
such agreement cease to be true and correct; (E) of the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; (F) of the happening of any event which
makes any statement made in the registration statement, the prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
or which requires the making of any changes in the registration statement, the
prospectus or any document incorporated therein by reference in order to make
the statements therein not misleading; and (G) of the Company's reasonable
determination that a post-effective amendment to a registration statement would
be required;
(v) make commercially reasonable efforts to prevent the issuance of any
order suspending the effectiveness of the registration statement or of any order
preventing or suspending the use of a prospectus or suspending the qualification
of any of the Registrable Shares included therein for sale in any jurisdiction
(subject to the proviso at the end of the penultimate paragraph of Section 4.4),
and, in the event of the issuance of any stop order suspending the effectiveness
of the registration statement, or of any order suspending or preventing the use
of any related prospectus or suspending the qualification of any Common Shares
included in such registration statement for sale in any jurisdiction (subject to
the proviso at the end of the penultimate paragraph of Section 4.4), the Company
will use its best efforts to promptly obtain the withdrawal of any such order;
(vi) furnish to each Selling Holder and the managing underwriters, if
any, without any additional charge, one signed copy of the registration
statement and any post-effective amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference);
(vii) as promptly as reasonably practicable, if required, based on the
advice of the Company's counsel, or upon the occurrence of any event
contemplated by Section 4.5(iv) (F), prepare and file a supplement or
post-effective amendment to the registration statement, the related prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Shares, the prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading;
(viii) cause all Registrable Shares covered by the registration
statement to be listed on each securities exchange on which identical securities
issued by the Company are then listed if requested by the Selling Holders
holding a majority in number of the Registrable Shares covered by the
Registration Statement or the managing underwriters, if any;
(ix) provide and cause to be maintained a transfer agent and registrar
for all Registrable Shares covered by such registration statement from and after
a date not later than the effective date of such registration statement;
(x) use its best efforts to provide a CUSIP number for the Registrable
Shares, not later than the effective date of the registration statement;
(xi) use its best efforts to (A) obtain opinions of counsel to the
Company (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and not objected
to by the Holders of a majority of the Registrable Shares being sold), and
updates thereof addressed to the Selling Holders, covering the matters
customarily covered in opinions
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requested in underwritten offerings and such other matters as may be reasonably
requested by the underwriters, if any; and (B) obtain "cold comfort" letters and
updates thereof (which letters and updates (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters, if any, and counsel to
the Holders of a majority of the Registrable Shares being sold) from the
Company's independent certified public accountants addressed to such Selling
Holders (and, if necessary, any other independent certified public accountants
of any subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included in the registration statement), such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort" letters
by accountants in connection with underwritten offerings and such other matters
as the underwriters, if any, or the Holders of a majority of the Registrable
Shares being sold, reasonably request. The above shall be done at each closing
under such underwriting or similar agreement or as and to the extent required
thereunder or, if not an underwritten offering, as otherwise reasonably
requested by the Holders of a majority of the Registrable Shares being sold;
(xii) make available for inspection by a representative of the Selling
Holders and any attorneys or accountants retained by such Holders (and, to the
extent reasonably requested, furnish copies), in connection with the preparation
of a registration statement pursuant to this Agreement, all financial and other
records and pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative(s), attorney(s) or accountant(s)
in connection with such registration; PROVIDED, HOWEVER, that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order or under applicable law; and PROVIDED, FURTHER, that appropriate
arrangements are made, to the extent required by applicable antitrust law, to
limit access to such information of the Company to representatives of the
Holders who are not officers or employees of the Selling Holders; and PROVIDED,
FURTHER, that, without limiting the foregoing, no such information shall be used
by any such Person in connection with any market transactions in securities of
the Company or its subsidiaries in violation of law;
(xiii) enter into such agreements reasonably requested (including, as
applicable, an underwriting agreement in form, scope and substance as is
customary in underwritten secondary offerings and is reasonably satisfactory to
the Company) and take all such other customary and reasonable actions in
connection therewith (including those requested by the managing underwriters) in
order to expedite or facilitate the disposition of the Registrable Shares, and
in such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration:
(a) make such representations and warranties to the Holders of
such Registrable Shares included in the registration statement and the
underwriters, if any, with respect to the business of the Company and the
registration statement, prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same, if and when reasonably
requested; and
(b) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Shares being
included in the registration statement and managing underwriters, if any,
to evidence compliance with clause (a) above and with any provisions
contained in the underwriting agreement or other similar agreement
entered into by the Company;
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The above shall, be done at each closing under such underwriting or similar
agreement or as and, if not an underwritten offering, to the extent otherwise
reasonably requested by the Holders of a majority of the Registrable Shares
being sold pursuant to the registration statement;
(xiv) (a) if so required by the managing underwriter in an underwritten
offering of Registrable Shares covered by a registration statement filed
pursuant to Section 4.2 or 4.3 hereof, not publicly or privately sell, make any
short sale of, loan, grant any option, effect any public sale or distribution of
or otherwise dispose of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the ten (10) days
prior to and the ninety (90) days after any underwritten registration pursuant
hereto has become effective, except as part of such underwritten registration
and except pursuant to any exchange offer or registrations on Form S-4 or S-8 or
any successor or similar forms thereto, except that the Company may make grants
of options under its stock option plans and may issue securities issuable upon
the exercise or conversion of outstanding convertible securities, stock options
and other options, warrants and rights of the Company and (b) if requested, use
reasonable efforts to cause each holder of ten percent (10%) or more of the
securities of the same class as the securities included in any underwritten
registration pursuant to Section 4.2 hereof, or any securities convertible into
or exchangeable or exercisable for such securities, in each case purchased from
the Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public or private sale or
distribution or otherwise dispose (including sales pursuant to Rule 144
promulgated under the Act) of any such securities during the ten (10) days prior
to and the ninety (90) days after any underwritten registration pursuant hereto
has become effective (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree;
(xv) if requested, furnish each Selling Holder with a copy (or a
reasonable number of copies, as requested) of the registration statement
(together with the Exhibits thereto) and each amendment thereto prior to the
filing thereof with the Commission;
(xvi) if requested by the managing underwriters, if any, or a Holder of
Registrable Shares being sold, promptly incorporate in a prospectus, supplement
or post-effective amendment such information as the managing underwriters, if
any, and the Holders of the Registrable Shares being sold reasonably request to
be included therein relating to the sale of the Registrable Shares, including,
without limitation, information with respect to the number of Registrable Shares
being sold to underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten offering of
the Registrable Shares to be sold in such offering; and make all required
filings of such prospectus, supplement or post-effective amendment promptly
following notification of the matters to be incorporated in such supplement or
post-effective amendment;
(xvii) upon the occurrence of any event that would cause a shelf
registration statement (A) to contain a material misstatement or omission or (B)
to be not effective and usable for resale of Registrable Shares during the
Demand Period, the Company shall promptly file an amendment to such shelf
registration statement, in the case of clause (A), correcting any such
misstatement or omission and, in the case of either clause (A) or (B), use its
commercially reasonable efforts to cause such amendment to be declared effective
and such shelf registration statement to become usable as soon as reasonably
practicable thereafter;
(xviii) otherwise use its best efforts to (x) comply with all
applicable rules and regulations of the Commission and to take all other steps
reasonably necessary to effect the registration of the Registrable Shares
covered by the registration statement contemplated hereby, and (y) make
available to its securityholders an earnings statement which satisfies the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Act) no later than forty-five (45) days
after the end of any twelve-month (12) period (or ninety (90) days after the end
of any twelve-month (12) period if such period is a fiscal year) (or in each
case within such extended
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period of time as may be permitted by the Commission for filing the applicable
report with the Commission) (i) commencing at the end of any fiscal quarter in
which Registrable Shares are sold to underwriters in a firm commitment or best
efforts underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements shall
cover said twelve-month (12) periods; and
(xix) in connection with any underwritten offering, cooperate with all
marketing efforts reasonably requested by the managing underwriter or managing
underwriters in connection with the sale of the Registrable Shares, including,
without limitation, participation in a reasonable number of road-show
presentations and other marketing activity by Management Stockholders and other
employees of the Company requested by such underwriter or underwriters PROVIDED
that the scheduling of the road-show presentations shall be set in consultation
with the Company and will not require the Company's involvement at any time or
place to which the Company has a reasonable objection.
4.6 HOLDBACK AGREEMENTS. Each of the Company and each Holder of Registrable
Shares (whether or not such Registrable Shares are covered by a Registration
Statement filed pursuant to Section 4.2 or 4.3 hereof) agrees, if requested
(pursuant to a timely written notice) by the managing underwriter or
underwriters in an underwritten offering, not to effect any public sale or
distribution of any of the Company's securities, including a sale pursuant to
Rule 144 (except as part of such underwritten offering), during the period
beginning ten (10) days prior to, and ending ninety (90) days after, the closing
date of the underwritten offering made pursuant to such Registration Statement.
The foregoing provisions shall not apply to the Company or any Holder of
Registrable Shares if such Person is prevented by applicable statute or
regulation from entering into any such agreement; PROVIDED, HOWEVER, that any
such Person shall undertake not to effect any public sale or distribution of the
class of securities covered by such Registration Statement (except as part of
such underwritten offering) during such period unless it has provided sixty (60)
days' prior written notice of such sale or distribution to the managing
underwriter.
