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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) Annual report under Section 13 or 15 (d) of the Securities Exchange Act of
1934. For the fiscal year period ended December 31, 1998 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Transition period from ________ to _______
Commission file number 0-19335.
BUILDING MATERIALS HOLDING CORPORATION
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<S> <C>
Incorporated in the State of Delaware I.R.S. Employer Number 91-1834269
</TABLE>
BUILDING MATERIALS HOLDING CORPORATION
One Market Plaza, Steuart Tower, Ste 2650, San Francisco, CA 94105
Telephone: (415)227-1650
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
Title of class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of the close of business on
March 22, 1999 was $87,258,503.*
* Excludes 4,443,544 shares of Common Stock held by directors, officers,
and holders of more than 5% of the Company's shares outstanding at
March 22, 1999. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or
policies of the Registrant, or that such person is controlled by or
under common control with the Registrant.
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<CAPTION>
Shares Outstanding
Class as of March 22, 1999
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<S> <C>
Common Stock
$.001 par value 12,656,109
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents any portions of which are incorporated by
reference and the Parts of this Form 10-K into which such portions are
incorporated:
1. The registrant's annual report for the fiscal year ended December 31,
1998, portions of which are incorporated by reference into Parts II
and IV of this Form 10-K, and
2. The registrant's definitive proxy statement dated March 31, 1999, for
use in connection with the annual meeting of shareholders to be held on
May 5, 1999, portions of which are incorporated by reference into Part
III of this Form 10-K.
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BUILDING MATERIALS HOLDING CORPORATION
TABLE OF CONTENTS
PART I
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ITEM PAGE
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1. Business 1
2. Properties 12
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Registrant's Common Stock and Related
Stockholder Matters 15
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 17
PART III
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial Owners and
Management 18
13. Certain Relationships and Related Transactions 18
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 19
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PART I.
ITEM 1. BUSINESS
Building Materials Holding Corporation ("BMHC") is a holding company engaged,
through its wholly owned subsidiary, BMC West Corporation ("BMC West" or the
"Company") in the distribution of building materials, selling primarily to
professional contractors as well as to project-oriented consumers (including
professional repair and remodel contractors hired by them). BMHC was formed to
centralize, at the holding company, responsibilities for acquisitions, financial
and administrative functions - including strategic, financial and capital
planning, corporate governance and investor relations activities. In addition,
the holding company structure is intended to focus operational management on
day-to-day activities, to give local management more focused responsibility and
enhance the opportunity to recommend the introduction of new products or
services appropriate for a given market.
BMC West is a leading distributor and retailer of building materials, selling
primarily to professional contractors in the western United States. In recent
years, increased focus has been placed on selling higher margin value-added
products which are customized to customer specifications. These value-added
sales include pre-hung doors, millwork and roof trusses which are fabricated,
pre-assembled windows which are selected and distributed and lumber that is
pre-cut to meet customer specifications. BMC West's offering of value-added
products both augments its ability to supply contractors with a full range of
their building materials needs and reduces the sensitivity to commodity lumber
prices. At December 31, 1998, the Company operated 58 building materials
centers located in Arizona, California, Colorado, Idaho, Montana, Nevada,
Oregon, Texas, Utah, and Washington.
BMC West targets primarily the professional contractor market, which is a
strategy distinct from that pursued by the high-volume, consumer-oriented home
center retailers now found throughout the United States. The Company's
professional contractor market consists of persons engaged principally in the
construction of single-family homes and, to a lesser extent, multi-family units
and light commercial and industrial construction. Professional contractors
generally are large-volume, repeat customers requiring certainty of product
availability and delivery and a number of specialized services typically not
offered by home center retailers. The Company also targets the repair and
remodel market which consists generally of project-oriented consumers and
contractors hired by them, who engage primarily in substantial projects such as
room additions, kitchen or bathroom remodeling and fence or deck installations.
BMC West develops long-term relationships with its customers by providing them
with a broad range of high-quality products and services. Each of the Company's
building materials centers tailors its product and service mix to meet the
demands of the local market. The Company's products, which include lumber, panel
products, roofing materials, pre-hung doors, millwork, roof trusses,
pre-assembled windows, cabinets, hardware, paint and tools, are used primarily
for new residential construction, light commercial construction and repair and
remodeling projects. These products are sold by experienced professionals
consisting of both field sales personnel and facility based sales and support
personnel. The Company offers its customers various services, including
assistance with project designs and materials specifications, coordination of
delivery of orders to
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job sites, provision of credit to pre-approved contractors and referral of
retail customers to pre-qualified contractors. Complete home packages
(delivered to the sites of the Company's builder customers according to their
construction schedules) account for a significant amount of total sales. In
each of the last three years, professional contractors accounted for
approximately 77% to 81% of net sales, and project-oriented consumers or the
contractors hired by them, accounted for approximately 18% to 22% of net
sales.
RECENT EVENTS
The Company announced on March 24, 1999, that it has entered into a definitive
agreement to acquire a 49% interest in Knipp Brothers, a framing company with
operations in Phoenix and Tuscon, Arizona, and Las Vegas, Nevada, with 1998
annual sales of approximately $115 million. The transaction is expected to close
in the second quarter of 1999. Certain assets of the Company's Phoenix facility
will become part of the transaction.
The purchase price for the 49% interest is expected to be in the range of $28
million to $33 million. The transactions contemplated by the definitive
agreement are subject to customary closing conditions. Under the agreement, BMHC
will have the right to acquire the remaining 51% interest in Knipp Brothers.
Larry Knipp will have a corresponding right to require BMHC to purchase Knipp
Brothers 51% after five years.
INDUSTRY OVERVIEW
The building materials distribution industry is characterized by its substantial
size, highly fragmented ownership structure and dependence on the cyclical and
seasonal home building industry.
Building materials distributors generally concentrate on serving either
project-oriented professional contractors or price-oriented retail consumers.
Contractor-oriented building materials distributors, such as BMHC, tend to focus
on contractors and project-oriented consumers and compete principally on the
basis of service, product quality and availability, on-time delivery, credit
availability and reliability, as well as price. Home center retailers, on the
other hand, target the mass consumer market, in which competition is based
principally on price, merchandising, location and cooperative advertising.
Typically, contractor-oriented distributors offer a greater range of services
and a wider variety of high quality building products than home center
retailers.
The contractor-oriented building materials distribution industry is
characterized by a large number of privately owned, small, regional distribution
companies and single-site enterprises. These businesses are typically family
run, relationship-based operations which focus on offering service, delivery and
reliability to their customers. As a result of their size, many of these
businesses do not possess sophisticated working capital management and control
systems and generally lack the purchasing expertise of a large entity, such as
BMHC. Because of these factors, BMHC believes that these businesses include a
number of attractive acquisition candidates.
The building materials distribution industry is closely linked to the economic
cycles and seasonality associated with the home building industry. The Company
monitors the issuance of new housing permits as an important indicator of its
potential future sales volume. Construction
2
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expenditures are largely a function of new residential, commercial and
industrial building demand and repair and remodeling projects undertaken.
Residential construction is closely linked to new job formation, household
formation, interest rates, housing affordability, availability of mortgage
financing, regional demographics and consumer confidence. Commercial
construction is significantly affected by vacancy and absorption rates,
interest rates, long-term regional economic outlooks and the availability of
financing. Industrial construction expenditures are linked to the industrial
economic outlook, corporate profitability, interest rates and capacity
utilization. In difficult economic environments, repair and remodeling
expenditures generally represent a greater percentage of housing construction
expenditures as new housing starts decline. BMHC centers target participants
in all of these sectors, although economic conditions frequently dictate
which sector they may emphasize at a given time. A key attribute of the
contractor-oriented building materials distribution industry is that
professional contractors typically use the same building materials supplier
for all of their projects. In order to generate and maintain this loyalty,
suppliers generally focus on providing the professional contractor with
service, quality, on-time delivery and value-added services.
GEOGRAPHIC MARKETS
BMHC believes that its subsidiary BMC West is well positioned in some of the
most attractive markets for building materials in the United States. Population
and migration trends in the Western markets served by BMC West, as well as the
relative strength of many of the local economies it serves, have resulted in the
growth of residential housing in these markets.
OPERATING STRATEGY
BMHC's operating strategy is to focus responsibility for day-to-day operations
at the local level. The building materials centers operate as autonomous,
decentralized units capable of meeting local market needs and offering
competitive prices. Local managers have a substantial degree of control over
inventory, merchandising and pricing, and can develop their own specific
programs to meet the needs of their particular markets.
The Company's decentralized, microcomputer based, point-of-sale information
system provides each center manager with real-time pricing, inventory
availability and margin analysis. At the same time, the Company provides
centralized purchasing management, credit and financial controls, management
information systems, training and marketing support. The compensation of
substantially all of the employees of each unit is based, in part, on the
performance of the individual unit.
The Company believes that many of its building materials centers hold a first or
second place market share among professional contractors and that the Company,
as a whole, has the largest sales volume of any distributor of building
materials serving primarily professional contractors in its market area. The
Company intends to maintain its leadership position in these markets by
continuing to provide a broad range of high-quality products and services to the
professional contractor as well as the project-oriented consumers and
professional repair and remodel contractors hired by them. The services provided
by the Company include assisting customers
3
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with project designs and materials specifications, delivering orders to job
sites, providing credit to qualified contractors and referring retail
customers to pre-qualified contractors. In addition to distributing products
from manufacturers, the Company currently conducts value-added operations at
facilities which are generally constructed or acquired at or near a center
and can service a sales area depending on the market from 35 to 100 miles in
radius. The Company plans to introduce value-added products such as pre-hung
doors, roof trusses and pre-assembled windows in more of the markets served
by the Company. These products generally carry higher gross margins and have
less price volatility than commodity wood products.
BMHC's total quality management program defines quality as providing the best
products and services at the right place at the right time. The program provides
an environment for employees to identify cost reduction and margin improvement
opportunities, empowers employees to make significant contributions and work
together as a team, and measures BMHC's performance and follow-through on
improvement efforts. Quality teams at BMHC locations seek to make specific,
measurable improvements in the Company's critical processes, including order
processing, inventory control, delivery and customer assistance. These teams
include employees from all functional areas and backgrounds. The Company
supports this program through training and the sharing of ideas among locations.
The Company focuses on improving efficiency and productivity at all locations
with special attention and support to certain of the centers that the Company
believes are under-performing. The Company seeks to anticipate changes in its
market by adjusting the inventory product mix and services for the professional
contractor and project-oriented consumer and the contractors hired by them. Such
adjustments may have some minor impact on margins as the Company adjusts
inventories. The Company is also exploring other alternatives for under
performing centers including consolidation and liquidation of real property. The
Company also is focusing on building new locations within markets where it has a
presence.
ACQUISITION STRATEGY
BMHC seeks acquisitions of building materials centers and value-added facilities
that serve the professional contractor and the project-oriented consumer
(including professional repair and remodel contractors hired by them) in new and
existing markets in the United States. The fragmented nature of the industry
presents to BMHC opportunities to acquire other multi-center distributors that
could be acquired as new stand-alone subsidiaries. In addition, BMHC focuses on
opportunities to acquire additional centers in the geographic areas currently
served by BMHC.
The management of BMHC have substantial experience in expanding building
materials supply businesses through acquisitions. Over the past several years,
management has contacted and visited many acquisition candidates. In addition,
BMHC is contacted regularly by persons seeking to sell their business. BMHC
believes that, due to professional contractor loyalty to existing centers, the
most expedient way to enter new geographic markets is through acquisitions. BMHC
also believes that the availability of a public market for its Common Stock
provides it with additional flexibility in pursuing acquisitions.
4
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While the Company evaluates each potential acquisition candidate on its
individual merits, its primary objective has been to acquire profitable building
materials centers that meet certain general criteria. The typical targeted
acquisition candidate is located on a 5 to 10 acre site which includes 8,000 to
15,000 square feet of indoor showroom and contractor sales space and 20,000 to
50,000 square feet of covered storage area, with reasonable access to the local
road system and proximity to regional areas of construction demand. Additional
factors include the reputation of the center among local contractors and the
quality of the center's management and sales organization.
Typically, after the acquisition of a center, the Company enhances the center's
sales and service capabilities and may expand its product offerings, including
value-added products, in an effort to increase sales. In addition, the Company
seeks to implement its accounting and management systems into each newly
acquired center. These systems assist in the effective management of the
Company's inventories and accounts receivable, and in efforts to improve
customer service. The Company has implemented purchasing on a consolidated basis
to save costs.
In 1998, the Company completed eight acquisitions involving three building
materials centers and eleven value-added facilities located in Colorado,
Montana, Nevada, Oregon, Texas and Washington. Three of the value-added
facilities were integrated into existing operations. The total consideration
given was $33.9 million, consisting of $24.3 million in cash, a note payable for
$5.0 million, 299,343 shares of common stock valued at $4.0 million, and other
assumed operating liabilities of $625,000. The following chart sets forth the
number of building materials centers acquired and consolidated by the Company
during each of the last two fiscal years.
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Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
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Beginning balance 55 53
Acquisitions 9 5
Consolidations and Closures (6) (3)
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Ending balance 58 55
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It is the objective of BMHC and the Company to continue to acquire complementary
businesses. BMHC and the Company continue to engage in discussions with
potential acquisition candidates. There can be no assurances that BMHC or the
Company will be able to continue to identify and complete successful
acquisitions in the future.
PRODUCTS
Each BMHC center carries a core of approximately 11,000 stock keeping units
("SKUs"), plus an average of an additional 4,000 SKUs, the product mix of which
varies by location. The Company's principal products include lumber, panel
products, engineered wood products, roofing materials, pre-hung doors, roof
trusses, pre-assembled windows, cabinets, hardware, paint and tools. In addition
to distributing such products, the Company conducts value-added activities,
5
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which include fabricating pre-hung doors, roof trusses, pre-assembled windows
and pre-cutting lumber to meet customer specifications.
The following table sets forth information regarding the percentage of net sales
represented by the specified categories of products sold at the Company's
centers during each of the last two fiscal years. While the Company believes
that the percentages included in the table generally indicate the mix of the
Company's sales by category of product, the specific percentages are affected
year-to-year by changes in the prices of commodity wood products, as well as
changes in unit volumes sold.
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Category of Product 1998 1997
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Wood products (lumber and panel products) 44% 47%
Millwork/value-added (pre-hung doors, trusses, windows & moldings) 31 24
Building materials (roofing, siding, engineered wood products, insulation and steel)
16 19
Other (paint, hardware, tools, electrical and plumbing) 9 10
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100% 100%
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The Company fabricates roof trusses used to form roof support systems and
pre-hung door units and pre-assembled window units for the residential and light
commercial building markets. Door units are purchased and pre-assembled to
contractor specifications using a variety of moldings. The door, truss and
window product lines are particularly attractive since they generally bring
higher margins, have less price volatility, and are not offered by many building
materials centers or home center retailers. The Company believes that its
ability to provide pre-hung doors, millwork, roof trusses and pre-assembled
windows in a number of locations is a competitive advantage when soliciting
business from contractors. Inventories of door units, roof trusses and
pre-assembled windows are usually built-to-order.
The Company's customers generally order products, including pre-hung doors,
millwork, roof trusses, and pre-assembled windows on an as-needed basis.
Therefore, virtually all product shipments in a given fiscal quarter result
from orders received in that quarter. Consequently, order backlog represents
only a very small percentage of the product sales anticipated by the Company
in a given fiscal quarter and is not indicative of the Company's actual sales
for any future fiscal period.
As a distributor of building materials and products, the Company regularly
monitors innovations in product design to meet its customers' needs. The Company
test markets products that substitute for dimensional lumber and has for a
number of years distributed alternative products such as engineered wood
products and steel studs, and has provided its builder customers information and
instruction on the use of such products.
SALES AND MARKETING
Each of BMC West's 58 building materials centers tailors its product and service
mix to the local market and operates as a separate profit center. The Company
reaches its professional contractor
6
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customers, mainly through field sales representatives, advertisements in
trade journals and local promotional events. The Company's customers include
a broad base of professional contractors and project-oriented consumers
(including professional repair and remodel contractors hired by them). No
single customer accounted for more than 1% of net sales in 1998.
PROFESSIONAL CONTRACTOR MARKET
The professional contractor market is comprised of three major customer
segments: two segments are the new housing contractors, and commercial and
industrial contractors. In 1998, the Company's sales to these professional
contractors accounted for approximately 81% of net sales (this total includes
75% to new residential contractors and 6% to commercial and industrial
contractors). Professional contractors accounted for approximately 77% to 81% of
the Company's net sales in each of the last three years. A significant amount of
this business consisted of sales of complete house packages, including framing
lumber, panel products, pre-hung doors and trim packages, roof trusses,
pre-assembled windows and other products required to construct or improve a
home.
BMHC provides a wide range of customer services to contractors to meet their
needs for trade credit, delivery and expert assistance. While pricing is an
important purchasing criterion for these customers, the Company believes that
other factors such as coordinated, on-time deliveries, quality and availability
of products, relationships with salespeople, credit availability and technical
support are equally important. The Company believes that its skills in these
areas are important competitive advantages.
The Company's principal channel for reaching the professional contractor market
is a sales force of approximately 262 field sales representatives supported by
approximately 298 facility-based salespeople. Field sales representatives
actively solicit business and work with the facility-based managers to develop
bids for contractor projects. The Company provides sales training for all sales
representatives, and sales management training for all sales managers and center
managers. Sales representatives are compensated through a combination of salary
and commission based on individual sales volume and gross margin.
BMC West's center managers ensure that building materials are delivered
according to contractor specifications and schedules. Technical personnel
involved in purchasing, dispatching, invoicing and credit, support both field
sales force and center managers to enhance customer satisfaction.
REPAIR AND REMODEL MARKET
The third major customer segment is the repair and remodel market which consists
generally of project-oriented consumers (including professional repair and
remodel contractors hired by them). In 1998, the Company's sales to these
customers accounted for approximately 18% of net sales and for approximately 18%
to 22% of net sales in each of the last three years. The Company's sales to this
market generally carry higher margins than sales to the professional contractor
market and also carry higher costs. The volume of sales to this market varies
depending on location, with the Company actively pursuing repair and remodel
business in smaller markets.
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CREDIT
Overall credit policy for sales to contractors is established by corporate
management, but each center has responsibility for overseeing local accounts.
The individual center managers and their staff are trained to have a thorough
understanding of state lien laws, which provide security for the Company's
accounts receivable. The Company's credit policies, together with daily computer
monitoring of customer balances, have resulted in average bad debt expense of
approximately 0.16% of net sales during the last five years, with no single year
exceeding 0.21%. The Company believes that its bad debt expense levels are among
the lowest in the industry. Approximately 91% of the Company's sales in 1998
were made to customers to whom the Company had extended credit for such sales.
MANAGEMENT INFORMATION SYSTEMS
BMHC's financial information, operational data and other related statistical
information are processed and maintained at BMC West's headquarters on a network
of server computers and work stations. The Company's financial reporting and
relational database system was designed and customized for BMHC by Oracle
Corporation. The flexible nature of the Company's installed network allows for
the accumulation, processing and distribution of information using industry
standard computing resources and programs. The point-of-sale information systems
used by the Company operate on IBM RS6000 computers located at each center, and
are connected to the computers at headquarters via a high speed frame relay
network. These on-line systems provide real-time pricing, inventory availability
and margin analysis. This allows each center's sales staff to offer a high level
of customer service, while giving management the ability to access and use
timely information to monitor operations. Management believes that these systems
also have enabled the Company to enhance profit margins, improve inventory
turnover through identification and elimination of low-turnover items,
accelerate analysis of sales trends, and better monitor accounts receivable,
employee productivity, customer credit limits and lien protections.
PURCHASING
The Company purchases merchandise from a large number of manufacturers and
suppliers. In 1998, the Company's largest supplier accounted for approximately
9% of the Company's total purchases. The Company does not believe that the loss
of any single supplier would have a material adverse effect on the Company.
The Company purchases some of its inventory on a centralized basis in order to
capitalize on economies of scale, although a limited amount of purchasing and
all ordering is controlled at individual centers in order to respond to local
needs. Purchasing is controlled at the location level in order to maintain local
product needs and inventory turns. Although the Company seeks to time its
purchases to take advantage of price movements, BMHC has a policy not to
speculate in the commodity wood products market.
Approximately 44% of the Company's 1998 sales were attributable to commodity
wood products. Prices of commodity wood products are subject to significant
volatility and directly affect the
8
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Company's sales. During 1998, the prices of commodity wood products purchased
and sold by the Company were on average 1.3% lower than in 1997 (the
Company's total price deflator for 1998 was about 1%). The Company has
established purchasing and pricing procedures to reduce exposure to inventory
write-downs. The Company's commodity buyers monitor inventory and sales
levels in each location on a regular basis. With this supply and demand
information, buyers generally can avoid overstocking commodity wood products.
As a result, the Company turns its commodity product inventory approximately
10 to 12 times per year. Such rapid inventory turnover limits the Company's
potential exposure to inventory loss from commodity price fluctuations. In
addition, the Company's real-time computer network allows the locations to
adjust sales prices as purchase prices of commodity products change.
In July 1996, the Company entered into a merchandise supply agreement with
TruServe for hardline products. Under the agreement, BMC West terminated
existing affiliations with other distributors.
COMPETITION
BMHC operates in a highly competitive environment. Due to the nature of the
industry, BMHC's competitive environment varies by location and by market.