4.7 REGISTRATION EXPENSES. Except as otherwise required by state securities
laws or the rules and regulations promulgated thereunder, all expenses,
disbursements and fees incurred by the Company in connection with carrying out
its obligations under this Article 4, including but not limited to, (i) the
reasonable and documented fees and expenses of one counsel for the Selling
Holders (which counsel shall be selected by Holders of a majority of the
Registrable Shares included in the applicable registration), (ii) all
registration, filing fees and expenses (including fees with respect to filings
made with the NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel, as may be required by the
rules and regulations of the NASD), (iii) fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel for the
underwriters or Selling Holders in connection with blue sky qualifications of
the Registrable Shares and determinations of their eligibility for investment
under the laws of such jurisdiction as the managing underwriters or Holders of a
majority of the Registrable Shares being sold may designate, subject to the
proviso to the last sentence of the penultimate paragraph of Section 4.4), (iv)
printing expenses (including printing certificates for the Registrable Shares to
be sold and the registration statements and prospectuses), messenger and
delivery expenses, duplication, word processing, and telephone expenses, (v)
fees and disbursements of counsel for the Company, and (vi) fees and
disbursements of all independent certified public accountants of the Company
incurred in connection with such registration (including the expenses of any
special audit and "cold comfort" letters incident to such registration) and fees
and disbursements of underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Shares) and other
Persons retained by the Company (all such expenses being herein called
"REGISTRATION EXPENSES"), will be borne by the Company regardless of whether a
registration statement becomes effective; PROVIDED, HOWEVER, that the
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Company will, in any event, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit or quarterly
review, the fees and expenses of any Person, including special experts, retained
by the Company, the expense of any liability insurance and the expenses and fees
for listing the securities to be registered on each securities exchange on which
similar securities issued by the Company are then listed or on the NASD
automated quotation system; and provided, further, that each Selling Holder
shall pay (x) all costs and expenses of counsel (other than the counsel costs
referred to in (i) above), accounting or financing professionals retained by
such Selling Holder, (y) all underwriting discounts, commissions, fees and
expenses and all transfer taxes with respect to the Shares sold by such Selling
Holder, and (z) all other expenses incurred by such Selling Holder and
incidental to the sale and delivery of the Shares to be sold by such Holder.
4.8 CONDITIONS TO HOLDER'S RIGHTS. It shall be a condition of each Selling
Holder's rights hereunder that:
4.8.1 COOPERATION. Such Selling Holder shall cooperate with the Company
by supplying information and executing documents relating to such Selling Holder
or the securities of the Company owned by such Selling Holder in connection with
such registration which are customary for offerings of this type (including
agreeing to sell such Selling Holder's Registrable Shares on the basis provided
in any underwriting arrangements containing customary terms reasonably
satisfactory to such Selling Holder);
4.8.2 UNDERTAKINGS. Such Selling Holder shall enter into any
undertakings and take such other action relating to the conduct of the proposed
offering which the Company or the underwriters may reasonably request as being
necessary to insure compliance with federal and state securities laws and the
rules or other requirements of the NASD or which the Company or the underwriters
may reasonably request to otherwise effectuate the offering; and
4.8.3 INDEMNIFICATION. Such Selling Holder shall execute and deliver an
agreement to indemnify to the fullest extent permitted by law and hold harmless
the Company, each of its directors, each of its officers who has signed the
registration statement, any underwriter (as defined in the Securities Act), and
each person, if any, who controls the Company or such underwriter within the
meaning of the Securities Act, against such losses, claims, damages or
liabilities (including reimbursement for legal and other expenses) to which the
Company or any such director, officer, underwriter or controlling person may
become subject under the Securities Act or otherwise, in such manner as is
customary for registrations of the type then proposed, but only with respect to
written information about or pertaining to such Selling Holder furnished by such
Selling Holder for inclusion in the Registration Statement.
4.9 INDEMNIFICATION.
4.9.1 INDEMNIFICATION BY THE COMPANY. In the case of any offering
registered pursuant to this Agreement, the Company agrees to indemnify to the
fullest extent permitted by law and hold each Selling Holder, each affiliate of
such Selling Holder and each director, officer, agent, representative and
employee of such Selling Holder and its affiliates, each Person who controls
each Selling Holder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and the directors, officers, agents or employees
of each such controlling person harmless against any and all losses, claims,
damages, liabilities, actions (including reasonable and documented costs
(including, without limitation, costs of preparation and reasonable attorneys'
fees and disbursements) and expenses, including reasonable expenses of
investigation (collectively "LOSSES") to which they or any of them may become
subject under the Securities Act or any other statute or common law or
otherwise, insofar as any such Losses shall arise out of, be caused by or shall
be based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the registration statement relating to the sale of the
Registrable Shares covered thereby, or the omission or alleged omission to state
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therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus (as
amended or supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereof), if used prior to the effective date of
such registration statement, or contained in the prospectus (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereof, including the information deemed part of such
registration statement pursuant to Rule 430A promulgated under the Securities
Act), if used within the period during which the Company shall be required to
keep the registration statement to which such prospectus relates current
pursuant to the terms of this Agreement, or the omission or alleged omission to
state therein (if so used) a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that the indemnification agreement contained
in this Section 4.9.1 shall not apply to such Losses which shall arise from the
sale of Registrable Shares to any Person if such Losses shall arise out of,
shall be caused by or shall be based upon any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, (i) if such
statement or omission shall have been made in reliance upon and in conformity
with information furnished in writing to the Company by such Selling Holder
specifically for use in connection with the preparation of the registration
statement or any preliminary prospectus or prospectus contained in the
registration statement or any such amendment thereof or supplement thereto; (ii)
if such untrue statement or omission was made in any preliminary prospectus to
the extent that (a) the prospectus corrected such untrue statement or such
omission and (b) the Selling Holder was legally required to and failed to send
or deliver a copy of the prospectus with or prior to the delivery of written
confirmation of the sale by such Selling Holder of Registrable Shares to the
Person asserting the claim from which such Losses arise; or (iii) if any such
Losses arise out of, are caused by or are based upon an untrue statement or
omission in the prospectus, to the extent that (a) such untrue statement or
omission is corrected in an amendment or supplement to the prospectus and (b)
having previously been furnished by or on behalf of the Company with copies of
the prospectus as so amended or supplemented, such Selling Holder was legally
required to and thereafter fails to deliver such prospectus as so amended or
supplemented, prior to or concurrently with the sale of Registrable Shares to
the Person asserting the claim from which such Losses arise. This indemnity
shall be in addition to any other indemnification arrangements to which the
Company may otherwise be a party.
4.9.2 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SHARES. Each Selling
Holder agrees to indemnify to the fullest extent permitted by law and hold the
Company, its directors, officers, agents and employees, each Person who controls
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act and the directors, officers, agents or employees of such
controlling persons harmless against any and all Losses arising out of, caused
by or based upon any untrue statement of a material fact contained in any
registration statement, prospectus or form of prospectus, or arising out of,
caused by or based upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
preliminary prospectus and the prospectus, in each case including amendments or
supplements, in light of the circumstances in which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement or
omission was contained in any information furnished in writing by such Selling
Holder to the Company, expressly for use in such registration statement or
prospectus; PROVIDED, HOWEVER, that the obligation to indemnify will be several
and not joint and in no event shall the liability of any Selling Holder
hereunder be greater in amount than the dollar amount of the proceeds (net of
the payment of underwriting discounts and commissions payable by such Selling
Holder) received by any such Selling Holder upon the sale of the Registrable
Shares giving rise to such indemnification obligation. The Company and the
Selling Holders shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution to
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the same extent as provided above with respect to information so furnished in
writing by such Persons expressly for use in any prospectus or registration
statement.
4.9.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnity under this Agreement (an "INDEMNIFIED PARTY") shall give prompt
written notice to the party from which such indemnity is sought (the
"INDEMNIFYING PARTY") of any claim or of the commencement of any proceeding with
respect to which such Indemnified Party seeks indemnification or contribution
pursuant hereto; PROVIDED, HOWEVER, that the failure so to notify the
Indemnifying Party shall not relieve the indemnifying party from any obligation
or liability except to the extent that the Indemnifying Party has been
prejudiced materially by such failure. The Indemnifying Party shall have the
right exercisable by giving written notice to an Indemnified Party promptly
after the receipt of written notice from such Indemnified Party of such claim or
proceeding to assume, at the Indemnifying Party's expense, the defense of any
such claim or proceeding, with counsel reasonably satisfactory to such
Indemnified Party; PROVIDED, HOWEVER, that under such circumstances an
Indemnified Party shall have the right to employ separate counsel in any such
claim or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless: (1) the Indemnifying Party agrees to pay such fees and expenses; or (2)
the Indemnifying Party fails promptly to assume the defense of such claim or
proceeding or fails to employ counsel reasonably satisfactory to such
Indemnified Party; or (3) the Indemnified Party shall have been advised by
counsel that (i) there may be one or more material defenses available to such
Indemnified Party that are different from or additional to those available to
the Indemnifying Party or its affiliates, or (ii) a conflict of interest likely
exists if such counsel represents such Indemnified Party and such Indemnifying
Party or its affiliate, in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such claim or
proceeding, or separate but substantially similar or related claims or
proceedings arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel which such counsel shall be designated
by the Indemnified Party and be reasonably acceptable to the Indemnifying Party)
at any time for such Indemnified Party, or for fees and expenses that are not
reasonable. Whether or not such defense is assumed by the Indemnifying Party,
such Indemnifying Party will not be subject to any liability for any settlement
made without its consent (which consent shall not be unreasonably withheld). The
Indemnifying Party shall not consent to entry of any judgment or settle or
compromise any pending or threatened claim, action or proceeding, unless it
contains as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release, in form and substance
satisfactory to such Indemnified Party, from all liability in respect of such
claim or litigation for which such Indemnified Party would be entitled to
indemnification hereunder.
The Indemnifying Party's liability to any such Indemnified Party hereunder
shall not be extinguished solely because any other Indemnified Party is not
entitled to indemnity hereunder.
4.9.4 CONTRIBUTION. If the indemnification provided for in this Section
4.9 is unavailable to an Indemnified Party in respect of any Losses or is
insufficient to hold such Indemnified Party harmless, then, except to the extent
that contribution is not permitted under Section 11(f) of the Securities Act,
each applicable Indemnifying Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party, on
the one hand, and such Indemnified Party, on the other hand, in connection with
the actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations appropriate under the circumstances. The
relative fault of such Indemnifying Party, on the one hand, and such Indemnified
Party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of a
material fact or omission to state a material fact, has been taken or made by,
or relates to information
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supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information concerning the matter with
respect to which the claim was asserted and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4.9.4 were determined by PRO RATA
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 4.9.4, no Indemnifying Party that
is a Selling Holder shall be required to contribute any amount in excess of the
amount by which the net proceeds received by such Selling Holder from the sale
of Registrable Shares exceeds the amount of any damages that such Selling Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this Section 4.9
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
4.9.5 UNDERWRITING AGREEMENT TO GOVERN. At such time as an underwriting
agreement with respect to a particular underwriting is entered into, the terms
of any such underwriting agreement shall govern with respect to the matters set
forth therein to the extent inconsistent with this Section 4.9; PROVIDED,
HOWEVER, however, that the indemnification provisions of such underwriting
agreement as they relate to Selling Holders are customary for registrations of
the type then proposed and provide for indemnification by such Selling Holders
only with respect to written information furnished by such Selling Holders.
4.10 RULE 144. Following a Public Offering Event, the Company shall
file the reports required be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder
and will take such further action as any Holder of Registrable Shares may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144. Upon the request
of any Holder of Registrable Shares, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Stockholders as follows:
5.1.1 ORGANIZATION. It is a corporation duly organized and validly
listing under the laws of the State of Delaware;
5.l.2 AUTHORITY. It has full corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby;
5.1.3 BINDING OBLIGATION. The execution, delivery and performance of
this Agreement by it and the consummation by it of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on its part, and this Agreement constitutes its binding obligation, enforceable
against it in accordance with its terms, except insofar as enforceability may be
limited by bankruptcy, insolvency, moratorium or other laws which may affect
creditors rights and remedies generally and by principles of equity (regardless
of whether enforceability is considered in a proceeding in equity or at law);
and
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5.1.4 NO CONFLICT. The execution, delivery and performance of this
Agreement by it and the consummation by it of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time, or
both, (i) violate any provision of law, statute, rule or regulation to which it
is subject, (ii) violate any order, judgment or decree applicable to it, or
(iii) conflict with, or result in a breach or default under, any term or
condition of its certificate or articles of incorporation or its by-laws or any
material agreement or other material instrument to which it is a party or by
which it or its property is bound.
5.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the
Stockholders represents and warrants to each other and to the Company as
follows:
5.2.1 ORGANIZATION. If it is an entity, it is a corporation, limited
partnership or other entity duly organized and validly existing under the laws
of its respective state of organization;
5.2.2 AUTHORITY. It has full power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
hereby;
5.2.3 BINDING OBLIGATION. The execution, delivery and performance of
this Agreement by it and the consummation by it of the transactions contemplated
hereby have been duly and validly authorized by all necessary action on its
part, and this Agreement constitutes its binding obligation, enforceable against
it in accordance with its terms, except insofar as enforceability may be limited
by bankruptcy, insolvency, moratorium or other laws which may affect creditors'
rights and remedies generally and by principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law); and
5.2.4 NO CONFLICT. The execution, delivery and performance of this
Agreement by it and the consummation by it of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time, or
both, (i) violate any provision of law, statute, rule or regulation to which it
is subject, (ii) violate any order, judgment or decree applicable to it, or
(iii) conflict with, or result in a breach or default under, any term or
condition of its certificate of incorporation, bylaws, trust or equivalent
governing document or any material agreement or other material instrument to
which it is a party or by which it or its property is bound.
ARTICLE 6. TERMINATION OF AGREEMENT
6.1 TERMINATION. Subject to the next succeeding sentence, this Agreement
shall terminate ten (10) years from the date of this Agreement (the "Termination
Date"). The provisions of Article 1 and Article 3 of this Agreement and the
provisions of Sections 2.3, 2.8 and 2.9 of this Agreement shall terminate on the
date of a Public Offering Event which occurs prior to the Termination Date.
ARTICLE 7. GENERAL
7.1 RECAPITALIZATION, EXCHANGES, ETC., AFFECTING THE SHARES. The provisions
of this Agreement shall apply to the full extent set forth herein with respect
to (a) the Shares and any option, right or warrant to acquire Shares, and (b)
any and all shares of capital stock of the Company or any successor or assign of
the Company (whether by merger, consolidation, sale of assets or otherwise)
which may be issued in respect of, in exchange for, or in substitution for any
Shares, by combination, recapitalization, reclassification, merger,
consolidation or otherwise. In the event of any change in the capitalization of
the Company, as a result of any stock split, stock dividend or stock
combination, the provisions of this Agreement shall be appropriately adjusted.
7.2 INJUNCTIVE RELIEF. It is hereby agreed and acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that, in
the event of any such failure, an aggrieved person will be irreparably damaged
and will not have an adequate remedy of law. Any such person shall, therefore,
be
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entitled to injunctive relief, including specific performance, to enforce such
obligations, without the posting of any bond and if any action should be brought
in equity to enforce any of the provisions of this Agreement, none of the
parties hereto shall raise the defense that there is an adequate remedy at law.
7.3 NOTICES. Any and all notices, demands or other communications required
or permitted hereunder shall be in writing and shall be made by hand delivery
(deemed given upon receipt), or by certified mail return receipt requested
(deemed given upon execution of such return receipt), addressed to a Stockholder
and the Company at the address set forth below such person's or entity's
signature. Any party may change its address for notice by notice given to each
Stockholder and the Company in accordance with the foregoing. No objection may
be made to the method of delivery of any notice actually and timely received.
7.4 LEGEND. In addition to any other legend which may be required by
applicable law, each share certificate representing Shares which are subject to
this Agreement shall have endorsed, to the extent appropriate, upon its face the
following words:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, ASSIGNED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO
SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT OR APPLICABLE STATE
SECURITIES LAW, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT, OR
APPLICABLE STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF SECURITIES,
INCLUDING RULE 144, PROVIDED AN OPINION OF COUNSEL IS FURNISHED TO THE
COMPANY, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO
THE EFFECT THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND/OR APPLICABLE STATE SECURITIES LAW IS AVAILABLE.
IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF A STOCKHOLDERS
AGREEMENT DATED AS OF , 1999 (THE "STOCKHOLDERS AGREEMENT"), A COPY
OF WHICH IS ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE
COMPANY. NO TRANSFER OF THE SECURITIES WILL BE MADE ON THE BOOKS OF THE
COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH
STOCKHOLDERS AGREEMENT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
ALSO SUBJECT TO OTHER RIGHTS AND OBLIGATIONS AS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
To the extent the circumstances or provisions requiring any of the above legends
have ceased to be effective, the Company will upon request reissue certificates
without the applicable legend or legends.
7.5 TRANSFEREES BOUND. All Shares owned by a Transferee shall, subject to
the terms of Section 2.3 of this Agreement, for all purposes be subject to the
terms of this Agreement, whether or not such Transferee has executed a consent
to be bound by this Agreement. The foregoing shall not apply in the case of any
Shares acquired by a Transferee pursuant to a sale of Shares pursuant to an
effective registration statement under the Securities Act or, except for sales
to an affiliate of the Company or sales made prior to a Public Offering Event,
pursuant to Rule 144.
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7.6 AMENDMENT; WAIVER. This Agreement may be amended, modified, supplemented
or terminated only by a written instrument signed by each of (i) the Company,
(ii) Stockholders holding a majority of the Registrable Purchaser Shares, and
(iii) Management Stockholders holding a majority of the Registrable Management
Shares. No provision of this Agreement may be waived orally, but only by a
written instrument signed by the party against whom enforcement of such waiver
is sought. Stockholders shall be bound from and after the date of the receipt of
a written notice from the Company setting forth such amendment or waiver by any
consent authorized by this Section, whether or not the Shares shall have been
marked to indicate such consent; no alteration, modification or impairment shall
be implied by reason of any previous waiver, extension of time, delay or
omission in exercise, or other indulgence.