Within the professional contractor market, the Company competes primarily with
privately owned, single-site enterprises and local and regional building
materials chains. Professional contractors generally select building materials
centers on the basis of availability of knowledgeable personnel, on-time
delivery, reliable inventory levels, availability of credit and competitive
pricing. BMHC believes it competes favorably on each of these bases. The
Company's relatively large size also permits it to attract experienced and
professional sales and service personnel and provides BMHC the resources to
offer Company-wide product and service training programs. By working closely
with its contractor customers and utilizing the Company's real-time management
information system, BMHC's centers maintain appropriate inventory levels and are
well positioned to deliver completed orders on time to individual job sites.
Large home center retailers could prompt other local suppliers to more
aggressively pursue professional contractor business.
Within the repair and remodel market, BMHC competes primarily with local
lumberyards and hardware stores and, in certain of its markets, with larger home
center chains such as Home Depot, HomeBase and Lowe's. The Company believes that
it meets the needs of project-oriented consumers and repair and remodel
contractors more effectively than such competitors by (i) providing primarily
higher quality products within each category, (ii) offering consumers and
contractors access to knowledgeable staff and (iii) developing contractor
referral programs to address the requirements of consumers on larger projects.
EMPLOYEES
The success of BMHC is highly dependent on the quality of its personnel at all
levels of the Company. The Company is facing increased competition in attracting
and retaining qualified employees. As a result, the Company maintains well
rounded and competitive compensation and
9
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fringe benefit programs to attract, motivate and retain top performing
individuals. In addition, the Company provides extensive product knowledge,
customer service, supervisory and managerial training programs to assure
employee and customer satisfaction.
At December 31, 1998, BMHC employed approximately 4,100 persons, of which
approximately 300 were represented by unions. The Company has not experienced
any strikes or other work interruptions and has maintained generally favorable
relations with its employees. The following table shows the approximate
breakdown by job function of the Company's employees:
<TABLE>
<S> <C>
Officers, corporate and unit management, and
corporate and unit administrative 20%
Delivery (Truck Drivers, Load Builders, Yard) 31%
Manufacturing (Truss, Door and Window) 26%
Field sales force (Outside/Inside Sales) 17%
Retail operations (Cashiers/Receiving/Sales Support) 6%
</TABLE>
EXECUTIVE OFFICERS AS OF FEBRUARY 28, 1999
<TABLE>
<CAPTION>
Date First
Elected as
Name Age Position or Office An Officer
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<S> <C> <C> <C>
George E. McCown 63 Chairman of the Board of 1987
Directors
Robert E. Mellor 55 President, Chief Executive 1997
Officer and Director
Robert L. Becci 58 Vice President and Controller 1990
Richard F. Blackwood 61 Senior Vice President 1987
Ellis C. Goebel 57 Senior Vice President- Finance 1987
and Treasurer
Steven H. Pearson 51 Vice President of Human 1987
Resources
William E. Smith 47 President, SouthCentral Division 1997
Paul S. Street 51 Senior Vice President, General
Counsel, & Secretary 1999
Stanley M. Wilson 54 President, Pacific Division 1997
</TABLE>
10
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Mr. McCown is Chairman of the Board of Directors of the Company and has been a
director since 1987. He was co-founder and has been a Managing General Partner
of the MDC Management Companies, the general partner of the McCown De Leeuw &
Co., since 1984, and was instrumental in financing and executing the leveraged
buy-out of BMC West Corporation in 1987. Mr. McCown currently serves as the
Vice-Chairman of the Board of Directors of Vans, Inc. and as a director of the
following publicly held companies: FiberMark, Inc. and Dimac. Mr. McCown also
serves as a director of several privately held companies.
Mr. Mellor serves as the President and Chief Executive Officer of BMHC.
Mr. Mellor was previously Of Counsel with the law firm of Gibson, Dunn &
Crutcher LLP from 1990 through February 15, 1997. He previously
served as the Executive Vice President and Chief Administrative Officer,
and as a director of Di Giorgio Corporation from 1987 to 1990. He joined Di
Giorgio Corporation in 1976. Mr. Mellor also serves as a director of
Coeur d' Alene Mines Corporation.
Mr. Becci has served as the Company's Controller since its inception in 1987
and was elected Vice President in 1990.
Mr. Blackwood is currently Senior Vice President and has served as Vice
President of Operations of the Company since 1987.
Mr. Goebel was promoted to Senior Vice President, Finance & Treasurer of
Building Materials Holding Corporation in August 1997. He served as Vice
President and Treasurer of the Company since its inception in November 1987.
Mr. Pearson has served as Vice President of Human Resources of the Company
since its inception in November 1987.
Mr. Smith has served as President of the SouthCentral Division since November
1997. Before joining BMC West, he held the position of President and Chief
Operating Officer of Lone Star Plywood & Door Corp., which was purchased by the
Company in November 1997.
Mr. Street joined the Company in January 1999 as Senior Vice President,
General Counsel, & Secretary. He previously served as Outside General
Counsel & Secretary to the Company while employed by Moffatt, Thomas,
Barrett, Rock & Fields.
Mr. Wilson has served as President of the Pacific Division since November 1997.
He was previously district manager of the West Coast district from April 1993 to
1998. Prior to 1993 he was the location manager of the Bellevue, Washington
location.
11
<PAGE>
ITEM 2. PROPERTIES
BMHC's headquarters is in San Francisco, California and BMC West's headquarters
is in Boise, Idaho. In addition to administrative buildings, the Company has
four primary types of facilities: building materials supply centers, pre-hung
door facilities, truss facilities, and pre-assembled window distribution
facilities. The Company believes that its locations are well maintained and
generally are adequate for the Company's needs for the foreseeable future. All
of the Company's material assets, including land and facilities, are owned or
leased by the Company.
<TABLE>
<CAPTION>
State and Date Owned Leased
City Acquired Acreage Acreage
---- -------- -------- -------
<S> <C> <C> <C>
ARIZONA - 1
Phoenix 1994 -- 12.7
CALIFORNIA - 3
Atwater* 1990 -- 2.4
Fresno 1989 13.1 --
Merced 1987 2.9 1.0
Modesto 1989 14.0 --
San Francisco
Headquarters 1997 -- --
COLORADO -11
Aspen 1987 4.1 --
Boulder 1990 10.0 --
Colorado Springs 1994 3.3 --
Denver Door 1990 -- 1.6
Denver 1994 8.7 --
Evergreen 1990 3.7 --
Fort Collins 1990 4.6 .5
Fort Lupton* 1994 10.5 --
Grand Junction 1994 3.5 .5
Glenwood Springs* 1990 2.0 --
Greeley 1994 11.0 --
Pueblo 1994 10.7 --
Steamboat Springs 1987 1.4 2.8
IDAHO - 6
Boise 1987 23.9 --
Boise (office) 1988 -- --
Emmett* 1987 2.6 --
Idaho Falls 1987 11.5 1.0
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
State and Date Owned Leased
City Acquired Acreage Acreage
---- -------- ------- -------
<S> <C> <C> <C>
IDAHO
Lewiston 1990 3.8 --
Meridian* 1987 -- 3.8
Pocatello 1987 4.6 --
Rexburg 1987 1.9 --
Twin Falls 1993 0.5 --
MONTANA - 5
Great Falls 1993 9.0 --
Helena 1998 4.5 --
Helena Truss 1998 3.6 --
Kalispell 1998 5.4 --
Missoula 1998 13.0 --
NEVADA - 4
Carson City 1992 7.6 --
Carson Valley 1998 10.3 --
Gardnerville 1992 4.4 --
Sparks 1997 11.0 --
OREGON - 3
Beaverton 1987 5.6 --
Salem 1998 6.1 --
Wilsonville 1997 -- 3.1
TEXAS - 15
Abilene 1995 16.8 --
Austin 1998 -- 5.2
Austin 1995 18.3 3.9
Coppell 1997 9.4 --
El Paso 1991 7.0 --
Fredericksburg 1993 4.0 --
Houston 1997 7.1 --
Houston 1998 -- 2.5
Hurst 1994 5.3 2.3
Killeen 1994 3.6 0.3
Marble Falls 1993 5.2 --
New Braunfels 1995 23.6 5.2
San Antonio 1998 -- 4.2
Shiner 1993 1.2 0.4
Temple 1993 11.3 --
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
State and Date Owned Leased
City Acquired Acreage Acreage
---- -------- ------- -------
<S> <C> <C> <C>
UTAH - 3
Ogden* 1987 0.5 1.2
Orem 1987 9.9 6.0
Salt Lake 1990 16.8 --
Tooele* 1987 1.5 0.7
West Haven 1996 6.0 --
WASHINGTON - 7
Bothell 1997 -- 2.8
Everett 1994 28.1 --
Issaquah 1994 16.4 --
Kent 1994 4.5 --
Spokane 1990 5.0 --
Tacoma 1987 8.9 --
Vancouver 1994 -- 5.4
WYOMING
Jackson* 1996 -- 1.0
</TABLE>
*These locations are satellites of existing locations.
BMHC and BMC are tradenames of the Company. Other brand names or trademarks
appearing in this Form 10-K are the property of their respective holders.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation and other legal matters arising in the
normal course of business. In the opinion of management, the Company's recovery
or liability, if any, under any of these matters will not have a material effect
on the Company's financial position, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Common Stock of BMC West was traded on the Nasdaq National Market under the
symbol "BMCW" since the Company's initial public stock offering in August 1991.
In September 1997, the Common Stock started trading under the symbol "BMHC". The
following table sets forth the range of high and low closing sales prices on the
Nasdaq National Market for the Common Stock for the periods indicated. Such
quotations represent inter-dealer prices without retail markup, markdown or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Prices:
Fiscal 1998 High Low
- ----------- ---- ---
<S> <C> <C>
Quarter ended March 31, 1998 $13 5/8 $10 5/8
Quarter ended June 30, 1998 14 7/8 11 1/2
Quarter ended September 30, 1998 14 7/16 10 1/2
Quarter ended December 31, 1998 13 1/16 9 5/16
Fiscal 1997 High Low
- ----------- ---- ---
Quarter ended March 31, 1997 $14 5/16 $11 1/2
Quarter ended June 30, 1997 13 7/8 10 3/4
Quarter ended September 30, 1997 13 1/4 11 1/16
Quarter ended December 31, 1997 13 1/2 10 1/4
</TABLE>
The Company has not paid any dividends on its Common Stock and the Board of
Directors presently intends to continue this policy in order to retain earnings
for use in the business. The amount of dividend payments is restricted by the
Company's loan agreements. At March 22, 1999, BMHC's Common Stock was held by
approximately 5,629 shareholders of record or through nominee or street name
accounts with brokers (185 registered holders). The last sales price for BMHC's
Common Stock, as reported by Nasdaq on March 22, 1999, was $10.625.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the years indicated. It is derived from the Company's audited
consolidated financial statements, and should be read in conjunction with the
disclosures in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below and the consolidated financial
statements and notes thereto presented on pages 9 through 23 of the Company's
1998 Annual Report. (in thousands, except per share and share figures).
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $877,280 $728,065 $718,024 $630,201 $547,109
Cost of sales 663,122 559,655 559,408 492,028 427,951
------- ------- ------- ------- -------
Gross profit 214,158 168,410 158,616 138,173 119,158
Selling, general and
administrative expense 180,129 145,935 131,462 116,353 91,203
Other income 1,094 1,882 1,268 1,601 1,529
------- ------- ------- ------- -------
Income from operations 35,123 24,357 28,422 23,421 29,484
Interest expense 10,218 8,666 10,496 10,746 6,486
------- ------- ------- ------- -------
Income before income taxes
and extraordinary item 24,905 15,691 17,926 12,675 22,998
Income taxes 9,756 6,198 6,935 4,910 8,739
Income before ------- ------- ------- ------- -------
extraordinary item 15,149 9,493 10,991 7,765 14,259
Extraordinary item, net of tax -- -- (342) -- --
------- ------- ------- ------- -------
Net income $ 15,149 $ 9,493 $ 10,649 $ 7,765 $ 14,259
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Income per diluted common
share before extraordinary item $1.20 $0.78 $1.00 $0.79 $1.62
Extraordinary item -- -- (0.03) -- --
-------- ------- ------ ------- ------
Net income per diluted
common share $1.20 $0.78 $0.97 $0.79 $1.62
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average number of
common shares 12,646,840 12,136,879 10,998,135 9,751,547 8,798,374
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
At Year End 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $116,744 $118,612 $110,467 $100,196 $76,201
Total assets 373,981 340,373 288,369 264,970 222,450
Long-term debt, net of current
maturities and redeemable
preferred stock 117,805 113,410 90,203 123,080 79,336
Shareholders' equity 180,250 160,951 145,088 95,927 87,002
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is presented under the caption "Financial Review" in the Company's
1998 Annual Report ("Annual Report"). The information under this caption is
incorporated herein by this reference.
To facilitate industry comparisons, the Company elected in 1994 to change its
fiscal year-end from December 28 to December 31. This change did not have a
material impact on the comparability of the Company's results of operations or
cash flows for any of the periods presented.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and related notes, together with
the report of the independent public accountants, are presented on pages 14
through 24 of the Company's Annual Report and are incorporated herein by this
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS
The nominees for directors of the Company are presented on pages 3 through 4 of
the Company's definitive Proxy Statement ("Proxy Statement"). This information
is incorporated herein by this reference.
The information required by this Item concerning the Company's executive
officers is set forth in Part I, Section Titled "Executive Officers", of this
report and is incorporated herein by this reference.
The information required by this Item concerning compliance with Section 16(a)
of the Exchange Act is presented under the caption entitled "Certain
Relationships and Other Transactions" of the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item concerning compensation of the Company's
executive officers for the year ended December 31, 1998, is presented under the
captions entitled "Executive Compensation and Other Information" of the Proxy
Statement. This information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item concerning the security ownership of certain
beneficial owners, directors and executive officers, as of December 31, 1998, is
set forth under the caption "Security Ownership of Certain Beneficial Owners" of
the Proxy Statement and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item concerning certain relationships and related
transactions during 1999 is set forth under the caption "Certain Relationships
and Other Transactions" of the Proxy Statement and is incorporated herein by
this reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this annual report
on Form 10-K for Building Materials Holding Corporation:
(1) The Consolidated Financial Statements, the Notes to
Consolidated Financial Statements and the Report of
Independent Public Accountants listed below are
incorporated herein by this reference from pages 14
through 24 of the Annual Report.
- Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.
- Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997.
- Consolidated Statements of Shareholders' Equity for the
years ended
December 31, 1998, 1997 and 1996.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
- Notes to Consolidated Financial Statements.
- Report of Independent Public Accountants.
<TABLE>
<CAPTION>
Page
<S> <C>
(2) Financial Statement Schedules:
Report of Independent Public Accountants........................................ 20
I Condensed Financial Information of Parent for the years ended
December 31, 1998 and 1997................................................. 23
II Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996........................................... 26
</TABLE>
Schedules other than those listed are omitted because they are not applicable or
because the required information is shown in the financial statements or notes.
(3) Exhibits.
A list of the exhibits required to be filed as part of
this report is set forth in the Index to Exhibits, which
immediately precedes such exhibits, and is incorporated
herein by this reference.
(b) Reports on Form 8-K
None
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Building Materials Holding Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Building Materials Holding
Corporation's annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 25, 1999. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedules listed in Part IV, Item 14(a)(2) are the responsibility of
the Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. The schedules have been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boise, Idaho
January 25, 1999
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BUILDING MATERIALS HOLDING CORPORATION
By /s/ Robert E. Mellor
--------------------
Robert E. Mellor
President, Chief Executive Officer and Director
Dated: March 2, 1999
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert E. Mellor, Ellis C. Goebel, and Robert L.
Becci, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming that
all said attorneys-in-fact and agents, or any of them or their or his
substitutes or substituted, may lawfully do or cause to be done by virtue
hereof. This Form 10-K may be executed in multiple counterparts, each of which
shall be an original, but which shall together constitute but one agreement.
21
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
(i) Principal Executive Officer: (iv) Directors:
/s/ Robert E. Mellor /s/ George E. McCown
- -------------------- --------------------
Robert E. Mellor George E. McCown
President, Chief Executive Chairman of the Board
Officer and Director of Directors
March 2, 1999 March 2, 1999
(ii) Principal Financial Officer: /s/ Robert E. Mellor
--------------------
Robert E. Mellor
March 2, 1999
/s/ Ellis C. Goebel
- -------------------
Ellis C. Goebel /s/ Alec F. Beck
----------------
Senior Vice President - Finance and Treasurer Alec F. Beck
March 2, 1999 March 2, 1999
/s/ H. James Brown
------------------
(iii) Principal Accounting Officer: H. James Brown
March 2, 1999
/s/ Robert L. Becci
- -------------------
Robert L. Becci /s/ Wilbur J. Fix
-----------------
Vice President and Controller Wilbur J. Fix
March 2, 1999 March 2, 1999
/s/ Robert V. Hansberger
------------------------
Robert V. Hansberger
March 2, 1999
/s/ Donald S. Hendrickson
-------------------------
Donald S. Hendrickson
March 2, 1999
/s/ Guy O. Mabry
----------------
Guy O. Mabry
March 2, 1999
/s/ Peter S. O'Neill
--------------------
Peter S. O'Neill
March 2, 1999
22
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
AT DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets
Intercompany receivables $ 1,181 $ 307
Prepaid expenses -- 132
----------- ------------
Total current assets 1,181 439
Investment in BMC West Corporation 182,546 161,420
Other 8 8
------------ -------------
Total assets $183,735 $161,867
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2 $ --
Intercompany payables 2,843 691
Accrued compensation 541 225
Other accrued expenses 99 --
----------- -----------
Total current liabilties 3,485 916
Shareholders' equity
Common stock 13 12
Additional paid-in capital 108,256 104,107
Retained earnings 71,981 56,832
----------- -----------
Total shareholders' equity 180,250 160,951
----------- -----------
Total liabilities and shareholders'equity $183,735 $161,867
------------ ------------
------------ ------------
</TABLE>
23
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1998 1997
------ -----
<S> <C> <C>
Equity in earnings of BMC West Corporation $16,976 $9,962
Selling, general and administrative expense 3,008 776
----------- ----------
Income before income taxes 13,968 9,186
Income tax benefit 1,181 307
----------- ---------
Net income $15,149 $9,493
----------- ---------
----------- ---------
Net income per common share:
Basic $ 1.21 $ 0.80
Diluted $ 1.20 $ 0.78
</TABLE>
24
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
------ -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $15,149 $9,493
Adjustments to reconcile net income to cash
used by operating activities:
Equity in earnings of BMC West Corporation (16,976) (9,962)
Changes in current assets and liabilties:
Intercompany receivables (874) (307)
Prepaid expenses 132 (132)
Accounts payable 2 --
Accrued compensation 316 225
Changes in other long-term liabilities 99 --
Other -- (8)
---------- ---------
Net cash used by operating activities (2,152) (691)
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided by (used in) investing activities -- --
CASH FLOWS FROM FINANCING ACTIVITIES
Net intercompany borrowings 2,152 691
--------- ---------
Net cash provided by financing activities 2,152 691
Net increase in cash -- --
Cash, beginning of period -- --
------------ ------------
Cash, end of period $ -- $ --
------------ ------------
------------ ------------
</TABLE>
25
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
Balance at charged to
beginning costs and Balance at
Description of Year Expenses Deductions End of Year
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C>
Year Ended
December 31, 1998 $(1,617) $(2,279) $1,834(1) $(2,062)
Year Ended
December 31, 1997 $(1,231) $(1,657) $1,271(1) $(1,617)
Year Ended
December 31, 1996 $(1,426) $(1,014) $1,209(1) $(1,231)
</TABLE>
(1) Represents write-offs, net of recoveries.
26
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 25, 1999, included and incorporated by reference in
Building Materials Holding Corporation's Form 10-K for the year ended December
31, 1998, into Building Materials Holding Corporation's previously filed
Registration Statements File No. 33-52478 and 33-80952 on Form S-8, Registration
Statements File No. 33-52478-99 and 033-80952-99 on Form S-8A and Registration
Statements File No. 333-36387 and 333-61221 on Form S-4.
ARTHUR ANDERSEN LLP
Boise, Idaho
March 22, 1999
27
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
INDEX TO EXHIBITS
Filed with the Annual Report
on Form 10-K for the
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Exhibit Exhibit
Footnote Number Description Page
<S> <C> <C> <C>
( g) 3.5 Amended Certificate of Incorporation, filed with the office
of the Secretary of State of the State of Delaware on
September 23, 1997.
( g) 3.6.1 Amended and Restated By-laws of the Registrant. ----
( c) 4.2 Form of Note.
( c) 4.3 Form of Indenture dated as of November 19, 1992,
between the Company and First Interstate Bank of
Washington, N.A., as Trustee.
( g) 4.4 Agreement and Plan of Merger, dated September 23, 1997 by
and among the Registrant, BMC West Corporation and
BMC West Merger Corporation.
( g) 4.7 Rights Agreement, dated September 19, 1997, by and
between the Registrant and American Stock Transfer
and Trust Company.
( i ) 10.3 Third Amended and Restated Credit Agreement among
between Wells Fargo Bank, N.A., as Agent,
the Company, and U.S. Bank National Association and
Key Bank National Association dated September 30, 1998.
( a) 10.4* 1990 Bonus Plan of the Company
( a) 10.5* Stock Option Plan (Senior Original Shareholders
Management Plan), effective January 1, 1991.
( a) 10.6* Stock Option Plan (Field Management Plan),
effective January 1, 1991.
( b) 10.7 Form of indemnity agreement between the
Company and its officers and directors.
( d) 10.8 Severance Plan for Certain Key Executive Officers, Senior
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Management and Key Employees of the Company and its
subsidiaries as adopted by the Board of Directors of the
Company on July 20, 1993.
( d) 10.9 Senior Management and Key Employee Severance
Agreements between the Company and Certain
Executive Officers dated July 20, 1993.
( d) 10.10 Note Purchase Agreement between Teachers
Insurance and Annuity Association of America
and the Company dated October 25, 1993.
( d) 10.11 Form of Note.
( e) 10.12 Modification letter dated March 1, 1995, to the Note
Purchase Agreement between Teachers Insurance
and Annuity Association of America and the
Company dated October 25, 1993.
( e) 10.13* Supplemental Retirement Plan dated January 1, 1993.
( e) 10.14 Note Purchase Agreement between Teachers
Insurance and Annuity Association of America
and the Company dated March 1, 1995.
( e) 10.15 Note Purchase Agreement between Allstate
Life Insurance Company and the Company
dated March 1, 1995.
( e) 10.16 Form of Notes under Note Purchase
Agreement to Allstate Life Insurance
Company.
( f) 10.19* Amended and Restated 1992 Non-Qualified Stock
Plan.
( f) 10.20* Amended and Restated 1993 Employee Stock Option
Plan.
( f) 10.21* Amended and Restated 1993 Non-Employee Director
Stock Option Plan.
( g) 10.22 Agreement and Plan of Merger, dated September 23, 1997 by
and among the Registrant, BMC West Corporation and
BMC West Merger Corporation.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
( h) 10.23 Asset Purchase Agreement dated as of October 6, 1997, between
BMC West Corporation and Lone Star Plywood & Door Corp.
( h) 10.24 Side Letter Agreement dated as of October 10, 1997, between counsel
to BMC West Corporation and Lone Star Plywood & Door Corp.,
regarding calculation to adjustment to purchase price.
( h) 10.25 Amendment to Asset Purchase Agreement dated as of November 11, 1997, between BMC
West Corporation and Lone Star Plywood &
Door Corp.
( h) 10.26 Second Amendment to Asset Purchase Agreement dated as of November 11, 1997, between
BMC West Corporation and Lone Star
Plywood & Door Corp.
10.27 Rights Agreement dated as of September 19, 1997
as amended as of November 5, 1998 by and between
Building Materials Holding Corporation and
American Stock Transfer and Trust
Company. _____
11.1 Statement regarding computation of earnings per share. _____
13.1 Building Materials Holding Corporation's 1998 Annual Report.
Such report, except to the extent incorporated
herein by reference, is being furnished for the
information of the Securities and Exchange
Commission only and is not to be deemed
filed as part of this Annual Report on Form 10-K. _____
23.1 Independent Public Accountants Consent. Reference is
made to page 28.
24.1 Power of Attorney. Reference is made
to page 22.
27.1 Financial Data Schedule Fiscal year end 1998. _____
</TABLE>
- -------------------------------
( a) Filed as an exhibit to the Registration Statement on Form S-1 filed
with the Commission on June 6, 1991 (Registration No. 33-41040) (the
"Registration Statement") and incorporated herein by reference.
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
( b) Filed as an exhibit to Amendment No. 2 to the Registration Statement, filed with the Commission on
August 2, 1991 and incorporated herein by reference.
( c) Filed as an exhibit to Amendment No.1 to the Registration Statement on Form S-1, filed with the
Commission on October 20, 1992 (Registration No. 33-52432), and incorporated herein by reference.
( d) Filed as an Exhibit to Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993, filed with the Commission on March 28, 1994, and incorporated herin by reference.
( e) Filed as an Exhibit to Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, filed with the Commission on March 30, 1995, and incorporated herein by reference.
( f) Filed as an Exhibit to Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, filed with the Commission on March 28, 1997, and incorporated herein by reference.
( g) Filed as an Exhibit to BMHC's Report on Form 8-K12G3, filed with the Commission on September 23,
1997 and incorporated herein by reference.
( h) Filed as an Exhibit to BMHC's Report on Form 8-K, filed with the Commission on November 25, 1997
and incorporated herein by reference.
( i ) Filed as an Exhibit to Company's Form 10-Q for the quarter ended September 30, 1998, filed with
the Commission on November 13,1998, and incorporated herein by reference.
</TABLE>
*Component of executive compensation.
31
<PAGE>
EXHIBIT 3.6.1
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
BUILDING MATERIALS HOLDING CORPORATION
(A DELAWARE CORPORATION)
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TABLE OF CONTENTS
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ARTICLE I - OFFICES 1
SECTION 1. REGISTERED OFFICE 1
SECTION 2. OTHER OFFICES 1
ARTICLE II - CORPORATE SEAL 1
SECTION 3. CORPORATE SEAL 1
ARTICLE III - STOCKHOLDERS' MEETINGS 1
SECTION 4. PLACE OF MEETINGS 1
SECTION 5. ANNUAL MEETING 1
SECTION 6. SPECIAL MEETINGS 3
SECTION 7. NOTICE OF MEETINGS 4
SECTION 8. QUORUM 4
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS 4
SECTION 10. VOTING RIGHTS 5
SECTION 11. BENEFICIAL OWNERS OF STOCK 5
SECTION 12. LIST OF STOCKHOLDERS 6
SECTION 13. ACTION WITHOUT MEETING 6
SECTION 14. ORGANIZATION 7
ARTICLE IV - DIRECTORS 7
SECTION 15. NUMBER AND TERM OF OFFICE 7
SECTION 16. POWERS 8
SECTION 17. VACANCIES 8
SECTION 18. RESIGNATION 8
SECTION 19. REMOVAL 8
SECTION 20. MEETINGS 8
SECTION 21. QUORUM AND VOTING 9
SECTION 22. ACTION WITHOUT MEETING 10
SECTION 23. FEES AND COMPENSATION 10
SECTION 24. COMMITTEES 10
SECTION 25. ORGANIZATION 12
SECTION 26. QUALIFICATION REQUIREMENT 12
ARTICLE V - OFFICERS 13
SECTION 27. OFFICERS DESIGNATED 13
SECTION 28. TENURE AND DUTIES OF OFFICERS 13
SECTION 29. DELEGATION OF AUTHORITY 14
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SECTION 30. RESIGNATIONS 15
SECTION 31. REMOVAL 15
ARTICLE VI - EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION 15
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS 15
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION 16
ARTICLE VII - SHARES OF STOCK 16
SECTION 34. FORM AND EXECUTION OF CERTIFICATES 16
SECTION 35. LOST CERTIFICATES 16
SECTION 36. TRANSFERS 17
SECTION 37. FIXING RECORD DATES 17
SECTION 38. REGISTERED STOCKHOLDERS 18
ARTICLE VIII - OTHER SECURITIES OF THE CORPORATION 18
SECTION 39. EXECUTION OF OTHER SECURITIES 18
ARTICLE IX - DIVIDENDS 19
SECTION 40. DECLARATION OF DIVIDENDS 19
SECTION 41. DIVIDEND RESERVE 19
ARTICLE X - FISCAL YEAR 19
SECTION 42. FISCAL YEAR 19
ARTICLE XI - INDEMNIFICATION 19
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS 19
ARTICLE XII - NOTICES 23
SECTION 44. NOTICES 23
ARTICLE XIII - AMENDMENTS 24
SECTION 45. AMENDMENTS 24
ARTICLE XIV - LOANS TO OFFICERS 24
SECTION 46. LOANS TO OFFICERS 24
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AMENDED AND RESTATED
BYLAWS
OF
BUILDING MATERIALS HOLDING CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I - OFFICES
SECTION 1. REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Dover, County of Kent. (Del. Code Ann., tit. B, Section 131).
SECTION 2. OTHER OFFICES
The corporation shall also have and maintain an office or principal
place of business in San Francisco, California at such place as may be fixed
by the Board of Directors, and may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may
from time to time determine or the business of the corporation may require.
(Del. Code Ann. tit. 8, Section 122(S)).
ARTICLE II - CORPORATE SEAL
SECTION 3. CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation and the inscription, "Corporate Seal-Delaware." Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. (Del. Code Ann., tit. 8, Section 122(3)).
ARTICLE III - STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS
Meetings of the stockholders of the corporation shall be held at
such place, either within or without the State of Delaware, as may be
designated from time to time by the Board of Directors, or, if not so
designated, then at the office of the corporation required to be maintained
pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section 211(a)).
SECTION 5. ANNUAL MEETING
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of Directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may
be designated from time to time by the Board of Directors. (Del. Code Ann.
tit. 8, Section 211(b)).
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(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not less than one hundred twenty (120) calendar days in advance of the date
of the corporation's proxy statement released to stockholders in connection
with the previous year's annual meeting of stockholders; provided, however,
that in the event that no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy
statement, notice by the stockholder to be timely must be so received a
reasonable time before the solicitation is made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, in his capacity as a proponent
to a stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice
as required by the regulations promulgated under the Securities and Exchange
Act of 1934, as amended. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this paragraph (b). The chairman
of the annual meeting shall, if the facts warrant, determine and declare at
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph (b), and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted. (Del. Code Ann.,
tit. 8, Section 211(b)).
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled
to vote in the election of Directors at the meeting who complies with the
notice procedures set forth in this paragraph (c). Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the corporation
in accordance with the provisions of paragraph (b) of this Section 5. Such
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for
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election or re-election as a Director: (A) the name, age, business address
and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the
corporation which are beneficially owned by such person, (D) a description of
all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as
a Director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section
5. At the request of the Board of Directors, any person nominated by a
stockholder for election as a Director shall furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a Director of the corporation unless nominated in
accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so
declare at the meeting and the defective nomination shall be disregarded.
(Del. Code Ann., tit. 8, Sections 212, 214).
SECTION 6. SPECIAL MEETINGS
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board, (ii)
the president, (iii) the Board of Directors pursuant to a resolution adopted
by a majority of the total number of authorized directors (whether or not
there exist any vacancies in previously authorized directorships at the time
any such resolution is presented to the Board for adoption) or (iv) by the
holders of shares entitled to cast not less than ten percent (10%) of the
votes at the meeting, and shall be held at such place, on such date, and at
such time as they or he shall fix; provided however, that following
registration of any of the classes of equity securities of the corporation
pursuant to the provisions of the Securities Exchange Act of 1934, as amended
special meetings of the stockholders may only be called by the Board of
Directors pursuant to a resolution adopted by a majority of the total number
of authorized Directors.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board,
the President, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The officer receiving the request shall cause notice to be promptly given to
the stockholders entitled to vote, in accordance with the provisions of
Section 7 of these Bylaws, that a meeting will be held not less than
thirty-five (35)
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nor more than sixty (60) days after the receipt of the request. If the notice
is not given within twenty (20) days after the receipt of the request, the
person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the
Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS
Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting, such notice to
specify the place, date and hour and purpose or purposes of the meeting.
Notice of the time, place and purpose of any meeting of stockholders may be
waived in writing, signed by the person entitled to notice thereof, either
before or after such meeting, and will be waived by any stockholder by his
attendance thereat in person or by proxy, except when the stockholder attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects
as if due notice thereof had been given. (Del. Code Ann., tit. 8, Sections
222, 229).
SECTION 8. QUORUM
At all meetings of stockholders, except where otherwise provided by
statute or by the Certificate of Incorporation, or by these Bylaws, the
presence, in person or by proxy duly authorized of the holders of a majority
of the outstanding shares of stock entitled to vote shall constitute a quorum
for the transaction of business. Any shares, the voting of which at said
meeting has been enjoined, or which for any reason cannot be lawfully voted
at such meeting, shall not be counted to determine a quorum at such meeting.
In the absence of a quorum any meeting of stockholders may be adjourned, from
time to time, either by the chairman of the meeting or by vote of the holders
of a majority of the shares represented thereat, but no other business shall
be transacted at such meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by
law, the Certificate of Incorporation or these Bylaws, all action taken by
the holders of a majority of the voting power represented at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
provided, however, that Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of Directors. Where a separate vote by a
class or classes is required, a majority of the outstanding shares of such
class or classes, present in person or represented by proxy, shall constitute
a quorum entitled to take action with respect to that vote on that matter and
the affirmative vote of the majority (plurality, in the case of the election
of Directors) of shares of such class or classes present in person or
represented by proxy at the meeting shall be the act of such class. (Del.
Code Ann., tit. 8, Section 216).
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SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS
Any meeting of stockholders, whether annual or special, may be
adjourned from time to time either by the chairman of the meeting or by the
vote of a majority of the shares represented thereat. When a meeting is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which
the adjournment is taken. At the adjourned meeting the corporation may
transact any business which might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. (Del. Code Ann., tit. 8, Section 222(c)).
SECTION 10. VOTING RIGHTS
For the purpose of determining those stockholders entitled to vote
at any meeting of the stockholders, except as otherwise provided by law, only
persons in whose names shares stand on the stock records of the corporation
on the record date, as provided in Section 12 of these Bylaws, shall be
entitled to vote at any meeting of stockholders. Except as may be otherwise
provided in the Certificate of Incorporation or these Bylaws, each
stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder. Every person entitled to vote or execute consents
shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by such person or his duly authorized
agent, which proxy shall be filed with the Secretary at or before the meeting
at which it is to be used. An agent so appointed need not be a stockholder.
No proxy shall be voted after three (3) years from its date of creation
unless the proxy provides for a longer period. All elections of Directors
shall be by written ballot unless otherwise provided in the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Sections 211(e), 212(b)).
SECTION 11. BENEFICIAL OWNERS OF STOCK
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members
of a partnership, joint tenants, tenants in common tenants by the entirety,
or otherwise, or if two (2) or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so
provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes,
but the vote is evenly split on any particular matter, each faction may vote
the securities in question proportionally, or may apply to the Delaware Court
of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the Secretary shows
that any such tenancy is held in unequal interests, a majority or even-split
for the purpose of this subsection (c) shall be a majority or even-split in
interest. (Del. Code Ann., tit. 8, Section 217(b)).
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(b) Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote
thereon. (Del. Code Ann., tit. 8, Section 217(a)).
SECTION 12. LIST OF STOCKHOLDERS
The Secretary shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled
to vote at said meeting, arranged in alphabetical order, showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place
where the meeting is to be held. The list shall be produced and kept at the
time and place of meeting during the whole time thereof, and may be inspected
by any stockholder who is present. (Del. Code Ann., tit. 8, Section 219(a)).
SECTION 13. ACTION WITHOUT MEETING
(a) Any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, are signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty (60)
days of the earliest dated consent delivered to the Corporation in the manner
herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to
its registered office in the State of Delaware, its principal place of
business or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. (Del. Code Ann., tit. 8,
Section 228).
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of Delaware if such action had
been voted on by stockholders at a meeting thereof, then the certificate
filed under such section
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shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given
as provided in Section 228 of the General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, if so provided in the Certificate
of Incorporation of the corporation, no such action by written consent may be
taken following the effectiveness of the registration of any class of
securities of the corporation under the Securities Exchange Act of 1934, as
amended.
SECTION 14. ORGANIZATION
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
president, or in the absence of any such officer, a chairman of the meeting
chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in
his absence, an Assistant Secretary directed to do so by the president, shall
act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business
for the meeting, rules and procedures for maintaining order at the meeting
and the safety of those present, limitations on participation in such meeting
to stockholders of record of the corporation and their duly authorized and
constituted proxies, and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the
commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the
polls for balloting on matters which are to be voted on by ballot. Unless,
and to the extent determined by the Board of Directors or the chairman of the
meeting, meetings of stockholders shall not be required to be held in
accordance with rules of parliamentary procedure.
ARTICLE IV - DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE
The number of Directors which shall constitute the whole of the
Board of Directors shall be from five (5) to nine (9) persons with the exact
number to be determined from time to time by the Board of Directors. The
maximum and minimum number of authorized Directors may be modified from time
to time by amendment of this Section 15 in accordance with the provisions of
Section 44 hereof. Except as provided in Section 17, the Directors shall be
elected by the stockholders at their annual meeting in each year and shall
hold office until the next annual meeting and until their successors shall be
duly elected and qualified. Directors need not be
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stockholders unless so required by the Certificate of Incorporation. If for
any cause, the Directors shall not have been elected at an annual meeting,
they may be elected as soon thereafter as convenient at a special meeting of
the stockholders called for that purpose in the manner provided in these
Bylaws. No reduction of the authorized number of Directors shall have the
effect of removing any Director before the Director's term of office expires
unless such removal is made pursuant to the provisions of Section 19 hereof.
(Del. Code Ann., tit. 8, Sections 141(b), 211(b), (c)).
SECTION 16. POWERS
The powers of the corporation shall be exercised, its business
conducted and its property controlled by the Board of Directors, except as
may be otherwise provided by statute or by the Certificate of Incorporation
(Del. Code Ann., tit. 8, Section 141(a)).
SECTION 17. VACANCIES
Unless otherwise provided in the Certificate of Incorporation,
vacancies and newly created directorships resulting from any increase in the
authorized number of Directors may be filled by a majority of the Directors
then in office, although less than a quorum, or by a sole remaining Director,
and each Director so elected shall hold office for the unexpired portion of
the term of the Director whose place shall be vacant and until his successor
shall have been duly elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section 17 in the case of the
death, removal or resignation of any Director, or if the stockholders fail at
any meeting of stockholders at which Directors are to be elected (including
any meeting referred to in Section 19 below) to elect the number of Directors
then constituting the whole Board of Directors. (Del. Code Ann., tit. 8,
Sections 223(a), (b)).
SECTION 18. RESIGNATION
Any Director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it
shall be deemed effective at the pleasure of the Board of Directors. When one
or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall
become effective, and each Director so chosen shall hold office for the
unexpired portion of the term of the Director whose place shall be vacated
and until his successor shall have been duly elected and qualified. (Del.
Code Ann., tit. 8, Sections 141(b), 223(d)).
SECTION 19. REMOVAL
At a special meeting of stockholders called for the purpose in the
manner hereinabove provided, subject to any limitations imposed by law or the
Certificate of Incorporation, the Board
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of Directors, or any individual Director, may be removed from office, with or
without cause and a new Director or Directors elected by a vote of
stockholders holding a majority of the outstanding shares entitled to vote at
an election of Directors. (Del. Code Ann., tit. 8, Section 141(k)).
SECTION 20. MEETINGS
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board
of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may
lawfully come before it.
(b) REGULAR MEETINGS. Except as herein after otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the
State of Delaware which has been determined by the Board of Directors. (Del.
Code Ann., tit. 8, Section 141(g)).
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman, president or a majority of the Directors. (Del. Code Ann., tit.
8, Section 141(g)).
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(Del. Code Ann., tit. 8, Section 141(i)).
(e) NOTICE OF MEETINGS. Written notice of the time and place of all
special meetings of the Board of Directors shall be given at least one (1)
day before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, Section 229).
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the Directors not present shall sign a
written waiver of notice, or a consent to holding such meeting, or an
approval of the minutes thereof. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in any written waiver of notice or consent unless so
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required by the Certificate of Incorporation or these Bylaws. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section
229).
SECTION 21. QUORUM AND VOTING
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 42 hereof, for which a quorum shall be one-third of the exact number
of Directors fixed from time to time in accordance with Section 15 hereof,
but not less than one (1), a quorum of the Board of Directors shall consist
of a majority of the exact number of Directors fixed from time to time in
accordance with Section 15 of these Bylaws, but not less than one (1);
provided, however, at any meeting whether a quorum be present or otherwise, a
majority of the Directors present may adjourn from time to time until the
time fixed for the next regular meeting of the Board of Directors, without
notice other than by announcement at the meeting. (Del. Code Ann., tit. 8,
Section 141(b)).
(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit.
8, Section 141(b)).
SECTION 22. ACTION WITHOUT MEETING
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board of Directors or committee, as the case
may be, consent thereto in writing, and such writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee. (Del.
Code Ann., tit. 8, Section 141(f)).
SECTION 23. FEES AND COMPENSATION
Directors shall be entitled to such compensation for their services
as may be approved by the Board of Directors including, if so approved, by
resolution of the Board of Directors, a fixed sum and expenses of attendance,
if any, for attendance at each regular or special meeting of the Board of
Directors and at any meeting of a committee of the Board of Directors.
Nothing herein contained shall be construed to preclude any Director from
serving the corporation in any other capacity as an officer, agent, employee,
or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8,
Section 141(h)).
SECTION 24. COMMITTEES
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1)
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or more members of the Board of Directors. The Executive Committee, to the
extent permitted by law and specifically granted by the Board of Directors,
shall have and may exercise when the Board of Directors is not in session all
powers of the Board of Directors in the management of the business and
affairs of the corporation, including, without limitation, the power and
authority to declare a dividend or to authorize the issuance of stock, except
such committee shall not have the power or authority to amend the Certificate
of Incorporation, to adopt an agreement of merger or consolidation, to
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to
the stockholders of the corporation a dissolution of the corporation or a
revocation of a dissolution or to amend these Bylaws. (Del. Code Ann., tit.
8, Section 141(c)).