7.7 ADDITIONAL DOCUMENTS; FURTHER CHANGES. Each party hereto agrees to
execute any and all further documents and writings within its powers and to
perform such other actions which may be or become necessary or expedient to
effectuate and carry out this Agreement. Each party hereto acknowledges and
agrees to negotiate in good faith to amend this Agreement to the extent
necessary to provide for customary and reasonable changes required by any
third-party co-investor or other person acquiring an equity interest in the
Company pursuant to the financing of the transactions contemplated by the Merger
Agreement.
7.8 NO THIRD-PARTY BENEFITS. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any third-party beneficiary.
7.9 SUCCESSORS AND ASSIGNS. Subject to the terms hereof, this Agreement
shall be binding upon and shall inure to the benefit of the Stockholders, and
their respective successors and permitted assigns; PROVIDED, HOWEVER,(i) neither
this Agreement nor any rights or obligations hereunder may be transferred by the
Company arid (ii) no rights or obligations of any Stockholder under this
Agreement may be assigned except that any Stockholder may transfer its rights
and obligations hereunder, in whole or in part, in connection with a Transfer of
Shares made in compliance with all of the provisions of this Agreement.
7.10 SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein; PROVIDED, HOWEVER, that the parties hereto shall
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such invalid,
illegal or unenforceable term, provision, covenant or restriction.
7.11 INTEGRATION. This Agreement contains the entire understanding of the
parties with respect to the subject matter hereof. There are no restrictions,
agreements, promises, representations, warranties, covenants or undertakings
with respect to the subject matter hereof other than those expressly set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
7.12 GOVERNING LAW. THE RIGHTS AND LIABILITIES OF THE PARTIES SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE CHOICE
OF LAWS PROVISIONS OF SUCH STATE OR ANY OTHER JURISDICTION.
7.13 ATTORNEYS' FEES. Should any litigation or arbitration be commenced
(including any proceedings in a bankruptcy court) between the parties hereto or
their representatives concerning any provision of this Agreement or the rights
and duties of any person or entity hereunder, the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the reasonable attorneys' fees and court costs incurred by reason of
such litigation or arbitration.
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7.14 HEADINGS. The headings in this Agreement are inserted only as a
matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Agreement or of any particular Section.
7.15 INFORMATION FOR NOTICES. No Stockholder (other than a Stockholder as
of the date of this Agreement with respect to the Shares held as of such date)
shall hold any of its Shares in nominee name unless it otherwise provides the
Company and the other Stockholders with its name and address and other
information reasonably requested by the Company in order to establish such
Stockholder's particular status under this Agreement (e.g., Purchaser Holder,
Management Party, etc.).
7.16 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.17 CONSENT TO JURISDICTION. Each Stockholder agrees that any proceeding
arising out of or relating to this Agreement or the breach or threatened breach
of this Agreement may be commenced and prosecuted in a court in the State of
Delaware. Each Stockholder hereby irrevocably and unconditionally consents and
submits to the non-exclusive personal jurisdiction of any court in the State of
Delaware in respect of any such proceeding. Each Stockholder consents to service
of process upon it with respect to any such proceeding by registered mail,
return receipt requested, and by any other means permitted by applicable laws
and rules. Each Stockholder waives any objection that it may now or hereafter
have to the laying of venue of any such proceeding in any court in the State of
Delaware and any claim that it may now or hereafter have that any such
proceeding in any court in the State of Delaware has been brought in an
inconvenient forum.
7.18 NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into
any agreements with respect to its securities which are inconsistent with or
violate in any material respects the rights granted to the Holders of
Registrable Shares in this Agreement.
7.19 CERTAIN DISTRIBUTIONS EXEMPT. Notwithstanding anything to the
contrary contained in this Agreement, any distribution of Shares by the
Purchaser or any other Purchaser Party to its equity participants in accordance
with the terms of its limited partnership agreement, operating agreement or
other governing agreement or instrument shall be exempt from the terms and
conditions of this Agreement, other than that the Persons receiving the Shares
in connection with any such distribution shall be bound on a going-forward basis
by the terms and conditions of this Agreement. For example, and not by way of
limitation, any such distribution shall not trigger any of the "tag-along"
rights set forth in Section 2.4.
7.20 CERTAIN LIMITATIONS. Notwithstanding anything to the contrary
contained in this Agreement, prior to the issuance or sale of any shares of the
Company's capital stock pursuant to an effective registration statement under
the Securities Act, the Company shall not be required to register any transfer
of Shares on the Company's books if in the reasonable, good faith judgment of
the Company, registering such transfer would cause the Company to become subject
to registration pursuant to the Exchange Act.
7.21 LOAN BY THE COMPANY IN THE EVENT OF CERTAIN LIABILITY. In the event
that an audit of a tax return of a Management Stockholder results in a
determination that such Management Stockholder recognized taxable income solely
as a result of the receipt of Shares contemplated by this Agreement and the
Merger Agreement, then to the extent such Management Stockholder incurs income
tax liability as a result of such determination, the Company shall make a loan
(the "LOAN") to such Management Stockholder to pay the amount of tax and the
interest (if any) owed in connection with such liability. The Loan (1) shall be
secured by the Shares owned by such Management Stockholder giving rise to such
liability, (2) shall bear interest from the date of such Loan computed at the
minimum rate under Internal Revenue Service regulations that would avoid
imputation if interest, and (3) shall be repaid by such Management Stockholder
upon the earlier of (A) any sale or other disposition of the Shares giving rise
to such liability or (B) ten years after the date of such Loan.
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<PAGE>
7.22 INFORMATION REGARDING BENEFICIAL OWNERSHIP. Each Stockholder agrees
to promptly provide to the Company any information or representations that the
Company may request regarding such holder's beneficial ownership of shares of
any class of the Company's capital stock.
7.23 NO TAX ADVICE. Each Management Stockholder understands that his or
her taxable income may be affected by a decision to make an election under
Section 83(b) of the Internal Revenue Code (an "83(B) ELECTION") with respect to
the Shares. Each Management Stockholder acknowledges that he or she has not
relied on the Company, Purchaser or their affiliates, employees, agents or
advisors for any advice in connection with the decision whether to make, or
procedures and time for making, the 83(b) Election, and acknowledges that the
Company has urged the him or her to consult his or her own tax advisor
immediately with respect to the desirability of and procedures for making an
83(b) Election with respect to the Shares and with respect to the tax
consequences pertaining to this Agreement and the Merger Agreement. Each
Management Shareholder agrees to submit to the Company a copy of any 83(b)
Election with respect to the Shares immediately upon filing such election with
the relevant taxing authority.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first set forth above.
WHITE CAP INDUSTRIES, INC.
By:
-------------------------------------------------------------------
Name:
Title:
3120 Airway Avenue
Costa Mesa, California 92626
GREEN EQUITY INVESTORS III, L.P.
By: GEI Capital III, LLC, its general partner
By:
-------------------------------------------------------------------
Manager
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
MANAGEMENT STOCKHOLDERS
-----------------------------------------------------------------------------
GREG GROSCH
[address]
-----------------------------------------------------------------------------
DAN TSUJIOKA
[address]
-----------------------------------------------------------------------------
RICHARD GAGNON
[address]
-----------------------------------------------------------------------------
CHRIS LANE
[address]
-----------------------------------------------------------------------------
JACK KARG
[address]
-----------------------------------------------------------------------------
BRIAN ETTER
[address]
A-120
<PAGE>
Exhibit A
to Stockholders' Agreement
WHITE CAP INDUSTRIES, INC.
BONUS PLAN FOR EXECUTIVE MANAGEMENT
The plan will be predicated upon Management's projections. The threshold for
bonuses will be achieving Target EBITDA (based upon Management's projections and
calculated before any LGP management fees) and the primary measure for purposes
of bonus payment calculations will be the amount of Incremental EBITDA earned in
excess of Target EBITDA. The Bonus Pool in each fiscal year shall be equal to
20% of Incremental EBITDA. The Bonus Pool will be allocated by the Company's
Board of Directors after consultation with the Chief Executive Officer of the
Company. All Target EBITDA amounts shall be adjusted in good faith by the
Company's Board of Directors to take into account acquisitions completed during
each fiscal year. No Bonus Pool will be payable if the Company is in default (or
will be with notice or the passage of time or after giving effect to this
payment) under any of its financing instruments.
WHITE CAP INDUSTRIES, INC.
NON-QUALIFIED STOCK OPTION PLANS
The Company will reserve 5% of the fully-diluted Common Stock at the Closing
Date, excluding any warrants issued in connection with the Financing, for a
Management stock option plan which will vest over a five-year time period. Stock
options under this plan will vest 20% on each of the first, second, third,
fourth and fifth anniversary dates of final allocation. Vesting will accelerate
upon change of control, death or disability and will contain certain other
typical terms. Allocations of a substantial majority of options under this plan
will be made promptly after Closing by the Company's Board of Directors, after
consultation with the Chief Executive Officer of the Company.
The Company will reserve 5% of the fully-diluted Common Stock at the Closing
Date, excluding any warrants issued in connection with the Financing, for a
Management stock option plan which will be earned based upon the Company's
operating performance over a five-year time period. Options under the plan will
be earned based upon achieving the same Target EBITDA levels as are used for the
Bonus Plan and will have exercise prices set at fair market value as determined
at the time of grant. Stock options will be allocated to participants through
awards and will become final if actual EBITDA exceeds Target EBITDA. The
allocations will be made by the Board of Directors after consultation with the
Chief Executive Officer of the Company annually in amounts of 1% for each of FYE
3/31/00 through FYE 3/31/04. Stock options under this plan will vest 20% on each
of the first, second, third, fourth and fifth anniversary dates of final
allocation. Vesting will accelerate upon change of control, death or disability
and will contain certain other typical terms.
A-121
<PAGE>
ANNEX 1
WHITE CAP INDUSTRIES, INC.
Summary of Terms--Preferred Stock
<TABLE>
<S> <C>
ISSUER............................ White Cap Industries, Inc.
AMOUNT............................ $65,000,000
DIVIDENDS......................... 10% per annum, payable quarterly. Payable at the option
of the Issuer by board determination in cash or, if not
paid, then cumulates.
MANDATORY REDEMPTION.............. Redeemable in whole after 20.5 years at the liquidation
preference, together with cumulative accrued dividends.
VOTING............................ No voting rights, except (i) as required by state and
other applicable law and (ii) that holders of a majority
of the outstanding shares of Preferred Stock, voting as
a separate class, will (a) have the right to approve
each issuance by the Issuer of any securities that rank
senior to the Preferred Stock as to dividends or upon a
liquidation or securities that rank on a parity with the
Preferred Stock as to dividends or upon a liquidation
and (b) have the right to approve any amendment of the
Issuer's articles of incorporation adverse to holders of
the Preferred Stock.
RANKING........................... The Preferred Stock will rank senior to (a) all classes
of common stock of the Issuer and (b) all classes of
preferred stock which are designated as junior to the
Preferred Stock.
RIGHTS OF HOLDERS................. There will be no non-pro rata redemptions by the
Company.
</TABLE>
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<PAGE>
APPENDIX B
[LOGO]
July 21, 1999
Board of Directors
White Cap Industries, Inc.
3120 Airway Ave.
P.O. Box 1770
Costa Mesa, CA 92626
Attn: Mr. Greg Grosch, Chairman
Members of the Board:
We understand that White Cap Industries, Inc. (the "Company") and WC
Recapitalization Corp. ("Merger Sub") are proposing to enter into an Agreement
and Plan of Merger (the "Agreement") which will provide, among other things, for
the merger (the "Merger") of Merger Sub with and into the Company. Under the
terms set forth in a draft of the Agreement dated July 19, 1999 (the "Draft
Agreement"), at the effective time of the Merger (the "Effective Time"), among
other things, each share of common stock, .01 par value, of the Company
("Company Common Stock") issued and outstanding immediately prior to the
Effective Time (including shares of Company Common Stock issued pursuant to the
automatic conversion provisions applicable to the Company's preferred stock
pursuant to Article IV of the Company's certificate of incorporation), other
than (i) any shares of Company Common Stock held in the treasury of the Company
and shares of Company Common Stock owned by Merger Sub, if any, which will be
canceled pursuant to the Agreement, (ii) certain shares of Company Common Stock
registered in the name of certain directors, officers and senior managers of the
Company ("Company Managers"), which shall remain outstanding as provided in the
Agreement, and (iii) shares of Company Common Stock and shares of preferred
stock of the Company ("Company Preferred Stock" and, together with Company
Common Stock, "Company Stock") held by stockholders who properly exercise
dissenters' rights ("Dissenting Shares"), will be canceled and converted into
the right to receive an amount equal to $16.50 in cash, without interest (the
"Merger Consideration"). The terms and conditions of the Merger are set out more
fully in the Agreement.
You have asked us whether, in our opinion, the Merger Consideration is fair
from a financial point of view and as of the date hereof to the "Holders of
Company Stock". The "Holders of Company Stock" shall be defined as all holders
of Company Stock other than Merger Sub, any affiliates of Merger Sub, Company
Managers and holders of Dissenting Shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the Company's
management;
(iii) reviewed certain financial forecasts and other forward looking
financial information prepared by the Company's management;
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<PAGE>
Board of Directors
White Cap Industries, Inc.
July 21, 1999
Page 2
(iv) held discussions with the management of the Company concerning the
business, past and current operations, financial condition and future
prospects of the Company;
(v) reviewed the financial terms and conditions set forth in the Draft
Agreement;
(vi) reviewed the stock price and trading history of Company Common Stock;
(vii) compared the financial performance of the Company and the prices and
trading activity of Company Common Stock with that of certain other
publicly traded companies comparable with the Company;
(viii) compared the financial terms of the Merger with the financial terms, to
the extent publicly available, of other transactions that we deemed
relevant;
(ix) prepared a discounted cash flow analysis of the Company;
(x) prepared a leveraged acquisition analysis of the Company;
(xi) participated in discussions among representatives of the Company and
their financial and legal advisors; and
(xii) made such other studies and inquiries, and took into account such other
matters, as we deemed relevant, including our assessment of general
economic, market and monetary conditions.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the Company's management) or publicly available
and have neither attempted to verify, nor assumed responsibility for verifying,
any of such information. We have relied upon the assurances of the Company's
management that it is not aware of any facts that would make such information
inaccurate or misleading. Furthermore, we did not obtain or make, or assume any
responsibility for obtaining or making, any independent evaluation or appraisal
of the properties, assets or liabilities (contingent or otherwise) of the
Company, nor were we furnished with any such evaluation or appraisal. With
respect to the financial forecasts and projections (and the assumptions and
bases therefor) for the Company that we have reviewed, upon the advice of the
Company's management, we have assumed that such forecasts and projections have
been reasonably prepared in good faith on the basis of reasonable assumptions
and reflect the best currently available estimates and judgments as to the
future financial condition and performance of the Company, and we have further
assumed that such projections and forecasts will be realized in the amounts and
in the time periods currently estimated. We have assumed that the Merger will be
consummated upon the terms set forth in the Draft Agreement without material
alteration thereof. In addition, we have assumed that the historical financial
statements of the Company reviewed by us have been prepared and fairly presented
in accordance with U.S. generally accepted accounting principles consistently
applied. We have relied as to all legal matters relevant to rendering our
opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions
as in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come
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<PAGE>
Board of Directors
White Cap Industries, Inc.
July 21, 1999
Page 3
or be brought to our attention after the date of this opinion. Our opinion is
limited to the fairness, from a financial point of view and as to the date
hereof, of the Merger Consideration to the Holders of Company Stock. We do not
express any opinion as to (i) the value of any employee agreement or other
arrangement entered into in connection with the Merger or (ii) any tax or other
consequences that might result from the Merger. Our opinion does not address the
relative merits of the Merger and the other business strategies that the
Company's Board of Directors has considered or may be considering, nor does it
address the decision of the Company's Board of Directors to proceed with the
Merger.
In connection with the preparation of our opinion, we were not authorized to
solicit, and did not solicit, third-parties regarding alternatives to the
Merger.
We will receive a fee contingent upon the delivery of this opinion, and the
Company has agreed to indemnify us for certain liabilities that may arise out of
the rendering of this opinion. In the past, we have provided certain investment
banking services to the Company for which we have been paid fees, including
acting as co-managing underwriter for an offering of the Company's securities.
We maintain a market in the shares of Company Common Stock. In the ordinary
course of business, we may trade in the Company's securities for our own account
and the account of our customers and, accordingly, may at any time hold a long
or short position in the Company's securities. BankBoston N.A., one of our
affiliates, has invested in one of the funds of Leonard Green & Partners
("LG&P"), which indirectly controls Merger Sub, and has acted as Syndication
Agent and senior lender to certain companies that are controlled by LG&P.
BancBoston Robertson Stephens Inc. is the general partner of Bayview Investors
L.P. ("Bayview"), a private equity investment fund that owns approximately 1.8%
of the outstanding shares of Company Common Stock. Our employees make up a
majority of the limited partners in Bayview.
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote, or take any
other action, with respect to the Merger. This opinion may not be summarized,
described or referred to or furnished to any party except with our express prior
written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Merger Consideration is fair to the Holders of
Company Stock from a financial point of view.
Very truly yours,
BANCBOSTON ROBERTSON STEPHENS INC.
/s/ BancBoston Robertson Stephens Inc.
--------------------------------------
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<PAGE>
APPENDIX C
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STOCKHOLDERS VOTING AGREEMENT
JULY 22, 1999
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I TRANSFER AND VOTING OF SHARES; AND OTHER COVENANTS OF THE STOCKHOLDERS..........................