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time
appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or
more members of the Board of Directors, and shall have such powers and
perform such duties as may be prescribed by the resolution or resolutions
creating such committees, but in no event shall such committee have the
powers denied to the Executive Committee in these Bylaws. (Del. Code Ann.,
tit. 8, Section 141(c)).
(c) TERM. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Section 24, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall
terminate on the date of his death or voluntary resignation from the
committee or from the Board of Directors. The Board of Directors may at any
time for any reason remove any individual committee member and the Board of
Directors may fill any committee vacancy created by death, resignation,
removal or increase in the number of members of the committee. The Board of
Directors may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
(Del. Code Ann., tit. 8, Section 141(c)).
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 24 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from
time to time by such committee, and may be called by any Director who is a
member of such committee, upon written notice to the members of such
committee of the time and place of such special meeting
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given in the manner provided for the giving of written notice to members of
the Board of Directors of the time and place of special meetings of the Board
of Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends such special
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee. (Del. Code Ann., tit.
8, Sections 141(c), 229).
SECTION 25. ORGANIZATION
At every meeting of the Directors, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
President, or if the President is absent, a chairman of the meeting chosen by
a majority of the Directors present, shall preside over the meeting. The
Secretary, or in his absence, an Assistant Secretary directed to do so by the
President, shall act as secretary of the meeting.
SECTION 26. QUALIFICATION REQUIREMENT
No person shall be qualified to be elected to, or appointed to fill
a vacancy on, the Board of Directors of the corporation during the pendency
of a Business Combination transaction, as defined herein, if such person is,
or (in the case of a person described in clause (i), (ii) or (iii) below) was
within the two years preceding the date of such election or appointment: (i)
an officer, director, employee or affiliate (as defined in Rule 144 of the
Securities and Exchange Commission ("SEC")) of a party to such transaction
(an "Interested Party") or of any affiliate of an Interested Party; (ii) an
agent subject to the direction of an Interested Party; (iii) a consultant or
advisor to an Interested Party; (iv) a person having a material financial
interest in the transaction (other than through the ownership of stock or
securities of the corporation); or (v) a person having any business,
financial, or familial relationship with any person referred to in clauses
(i)-(iv) above that would reasonably be expected to affect such person's
judgment in a manner adverse to this corporation. A person shall not be
disqualified from election or appointment to the Board of Directors by reason
of this Section 26 solely because such person is a director or officer of
this corporation who receives normal and customary compensation as such
and/or is a stockholder or affiliate of this corporation.
A Business Combination shall mean any of the following: (i) a merger
or consolidation of this corporation with another corporation, or a sale of
all or substantially all of the business and assets of this corporation; or
(ii) an acquisition (including by tender offer or any other means) by any
person (including any two or more persons comprising a group, within the
meaning of SEC Rule 13(d)(5), of beneficial ownership, within the meaning of
SEC Rule 13(d)(3), of 15% or more of the outstanding common stock of this
corporation.
<PAGE>
A Business Combination shall be deemed pending for purposes of this
Section 26 commencing on the date any offer or proposal for such transaction
shall be made and until such time as the proposed transaction is abandoned or
until such time as: (i) the party proposing such transaction shall have acquired
beneficial ownership, as defined above, of 50% or more of this corporation's
outstanding voting stock; and (ii) ten business days shall have elapsed
thereafter. A business day shall mean any day other than a Saturday, a Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close. [Adopted by Board of Directors on
11/5/98]
ARTICLE V - OFFICERS
SECTION 27. OFFICERS DESIGNATED
The officers of the corporation shall be the Chairman of the Board of
Directors, the President, one or more Vice Presidents, the Secretary and the
Chief Financial Officer or Treasurer, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The order of the seniority of
the Vice Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors may also appoint
one or more Assistant Secretaries, Assistant Treasurers, and such other officers
and agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law. The
salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors. (Del. Code Ann.,
tit. 8, Sections 122(5), 142(a), (b)).
SECTION 28. TENURE AND DUTIES OF OFFICERS
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. (Del. Code Ann., tit. 8, Sections 141(b), (e)).
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 27. (Del. Code Ann., tit. 8, Section 142(a)).
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(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. The
President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. (Del. Code Ann., tit. 8,
Section 142(a)).
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, as designated by
the Board of Directors may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(Del. Code Ann., tit. 8, Section 142(a)).
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, Section 142(a)).
(f) DUTIES OF TREASURER. The Treasurer, subject to the order of the
Board of Directors, shall have the custody of all funds and securities of the
corporation. The Treasurer shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors or the President shall designate from time to time. The
President may direct any Assistant Treasurer to assume and perform the duties of
the Treasurer in the absence or disability of the Treasurer, and each Assistant
Treasurer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the president shall designate from time to time. (Del. Code Ann.,
tit. 8, Section 142(a)).
(g) DUTIES OF CONTROLLER. The Controller shall keep or cause to be kept
the books of account of the corporation in a thorough and proper manner, and
shall render statements of the financial affairs of the corporation in such form
and as often as required by the Board of Directors or the President. The
Controller shall perform other duties commonly incident to his
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office and shall also perform such other duties and have such other duties and
have such other powers as he Board of Directors or the President shall
designate from time to time. The president may direct any Assistant Controller
to assume and perform the duties of the Controller in absence or disability of
the Controller, and each Assistant Controller shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the president shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officer or agent, notwithstanding any
provision hereof.
SECTION 30. RESIGNATIONS
Any officer may resign at any time by giving written notice to the
Board of Directors or to the President or to the Secretary. Any such resignation
shall be effective when received by the person or persons to whom such notice is
given, unless a later time is specified therein, in which event the resignation
shall become effective at such later time. Unless otherwise specified in such
notice, the acceptance of any such resignation shall not be necessary to make it
effective. Any resignation shall be without prejudice to the rights, if any, of
the corporation under any contract with the resigning officer. (Del. Code Ann.,
tit. 8, Section 142(b)).
SECTION 31. REMOVAL
Any officer may be removed from office at any time, either with or
without cause, by the vote or written consent of a majority of the Directors in
office at the time, or by any committee or superior officers upon whom such
power of removal may have been conferred by the Board of Directors.
ARTICLE VI - EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS
The Board of Directors may, in its discretion, determine the method and
designate the signatory officer or officers, or other person or persons, to
execute on behalf of the corporation any corporate instrument or document, or to
sign on behalf of the corporation the corporate name without limitation, or to
enter into contracts on behalf of the corporation, except where otherwise
provided by law or these Bylaws, and such execution or signature shall be
binding upon the corporation. (Del. Code Ann., tit. 8, Sections 103(a), 142(a),
158).
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and
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<PAGE>
certificates of shares of stock owned by the corporation, shall be executed,
signed or endorsed by the Chairman of the Board of Directors or the President.
All other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors. (Del. Code Ann., tit. 8,
Sections 103(a), 142(a), 158).
All checks and drafts drawn on banks or other depositories on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
(Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158).
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION
All stock and other securities of other corporations owned or held by
the corporation for itself, or for other parties in any capacity, shall be
voted, and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the
absence of such authorization, by the Chairman of the Board of Directors or
the President. (Del. Code Ann. tit. 8, Section 123).
ARTICLE VII - SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES
Certificates for the shares of stock of the corporation shall be in
such form as is consistent with the Certificate of Incorporation and applicable
law. Every holder of stock in the corporation shall be entitled to have a
certificate signed by or in the name of the corporation by the Chairman of the
Board of Directors or the President or the Secretary or Assistant Secretary,
certifying the number of shares owned by him in the corporation. Where such
certificate is countersigned by a transfer agent other than the corporation or
its employee, or by a registrar other than the corporation or its employee, any
other signature on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued with the
same effect as if he were such officer transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in full or
in summary, all of the designations preferences, limitations, restrictions on
transfer and relative rights of the shares authorized to be issued. (Del. Code
Ann. tit. 8, Section 158).
SECTION 35. LOST CERTIFICATES
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A new certificate or certificates shall be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen, or
destroyed. The corporation may require, as a condition precedent to the issuance
of a new certificate or certificates the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require or to give the corporation a surety
bond in such form and amount as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, Section 167).
SECTION 36. TRANSFERS
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares. (Del. Code Ann., tit. 8, Section
201, tit. 6, Section 8-401(1)).
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit. 8,
Section 160(a)).
SECTION 37. FIXING RECORD DATES
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix, in advance, a record date which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for
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determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required
by law, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be
at the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, Section 213).
SECTION 38. REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, Sections
213(a), 219).
ARTICLE VIII - OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES
All bonds, debentures and other corporate securities of the
corporation, other than stock certificates (covered in Section 33), may be
signed by the Chairman of the Board of Directors, the President, or such other
person as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature of a trustee under an indenture pursuant to which such
bond, debenture or other corporate security shall be issued, the signatures of
the persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons
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appertaining to any such bond, debenture or other corporate security
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or
an Assistant Treasurer of the corporation or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have
ceased to be such officer before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose
facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE IX - DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS
Dividends upon the capital stock of the corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors pursuant to law at any regular or special meeting.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation. (Del. Code
Ann. tit. 8, Sections 170, 173).
SECTION 41. DIVIDEND RESERVE
Before payment of any dividend, there may be set aside out of any funds
of the corporation available for dividends such sum or sums as the Board of
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created. (Del. Code Ann., tit. 8, Section 171).
ARTICLE X - FISCAL YEAR
SECTION 42. FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE XI - INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify
its Directors and executive officers to the fullest extent not prohibited by the
Delaware General Corporation Law; PROVIDED, HOWEVER, that the corporation may
limit the extent of such indemnification by
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individual contracts with its Directors and executive officers; and, PROVIDED,
FURTHER, that the corporation shall not be required to indemnify any Director
or executive officer in connection with any proceeding (or part thereof)
initiated by such person or any proceeding by such person against the
corporation or its Directors, officers, employees or other agents unless (i)
such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation or
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law.
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law.
(c) GOOD FAITH.
(1) For purposes of any determination under this Bylaw, a
Director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements including financial
statements and other financial data, in each case prepared or presented by:
(i) one or more officers or employees of the
corporation whom the Director or executive officer believed to be reliable and
competent in the matters presented;
(ii) counsel, independent accountants or other
persons as to matters which the Director or executive officer believed to be
within such person's professional competence; and
(iii) with respect to a Director, a committee of
the Board upon which such Director does not serve, as to matters within such
Committee's designated authority, which committee the Director believes to
merit confidence; so long as, in each case, the Director or executive officer
acts without knowledge that would cause such reliance to be unwarranted.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (c) shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth by the
Delaware General Corporation Law.
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(d) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(e) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to Directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(f) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents
BYLAWS - 21
<PAGE>
respecting indemnification and advances, to the fullest extent not prohibited
by the Delaware General Corporation Law.
(g) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a Director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(h) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
Purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(i) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(j) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(k) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
BYLAWS - 22
<PAGE>
(4) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII - NOTICES
SECTION 44. NOTICES
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent. (Del. Code Ann., tit. 8, Section 222).
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) ADDRESS UNKNOWN. If no address of a stockholder or Director be
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained. (Del. Code Ann., tit. 8, Section 222).
(e) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing and all
notices given by facsimile,
BYLAWS - 23
<PAGE>
telex or telegram shall be deemed to have been given as of the sending time
recorded at time of transmission.
(f) METHODS OF NOTICE. It shall not be necessary that the same method
of giving notice be employed in respect of all Directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right or enjoy any privilege or
benefit, or be required to act, or within which any Director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such Director to receive such notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(i) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann., tit. 8, Section 230).
BYLAWS - 24
<PAGE>
ARTICLE XIII - AMENDMENTS
SECTION 45. AMENDMENTS
Except as otherwise provided in paragraph (i) of Section 42 of these
Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the
stockholders by a vote of the holders of 75% or more of the outstanding Common
Stock entitled to vote. The Board of Directors shall also have the power, unless
such power is expressly prohibited by the Certificate of Incorporation, to
adopt, amend or repeal Bylaws (including, without limitation, the amendment of
any Bylaw setting forth the number of Directors who shall constitute the whole
Board of Directors). (Del. Code Ann. tit. 8, Sections 109(a), 122(6)). [Adopted
by Board of Directors on 11/5/98]
ARTICLE XIV - LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this Section 45 shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute. (Del. Code Ann., tit. 8, Section 143).
BYLAWS - 25
<PAGE>
EXBIBIT 10.27
<PAGE>
RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 19, 1997
AS AMENDED AS OF NOVEMBER 5, 1998
BY AND BETWEEN
BUILDING MATERIALS HOLDING CORPORATION
AND
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
AS RIGHTS AGENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1 Certain Definitions.................................. 2
2 Appointment of Rights Agent.......................... 7
3 Issuance of Right Certificates....................... 8
4 Form of Right Certificates........................... 10
5 Countersignature and Registration.................... 10
6 Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen
Right Certificates................................... 11
7 Exercise of Rights................................... 12
8 Cancellation and Destruction of Right
Certificates......................................... 14
9 Reservation and Availability of Capital
Stock................................................ 15
10 Securities Record Date............................... 16
11 Adjustment of Exercise Price, Number of
Shares Issuable Upon Exercise of Rights
or Number of Rights.................................. 16
12 Certificate of Adjusted Exercise Price
or Number of Shares Issuable
Upon Exercise of Rights.............................. 23
13 Consolidation, Merger, or Sale or Transfer
of Assets or Earning Power........................... 23
14 Fractional Rights and Fractional Shares.............. 26
15 Rights of Action..................................... 27
16 Agreement of Right Holders........................... 28
17 Right Holder and Right Certificate
Holder Not Deemed a Stockholder...................... 28
(i)
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
18 Concerning the Rights Agent.......................... 29
19 Merger or Consolidation or Change of
Name of Rights Agent................................. 29
20 Duties of Rights Agent............................... 30
21 Change of Rights Agent............................... 32
22 Issuance of New Right Certificates................... 33
23 Redemption of Rights................................. 33
24 Exchange of Rights................................... 34
25 Certain Cash Tender Offers........................... 36
26 Notice of Certain Events............................. 38
27 Notices.............................................. 39
28 Supplements and Amendments........................... 40
29 Certain Covenants.................................... 40
30 Successors........................................... 41
31 Benefits of this Agreement........................... 41
32 Severability......................................... 41
33 Governing Law........................................ 41
34 Counterparts......................................... 41
35 Descriptive Headings................................. 42
</TABLE>
(ii)
<PAGE>
TABLE OF EXHIBITS
Exhibit A -- Form of Certificate of Designation
Exhibit B -- Form of Right Certificate
Exhibit C -- Form of Summary of the Rights
(iii)
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM DEFINED PAGE SECTION
- ------------ ---- -------
<S> <C> <C>
Adjustment Shares 18 11(a)(ii)
Affiliate 2 1(a)
Agreement 1 Introduction
Associate 2 1(a)
Beneficially Own 2 1(b)
Beneficial Owner 2 1(b)
Business Day 3 1(c)
Cash Tender Offer Proposal 3 1(d)
Close of Business 3 1(e)
Closing Price 4 1(f)
Common Share 4 1(g)
Common Share Equivalent 18 11(a)(iii)
Company (Building Materials Holding Corporation) 1 Introduction
Company (following a Section 13(a) Event) 25 13(a)(iii)
Current Market Price 4 1(h)
Distribution Date 8 3(a)
Exchange Act 5 1(j)
Exchange Ratio 35 24(a)
Exercise Price 13 7(c)
Expiration Date 5 1(l)
Fair Offer 37 25(b)
Fairness Opinion 36 25(a)
</TABLE>
(iv)
<PAGE>
TABLE OF DEFINED TERMS
(CONTINUED)
<TABLE>
<CAPTION>
TERM DEFINED PAGE SECTION
- ------------ ---- -------
<S> <C> <C>
NASDAQ 4 1(f)
Person 6 1(m)
Preferred Share 6 1(n)
Preferred Share Equivalent 18 11(b)
Proposal Date 37 25(a)
Prospective Offeror 3 1(d)
Record Date 1 Recital
Redemption Date 6 1(p)
Redemption Price 34 23(a)
Resolution 36 25(a)
Right 1 Recital
Rights Agent l Introduction
Section 11(a)(ii) Event 17 11(a)(ii)
Section 13(a) Event 24 13(a)
Securities Act 6 1(t)
Special Meeting 36 25(a)
Subsidiary 6 1(u)
Surviving Person 24 13(a)
Trading Day 6 1(v)
Unavailable Adjustment Shares 18 11(a)(iii)
Unavailable Exchange Shares 36 24(c)
Voting Share 6 1(w)
15% Ownership Date 7 1(x)
15% Stockholder 7 1(y)
</TABLE>
(v)
<PAGE>
RIGHTS AGREEMENT
This Rights Agreement (this "Agreement") is made and entered into as of
the 19th day of September, 1997, as amended as of November 5, 1998, by and
between Building Materials Holding Corporation, a Delaware corporation (the
"Company"), and American Stock Transfer and Trust Company (the "Rights Agent").
WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend of one preferred stock purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company, which dividend is
payable on October 2, 1997 (the "Record Date") to the holders of record of
Common Shares as of the Close of Business (as hereinafter defined) on such
date;
WHEREAS, the Board of Directors of the Company has further authorized and
directed the issuance of one (subject to adjustment of such number as provided
in this Agreement) Right for (A) each Common Share that shall be outstanding
at any time after the Record Date and prior to the earliest of the date of the
first Section 11(a)(ii) Event, the date of the first Section 13(a) Event, the
Redemption Date or the Expiration Date (as such terms are hereinafter
defined), and (B) each Common Share that shall be issued by the Company at any
time on or after the earlier of the date of the first Section 11(a)(ii) Event
or the date of the first Section 13(a) Event and prior to the earlier of the
Redemption Date or the Expiration Date pursuant to the exercise of conversion
rights, exchange rights, rights (other than Rights), warrants or options that
shall have been issued or granted prior to the earlier of the date of the
first Section 11(a)(ii) Event or the date of the first Section 13(a) Event,
unless the Board of Directors shall provide otherwise at the time of the
issuance or grant of such conversion rights, exchange rights, rights (other
than Rights), warrants or options; and
WHEREAS, in connection with the matters referred to herein, the Company
desires to appoint the Rights Agent to act on behalf of the Company for the
benefit of the holders of Rights, and the Rights Agent is willing so to act;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements set forth herein, and for the benefit of the holders of Rights, the
parties hereto hereby agree as follows:
1
<PAGE>
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated below:
(a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act, as in
effect on the date hereof.
(b) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "Beneficially Own":
(i) any securities that such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly,
for purposes of Section 13(d) of the Exchange Act and Rule 13d-3
promulgated under the Exchange Act, in each case as in effect on the
date hereof;
(ii) any securities that such Person or any of such Person's
Affiliates or Associates has the right to acquire (whether such right
is exercisable immediately, or only after the passage of time,
compliance with regulatory requirements, the fulfillment of a
condition, or otherwise) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or
otherwise, provided that a Person shall not be deemed the Beneficial
Owner of, or to Beneficially Own, securities tendered pursuant to a
tender offer or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange;
(iii) any securities that such Person or any such Person's
Affiliates or Associates has the right to vote, alone or in concert
with others, pursuant to any agreement, arrangement or understanding,
provided that a Person shall not be deemed the Beneficial Owner of,
or to Beneficially Own, any security if the agreement, arrangement or
understanding to vote such security (A) arises solely from a
revocable proxy given to such Person or any of such Person's
Affiliates or Associates in response to a public proxy solicitation
made pursuant to and in accordance with the applicable rules and
regulations of the Exchange Act, and (B) is not also then reportable
on Schedule 13D under the Exchange Act (or any comparable or
successor report);
2
<PAGE>
(iv) any securities that are Beneficially Owned, directly or
indirectly, by any other Person with which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (other
than voting pursuant to a revocable proxy as described in the proviso
to Section 1(b)(iii) hereof) or disposing of any securities of the
Company; and
(v) on any day on or after the Distribution Date, all Rights
that prior to such date were represented by certificates for Common
Shares that such Person Beneficially Owns on such day.
Notwithstanding anything to the contrary in this Section 1(b), a Person
engaged in business as an underwriter of securities shall not be deemed to be
the Beneficial Owner of, or to Beneficially Own, any securities acquired
through such Person's participation in good faith in a firm commitment
underwriting until the expiration of forty (40) days after the date of such
acquisition.
(c) "Business Day" shall mean any day other than a Saturday, a Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(d) "Cash Tender Offer Proposal" shall mean a written proposal delivered
to the Company by any Person (a "Prospective Offeror"), which proposal:
(i) is for a tender offer for any and all of the outstanding
Voting Shares held by any Person other than such Prospective Offeror
or its Affiliates or Associates for cash at the same price;
(ii) states that such Prospective Offeror has obtained firm
written financing commitments from recognized institutional financing
sources, and/or has on hand cash or cash equivalents, for the full
amount of all financing necessary to consummate the acquisition of
Voting Shares described in such Cash Tender Offer Proposal and is
accompanied by reasonable evidence of the foregoing; and
(iii) contains the written agreement of the Prospective Offeror
to pay (or share with any other Prospective Offeror) the Company's
costs of any Special Meeting (as such term is defined in Section 25
hereof), other than the Company's costs of preparing and mailing
proxy material for its own solicitation.