1
SECTION 1.1. Voting of Shares............................................................. 1
SECTION 1.2. No Inconsistent Arrangements................................................. 1
SECTION 1.3. Proxy........................................................................ 2
SECTION 1.4. Waiver of Dissenters' Rights................................................. 2
SECTION 1.5. Stop Transfer................................................................ 2
SECTION 1.6. No Solicitation.............................................................. 2
SECTION 1.7. Management Agreements........................................................ 3
ARTICLE II DISCLOSURE..................................................................................... 3
SECTION 2.1. Disclosure................................................................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS............................................ 3
SECTION 3.1. Due Authorization, etc....................................................... 3
SECTION 3.2. No Conflicts; Required Filings and Consents.................................. 3
SECTION 3.3. Title to Shares.............................................................. 4
SECTION 3.4. No Finder's Fees............................................................. 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER......................................... 4
SECTION 4.1. Due Organization, Authorization, etc......................................... 4
ARTICLE V MISCELLANEOUS................................................................................... 5
SECTION 5.1. Definitions.................................................................. 5
SECTION 5.2. Termination.................................................................. 5
SECTION 5.3. Further Assurance............................................................ 5
SECTION 5.4. Certain Events............................................................... 5
SECTION 5.5. No Waiver.................................................................... 5
SECTION 5.6. Specific Performance......................................................... 5
SECTION 5.7. Notice....................................................................... 5
SECTION 5.8. Expenses..................................................................... 6
SECTION 5.9. Headings..................................................................... 6
SECTION 5.10. Severability................................................................. 6
SECTION 5.11. Entire Agreement; No Third-Party Beneficiaries............................... 6
SECTION 5.12. Assignment................................................................... 6
SECTION 5.13. Governing Law................................................................ 6
SECTION 5.14. Amendment.................................................................... 6
SECTION 5.15. Waiver....................................................................... 6
SECTION 5.16. Counterparts................................................................. 7
</TABLE>
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<PAGE>
STOCKHOLDERS VOTING AGREEMENT
THIS STOCKHOLDERS AGREEMENT, dated as of July 22, 1999 (the "Agreement"), is
entered into among WC Recapitalization Corp., a Delaware corporation
("Purchaser"), and the stockholders of the Company whose names appear on
Schedule I hereto (collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Purchaser and the White Cap Industries, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Merger, dated as of
the date hereof (the "Merger Agreement"), which provides for, upon the terms and
subject to the conditions set forth therein, the merger of Purchaser with and
into the Company (the "Merger");
WHEREAS, as of the date hereof, each Stockholder owns (beneficially and of
record) the number of Shares set forth opposite such Stockholder's name on
Schedule I hereto (all Shares so owned and which may hereafter be acquired by
such Stockholder prior to the termination of this Agreement, whether upon the
exercise of options or by means of purchase, dividend, distribution or
otherwise, being referred to herein as such Stockholder's "Owned Shares");
WHEREAS, as a condition to Purchaser's willingness to enter into the Merger
Agreement, Purchaser has required that the Stockholders enter into this
Agreement; and
WHEREAS, in order to induce Purchaser to enter into the Merger Agreement,
the Stockholders are willing to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Purchaser and each of the Stockholders, severally and not jointly, hereby agree
as follows:
ARTICLE I
TRANSFER AND VOTING OF SHARES;
AND OTHER COVENANTS OF THE STOCKHOLDERS
SECTION 1.1. VOTING OF SHARES. Each Stockholder agrees, at any meeting of
the stockholders of the Company, however called, and in any action by consent of
the stockholders of the Company, each Stockholder shall vote its Owned Shares
(i) in favor of the Merger and the Merger Agreement (as amended from time to
time), (ii) against any proposal for a Third Party Acquisition and against any
proposal for action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which is reasonably likely to result in any of the
conditions of the Company's obligations under the Merger Agreement not being
fulfilled, any change in the directors of the Company, any change in the present
capitalization of the Company or any amendment to the Company's Restated
Articles of Incorporation or By-Laws, any other material change in the Company's
corporate structure or business, or any other action which could reasonably be
expected to impede, interfere with, delay, postpone or materially adversely
affect the transactions contemplated by the Merger Agreement or the likelihood
of such transactions being consummated and (iii) in favor of any other matter
necessary for consummation of the transactions contemplated by the Merger
Agreement which is considered at any such meeting of stockholders, and in
connection therewith to execute any documents which are necessary or appropriate
in order to effectuate the foregoing, including the ability for Purchaser or its
nominees to vote such Owned Shares directly solely with respect to the matters
referred to in this Section 1.1.
SECTION 1.2. NO INCONSISTENT ARRANGEMENTS. Except as contemplated by this
Agreement and the Merger Agreement, each Stockholder shall not during the term
of this Agreement (i) transfer (which
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<PAGE>
term shall include, without limitation, any sale, assignment, gift, pledge,
hypothecation or other disposition), or consent to any transfer of, any or all
of such Stockholder's Owned Shares or any interest therein, or create or, except
as set forth on Schedule 1.2 hereto, permit to exist any Encumbrance (as defined
below) on such Owned Shares, (ii) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of such
Owned Shares or any interest therein, (iii) grant any proxy, power-of-attorney
or other authorization in or with respect to such Owned Shares, (iv) deposit
such Owned Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Owned Shares, or (v) take any other action that
would in any way restrict, limit or interfere with the performance of such
Stockholder's obligations hereunder or the transactions contemplated hereby or
by the Merger Agreement. Notwithstanding anything in this Agreement to the
contrary, each Stockholder may transfer all or any of such Stockholder's Owned
Shares to any trust, partnership or similar vehicle formed for estate, tax or
family planning purposes of which such Stockholder controls the vote, provided
that as a condition of such transfer, such Stockholder notifies the Purchaser
and provides the Purchaser with documentation reasonably satisfactory to the
Purchaser as to the consent of the transferee to be bound by all of the
provisions of this Agreement.
SECTION 1.3. PROXY. Each Stockholder hereby revokes any and all prior
proxies or powers-of-attorney in respect of any of such Stockholder's Owned
Shares and constitutes and appoints Purchaser or any nominee of Purchaser, with
full power of substitution and resubstitution, at any time during the term of
this Agreement, as its true and lawful attorney and proxy (its "Proxy"), for and
in its name, place and stead, to demand that the Secretary of the Company call a
special meeting of the stockholders of the Company for the purpose of
considering any matter referred to in Section 1.1 (if permitted under the
Company's Restated Articles of Incorporation or By-Laws) and to vote each of
such Owned Shares as its Proxy, at every annual, special, adjourned or postponed
meeting of the stockholders of the Company, including the right to sign its name
(as stockholder) to any consent, certificate or other document relating to the
Company that Delaware Law may permit or require as provided in Section 1.1.
THE FOREGOING PROXY AND POWER OF ATTORNEY ARE IRREVOCABLE AND COUPLED WITH
AN INTEREST THROUGHOUT THE TERM OF THIS AGREEMENT.
SECTION 1.4. WAIVER OF DISSENTERS' RIGHTS. Each Stockholder hereby waives
any rights to dissent from the Merger.
SECTION 1.5. STOP TRANSFER. Each Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Owned Shares,
unless such transfer is made in compliance with this Agreement (including the
provisions of Article III hereof) and acknowledges that Purchaser and the
Company may notify the Company's transfer agent of the terms hereof.
SECTION 1.6. NO SOLICITATION. Each Stockholder shall not, nor shall it
permit or authorize any of its officers, directors, employees, agents or
representatives (collectively, the "Representatives") to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquiries regarding or the
submission of, any proposal for a Third Party Acquisition, (ii) participate in
any discussions or negotiations regarding, or furnish to any Person any
information or data with respect to, or take any other action to knowingly
facilitate the making of any proposal that constitutes, or may reasonably be
expected to lead to, any proposal for a Third Party Acquisition or (iii) enter
into any agreement with respect to any proposal for a Third Party Acquisition or
approve or resolve to approve any proposal for a Third Party Acquisition. Upon
execution of this Agreement, each Stockholder shall, and it shall cause its
Representatives to, immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Each Stockholder will promptly notify Purchaser of the existence of
any proposal, discussion, negotiation or inquiry received by such
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<PAGE>
Stockholder, and each Stockholder will immediately communicate to Purchaser the
terms of any proposal, discussion, negotiation or inquiry which it may receive
(and will promptly provide to Purchaser copies of any written materials received
by it in connection with such proposal, discussion, negotiation or inquiry) and
the identity of the Person making such proposal or inquiry or engaging in such
discussion or negotiation. Nothing in this Section 1.6 shall be a limitation on
any Stockholder or representative thereof serving solely in his capacity as a
director of the Company, each of whom in his capacity as director of the Company
shall be subject to the terms and provisions of Section 6.4 of the Merger
Agreement.
SECTION 1.7. MANAGEMENT AGREEMENTS. By executing this Agreement, each
Stockholder named in Section 2.2(c) of the Merger Agreement agrees and commits
to consummate the transactions set forth therein, and agrees to execute and
deliver, to the extent contemplated thereby, the agreements referred to in
Sections 9.2(g) and (h) of the Merger Agreement. Purchaser agrees to cause the
Company and its subsidiary party thereto to execute and deliver such agreements
to such Stockholders to the extent contemplated by Sections 9.2(g) and (h).