3
<PAGE>
(e) "Close of Business" on any given date shall mean 5:00 o'clock p.m.,
New York time, on such date; provided, however, that if such date is not a
Business Day, it shall mean 5:00 o'clock p.m., New York time, on the next
succeeding Business Day.
(f) "Closing Price" of a stock or other security on any day shall be the
last sale price, regular way, per share of such stock or unit of such other
security on such day or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if such stock or other security is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such stock or other
security is listed or admitted to trading or, if such stock or other security
is not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or such other system then in use or, if on any such date such stock or other
security is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker that makes a
market in such stock or other security and that is selected by the Board of
Directors of the Company.
(g) "Common Share" shall mean one share of the Common Stock, par value
$.001 per share, of the Company, unless used with reference to a Person other
than the Company, in which case it shall mean one share of the class of common
stock of such Person having the greatest voting power per share or, if such
Person is a Subsidiary of another Person, one Common Share of the Person that
ultimately controls such Person.
(h) "Current Market Price" per share of any stock or unit of any other
security on any date shall mean the average of the daily Closing Prices of
such stock or other security for the 30 consecutive Trading Days through and
including the Trading Day immediately preceding the date in question;
provided, however, that if any event shall have caused the Closing Price on
any Trading Day during such 30-day period not to be fully comparable with the
Closing Price on the date in question (or, if no Closing Price is available on
the date in question, on the Trading Day
4
<PAGE>
immediately preceding the date in question), then each such noncomparable
Closing Price so used shall be appropriately adjusted by the Board of
Directors in order to make the Closing Price on each Trading Day during the
period used for the determination of the Current Market Price fully comparable
with the Closing Price on such date in question (or, if applicable, the
immediately preceding Trading Day). "Current Market Price" per share of any
stock or unit of such other security that is not publicly held or so listed or
traded, and "Current Market Price" of any other property, shall mean the fair
value per share of such stock or unit of such other security, or the fair
value of such other property, respectively, as determined in good faith by the
Board of Directors of the Company based upon such appraisals or valuation
reports of such independent experts as the Board of Directors shall in good
faith determine appropriate, which determination shall be described in a
statement filed by the Company with the Rights Agent.
(i) "Distribution Date" shall have the meaning ascribed to it in Section
3 hereof.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Exercise Price" shall have the meaning ascribed to it in Section
7(c) hereof.
(l) "Expiration Date" shall mean October 1, 2007.
(m) "Person" shall mean any individual, firm, partnership, corporation,
association, group (as such term is used in Rule 13d-5 promulgated under the
Exchange Act as in effect on the date hereof) or other entity, and shall
include any successor (by merger or otherwise) of such entity.
(n) "Preferred Share" shall mean one share of the Series C Junior
Participating Cumulative Preferred Stock, par value $.001 per share, of the
Company, which shall have the rights and preferences set forth in the
Company's Restated Certificate of Incorporation in the form attached hereto as
Exhibit A.
(o) "Record Date" shall have the meaning ascribed to it in the recitals
hereto.
(p) "Redemption Date" shall mean the date of the action of the Board of
Directors directing the Company to redeem the Rights pursuant to Section 23(a)
hereof or exchange the Rights pursuant to Section 24(a) hereof.
5
<PAGE>
(q) "Redemption Price" shall have the meaning ascribed to it in Section
23(a) hereof.
(r) "Section 11(a)(ii) Event" shall have the meaning ascribed to it in
Section 11(a)(ii) hereof.
(s) "Section 13(a) Event" shall have the meaning ascribed to it in
Section 13(a) hereof.
(t) "Securities Act" shall mean the Securities Act of 1933, as amended.
(u) "Subsidiary" of any Person shall mean any corporation or other Person
of which equity securities or equity interests representing a majority of the
voting power are owned, directly or indirectly, or which is effectively
controlled, by such Person.
(v) "Trading Day" shall mean, as to any stock or other security, a day on
which the principal national securities exchange on which such stock or other
security is listed or admitted to trading is open for the transaction of
business or, if such stock or other security is not listed or admitted to
trading on any national securities exchange, a Business Day.
(w) "Voting Share" shall mean (i) a Common Share and (ii) any other share
of capital stock of the Company entitled to vote generally in the election of
directors or entitled to vote together with the Common Shares in respect of
any merger, consolidation, sale of all or substantially all of the Company's
assets, liquidation, dissolution or winding up. References in this Agreement
to a percentage or portion of the outstanding Voting Shares shall be deemed a
reference to the percentage or portion of the total votes entitled to be cast
by the holders of the outstanding Voting Shares.
(x) "15% Ownership Date" shall mean the first date of public announcement
(which, for purposes of this definition, shall include, without limitation, a
report filed pursuant to Section 13(d) of the Exchange Act) by the Company or
a 15% Stockholder containing the facts by virtue of which a Person has become
a 15% Stockholder.
(y) "15% Stockholder" shall mean any Person that, together with all
Affiliates and Associates of such Person,hereafter acquires Beneficial
Ownership of, in the aggregate, in one or more transactions, a number of
Voting Shares of the Company equal to 1% or more of the Voting Shares then
outstanding and thereupon or thereafter Beneficially Owns 15% or more of the
Voting Shares of the
6
<PAGE>
Company then outstanding; provided, however, that the term "15% Stockholder"
shall not include: (i) the Company, any wholly owned Subsidiary of the
Company, any employee benefit plan of the Company or of a Subsidiary of the
Company, or any Person holding Voting Shares for or pursuant to the terms of
any such employee benefit plan; or (ii) any Person if such Person would not
otherwise be a 15% Stockholder but for a reduction in the number of
outstanding Voting Shares resulting from a stock repurchase program or other
similar plan of the Company or from a self tender offer of the Company, which
plan or tender offer commenced on or after the date hereof, provided, however,
that the term "15% Stockholder" shall include such Person from and after the
first date upon which (A) such Person, since the date of the commencement of
such plan or tender offer, shall have acquired Beneficial Ownership of, in the
aggregate,in one or more transactions, a number of Voting Shares of the
Company equal to 1% or more of the Voting Shares of the Company then
outstanding and (B) such Person, together with all Affiliates and Associates
of such Person, shall Beneficially Own 15% or more of the Voting Shares of the
Company then outstanding. In calculating the percentage of the outstanding
Voting Shares that are Beneficially Owned by a Person for purposes of this
subsection (aa), Voting Shares that are Beneficially Owned by such Person
shall be deemed outstanding, and Voting Shares that are not Beneficially Owned
by such Person and that are subject to issuance upon the exercise or
conversion of outstanding conversion rights, exchange rights, rights (other
than Rights), warrants or options shall not be deemed outstanding.
Notwithstanding the foregoing, if the Board of Directors determines that a
Person that would otherwise be a 15% Stockholder pursuant to the foregoing
provisions of this Section 1(y) and Section 1(b) hereof has become such
inadvertently, and such Person (i) notifies the Board of Directors of such
status and (ii) as promptly as practicable thereafter, either divests a
sufficient number of Voting Shares so that such Person would no longer be a
15% Stockholder, or causes any other circumstance, such as the existence of an
agreement respecting Voting Shares, to be eliminated such that such Person
would no longer be a 15% Stockholder as defined pursuant to this Section 1(y)
and 1(b), or enters into such other agreement or arrangement as the Board of
Directors may approve, then such Person shall not be deemed to be a 15%
Stockholder for any purposes of this Agreement.
Any determination made by the Board of Directors as to whether any Person
is or is not a 15% Stockholder shall be conclusive and binding upon all
holders of Rights.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for
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the Company and the holders of Rights in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. ISSUANCE OF RIGHT CERTIFICATES.
(a) "Distribution Date" shall mean the date, after the date hereof, that
is the earliest of (i) the tenth Business Day (or such later day as shall be
designated by the Board of Directors Directors) following the date of the
commencement of, or the first public announcement of the intent of any Person
(other than the Company, any wholly owned Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company, or
any Person holding Common Shares for or pursuant to the terms of any such
employee benefit plan) to commence, a tender offer or exchange offer (other
than a Fair Offer, as defined in Section 25 hereof), the consummation of which
would cause any Person to become a 15% Stockholder, (ii) the date of the first
Section 11(a) (ii) Event or (iii) the date of the first Section 13(a) Event.
(b) Until the Distribution Date, (i) the Rights shall be represented by
certificates for Common Shares (all of which certificates for Common Shares
shall be deemed to be Right Certificates) and not by separate Right
Certificates, (ii) the record holder of the Common Shares represented by each
of such certificates shall be the record holder of the Rights represented
thereby and (iii) the Rights shall be transferable only in connection with the
transfer of Common Shares. Until the earliest of the Distribution Date, the
Redemption Date or the Expiration Date, the surrender for transfer of such
certificates for Common Shares shall also constitute the surrender for
transfer of the Rights represented thereby.
(c) As soon as practicable after the Distribution Date, and after
notification by the Company, the Rights Agent shall send by first-class,
postage-prepaid mail to each record holder of Common Shares, as of the Close
of Business on the Distribution Date, at the address of such holder shown on
the records of the Company, a Right Certificate substantially in the form of
Exhibit B hereto representing one Right for each Common Share so held. From
and after the Distribution Date, the Rights shall be represented solely by
such Right Certificates and may only be transferred by the transfer of such
Right Certificates, and the holders of such Right Certificates, as listed in
the records of the Company or any transfer agent or registrar for such Rights,
shall be the record holders of such Rights.
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(d) As soon as practicable after the Record Date, the Company shall send
a copy of a Summary of the Rights in substantially the form attached hereto as
Exhibit C by first-class, postage-prepaid mail to each record holder of Common
Shares as of the Close of Business on the Record Date at the address of such
holder shown on the records of the Company.
(e) Certificates for Common Shares issued at any time after the Record
Date and prior to the earliest of the Distribution Date, the Redemption Date
or the Expiration Date, shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also represents Rights that entitle the
holder hereof to certain rights as set forth in the Rights
Agreement dated as of September 19, 1997 by and between the
Corporation and American Stock Transfer and Trust Company, as
Rights Agent (the "Rights Agreement"), the terms and
conditions of which are hereby incorporated herein by
reference and a copy of which is on file at the principal
executive offices of the Corporation. Under certain
circumstances specified in the Rights Agreement, such Rights
will be represented by separate certificates and will no
longer be represented by this certificate. Under certain
circumstances specified in the Rights Agreement, Rights
beneficially owned by certain persons may become null and
void. The Corporation will mail to the record holder of this
certificate a copy of the Rights Agreement without charge
promptly following receipt of a written request therefor.
(f) Certificates for Common Shares issued at any time on or after the
Distribution Date and prior to the earlier of the Redemption Date or the
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate does not represent any Right issued pursuant
to the terms of the Rights Agreement dated as of September 19,
1997 by and between the Corporation and American Stock
Transfer and Trust Company, as Rights Agent.
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(g) In the event that at any time on or after the earlier of the date of
the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event
and prior to the earlier of the Redemption Date or the Expiration Date, the
Company shall issue any Common Shares pursuant to the exercise of conversion
rights, exchange rights, rights (other than Rights), warrants or options that
shall have been issued or granted prior to the earlier of the date of the
first Section 1l(a)(ii) Event or the date of the first Section 13(a) Event,
then, unless the Board of Directors of the Company shall have provided
otherwise at the time of the issuance or grant of such conversion rights,
exchange rights, rights (other than Rights), warrants or options, the Rights
Agent shall, as soon as practicable after the date of such event, send by
first-class, postage-prepaid mail to the record holder of such Common Shares,
at the address of such holder as shown on the records of the Company, a Right
Certificate substantially in the form of Exhibit B hereto representing one
Right for each Common Share so issued.
(h) Notwithstanding the foregoing provisions of this Section 3, the
Rights Agent shall not send any Right Certificate to any 15% Stockholder or
any of its Affiliates or Associates or to any Person if the Rights held by
such Person are Beneficially Owned by a 15% Stockholder or any of its
Affiliates or Associates. Any determination made by the Board of Directors as
to whether any Common Shares are or were Beneficially Owned at any time by a
15% Stockholder or an Affiliate or Associate of a 15% Stockholder shall be
conclusive and binding upon all holders of Rights.
Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates and the
form of assignment, including certificate, and the form of election to
purchase, including certificate, printed on the reverse thereof, when, as and
if issued, shall be substantially the same as Exhibit B hereto, and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange upon which the
Rights or the securities of the Company issuable upon exercise of the Rights
may from time to time be listed, or to conform to usage. Subject to Section 22
hereof, Right Certificates, whenever issued, that are issued in respect of
Common Shares that were issued and outstanding as of the Close of Business on
the Distribution Date, shall be dated as of the Distribution Date.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
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(a) The Right Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its Vice Chairman of the Board, its President or
any Vice President, either manually or by facsimile signature, and may have
affixed thereto the Company's seal or a facsimile thereof attested by its
Secretary or any Assistant Secretary, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the
Rights Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates may nevertheless be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as
though the person who signed such Right Certificates had not ceased to be such
officer of the Company. Any Right Certificate may be signed on behalf of the
Company by any person who at the actual date of such execution shall be a
proper officer of the Company to sign such Right Certificate, even though such
person was not such an officer at the date of the execution of this Agreement.
(b) Following the Distribution Date, the Rights Agent shall keep or cause
to be kept at its principal offices books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of Right Certificates, the number of
Rights represented on its face by each Right Certificate and the date of each
Right Certificate.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES: MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Sections 6(c), 7(d) and 14 hereof, at
any time after the Close of Business on the Distribution Date, and so long as
the Rights represented thereby remain outstanding, any one or more Right
Certificates may be transferred, split up, combined or exchanged for one or
more Right Certificates representing the same aggregate number of Rights as
the Right Certificates surrendered. Any registered holder desiring to
transfer, split up, combine or exchange one or more Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall
surrender the Right Certificates to be transferred, split up, combined or
exchanged at the office of the Rights Agent with the form of assignment,
including certificate, on the reverse side thereof completed and duly
executed, with signature guaranteed. Thereupon, the Rights Agent shall
countersign and deliver to the person
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entitled thereto one or more Right Certificates, as so requested. The Company
may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of such Right Certificate if mutilated, the Company shall issue
and deliver to the Rights Agent for delivery to the record holder of such
Right Certificate a new Right Certificate of like tenor in lieu of such lost,
stolen, destroyed or mutilated Right Certificate.
(c) Notwithstanding anything to the contrary in this Section 6, the
Rights Agent shall not countersign and deliver a Right Certificate to any
Person if such Right Certificate represents, or would represent when held by
such Person, Rights that had become or would become null and void pursuant to
Section 7(d) hereof.
Section 7. EXERCISE OF RIGHTS.
(a) Until the Distribution Date, no Right may be exercised.
(b) Subject to Sections 7(d) and (g) hereof and the other provisions of
this Agreement, at any time after the Close of Business on the Distribution
Date and prior to the Close of Business on the earlier of the Redemption Date
or the Expiration Date, the registered holder of any Right Certificate may
exercise the Rights represented thereby in whole or in part upon surrender of
such Right Certificate, with the form of election to purchase, including
certificate, on the reverse side thereof completed and duly executed, with
signature guaranteed, to the Rights Agent at the office of the Rights Agent at
40 Wall Street, 46th Floor, New York, New York 10005, together with payment of
the Exercise Price for each Right exercised. Upon the exercise of an
exercisable Right and payment of the Exercise Price in accordance with the
provisions of this Agreement, the holder of such Right shall be entitled to
receive, subject to adjustment as provided herein, one one-hundredth of a
Preferred Share (or, following the occurrence of a Section 11(a)(ii) Event or
a Section 13(a) Event, Common Shares and/or other securities).
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(c) The Exercise Price for the exercise of each Right shall initially be
$33.33 and shall be payable in lawful money of the United States of America in
accordance with Section 7(f) hereof. The Exercise Price and the number of
Preferred Shares (or, following the occurrence of a Section ll(a)(ii) Event or
a Section 13(a) Event, Common Shares and/or other securities) to be acquired
upon exercise of a Right shall be subject to adjustment from time to time as
provided in Sections 7(e), 11 and 13 hereof and the other provisions of this
Agreement.
(d) Notwithstanding anything in this Agreement to the contrary, from and
after the earlier of the date of the first Section 11(a)(ii) Event or the date
of the first Section 13(a) Event, any Rights that are or were Beneficially
Owned by a 15% Stockholder or any Affiliate or Associate of a 15% Stockholder
at any time on or after the Distribution Date shall be null and void, and for
all purposes of this Agreement such Rights shall thereafter be deemed not to
be outstanding, and any holder of such Rights (whether or not such holder is a
15% Stockholder or an Affiliate or Associate of a 15% Stockholder) shall
thereafter have no right to exercise or exchange such Rights.
(e) Prior to the Distribution Date, if the Board of Directors shall have
determined that such action adequately protects the interests of the holders
of Rights, the Company may, in its discretion, substitute for all or any
portion of the Preferred Shares that would otherwise be issuable (after the
Close of Business on the Distribution Date) upon the exercise of each Right
and payment of the Exercise Price, (i) cash, (ii) other equity securities of
the Company, (iii) debt securities of the Company, (iv) other property or (v)
any combination of the foregoing, in each case having an aggregate Current
Market Price equal to the aggregate Current Market Price of the Preferred
Shares for which substitution is made. Subject to Section 7(d) hereof, in the
event that the Company takes any action pursuant to this Section 7(e), such
action shall apply uniformly to all outstanding Rights.
(f) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase, including certificate, completed and
duly executed, with signature guaranteed, accompanied by payment of the
Exercise Price for each Right to be exercised and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check or
cashier's check payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) requisition from the transfer agent
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<PAGE>
of the Preferred Shares (or, following the occurrence of a Section 11(a)(ii)
Event or a Section 13(a) Event, Common Shares and/or securities), certificates
for the number of Preferred Shares (or such other securities) to be purchased,
and the Company hereby irrevocably authorizes such transfer agent to comply
with all such requests, and/or, as provided in Section 14 hereof, requisition
from the depositary agent described therein depositary receipts representing
such number of one-hundredths of a Preferred Share (or such other securities)
as are to be purchased (in which case certificates for the Preferred Shares
(or such other securities) represented by such receipts shall be deposited by
the transfer agent with such depositary agent) and the Company hereby directs
such depositary agent to comply with such request, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional Preferred Shares (or such other securities) in accordance with
Section 14 hereof, (iii) after receipt of such certificates, depositary
receipts or cash, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt
thereof, deliver such cash to or upon the order of the registered holder of
such Right Certificate.
(g) Notwithstanding the foregoing provisions of this Section 7, the
exercisability of the Rights shall be suspended for such period as shall
reasonably be necessary for the Company to register under the Securities Act
and any applicable securities law of any jurisdiction the Preferred Shares to
be issued pursuant to the exercise of the Rights; provided, however, that
nothing contained in this Section 7 shall relieve the Company of its
obligations under Section 9(c) hereof.
(h) In case the registered holder of any Right Certificate shall exercise
less than all of the Rights represented thereby, a new Right Certificate
representing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Right Certificate
or to such holder's duly authorized assigns, subject to the provisions of
Section 14 hereof.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as
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<PAGE>
expressly permitted by this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel
and retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) Subject to Section 7(e) hereof, the Company shall cause to be
reserved and kept available out of its authorized and unissued equity
securities (or out of its authorized and issued equity securities held in its
treasury), the number of such equity securities that will from time to time be
sufficient to permit the exercise in full of all outstanding Rights.
(b) In the event that any securities issuable upon exercise of the Rights
are listed on any national securities exchange, the Company shall use its best
efforts, from and after such time as the Rights become exercisable, to cause
all such securities issued or reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
(c) If necessary to permit the issuance of securities upon exercise of
the Rights, the Company shall use its best efforts, from and after the
Distribution Date, to register such securities under the Securities Act and
any applicable securities laws and to keep such registration effective until
the earlier of the Redemption Date or the Expiration Date.
(d) The Company shall take all such action as may be necessary to ensure
that all securities delivered upon exercise of the Rights shall, at the time
of delivery of the certificates for such securities (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable securities.
(e) The Company shall pay when due and payable any and all federal and
state transfer taxes and charges that may be payable in respect of the
issuance or delivery of the Right Certificates or of any securities upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax that may be payable in respect of any transfer or delivery of a
Right Certificate to a Person other than, or the issuance or delivery of a
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certificate for securities in respect of a name other than that of, the
registered holder of the Right Certificate representing Rights surrendered for
exercise, or to issue or deliver any certificate for securities upon the
exercise of any Right until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
(f) With respect to the Common Shares and/or other securities issuable
pursuant to Section 11(a)(ii) and (iii) hereof, the foregoing covenants shall
be applicable only upon and following the occurrence of a Section 11(a)(ii)
Event.
Section 10. SECURITIES RECORD DATE. Each person in whose name any
certificate for securities of the Company is issued upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of
the securities represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate representing such Rights was duly
surrendered and payment of the Exercise Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the securities transfer books of the Company are
closed, such person shall be deemed to have become the record holder of such
securities on, and such certificate shall be dated, the next succeeding
Business Day on which the securities transfer books of the Company are open.
Section 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES ISSUABLE UPON
EXERCISE OF RIGHTS OR NUMBER OF RIGHTS. The Exercise Price, the number and
kind of securities that may be purchased upon exercise of a Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a)(i) In the event that the Company shall at any time after
the Close of Business on the Record Date and prior to the Close of
Business on the earlier of the Redemption Date or the Expiration Date
(A) declare or pay any dividend on the Preferred Shares payable in
Preferred Shares or Voting Shares, (B) subdivide the outstanding
Preferred Shares, (C) combine the outstanding Preferred Shares into a
smaller number of Preferred Shares or (D) issue Preferred Shares or
Voting Shares in a reclassification of the Preferred Shares
(including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation), then, and upon each such event, the number
and kind of
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Preferred Shares or other securities issuable upon the exercise of a
Right on the date of such event shall be proportionately adjusted so
that the holder of any Right exercised on or after such date shall be
entitled to receive, upon the exercise thereof and payment of the
Exercise Price, the aggregate number and kind of Preferred Shares or
other securities or other property, as the case may be, that, if such
Right had been exercised immediately prior to such date and at a time
when such Right was exercisable and the transfer books of the Company
were open, such holder would have owned upon such exercise and would
have been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs that
would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event (a "Section 11(a)(ii) Event") that a 15%
Ownership Date shall have occurred and neither the Redemption Date
nor the Expiration Date shall have occurred prior to the tenth
Business Day following such 15% Ownership Date, then, and upon each
such event, proper provision shall be made so that except as provided
in Section 7(d) hereof, each holder of a Right shall thereafter have
the right to receive, upon the exercise thereof in accordance with
the terms of this Agreement and payment of the then current Exercise
Price, in lieu of the securities or other property otherwise
purchasable upon such exercise, such number of Common Shares of the
Company as shall equal the result obtained by multiplying the then
current Exercise Price by the then number of one-hundredths of a
Preferred Share for which a Right was exercisable (or, if the
Distribution Date shall not have occurred prior to the date of such
Section 11(a)(ii) Event, the number of one-hundredths of a Preferred
Share for which a Right would have been exercisable if the
Distribution Date had occurred on the Business Day immediately
preceding the date of such Section 11(a)(ii) Event) immediately prior
to such Section 11(a)(ii) Event, and dividing that product by 50% of
the Current Market Price (determined pursuant to Section 11(d)
hereof) of a Common Share on the date of occurrence of the relevant
Section 11(a)(ii) Event (such number of shares being hereinafter
referred to as the "Adjustment Shares"). Successive adjustments shall
be made pursuant to this paragraph each time a Section 11(a)(ii)
Event occurs.
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(iii) In the event that on the date of a Section
11(a)(ii) Event the aggregate number of Common Shares that are
authorized by the Company's Certificate of Incorporation but not
outstanding or reserved for issuance for purposes other than upon
exercise of the Rights is less than the aggregate number of Adjustment
Shares thereafter issuable upon the exercise in full of the Rights in
accordance with Section 11(a)(ii) hereof (the excess of such number of
Adjustment Shares over and above such number of Common Shares being
hereinafter referred to as the "Unavailable Adjustment Shares"), then,
and upon each such event, the Company shall substitute for the pro rata
portion of the Unavailable Adjustment Shares that would otherwise be
issuable thereafter upon the exercise of each Right and payment of the
Exercise Price, (A) cash, (B) other equity securities of the Company
(including, without limitation, shares of preferred stock of the
Company or units of such shares having the same Current Market Price as
one Common Share (a "Common Share Equivalent")), (C) debt securities of
the Company, (D) other property or (E) any combination of the
foregoing, in each case having an aggregate Current Market Price equal
to the aggregate Current Market Price of the Unavailable Adjustment
Shares for which substitution is made. Subject to Section 7(d) hereof,
in the event that the Company takes any action pursuant to this Section
11(a)(iii), such action shall apply uniformly to all outstanding
Rights.
(b) In the event that the Company shall, at any time after the
Close of Business on the Record Date and prior to the Close of Business on the
earlier of the Redemption Date or the Expiration Date, fix a record date prior
to the earlier of the Redemption Date or the Expiration Date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
initially to subscribe for or purchase Preferred Shares (or shares having the
same rights, privileges and preferences as the Preferred Shares ("Preferred
Share Equivalents")) or securities convertible into Preferred Shares or
Preferred Share Equivalents, at a price per Preferred Share or Preferred Share
Equivalent (or having a conversion price per share, if a security convertible
into Preferred Shares or Preferred Share Equivalents) less than the Current
Market Price per Preferred Share on such record date, then, and upon each such
event, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be equal to the sum of
the number of Preferred Shares outstanding on such record date plus the number
of Preferred
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Shares that the aggregate offering price of the total number of Preferred
Shares and/or Preferred Share Equivalents to be so offered (and/or the
aggregate initial conversion price of the convertible securities to be so
offered) would purchase at such Current Market Price, and the denominator of
which shall be equal to the number of Preferred Shares outstanding on such
record date plus the number of additional Preferred Shares and/or Preferred
Share Equivalents to be offered for subscription or purchase (or into which
the convertible securities to be so offered are initially convertible);
provided, however, that if such rights, options or warrants are not
exercisable immediately upon issuance but become exercisable only upon the
occurrence of a specified event or the passage of a specified period of time,
then the adjustment to the Exercise Price shall be made and become effective
only upon the occurrence of such event or such passage of time, and such
adjustment shall be made as if the record date for the issuance of such
rights, options or warrants had been the Business Day immediately preceding
the date upon which such rights, options or warrants became exercisable.
Preferred Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
to the Exercise Price shall be made successively whenever such a record date
is fixed, and in the event that such rights or warrants are not so issued,
the Exercise Price shall be adjusted to be the Exercise Price that would then
be in effect if such record date had not been fixed.
(c) In the event that the Company shall, at any time after the
Close of Business on the Record Date and prior to the Close of Business on the
earlier of the Redemption Date or the Expiration Date, fix a record date for the
making of a distribution to all holders of the Preferred Shares (including any
such distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of securities or assets (other than a
distribution of securities for which an adjustment is required under Section
11(a)(i) or (b) hereof or a regular quarterly cash dividend), then the Exercise
Price to be in effect after such record date shall be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be equal to the excess of the Current
Market Price per Preferred Share on such record date over and above the fair
market value of the portion of the securities or assets to be so distributed
with respect to one Preferred Share, and the denominator of which shall be equal
to such Current Market Price per Preferred Share. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such a
distribution is not so made, the Exercise Price shall be
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adjusted to be the Exercise Price that would then be in effect if such record
date had not been fixed.
(d) For the purpose of any computation under this Section 11,
if the Preferred Shares are not publicly held or traded, the "Current Market
Price" per Preferred Share shall be conclusively deemed to be the Current Market
Price per Common Share multiplied by 100.
(e) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Exercise Price; provided, however, that any adjustments that by reason of
this Section 11(e) are not required to be made shall be cumulated and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one-thousandth of a Common
Share or other share or one-millionth of a Preferred Share, as the case may be.
(f) If, as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any securities of the Company other than Preferred Shares, the number
of such other securities so receivable upon exercise of any Right shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Preferred Shares
contained in this Section 11, and the other provisions of this Agreement with
respect to Preferred Shares shall apply on like terms to any such other
securities.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall represent the right to
purchase, at the adjusted Exercise Price, the number of one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i) below, upon each adjustment of the Exercise Price as a
result of the calculations made in Sections 11(b) and (c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
represent the right to purchase, at the adjusted Exercise Price, that number of
one-hundredths of a Preferred Share (calculated to the nearest one-millionth of
a Preferred Share) obtained by multiplying (i) the number of one-hundredths of a
Preferred Share purchasable upon the exercise of one Right immediately prior
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to such adjustment of the Exercise Price by (ii) the Exercise Price in effect
immediately prior to such adjustment, and dividing the product so obtained by
the Exercise Price in effect immediately after such adjustment.
(i) The Company may elect, on or after the date of any
adjustment of the Exercise Price, to adjust the number of Rights instead of
making any adjustment in the number of Preferred Shares purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one-hundredths of a
Preferred Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
one-thousandth of a Right) obtained by dividing the Exercise Price in effect
immediately prior to the adjustment of the Exercise Price by the Exercise Price
in effect immediately after such adjustment of the Exercise Price. The Company
shall make a public announcement of its election to adjust the number of Rights
pursuant to this Section 11(i), indicating the record date for the adjustment
and, if known at the time, the amount of the adjustment to be made. Such record
date may be the date on which the Exercise Price is adjusted or any day
thereafter, but, if separate Right Certificates have been issued, it shall be at
least 10 days after the date of such public announcement. If separate Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates representing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment or, at the option of the Company, cause to be distributed to such
holders of record in substitution and replacement for the Right Certificates
held by such holders prior to the date of such adjustment, and upon surrender
thereof if required by the Company, new Right Certificates representing all the
Rights to which such holders shall be entitled after such adjustment. Right
Certificates to be so distributed shall be issued, executed and countersigned in
the manner provided for herein (and may bear, at the option of the Company, the
adjusted Exercise Price) and shall be registered in the names of the holders of
record of Right Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Exercise
Price or the number of one-hundredths of a Preferred Share issuable upon the
exercise of one Right, the Right Certificates theretofore and thereafter issued
may
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continue to express the Exercise Price per one one-hundredth of a Preferred
Share and the number of Preferred Shares issuable upon the exercise of one
Right that were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Exercise Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action that may, in the advice or opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable one one-hundredths of a Preferred Share at such
adjusted Exercise Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, the issuance to the holder of any Right exercised after such record date
of the number of one-hundredths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-hundredths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument representing such holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such further adjustments
in the number of one-hundredths of a Preferred Share that may be purchased upon
exercise of one Right, and such further adjustments in the Exercise Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any (i) consolidation or subdivision of the Preferred Shares, (ii)
issuance wholly for cash of any Preferred Shares at less than the Current Market
Price thereof, (iii) issuance wholly for cash of Preferred Shares or securities
that by their terms are convertible into or exchangeable for Preferred Shares,
(iv) dividends on Preferred Shares payable in Preferred Shares or (v) issuance
of rights, options or warrants referred to Section 11(b) hereof, hereafter made
by the Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
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(n) In the event that the Company shall, at any time after
the Close of Business on the Record Date and prior to the Close of Business
on the earliest of the date of the first Section 11(a)(ii) Event, the date of
the first Section 13(a) Event, the Redemption Date or the Expiration Date,
(i) pay any dividend on the Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares, (iii) combine the outstanding Common
Shares into a smaller number of Common Shares or (iv) issue Common Shares in
a reclassification of the Common Shares (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), then, and upon each such event, the
Exercise Price to be in effect after such event shall be determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction, the numerator of which shall be equal to the number of Common
Shares outstanding immediately prior to such event and the denominator of
which shall be equal to the number of Common Shares outstanding immediately
after such event. Successive adjustments shall be made pursuant to this
Section 11(n) each time such a dividend is paid or such a subdivision,
combination or reclassification is effected. If an event occurs that would
require an adjustment under both this Section 11(n) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(n) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
Section 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER
OF SHARES ISSUABLE UPON EXERCISE OF RIGHTS. Whenever an adjustment is made as
provided in Section 11 hereof, the Company shall promptly (a) prepare a
certificate setting forth such adjustment and a brief statement of the facts
giving rise to such adjustment, (b) file with the Rights Agent and with each
transfer agent for the securities issuable upon exercise of the Rights a copy of
such certificate and (c) mail a brief summary thereof to each holder of Rights
in accordance with Section 26 hereof. Notwithstanding the foregoing sentence,
the failure of the Company to make such certification or to give such notice
shall not affect the validity or the force and effect of such adjustment. Any
adjustment to be made pursuant to Section 11 or 13 hereof shall be effective as
of the date of the event giving rise to such adjustment.
Section 13. CONSOLIDATION, MERGER, OR SALE OR TRANSFER OF
ASSETS OR EARNING POWER.
(a) In the event (a "Section 13(a) Event") that, at any time
on or after the 15% Ownership Date and prior to the earlier of the Redemption
Date or the Expiration Date,
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(1) the Company shall, directly or indirectly, consolidate with or merge with
and into any other Person and the Company shall not be the continuing or
surviving corporation in such consolidation or merger, (2) any Person shall,
directly or indirectly, consolidate with or merge with and into the Company
and the Company shall be the continuing or surviving corporation in such
merger and, in connection with such merger, all or part of the Common Shares
shall be changed into or exchanged for stock or other securities of any
Person or cash or any other property, or (3) the Company and/or any one or
more of its Subsidiaries shall directly or indirectly, sell or otherwise
transfer, in one or more transactions (other than transactions in the
ordinary course of business), assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to any Person or Persons other than the Company or one or more of
its wholly owned Subsidiaries (such Persons, together with the Persons
described in clauses (1) and (2) above shall be collectively referred to in
this Section 13 as the "Surviving Person"), then, and in each such case,
proper provision shall be made so that:
(i) except as provided in Section 7(d) hereof, each
holder of a Right shall thereafter have the right to receive, upon the
exercise thereof in accordance with the terms of this Agreement and
payment of the then current Exercise Price, in lieu of the securities
or other property otherwise purchasable upon such exercise, such number
of validly authorized and issued, fully paid and nonassessable Common
Shares of the Surviving Person as shall be equal to a fraction, the
numerator of which is the product of the then current Exercise Price
multiplied by the number of one-hundredths of a Preferred Share
purchasable upon the exercise of one Right immediately prior to the
first Section 13(a) Event (or, if the Distribution Date shall not have
occurred prior to the date of such Section 13(a) Event, the number of
one-hundredths of a Preferred Share that would have been so purchasable
if the Distribution Date had occurred on the Business Day immediately
preceding the date of such Section 13(a) Event, or, if a Section
11(a)(ii) Event has occurred prior to such Section 13(a) Event, the
product of the number of one-hundredths of a Preferred Share
purchasable upon the exercise of a Right (or, if the Distribution Date
shall not have occurred prior to the date of such Section 11(a)(ii)
Event, the number of one-hundredths of a Preferred Share that would
have been so purchasable if the Distribution Date had occurred on the
Business Day immediately preceding the date of such Section 11(a)(ii)
Event) immediately prior
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to such Section 11(a)(ii) Event, multiplied by the Exercise Price in
effect immediately prior to such Section 11(a)(ii) Event), and
the denominator of which is 50% of the Current Market Price per
Common Share of the Surviving Person on the date of
consummation of such Section 13(a) Event;
(ii) the Surviving Person shall thereafter be liable
for and shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to
this Agreement;
(iii) the term, "Company," shall thereafter be deemed
to refer to the Surviving Person; and
(iv) the Surviving Person shall take such steps
(including, but not limited to, the reservation of a sufficient number
of its Common Shares in accordance with Section 9 hereof) in connection
with such consummation as may be necessary to ensure that the
provisions hereof shall thereafter be applicable to its Common Shares
thereafter deliverable upon the exercise of Rights.
(b) Notwithstanding the foregoing, if the Section 13(a) Event
is the sale or transfer in one or more transactions of assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole), but less than 100% thereof, then each Person
acquiring all or a portion thereof shall assume the obligations of the Company
as to a fraction of each of the Rights equal to the fraction of the assets of
the Company and its Subsidiaries (taken as a whole) acquired by such Person, and
the obligations of the Company as to the remaining fraction of each of the
Rights shall continue to be the obligations of the Company.
(c) The Company shall not consummate a Section 13(a) Event
unless prior thereto the Company and the Surviving Person shall have executed
and delivered to the Rights Agent a supplemental agreement confirming that such
Surviving Person shall, upon consummation of such Section 13(a) Event, assume
this Agreement in accordance with Section 13 hereof, that all rights of first
refusal or preemptive rights in respect of the issuance of Common Shares of such
Surviving Person upon exercise of outstanding Rights have been waived and that
such Section 13(a) Event shall not result in a default by such Surviving Person
under this Agreement, and further providing that, as soon as practicable after
the date of consummation of such Section 13(a) Event, such Surviving Person
shall:
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(i) prepare and file a registration statement under
the Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
best efforts to cause such registration statement to become effective
as soon as practicable after such filing, use its best efforts to cause
such registration statement to remain effective (with a prospectus at
all times meeting the requirements of the Securities Act) until the
Expiration Date, and similarly comply with all applicable state
securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the Common Shares of the Surviving Person
purchasable upon exercise of the Rights on a national securities
exchange, or use its best efforts to cause the Rights and such Common
Shares to meet the eligibility requirements for quotation on NASDAQ;
and
(iii) deliver to holders of the Rights historical
financial statements for such Surviving Person that comply in all
respects with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act.
(d) In the event that at any time after the occurrence of a
Section 11(a)(ii) Event some or all of the Rights shall not have been exercised
pursuant to Section 11 hereof prior to the date of a Section 13(a) Event, such
Rights shall thereafter be exercisable only in the manner described in Section
13(a) hereof. In the event that a Section 11(a)(ii) Event occurs on or after the
date of a Section 13(a) Event, Rights shall not be exercisable pursuant to
Section 11 hereof but shall instead be exercisable pursuant to, and only
pursuant to, this Section 13.
(e) The provisions of this Section 13 shall apply to each
successive merger, consolidation, sale or other transfer constituting a Section
13(a) Event.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates that represent fractional Rights. If
the Company shall determine not to issue such fractional Rights, the Company
shall pay to the registered holders of the Right Certificates with respect to
which such fractional Rights would otherwise be issuable, at the time such
fractional Rights would otherwise
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<PAGE>
have been issued as provided herein, an amount in cash equal to the same
fraction of the Current Market Price of a whole Right on the Business Day
immediately prior to the date upon which such fractional Rights would
otherwise have been issuable.
(b) The Company shall not be required to issue fractions of
Common Shares or Preferred Shares (other than fractions that are integral
multiples of one one-hundredth of a Preferred Share) upon exercise of Rights, or
to distribute certificates that represent fractional Common Shares or Preferred
Shares (other than fractions that are integral multiples of one one-hundredth of
a Preferred Share). Fractions of Preferred Shares in integral multiples of one
one-hundredth of a Preferred Share may, at the election of the Company, be
represented by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it, provided that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
Preferred Shares. If the Company shall determine not to issue fractional Common
Shares or Preferred Shares (or depositary receipts in lieu of Preferred Shares),
the Company shall pay to the registered holders of Right Certificates with
respect to which such fractional Common Shares or Preferred Shares would
otherwise be issuable, at the time such Rights are exercised as provided herein,
an amount in cash equal to the same fraction of the Current Market Price of a
whole Common Share or Preferred Share, as the case may be. For purposes of this
Section 14(b), the Current Market Price of a whole Common Share or Preferred
Share shall be the Closing Price per share for the Trading Day immediately prior
to the date of such exercise.
(c) The holder of a Right, by the acceptance of such Right,
expressly waives such holder's right to receive any fractional Rights or any
fractional Common Shares or Preferred Shares upon exercise of such Right, except
as permitted by this Section 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect
of this Agreement, except the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates and certificates for Common Shares representing Rights, and any
registered holder of any Right Certificate or of such certificate for Common
Shares, without the consent of the Rights Agent or of the holder of any other
Right Certificate or any other certificate for Common Shares may, on such
holder's own behalf and for such holder's own benefit, enforce, and may
institute and maintain any suit,
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<PAGE>
action or proceeding against the Company to enforce, or otherwise act in
respect of, such holder's right to exercise the Rights represented by such
Right Certificate or by such certificate for Common Shares in the manner
provided in such Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Agreement and shall be entitled
to specific performance, and injunctive relief against actual or threatened
violations, of the obligations of any Person under this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and every other holder of a Right that:
(a) prior to the Distribution Date, the Rights shall be
represented by certificates for Common Shares registered in the name of the
holders of such Common Shares (which certificates for Common Shares shall also
constitute Right Certificates), and each such Right shall be transferable only
in connection with the transfer of such Common Shares;
(b) after the Distribution Date, the Right Certificates shall
only be transferable on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate is registered as the absolute owner
thereof and of the Rights represented thereby (notwithstanding any notations of
ownership or writing on the Right Certificate by anyone other than the Company
or the Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary.
Section 17. RIGHT HOLDER AND RIGHT CERTIFICATE HOLDER NOT
DEEMED A STOCKHOLDER. No holder, as such, of any Right or Right Certificate
shall be entitled to vote, receive dividends or be deemed for any purpose the
holder of the securities of the Company that may at any time be issuable upon
the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of any
Right or Right Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any
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meeting thereof, to give or withhold consent to any corporate action, to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 26 hereof), or to receive dividends or subscription
rights, or otherwise, in each case until such Right or the Rights represented
by such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent as
compensation for all services rendered by it hereunder reasonable and customary
fees and expenses. The Company also agrees to indemnify the Rights Agent for,
and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of its counsel as set
forth in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions of
Section 21
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hereof. If, at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have
been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and if at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent
may countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Right Certificates shall have the full force provided in such
Right Certificates, and in this Agreement.