ARTICLE II
DISCLOSURE
SECTION 2.1. DISCLOSURE. Each Stockholder hereby authorizes Purchaser to
publish and disclose in the Company Proxy Statement (including all documents and
schedules filed with the SEC) its identity and ownership of the Shares and the
nature of its commitments, arrangements and understandings under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to Purchaser as follows:
SECTION 3.1. DUE AUTHORIZATION, ETC. Such Stockholder has all requisite
power and authority to execute, deliver and perform this Agreement, to appoint
Purchaser as its Proxy and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement, the appointment of
Purchaser as Stockholder's Proxy and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of such Stockholder. This Agreement has been duly executed and delivered by
or on behalf of such Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding for such remedy may be brought. There
is no beneficiary or holder of a voting trust certificate or other interest of
any trust of which such Stockholder is trustee whose consent is required for the
execution and delivery of this Agreement of the consummation by such Stockholder
of the transactions contemplated hereby.
SECTION 3.2. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not, (i)
conflict with or violate any trust agreement or other similar documents relating
to any trust of which such Stockholder is trustee, (ii) conflict with or violate
any law applicable to such Stockholder or by which such Stockholder or any of
such Stockholder's properties is bound or affected or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
acceleration or cancellation of, or result in the creation of a lien or
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<PAGE>
encumbrance on any assets of such Stockholder, including, without limitation,
such Stockholder's Owned Shares, pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's assets is bound or affected, except, in
the case of clauses (ii) and (iii), for any such breaches, defaults or other
occurrences that would not prevent or delay the performance by such Stockholder
of such Stockholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority (other than any
necessary filing under the HSR Act or approvals or consents required under
applicable foreign antitrust or competition laws or the Exchange Act), domestic
or foreign, except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay the performance by such Stockholder of such Stockholder's
obligations under this Agreement.
SECTION 3.3. TITLE TO SHARES. Such Stockholder is the sole record and
beneficial owner of its Owned Shares, free and clear of any pledge, lien,
security interest, mortgage, charge, claim, equity, option, proxy, voting
restriction, voting trust or agreement, understanding, arrangement, right of
first refusal, limitation on disposition, adverse claim of ownership or use or
encumbrance of any kind ("Encumbrances"), other than as set forth on Schedule
1.2 hereto and other than restrictions imposed by the securities laws or
pursuant to this Agreement or the Merger Agreement.
SECTION 3.4. NO FINDER'S FEES. Except as disclosed in the Merger Agreement,
no broker, investment banker, financial advisor or other person is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of such Stockholder the payment of which could become the
obligation of the Company or Purchaser. Such Stockholder, on behalf of itself
and its affiliates, hereby acknowledges that it is not entitled to receive any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby or by the Merger Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Purchaser hereby represents and warrants to the Stockholders as follows:
SECTION 4.1. DUE ORGANIZATION, AUTHORIZATION, ETC. Purchaser is duly
organized, validly existing and in good standing under the laws of Delaware.
Purchaser has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Purchaser has been duly authorized by all
necessary corporate action on the part of Purchaser. This Agreement has been
duly executed and delivered by Purchaser and constitutes a legal, valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding for such remedy may be brought.
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<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.1. DEFINITIONS. Terms used but not otherwise defined in this
Agreement have the meanings ascribed to such terms in the Merger Agreement.
SECTION 5.2. TERMINATION. This Agreement shall terminate and be of no
further force and effect (i) by the written mutual consent of the parties hereto
or (ii) automatically and without any required action of the parties hereto upon
(x) the Effective Time or (y) the termination of the Merger Agreement in
accordance with its terms. No such termination of this Agreement shall relieve
any party hereto from any liability for any breach of this Agreement prior to
termination.
SECTION 5.3. FURTHER ASSURANCE. From time to time, at another party's
request and without consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transaction contemplated by this Agreement.
SECTION 5.4. CERTAIN EVENTS. Each Stockholder agrees that this Agreement and
such Stockholder's obligations hereunder shall attach to such Stockholder's
Owned Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Owned Shares shall pass, whether by operation of
law or otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators, or successors. Notwithstanding any transfer of Owned
Shares, the transferor shall remain liable for the performance of all its
obligations under this Agreement.
SECTION 5.5. NO WAIVER. The failure of any party hereto to exercise any
right, power, or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
SECTION 5.6. SPECIFIC PERFORMANCE. Each Stockholder acknowledges that if
such Stockholder fails to perform any of its obligations under this Agreement
immediate and irreparable harm or injury would be caused to Purchaser for which
money damages would not be an adequate remedy. In such event, each Stockholder
agrees that Purchaser shall have the right, in addition to any other rights it
may have, to specific performance of this Agreement. Accordingly, if Purchaser
should institute an action or proceeding seeking specific enforcement of the
provisions hereof, each Stockholder hereby waives the claim or defense that
Purchaser has an adequate remedy at law and hereby agrees not to assert in any
such action or proceeding the claim or defense that such a remedy at law exists.
Each Stockholder further agrees to waive any requirements for the securing or
posting of any bond in connection with obtaining any such equitable relief.
SECTION 5.7. NOTICE. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made (i) as of the date delivered or sent by facsimile if delivered
personally or by facsimile, and (ii) on the third business day after deposit in
the U.S. mail, if mailed by registered or certified mail (postage prepaid,
return receipt requested), in
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<PAGE>
each case to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, except that notices of changes
of address shall be effective upon receipt):
<TABLE>
<S> <C>
(a) If to Purchaser: Leonard Green & Partners, Inc.
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attention: Peter J. Nolan
Facsimile: (310) 954-0404
with a copy to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Telecopier: 213-229-7520
Attention: Jennifer Bellah Maguire
</TABLE>
(b) If to a Stockholder, at the address set forth below such Stockholder's
name on Schedule I hereto.
SECTION 5.8. EXPENSES. Except as otherwise expressly set forth herein, all
fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
costs and expenses. Notwithstanding the foregoing, Purchaser acknowledges that
the Company will pay the reasonable fees of Hogan & Hartson for negotiating the
provisions of this Agreement.
SECTION 5.9. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 5.10. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the maximum extent possible.
SECTION 5.11. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
constitutes the entire agreement and supersedes any and all other prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof, and this Agreement is not
intended to confer upon any other person any rights or remedies hereunder.
SECTION 5.12. ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise.
SECTION 5.13. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State.
SECTION 5.14. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 5.15. WAIVER. Any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties of the other
parties hereto contained herein or in any document delivered pursuant hereto and
(c) waive compliance by the other parties hereto with any of their
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<PAGE>
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only as against such party
and only if set forth in an instrument in writing signed by such party. The
failure of any party hereto to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
SECTION 5.16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which shall
constitute one and the same agreement.
IN WITNESS WHEREOF, Purchaser and the Stockholders have caused this
Agreement to be executed as of the date first written above.
WC RECAPITALIZATION CORP.
<TABLE>
<S> <C> <C>
By: /s/ PETER J. NOLAN
-----------------------------------------
Peter J. Nolan
President
STOCKHOLDERS
By: /s/ GREG GROSCH
-----------------------------------------
Greg Grosch
/s/ ALAN SCHERNER
-----------------------------------------
Alan Scherner, Trustee
Grosch Family Trust
/s/ CHRIS LANE
-----------------------------------------
Chris Lane
/s/ MARIANNE LANE
-----------------------------------------
Marianne Lane
/s/ DAN TSUJIOKA
-----------------------------------------
Dan Tsujioka
/s/ BRIAN ETTER
-----------------------------------------
Brian Etter
/s/ RICHARD GAGNON
-----------------------------------------
Richard Gagnon
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Apex Investment Fund III, L.P.
By: Apex Management III, L.L.C, its General
Partner
By: Stellar Investment Co., its Managing Member
By: /s/ JAMES A. JOHNSON
-----------------------------------------
Name: James A. Johnson
Title: President
Apex Strategic Partners LLC
By: Stellar Investment Co., its Managing Member
By: /s/ JAMES A. JOHNSON
-----------------------------------------
Name: James A. Johnson
Title: President
/s/ MARK KING
---------------------------------------------
Mark King
/s/ BRENDA K. KING
---------------------------------------------
Brenda K. King
MBK Children's Trust
By: /s/ BRENDA K. KING
-----------------------------------------
Brenda K. King
Bayview Investors. Ltd.
By: BancBoston Robertson Stephens, its General
Partner
By: /s/ DANA WELCH
-----------------------------------------
Name: Dana Welch
Title: Authorized Signatory
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
/s/ BRUCE L. ROGERS
---------------------------------------------
Bruce L. Rogers
/s/ SALLY K. ROGERS
---------------------------------------------
Sally K. Rogers
Rogers Family Trust
By: /s/ SALLY K. ROGERS
-----------------------------------------
Name: Sally K. Rogers
Title: Trustee
By: /s/ BRUCE L. ROGERS
-----------------------------------------
Name: Bruce L. Rogers
Title: Trustee
Sally K. Rogers Trust
By: /s/ BRUCE L. ROGERS
-----------------------------------------
Name: Bruce L. Rogers
Title: Trustee
/s/ ANDREW J. GWIRTSMAN (CUSTODIAN)
---------------------------------------------
Andrew J. Gwirtsman
/s/ DANIEL L. GWIRTSMAN (CUSTODIAN)
---------------------------------------------
Daniel L. Gwirtsman
/s/ CHARLES R. GWIRTSMAN
---------------------------------------------
Charles R. Gwirtsman
/s/ NANCY J. REICHMAN
---------------------------------------------
Nancy J. Reichman
Capital Resources Growth Inc.