(b) If at any time the name of the Rights Agent shall be
changed, and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and if at
that time any of the Right Certificates shall not have been countersigned, the
Rights Agent may countersign such Right Certificates either in its prior name or
in its changed name; and in all such cases such Right Certificates shall have
the full force provided in such Right Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance of the Rights, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the advice or opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
advice or opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Vice Chairman of the Board, the President, any Vice President, the Treasurer or
the Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
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or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement, or in the
Right Certificates (except its countersignature thereof), or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due authorization, execution and delivery hereof by the Rights
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Agreement
or in any Right Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including any Rights becoming null and void
pursuant to Section 7(d) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Sections 7, 11,
13 and 23 hereof, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise of
Rights represented by Right Certificates after actual notice that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares or Common Shares or other securities to be issued pursuant to
this Agreement or any Right Certificate, or as to whether any Preferred Shares
or Common Shares or other securities will, when issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Vice Chairman, the President, any
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Vice President, the Secretary, any Assistant Secretary or the Treasurer of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken
or suffered to be taken by it in good faith in accordance with instructions
of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided that reasonable care was exercised
in the selection and continued employment thereof.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares and Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares and
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting as such, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit such holder's Right Certificate for
inspection by the Company), then the Company shall become the Rights Agent and
the registered holder of any Right Certificate may apply to
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any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the
laws of the United States or of the State of New York (or of any other state
of the United States so long as such corporation is authorized to do business
as a banking institution in the State of New York), in good standing, having
a principal office in New York, that is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and that has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50,000,000. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose of
this Agreement and so that the successor Rights Agent may appropriately act
as Rights Agent hereunder. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares and
Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the Right
Certificates to the contrary, the Company may, at its option, issue new Right
Certificates in such form as may be approved by the Board of Directors in order
to reflect any adjustment or change in the Exercise Price and the number or kind
or class of shares or other securities or property purchasable upon exercise of
the Rights in accordance with the provisions of this Agreement.
Section 23. REDEMPTION OF RIGHTS.
(a) Until the earliest of (i) the date of the first Section
11(a)(ii) Event, (ii) the date of the first Section 13(a) Event or (iii) the
Expiration Date, the Board of Directors may, at their option, direct the Company
to redeem all, but not less than all, of the then outstanding Rights at a
redemption price of $.0067 per Right, as such
33
<PAGE>
redemption price shall be appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (the
"Redemption Price"), and the Company shall so redeem the Rights.
(b) Immediately upon the action of the Board of Directors
directing the Company to redeem the Rights pursuant to subsection (a) of this
Section 23, or at such time and date thereafter as they may specify, and without
any further action and without any notice, the right to exercise Rights shall
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price. Within 10 Business Days after the date of such
action, the Company shall give notice of such redemption to the holders of
Rights by mailing such notice to all holders of Rights at their last addresses
as they appear upon the registry books of the Rights Agent or, if prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Any notice that is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives such notice, but neither the failure
to give any such notice nor any defect therein shall affect the legality or
validity of such redemption. Each such notice of redemption shall state the
method by which the payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or Associates may, directly or indirectly,
redeem, acquire or purchase for value any Rights in any manner other than that
specifically set forth in Section 24 hereof or in this Section 23, and other
than in connection with the purchase of Common Shares prior to the earlier of
the date of the first Section 11(a)(ii) Event or the date of the first Section
13(a) Event.
(c) The Company may, at its option, pay the Redemption Price
in cash, Common Shares, Preferred Shares, other equity securities of the
Company, debt securities of the Company, other property or any combination of
the foregoing, in each case having an aggregate Current Market Price on the
Redemption Date equal to the Redemption Price.
Section 24. EXCHANGE OF RIGHTS.
(a) At any time after the 15% Ownership Date and prior to the
first date thereafter upon which a 15% Stockholder, together with all Affiliates
and Associates of such 15% Stockholder, shall be the Beneficial Owner of 50% or
more of the Voting Shares then outstanding, the Board of Directors may, at their
option, direct the Company to exchange all, but not less than all, of the then
outstanding Rights for Common Shares at an exchange ratio of one Common Share
per Right, as such exchange ratio shall be
34
<PAGE>
appropriately adjusted to reflect any stock split, stock dividend, or similar
transaction involving Preferred Shares or Common Shares that occurs after the
date hereof (the "Exchange Ratio"), and the Company shall so exchange the
Rights.
(b) Immediately upon the action of the Board of Directors
directing the Company to exchange the Rights pursuant to subsection (a) of this
Section 24, or at such time and date thereafter as they may specify, and without
any further action and without any notice, the right to exercise Rights shall
terminate and the only right thereafter of the holder of a Right shall be to
receive a number of Common Shares equal to the Exchange Ratio. Within 10
Business Days after the date of such action, the Company shall give notice of
such exchange to the holders of Rights by mailing such notice to all holders of
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, if prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice that is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives such
notice, but neither the failure to give any such notice nor any defect therein
shall affect the legality or validity of such exchange. Each such notice of
exchange shall state the method by which the Rights will be exchanged for Common
Shares. Neither the Company nor any of its Affiliates or Associates may,
directly or indirectly, redeem, acquire or purchase for value any Rights in any
manner other than that specifically set forth in Section 23 hereof or in this
Section 24, and other than in connection with the purchase of Common Shares
prior to the earlier of the date of the first Section 11(a)(ii) Event or the
date of the first Section 13(a) Event.
(c) Notwithstanding the foregoing, in the event that the
aggregate number of Common Shares that are authorized by the Company's
Certificate of Incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise or exchange of the Rights is less than the
aggregate number of Common Shares issuable upon the exchange of the Rights in
accordance with this Section 24 (the excess of such number of authorized Common
Shares over and above such number of issuable Common Shares being hereinafter
referred to as the "Unavailable Exchange Shares"), then the Company shall
substitute for the pro rata portion of the Unavailable Exchange Shares that
would otherwise be issuable upon the exchange of the Rights in accordance with
this Section 24, (i) cash, (ii) other equity securities of the Company
(including, without limitation, Common Share Equivalents), (iii) debt securities
of the Company, (iv) other property or (v) any combination of the
35
<PAGE>
foregoing, in each case having an aggregate Current Market Price equal to the
aggregate Current Market Price of the Unavailable Exchange Shares for which
substitution is made. Subject to Section 7(d) hereof, in the event that the
Company takes any action pursuant to this Section 24, such action shall apply
uniformly to all outstanding Rights.
Section 25. CERTAIN CASH TENDER OFFERS.
(a) In the event that, at any time prior to the first date
upon which the Rights shall have become nonredeemable as provided in Section 23
hereof and nonexchangeable as provided in Section 24 hereof, the Company shall
receive a Cash Tender Offer Proposal from any Prospective Offeror, the Board of
Directors of the Company shall, within 15 Business Days thereafter, at their
option, either (i) engage a nationally recognized investment banking firm to
render an opinion as to whether the price per Voting Share in cash to be paid to
the holders of Voting Shares pursuant to such Cash Tender Offer Proposal is fair
and adequate (the "Fairness Opinion"), which Fairness Opinion shall be delivered
to the Board of Directors within 20 Business Days after such engagement, or (ii)
call a special meeting of stockholders (the "Special Meeting") for the purpose
of voting on a precatory resolution requesting the Board of Directors to accept
such Cash Tender Offer Proposal as such Cash Tender Offer Proposal may be
amended or revised by such Prospective Offeror from time to time to increase the
price per Voting Share in cash to be paid to the holders of Voting Shares (the
"Resolution"). The Special Meeting, if any, shall be held on a date selected by
the Board of Directors, which date shall be not less than 90 nor more than 120
days after the later of the date such Cash Tender Offer Proposal is received by
the Company (the "Proposal Date") or the date of any previously scheduled
meeting of stockholders to be held within 60 days after the Proposal Date;
provided, however, that if (x) such other meeting shall have been called for the
purpose of voting on a precatory resolution with respect to another Cash Tender
Offer Proposal and (y) the Proposal Date shall be not later than 15 days after
the date such other Cash Tender Offer Proposal was received by the Company, then
both the Resolution and such other resolution shall be voted on at such meeting
and such meeting shall be deemed to be the Special Meeting. A majority of the
Board of Directors shall set a date for determining the stockholders of record
entitled to notice of and to vote at the Special Meeting, if any, in accordance
with the Company's Certificate of Incorporation and Bylaws and with applicable
law. At the request of the Prospective Offeror, the Company shall include in any
proxy soliciting material prepared by it in connection with the Special Meeting,
if any, proxy
36
<PAGE>
soliciting material submitted by the Prospective Offeror; provided, however,
that the Prospective Offeror shall by written agreement with the Company
contained in or delivered with such request have indemnified the Company
against any and all liabilities resulting from any misstatements, misleading
statements and omissions contained in the Prospective Offeror's proxy
soliciting material and shall have agreed to pay the Company's incremental
costs incurred as a result of including such material in the Company's proxy
soliciting material.
(b) In the event that (x) the Fairness Opinion states that the
price per Voting Share to be paid in cash to the holders of Voting Shares
pursuant to the Cash Tender Offer Proposal is fair and adequate or (y) at the
Special Meeting the Resolution receives the affirmative vote of the majority of
the Voting Shares outstanding as of the record date of the Special Meeting and
not Beneficially Owned on such day by the Prospective Offeror or any of its
Affiliates or Associates, then, subject to Section 25(c) below, proper provision
shall be made in order that upon the consummation of any tender offer (provided
that such tender offer is consummated prior to the 60th day following the date
of such event, or prior to such later day upon which a suspension of operation
pursuant to Section 25(c) below shall terminate) pursuant to which the
Prospective Offeror offers to purchase and purchases any and all of the Voting
Shares held by Persons other than the Prospective Offeror and its Affiliates and
Associates at a price per Voting Share in cash equal to or greater than the
price per Voting Share provided in the Cash Tender Offer Proposal (a "Fair
Offer"), (i) each previously unexercised Right that has not become nonredeemable
as provided in Section 23 hereof shall be redeemed in accordance with Section 23
hereof, effective immediately prior to the consummation of such tender offer,
(ii) the acquisition of Common Shares pursuant to such tender offer shall not be
taken into account in determining whether the 15% Ownership Date has or has not
occurred, and (iii) neither the commencement of, nor the first public
announcement of the intent of such Person to commence, such tender offer shall
be taken into account in determining whether the Distribution Date has or has
not occurred. The redemption of Rights pursuant to this Section 25 shall not in
any way affect the exercisability of such Rights prior to the effective time of
such redemption.
(c) Notwithstanding Section 25(b) above, in the event that the
Board of Directors determines that such action is in the best interests of the
stockholders of the Company, they may, at any time prior to the consummation of
the tender offer referred to in the first sentence of Section 25(b) above,
suspend the operation of clauses (i)
37
<PAGE>
and (ii) in such sentence for a period of time not to exceed 120 days, such
suspension to be effective upon the date of the first public announcement
thereof.
(d) Nothing contained in this Section 25 shall be deemed to be
in derogation of the obligation of the Board of Directors of the Company to
exercise its fiduciary duty. Without limiting the foregoing, nothing contained
herein shall be construed to suggest or imply that the Board of Directors shall
not be entitled to reject any Cash Tender Offer Proposal, or to recommend that
holders of Voting Shares reject any Cash Tender Offer Proposal, or to take any
other action (including, without limitation, the commencement, prosecution,
defense or settlement of any litigation or the submission of additional or
alternative Cash Tender Offer Proposals or other proposals to the Special
Meeting) with respect to any Cash Tender Offer Proposal or any tender offer that
the Board of Directors believes is necessary or appropriate in the exercise of
such fiduciary duty.
(e) Nothing is this Section 25 shall be construed as limiting
or prohibiting the Company or any Prospective Offeror from proposing or engaging
in any acquisition, disposition or other transfer of any securities of the
Company, any merger or consolidation involving the Company, any sale or other
transfer of assets of the Company, any liquidation, dissolution or winding up of
the Company, any other business combination or other transaction, or any other
action; provided, however, that the holders of Rights shall have the rights set
forth in this Agreement with respect to any such acquisition, disposition,
transfer, merger, consolidation, sale, liquidation, dissolution, winding up,
business combination, transaction or action.
Section 26. NOTICE OF CERTAIN EVENTS.
(a) In the event that the Company shall propose (i) to declare
or pay any dividend payable on or make any distribution with respect to its
Common Shares or Preferred Shares (other than a regular quarterly cash
dividend), (ii) to offer to the holders of its Common Shares or Preferred Shares
options, rights or warrants to subscribe for or to purchase any additional
shares thereof or shares of stock of any class or any other securities, rights
or options, (iii) to effect any reclassification of its Common Shares or
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding shares), (iv) to effect any consolidation or merger with or into,
or to effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more transactions,
of more than 50% of
38
<PAGE>
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person or Persons, or (v) to effect the liquidation,
dissolution or winding up of the Company, then and in each such case, the
Company shall give to each holder of a Right Certificate, in accordance with
Section 27 hereof, a notice of such proposed action, that shall specify the
record date for the purpose of such dividend or distribution, or the date
upon which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of record of the Common Shares or
Preferred Shares, if any such date is to be fixed, and such notice shall be
so given in the case of any action covered by clause (i) or (ii) above at
least 20 days prior to the record date for determining holders of the Common
Shares or Preferred Shares for purposes of such action, and in the case of
any such other action, at least 20 days prior to the date of the taking of
such proposed action or the date of participation therein by the holders of
the Common Shares or Preferred Shares, whichever date shall be the earlier.
The failure to give the notice required by this Section 26 or any defect
therein shall not affect the legality or validity of the action taken by the
Company or the vote upon any such action.
(b) As soon as practicable after the occurrence of each
Section 11(a)(ii) Event and each Section 13(a) Event, the Company shall give to
each holder of a Right Certificate, in accordance with Section 27 hereof, a
notice of the occurrence of such event, specifying the event and the
consequences of the event to holders of Rights under Section 11 or 13 hereof.
Section 27. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Building Materials Holding Corporation
San Francisco
Attention: Paul S. Street,
Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed
39
<PAGE>
(until another address is filed in writing with the Company) to the principal
office of the Rights Agent as follows:
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 28. SUPPLEMENTS AND AMENDMENTS.
(a) the Board of Directors may, from time to time, without the
approval of any holders of Rights, direct the Company and the Rights Agent to
supplement or amend any provision of this Agreement in any manner, whether or
not such supplement or amendment is adverse to any holder of Rights, and the
Company and the Rights Agent shall so supplement or amend such provision;
provided, however, that from and after the earliest of (i) the date of the first
Section 11(a)(ii) Event, (ii) the date of the first Section 13(a) Event, (iii)
the Redemption Date or (iv) the Expiration Date, this Agreement shall not be
supplemented or amended in any manner that would materially and adversely affect
any holder of outstanding Rights other than a 15% Stockholder or a Surviving
Person.
(b) From and after the earlier of the date of the first
Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior
to the earlier of the Redemption Date or the Expiration Date, the Company shall
not effect any amendment to the provisions of its Certificate of Incorporation
relating to the Preferred Shares that would materially and adversely affect the
rights, privileges or preferences of the Preferred Shares without the prior
approval of the holders of two-thirds or more of the then outstanding Rights.
Section 29. CERTAIN COVENANTS. Subject to Section 28 hereof
and the other provisions of this Agreement, from and after the earlier of the
date of the first Section 11(a)(ii) Event or the date of the first Section 13(a)
Event and prior to the earlier of the Redemption Date or the Expiration Date,
the Company shall not (a) issue or sell, or permit any Subsidiary to issue or
sell, to a 15% Stockholder or a Surviving
40
<PAGE>
Person, or any Affiliate or Associate of a 15% Stockholder or a Surviving
Person, or any Person holding Voting Shares of the Company that are
Beneficially Owned by a 15% Stockholder or a Surviving Person, (i) any
rights, options, warrants or convertible securities on terms similar to, or
that materially adversely affect the value of, the Rights or (ii) Preferred
Shares, Common Shares or shares of any other class of capital stock of the
Company, if such sale is intended to or would materially adversely affect the
value of the Rights, or (b) take any other action that is intended to or
would materially adversely affect the value of the Rights.
Section 30. SUCCESSORS. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the Rights Agent
shall bind and inure to the benefit of their respective successors and
assigns hereunder.
Section 31. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent, the registered holders of the Right Certificates (other than those
representing Rights that have become null and void) and the certificates for
Common Shares representing Rights (other than those Rights that have become null
and void) any legal or equitable right, remedy or claim under this Agreement,
and this Agreement shall be for the sole and exclusive benefit of the Company,
the Rights Agent, such registered holders of Right Certificates and such
certificates for Common Shares representing Rights.
Section 32. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 33. GOVERNING LAW. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts made
and performed entirely within such state.
Section 34. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and each such counterpart shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
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<PAGE>
Section 35. DESCRIPTIVE HEADINGS. Descriptive headings of
the several sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
Attest: BUILDING MATERIALS HOLDING
CORPORATION
By /S/ PAUL S. STREET By /S/ ROBERT E. MELLOR
----------------------------- ------------------------------
Name: Paul S. Street Name: Robert E. Mellor
Title: Secretary Title: President
Attest: AMERICAN STOCK TRANSFER AND
TRUST COMPANY
By /S/ SUSAN SILBER By /S/ HERBERT J. LEMMER
----------------------------- ------------------------------
Name: Susan Silber Name: Herbert J. Lemmer
Title: Assistant Secretary Title: Vice President
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<PAGE>
EXHIBIT 11.1
BUILDING MATERIALS HOLDING CORPORATION
Computation of Earnings Per Share
FOR THE YEAR ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
COMPUTATION OF BASIC EARNINGS PER SHARE
Net income $15,149,000 $9,493,000 $10,649,000
Class B preferred stock
accretion -- (6,500) (34,000)
----------- ---------- -----------
Net Income available
to common stock $15,149,000 $9,486,500 $10,615,000
----------- ---------- -----------
----------- ---------- -----------
Weighted average shares
outstanding 12,509,351 11,919,469 10,759,892
---------- ---------- -----------
---------- ---------- -----------
Basic Earnings Per Share $1.21 $0.80 $0.99
----- ----- -----
----- ----- -----
COMPUTATION OF DILUTED EARNINGS PER SHARE
Net Income Available
to Common Stock $15,149,000 $9,486,500 $10,615,000
---------- ---------- -----------
---------- ---------- -----------
Weighted average shares
outstanding 12,509,351 11,919,469 10,759,892
Net effect of dilutive
stock options based on
the treasury stock
method using average
market price 137,489 217,410 238,243
--------- --------- ---------
Total shares outstanding 12,646,840 12,136,879 10,998,135
--------- --------- ---------
--------- --------- ---------
Diluted Earnings Per Share $1.20 $0.78 $0.97
----- ----- -----
----- ----- -----
</TABLE>
<PAGE>
FINANCIAL REVIEW 9
This financial review covers management's discussion and analysis of
consolidated financial condition and operating results and should be read in
conjunction with the financial statements and the notes thereto appearing
elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table sets forth for the years ended December 31, 1998, 1997 and
1996, the percentage relationship to net sales of certain costs, expenses and
income items.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0%
Gross profit......................... 24.4 23.1 22.1
Selling, general and administrative
expense............................ 20.5 20.0 18.3
Other income......................... 0.1 0.3 0.2
Income from operations............... 4.0 3.4 4.0
Interest expense..................... 1.2 1.2 1.5
Income taxes......................... 1.1 0.9 1.0
Net income........................... 1.7 1.3 1.5
----- ----- -----
----- ----- -----
</TABLE>
1998 OPERATIONS COMPARED WITH 1997
Net sales for 1998 were $877.3 million, a 20.5% increase over net sales of
$728.1 million in 1997. Acquisitions of building materials centers and
value-added facilities which occurred at the end of 1997 and throughout 1998
contributed a 14.5% increase to net sales. The Company's primary economic
indicator, single-family building permit activity, increased 15.6% in its market
areas for 1998 compared to 1997. Same-store sales increases in Arizona,
California, Colorado, Idaho, Montana, Oregon, Texas, Utah and Washington were
offset by decreased same-store sales in Nevada. Same-store sales increased 8.1%
in 1998. Overall, lower product prices decreased sales 0.9% or $6.5 million,
when compared with 1997. After adjusting for lower product prices, overall
same-store sales increased 9.0%.
Gross profit increased to $214.2 million, or 24.4% of net sales in 1998
from $168.4 million, or 23.1% of net sales in 1997, primarily as a result of the
increased mix of higher-margin, value-added products such as pre-hung doors,
millwork, roof trusses and pre-assembled windows. These value-added products
accounted for $275.9 million, or 31.4% of net sales in 1998, an increase from
$176.0 million, or 24.2% of net sales in 1997.
Selling, general and administrative expenses increased to $180.1 million,
or 20.5% of net sales, in 1998 from $145.9 million, or 20.0% of net sales, in
1997. This increase as a percentage of net sales was due primarily to lower
prices for wood products which decreases sales and thereby increases SG&A as a
percent of sales, higher costs associated with expanding value-added sales, and
costs associated with integrating new operating units. In addition, low
unemployment and a tight labor market resulted in higher wage costs in an effort
to attract and retain high quality employees.
Although consistent as a percent of sales, interest expense increased to
$10.2 million in 1998 from $8.7 million in 1997. The increase was due primarily
to an increase in the average debt outstanding. Average debt outstanding was
$121.9 million in 1998 compared with $99.0 million in 1997. Average interest
rates on variable rate debt were approximately 6.8% for 1998 compared with 6.9%
for 1997. Increased average debt outstanding resulted primarily from higher
working capital requirements as a result of increased sales and from
acquisitions made in late 1997 and 1998.
The provision for income taxes increased to $9.8 million in 1998 from $6.2
million in 1997. The increase in the provision for income taxes resulted
primarily from increased income from operations in 1998 as compared with the
prior year.
As a result of the foregoing factors, net income increased $5.7 million to
$15.1 million in 1998, or 1.7% of net sales, as compared with $9.5 million, or
1.3% of net sales in the prior year.