By: /s/ CHARLES R. GWIRTSMAN
-----------------------------------------
Name: Charles R. Gwirtsman
Title: President
</TABLE>
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<PAGE>
SCHEDULE 1.2
The following individuals each have permitted Encumbrances placed on their
Owned Shares relating to loans made against Owned Shares held in margin accounts
with Donaldson, Lufkin, Jenrette.
<TABLE>
<CAPTION>
NAME LOAN AMOUNT
- - - ------------------------------------------------------------------------------- -------------
<S> <C>
Greg Grosch $ 1,000,000
Mark King $ 540,000
Charles Gwirtsman $ 625,000
Dan Tsujioka $ 875,000
Bruce Rogers $ 730,000
</TABLE>
All of the Encumbrances set forth above shall be removed by 5:00 p.m. (EDT) on
23 July 1999.
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<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF STOCKHOLDER OWNED
- - - ------------------------------------------------------------------------------------- -----------------
<S> <C>
Greg Grosch.......................................................................... 2,429,722
Grosch Family Trust 269,967
3120 Airway Avenue
Costa Mesa, CA 92626
Chris Lane........................................................................... 136,010
Marianne Lane 21,750
3120 Airway Avenue
Costa Mesa, CA 92626
Richard Gagnon....................................................................... 174,000
3120 Airway Avenue
Costa Mesa, CA 92626
Dan Tsujioka......................................................................... 161,969
39 Rockingham
Newport Beach, CA 92660
Brian Etter.......................................................................... 500
3120 Airway Avenue
Costa Mesa, CA 92626
Apex Investment Fund III, L.P........................................................ 515,778
233 S. Wacker Drive, Suite 9500
Chicago, IL 60606
Apex Strategic Partners, L.L.C....................................................... 39,573
233 S. Wacker Drive, Suite 9500
Chicago, IL 60606
Mark King............................................................................ 202,517
Brenda King 58,346
MBK Children's Trust 22,360
23956 Currant Drive
Golden, CO 80401
Bayview Investors, Ltd............................................................... 192,509
6065 Shelter Bay Ave.
Mill Valley, CA 94941
Bruce & Sally Rogers................................................................. 210,303
Rogers Family Trust 26,100
Sally K. Rogers Trust 43,500
1515 Arapahoe St., Tower 1, Suite 1500
Denver, CO 80202
Andrew J. Gwirtsman.................................................................. 13,230
Daniel L. Gwirtsman 13,230
1515 Arapahoe St., Tower 1, Suite 1500
Denver, CO 80202
Charles R. Gwirtsman................................................................. 93,707
Nancy J. Reichman 45,901
1515 Arapahoe St., Tower 1, Suite 1500
Denver, CO 80202
Capital Resources Growth, Inc........................................................ 208,800
1515 Arapahoe St., Tower 1, Suite 1500
Denver, CO 80202
</TABLE>
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<PAGE>
APPENDIX D
DELAWARE CODE ANNOTATED
SECTION 262. APPRAISAL RIGHTS
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL.
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word stockholder means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words stock and share
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
depository receipt mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to section 251 (other than a merger effected pursuant to
section 251(g) of this title), section 252, section 254, section 257, section
258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to section
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
D-1
<PAGE>
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply as nearly
as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented
to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to section
228 or section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all
D-2
<PAGE>
shares of such class or series of stock of such constituent corporation,
and shall include in such notice a copy of this section; provided that,
if the notice is given on or after the effective date or the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such
notice may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent
more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective
date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior
to the effective date, the record date shall be the close of business on
the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement shall be
mailed to the stockholder within 10 days after his written request for such
a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting
D-3
<PAGE>
corporation, the petition shall be accompanied by such a duly verified list.
The Register in Chancery, if so ordered by the Court, shall give notice of
the time and place fixed for the hearing of such petition by registered or
certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day
of the hearing, in a newspaper of general circulation published in the City
of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate
fully in all proceedings until it is finally determined that he is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an
D-4
<PAGE>
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
D-5
<PAGE>
WHITE CAP INDUSTRIES, INC. PROXY
3120 AIRWAY AVENUE, COSTA MESA, CALIFORNIA 92626
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Chris Lane and Dan Tsujioka, and each of
them, with full power of substitution, as attorneys and proxies to appear and
vote, as designated below, all of the shares of White Cap Industries, Inc. held
of record by the undersigned on , 1999 at the special meeting of
shareholders to be held on October , 1999 or at any postponements or
adjournments thereof.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
- - - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark [X] your votes as indicated
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE PROPOSALS BELOW.
1. MERGER PROPOSAL--To approve the merger of WC Recapitalization Corp. with
and into White Cap Industries, Inc. in accordance with an Agreement and Plan of
Merger dated July 21, 1999, as described in the accompanying proxy statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. OTHER MATTERS--To consider and act upon any other matters that may
properly come before the special meeting or any adjournment of the special
meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. POSTPONEMENT OR ADJOURNMENT--To postpone or adjourn the special meeting
if necessary to permit further solicitation of proxies.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement dated September , 1999.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(If signing as an attorney, executor,
trustee or guardian, please give your
full title as such. If shares are held
jointly, each holder should sign.)
DATED: ____________________________, 1999
_________________________________________
SIGNATURE
_________________________________________
SIGNATURE (if held jointly)
- - - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
SUPPLEMENTAL SCHEDULE - CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
RATIO OF EARNINGS TO FIXED CHARGES:
<TABLE>
<CAPTION>
Pro Forma
Three Months Three Months Pro Forma Three Months
Year Ended Year Ended Ended Ended Year Ended Ended
March 31, March 27, June 27, June 26, March 27, June 26,
1998 1999 1998 1999 1999 1999
-------------- --------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income (loss) $ 4,772 $ 16,797 $ 4,311 $ 4,961 $ (570) $ 632
Fixed Charges:
Interest expense 4,507 3,835 881 1,019 20,202 5,098
Interest factor of
rental expense 1,085 1,621 379 487 1,621 487
-------------- --------------- --------------- --------------- --------------- ------------
Total fixed charges 5,592 5,456 1,260 1,506 21,823 5,585
-------------- --------------- --------------- --------------- --------------- ------------
Total earnings 10,364 22,253 5,571 6,467 21,253 6,217
Total fixed charges 5,592 5,456 1,260 1,506 21,823 5,585
-------------- --------------- --------------- --------------- --------------- ------------
Ratio of earnings to fixed -------------- --------------- --------------- --------------- --------------- ------------
charges 1.85 4.08 4.42 4.29 0.97 1.11
-------------- --------------- --------------- --------------- --------------- ------------
Deficiency in earnings to ---------------
cover fixed charges $ (570)
---------------
</TABLE>
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Pro Forma
Three Months Three Months Pro Forma Three Months
Year Ended Year Ended Ended Ended Year Ended Ended
March 31, March 27, June 27, June 26, March 27, June 26,
1998 1999 1998 1999 1999 1999
---------------- --------------- ---------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income (loss) 4,772 16,797 4,311 4,961 (570) 632
Fixed Charges:
Interest expense 4,507 3,835 881 1,019 20,202 5,098
Interest factor of
rental expense 1,085 1,621 379 487 1,621 487
Preferred stock dividend
expense 602 - - - 10,744 2,686
---------------- --------------- ---------------- --------------- --------------- -------------
6,194 5,456 1,260 1,506 32,567 8,271
---------------- --------------- ---------------- --------------- --------------- -------------
Total earnings 10,364 22,253 5,571 6,467 21,253 6,217
Total fixed charges 6,194 5,456 1,260 1,506 32,567 8,271
---------------- --------------- ---------------- --------------- --------------- -------------
Ratio of earnings to fixed
charges and preferred ---------------- --------------- ---------------- --------------- --------------- -------------
stock dividends 1.67 4.08 4.42 4.29 0.65 0.75
---------------- --------------- ---------------- --------------- --------------- -------------
Deficiency of earnings to --------------- -------------
cover fixed charges $ (11,314) $ (2,054)
--------------- -------------
COMPUTATION OF INTEREST
FACTOR OF RENTAL EXPENSE:
Operating rental expense 3,255 4,864 1,136 1,460 4,864 1,460
Interest factor 33% 33% 33% 33% 33% 33%
---------------- --------------- ---------------- --------------- --------------- -------------
Total 1,085 1,621 379 487 1,621 487
---------------- --------------- ---------------- --------------- --------------- -------------
---------------- --------------- ---------------- --------------- --------------- -------------
COMPUTATION OF PREFERRED
STOCK EXPENSE:
Preferred stock expense 364 - - - 6,500 1,625
Tax effect (1.0-.395) 60.5% 60.5% 60.5% 60.5% 60.5% 60.5%
---------------- --------------- ---------------- --------------- --------------- -------------
Total 602 - - - 10,744 2,686
---------------- --------------- ---------------- --------------- --------------- -------------
---------------- --------------- ---------------- --------------- --------------- -------------
</TABLE>