1997 OPERATIONS COMPARED WITH 1996
Net sales for 1997 were $728.1 million, a 1.4% increase over net sales of $718.0
million in 1996. Acquisitions of building materials centers and value-added
facilities contributed a 3.3% increase to net sales in 1997. This was partially
offset by lower commodity wood prices and a slight decrease in same-store sales.
Single-family building permit activity in the Company's market area for 1997
remained relatively flat, increasing 0.3% compared with 1996. Same-store sales
decreased 1.5% as the result of decreases in Arizona, Colorado, Oregon, Texas
and Utah offset by increased same-store sales in California, Montana, Nevada and
Washington. Idaho same-store sales remained flat. Overall, lower product prices
decreased sales 1.6%, or $11.6 million, when compared with 1996. After adjusting
for lower product prices, overall same-store sales decreased 0.3%.
Gross profit increased to $168.4 million, or 23.1% of net sales in 1997
from $158.6 million, or 22.1% of net sales, in 1996, primarily as a result of
the increased mix of higher-margin, value-added products. These value-added
products accounted for $176.0 million, or 24.2% of net sales in 1997, an
increase from $147.9 million, or 20.6% of net sales, in 1996.
Selling, general and administrative expenses increased to $145.9 million,
or 20.0% of net sales in 1997 from $131.5 million, or 18.3% of net sales, in
1996. This increase was due primarily to lower prices for commodity wood
products which increases SG&A as a percent of sales, inclement weather during
the first half of the year, higher costs associated with expanding value-added
sales, and costs associated with integrating new operating units. In addition,
low unemployment and a tight labor market resulted in higher wage costs in an
effort to attract and retain high quality employees.
Interest expense decreased to $8.7 million in 1997 from $10.5 million in
1996. The decrease was due primarily to lower average debt outstanding and lower
interest rates during 1997 compared with the prior year. Average debt
outstanding was $99.0 million in 1997 compared with $111.4 million in 1996.
Average debt outstanding in 1997 decreased as a result of the equity offering in
the second quarter of 1996. The proceeds of that offering were used to retire
all $20 million of the 10% unsecured senior
<PAGE>
BUILDING MATERIALS
10 Holding Corporation
subordinated notes and temporarily reduce debt outstanding under the revolving
credit agreement. Average interest rates on variable rate debt were
approximately 6.9% for 1997 compared with 7.7% for 1996.
The provision for income taxes decreased to $6.2 million in 1997 from $6.9
million in 1996. The decrease in the provision for income taxes resulted
primarily from decreased income from operations in 1997 as compared with the
prior year.
As a result of the foregoing factors, income before extraordinary item
decreased $1.5 million to $9.5 million in 1997, or 1.3% of net sales, as
compared with $11.0 million, or 1.5% of net sales in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital resources is to fund acquisitions and
capital expenditures, as well as to finance its working capital needs which have
been increasing as the Company has grown in recent years. Over the last three
years, the Company's capital resources have been attributable primarily to cash
flows from the Company's operations, borrowings and the sale of common stock.
OPERATIONS
In 1998, operations provided $44.8 million in cash, compared with $35.3 million
in 1997. This increase was due primarily to increases in net income and
improvements in working capital, net of acquisitions. Net working capital was
$116.7 million at the end of 1998, compared with $118.6 million at the end of
1997. The decrease in working capital was primarily the result of the effort by
management to increase inventory turns and decrease days sales outstanding.
Accounts receivable increased $7.2 million compared to the prior year; however
$6.2 million of this increase was attributable to locations acquired in 1998.
Inventories as of year-end 1998 increased approximately $0.6 million, or 0.7%,
to $78.7 million from $78.2 million in the prior year. Company-wide efforts to
reduce inventories mitigated the overall net increase in inventory resulting
from locations acquired in 1998. In addition, accounts payable and accrued
expenses increased $9.8 million.
In 1997, operations provided $35.3 million in cash, compared with $16.9
million in 1996. This increase was due primarily to improvements in working
capital, net of acquisitions. Net working capital was $118.6 million at the end
of 1997, compared with $110.5 million at the end of 1996. The increase in
working capital was primarily the result of five acquisitions in 1997 and their
related effects on receivables, inventories and payables. Accounts receivable
increased $14.7 million compared with the prior year, of which $11.6 million was
attributable to acquisitions. Despite acquisitions, inventories as of year-end
1997 increased only $1.7 million, or 2.3%, to $78.2 million from $76.4 million
in the prior year. Included in the increase in inventory was $11.2 million
resulting from acquisitions. Company-wide efforts to reduce inventories
mitigated the overall net increase in inventory. In addition, accounts payable
and accrued expenses increased $10.7 million.
CAPITAL INVESTMENT AND ACQUISITIONS
Capital expenditures, exclusive of acquisitions, were $19.6 million in 1998,
$13.3 million in 1997 and $14.4 million in 1996. The principal property and
equipment expenditures included purchases of additional property and expansion
of existing building materials centers and value-added facilities.
In 1998, cash used for acquisitions totaled $24.3 million, as the Company
completed eight acquisitions. These acquisitions included three building
materials centers and eleven value-added facilities.
Cash used for acquisitions totaled $40.2 million in 1997, as the Company
completed five acquisitions. These acquisitions included two building materials
centers and six value-added facilities. In 1996, the Company used $8.4 million
in cash to complete four acquisitions, including one building materials center
and three value-added facilities.
FINANCING
The Company's borrowing capacity under its revolving credit agreement is
currently $100 million. Borrowing capacity under the agreement will be reduced
to $70 million effective March 31, 1999. Borrowings under the agreement bear
interest at prime plus 0% to .25%, or LIBOR plus .625% to 1.625%. The agreement
expires in 2000. At year-end the Company had $57.6 million of unborrowed
capacity under this agreement. The borrowings under the revolver increased to
$42.4 million at year-end 1998 from $34.7 million at year-end 1997 primarily due
to the eight acquisitions completed in 1998 and an $8.3 million scheduled
payment made on the 8.10% unsecured senior notes. The Company had $75.4 million
of fixed-rate borrowings under various credit facilities at year-end 1998.
The agreements related to these borrowings contain covenants providing for
the maintenance of certain financial ratios and conditions including total
funded debt to earnings before interest, taxes, depreciation and amortization
(EBITDA) and limitations on capital expenditures, among certain other
restrictions. The Company is in compliance with these covenants and conditions.
In the third quarter of 1998, the Company filed a shelf registration with
the Securities and Exchange Commission to register 2,000,000 shares of common
stock. These shares may be issued from time to time in connection with future
business combinations, mergers and/or acquisitions.
Based on the Company's ability to generate cash flow from operations, its
borrowing capacity under the revolver and its access to equity markets, the
Company believes it will have sufficient capital to meet its currently
anticipated requirements.
DISCLOSURES OF CERTAIN MARKET RISKS
Approximately two thirds of the Company's debt is fixed-rate. Thus, the Company
experiences only modest changes in interest expense when market interest rates
change. Changes in the Company's debt could increase these risks. Previously,
the Company has managed its exposure to market interest rate changes through
periodic refinancing of its variable rate debt with fixed rate term debt
obligations.
<PAGE>
11
Commodity wood products, including lumber and panel products, currently
account for approximately 45% of the Company's net sales. Prices of commodity
wood products, which are subject to significant volatility, could directly
affect the Company's net sales. As disclosed in the financial statements the
Company does not utilize any derivative financial instruments.
The following table provides information regarding the Company's fixed
and variable rate debt. The table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For obligations with
variable interest rates, the table sets forth payout amounts based on current
rates and does not attempt to project future interest rates.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
(IN THOUSANDS) 1999 2000 2001 2002 2003 Thereafter
---------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate debt ............ $ 13,356 $ 12,033 $ 8,333 $ 8,334 $ 8,334 $ 25,000
Average interest rate .... 5.05% 7.76% 9.18% 9.18% 9.18% 9.18%
Variable rate debt ......... -- $ 42,415 -- -- -- --
Average interest rate .... -- 6.55% -- -- -- --
---------- ---------- --------- --------- --------- ----------
---------- ---------- --------- --------- --------- ----------
<CAPTION>
1998 1997
-----------------------------------------------
Total Fair Value Total Fair Value
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Fixed rate debt ............ $ 75,390 $79,713 $ 79,850 $82,426
Average interest rate .... 8.22% -- 8.72% --
Variable rate debt ......... $ 42,415 $42,415 $ 34,710 $34,710
Average interest rate .... 6.55% -- 7.14% --
---------- ------- ---------- -------
---------- ------- ---------- -------
</TABLE>
QUARTERLY RESULTS AND SEASONALITY
The Company's first and fourth quarters historically are adversely affected by
weather patterns in the Company's markets which result in decreases in levels of
building and construction activity. In addition, quarterly results historically
have reflected, and are expected to continue to reflect, fluctuations from
period to period as a consequence of the impact of various other factors,
including general economic conditions, wood product prices, interest rates,
building permit activity, single-family housing starts, employment levels,
consumer confidence and the availability of credit to professional contractors.
The composition and level of working capital typically change during
periods of increasing sales as the Company carries more inventories and
receivables. Working capital levels (receivables and inventories) typically
increase in the second and third quarters of the year due to higher sales during
the peak building and construction season. These increases historically have
resulted in negative operating cash flows during this peak season, which
generally have been financed through the revolving credit agreement. Collection
of receivables and reduction in inventory levels following the peak of the
building and construction season have more than offset this negative cash flow
in recent years. The Company believes it will continue to generate positive
annual cash flows from operating activities.
NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. The Statement establishes accounting and reporting
standards requiring derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. This Statement is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
Company plans to adopt this Statement in the first quarter of 2000.
The Company is still in the process of reviewing this Statement; however, given
that the Company does not utilize derivative instruments, adoption of this
Statement is not currently expected to have a material impact on the Company's
consolidated results of operations or financial condition.
HOLDING COMPANY
During 1997, Building Materials Holding Corporation (BMHC) was formed to provide
its predecessor and principal subsidiary, BMC West Corporation, with a holding
company organizational structure. BMC West Corporation's outstanding capital
stock was converted, on a share for share basis, into capital stock of BMHC. The
Company's common stock is traded on the over-the-counter market and is listed on
the Nasdaq National Market under the symbol BMHC.
BMHC was formed to centralize, at the holding company, responsibilities for
acquisitions, financial and administrative functions--including strategic,
financial and capital planning, corporate governance and investor relations
activities. In addition, the holding company structure is intended to focus
management on the day-to-day operations of BMC West at the regional divisions
and local unit levels. This structuring is intended to give local management
more focused responsibility and to enhance the opportunity to recommend
introduction of new products or services appropriate for a given market.
In conjunction with this organizational structure, management believes the
focus on improving operational and market performance will result in the
assessment of the market penetration and operating viability of some facilities.
This assessment is an ongoing focus for the Company and may result in the
acquisition of facilities and the consolidation or closure of some facilities.
No formal plans have been determined. Changes as a result of this analysis are
not expected to materially impact the financial condition of the Company;
however, results of operations may be affected.
<PAGE>
BUILDING MATERIALS
12 Holding Corporation
YEAR 2000 SYSTEMS ISSUES
As is the case with most other companies, the Year 2000 computer problem creates
risks for BMHC. However, the Company believes that the risks of the Year 2000
computer problem are not as severe for the building materials industry as
compared to other more technology dependent industries, because the building
materials industry, in general, and the Company and its professional contractor
customers and our suppliers, in particular, are not as heavily dependent upon
computerized systems. Except for millwork and truss operations, the Company is
primarily a distributor of building materials to its customers and is dependent
upon rail and truck transportation for timely receipt and delivery of inventory.
The Company could be affected if its transportation suppliers are materially and
adversely affected by Year 2000 related issues.
The following discussion summarizes management's present analyses and
proposed plans with respect to the anticipated material impacts of the Year 2000
computer problem on the Company's primary operations. The discussion focuses on
"mission critical" systems, which management believes are important to the
Company's day-to-day functional operations. The Year 2000 problem may also
impact systems that are not mission critical or information technology related.
These systems, which may include telephone, electronic mail, elevators, heating
and air conditioning equipment, and security will be tested and any problems
addressed on a case-by-case basis, but none are expected to be material to the
Company's results of operations or financial condition. It is expected that
assessment, remediation and contingency planning activities will be on-going
throughout 1999 with the goal of appropriately resolving all significant
internal systems and third-party issues.
STATE OF READINESS
BMHC has evaluated the impact of the Year 2000 computer problem on its mission
critical systems. The mission critical systems that have been identified are:
- - retail system software used in each of the operations for sales
transactions, inventory and in-store accounting
- - corporate financial and accounting system
- - millwork configuration and order entry system
- - truss production and engineering system
- - payroll system, which is operated by a third-party vendor
Each of the five mission critical systems is in the process of becoming Year
2000 compliant, or management is verifying with the original vendor that the
existing systems are Year 2000 compliant. The current status of the readiness
effort with respect to the five mission critical systems is as follows:
- - The retail system is being upgraded in a two-step process that involves
hardware and operating system improvements that were originally scheduled
for 1998. The first phase of the process has been successfully completed.
The final phase of the upgrade process is well underway, and the process is
well understood. The final software upgrade for Year 2000 compliance, as
warranteed by the vendor, is expected to be available in early 1999 and is
expected to be fully implemented in the summer of 1999. The remainder of
the year will be used to thoroughly test the system.
- - The corporate financial and accounting system has been upgraded to the Year
2000 compliant version as warranteed by the vendor. This upgrade was
successfully completed in December 1998, and the system is fully compliant.
During 1999, the Company will undertake extensive testing to verify the
vendor's level of compliance.
- - It has been determined that the current millwork software will not meet the
long-term needs of the Company, and a decision to replace this software
package has been made. However, due to the complexity of implementing a new
system, it has also been decided to bring the current system to a Year 2000
compliant state. This project will be performed by the original vendor of
the software. The Year 2000 compliant version of the current software is
scheduled for delivery in late spring of 1999. Additionally, a replacement
software package has been identified that is warranteed by the vendor as
Year 2000 compliant. The new system is scheduled to come on-line in
selected sites in July 1999. In both cases, testing of the software will
occur during the latter half of 1999.
- - The vendors for the truss production system and outsourced payroll system
have advised the Company that the systems are currently Year 2000
compliant. Verification and testing of these systems for compliance is
currently underway, and will be completed during 1999.
COST TO ADDRESS YEAR 2000 ISSUES
Much of the cost to address Year 2000 issues was budgeted and scheduled as part
of routine maintenance of the Company's systems. Since these costs were
identified and planned for in the budget cycle, the financial impact on the
Company is not expected to be material in any one year. However, it is
anticipated that the total cost of becoming Year 2000 compliant for all systems
currently in use by the Company will be approximately $1.5 million. To date,
approximately $0.6 million has been spent in remediation of Year 2000 issues.
These costs include consulting, hardware upgrades and employee time.
RISKS OF YEAR 2000 ISSUES FOR BMHC
Even in a most likely worst case scenario for BMHC, the risks due to failure to
accomplish Year 2000 remediations are not expected to have a material adverse
effect on the results of operations or financial condition of the Company. Each
of the Company's operating locations currently have procedures in place to deal
with the failure of the retail system. In this instance, the increased amount of
hand processing of accounting and inventory tracking would result in higher
overtime and payroll expense. However, it is not anticipated that there will be
a material impact on the ability of the Company to deliver products to
customers. In order to reduce the risks of
<PAGE>
13
delays in transportation of inventory either to the Company or its customers,
the Company intends to monitor Year 2000 compliance by its transportation
suppliers and will consider a build-up of certain inventories in the fourth
quarter of 1999, if appropriate. The Company does not expect that the cost of a
short-term increase in its inventory levels to reduce Year 2000 risks will be
material to the Company's financial condition or operating results.
Since each of the systems independently perform specified functions that
are well understood by staff personnel in the operating locations and at the
corporate office, complete failure of all of the systems could be worked around
to perform the necessary functions of the systems. It is extremely unlikely that
this would occur due to the independent nature of the systems architecture
employed at BMHC. However, steps to avoid this possibility are being taken.
CONTINGENCY PLANS
The Company believes that temporary solutions to most failures are readily and
economically available. For example, the dates on the systems could be set to
dates prior to 2000 that have the same days of the week, such as the year 1972.
This would involve a data conversion and hand correcting of dates on printed
documents, but could be accomplished in just a few days. Also, personal
computers with spreadsheets could be used to maintain accounting and inventory
information as well as corporate financial data. Millwork configuration is
unaffected by the date change, but dates would need to be changed for order
tracking if the system were not capable of dealing with dates after December 31,
1999. Processing of payroll could be done with personal computers. Truss
engineering would need validation by the plate manufacturer to ensure structural
integrity. Finally, the Company can increase inventory levels to mitigate risks
of Year 2000 transportation problems. All of these plans could be put in place
in a short time frame, and would mitigate nearly all the material risks to the
Company. Further evaluation of contingency plans will be made, if necessary, as
test results from the various systems become available.
SUMMARY
BMHC has proactively identified and is in the process of correcting the Year
2000 issues that it believes could have a material impact on the Company. It is
anticipated that all systems will be capable of functioning in a normal fashion
upon the change of the millennium. It is not anticipated that BMHC will suffer
any loss of revenue due to Year 2000 issues. The Company is also in the process
of requesting from all of its significant vendors a statement regarding their
preparations for the Year 2000 date change. Since the Year 2000 issue was
anticipated in the budget cycle over the last two years, no material impact is
expected on the results of operations or cash flows in any period or on the
overall financial condition of the Company. Also, no projects were canceled or
delayed as a result of Year 2000 remediation activities.
CYCLICAL AND SEASONAL FLUCTUATIONS
The building materials industry has seen considerable cyclicality in the
past. The Company's operations have been subject to substantial fluctuations
from period to period as a reflection of changes in general economic conditions
(e.g., commodity wood product prices, building permit activity, interest rates,
single-family housing starts, employment levels, consumer confidence and the
availability of credit to professional contractors and homeowners). These
factors may have a more significant impact on the Company, which derives a
significant percentage of its net sales from professional contractors, than on
those building supply companies which target a broad range of retail customers.
The Company expects that fluctuations from period to period will continue in the
future and the Company's financial performance could be negatively impacted by
adverse economic changes in the Company's geographic market areas.
Additionally, the Company's results of operations throughout the year are
impacted by the weather in the states in which the Company has operations. The
Company's financial performance could be negatively impacted by poor weather,
which historically has affected building activity levels in the Company's market
areas in the first and fourth quarters. Moreover, commodity wood products,
including lumber and panel products, currently account for approximately 45% of
the Company's net sales. Prices of commodity wood products, which are subject to
significant volatility, directly affect the Company's sales, and future declines
in commodity wood prices could adversely impact the Company's results of
operations.
Certain statements in the Financial Review and elsewhere in the Annual
Report to Shareholders may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors are discussed in detail above or in the
Company's Form 10-K for the fiscal year ended December 31, 1998. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the results of any revisions to
any of the forward-looking statements contained in the Annual Report on Form
10-K except as required by law.
<PAGE>
BUILDING MATERIALS
14 Holding Corporation
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales ............................................ $ 877,280 $ 728,065 $ 718,024
Cost of sales ........................................ 663,122 559,655 559,408
--------- --------- ---------
Gross profit ......................................... 214,158 168,410 158,616
Selling, general and administrative expense .......... 180,129 145,935 131,462
Other income ......................................... 1,094 1,882 1,268
--------- --------- ---------
Income from operations ............................... 35,123 24,357 28,422
Interest expense ..................................... 10,218 8,666 10,496
--------- --------- ---------
Income before income taxes and extraordinary item .... 24,905 15,691 17,926
Income taxes ......................................... 9,756 6,198 6,935
--------- --------- ---------
Income before extraordinary item ..................... 15,149 9,493 10,991
Extraordinary item, net of tax ....................... -- -- (342)
--------- --------- ---------
Net income ........................................... $ 15,149 $ 9,493 $ 10,649
--------- --------- ---------
--------- --------- ---------
Net income per common share:
Basic .............................................. $ 1.21 $ .80 $ .99
--------- --------- ---------
--------- --------- ---------
Diluted ............................................ $ 1.20 $ .78 $ .97
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
15
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
--------------------
(IN THOUSANDS) 1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash ................................................... $ 8,264 $ 8,177
Receivables, net ....................................... 92,113 84,872
Inventories ............................................ 78,746 78,162
Deferred income tax benefit ............................ 2,488 2,131
Prepaid expenses ....................................... 2,355 3,481
-------- --------
Total current assets ................................. 183,966 176,823
Property, plant and equipment, net ....................... 139,585 118,240
Deferred loan costs ...................................... 914 1,324
Goodwill, net ............................................ 43,903 38,193
Other .................................................... 5,613 5,793
-------- --------
Total assets ............................................. $373,981 $340,373
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ...................... $ -- $ 1,150
Accounts payable ....................................... 45,509 43,204
Accrued compensation ................................... 8,937 6,469
Sales tax payable ...................................... 3,734 3,398
Other accrued expenses ................................. 9,042 3,990
-------- --------
Total current liabilities ............................ 67,222 58,211
Long-term debt, net of current portion ................... 117,805 113,410
Deferred income taxes .................................... 5,404 4,722
Other long-term liabilities .............................. 3,300 3,079
Shareholders' equity
Common stock, $.001 par value, 20,000,000 shares
authorized; 12,652,298 and 12,331,088 shares outstanding
at December 31, 1998 and 1997, respectively ............ 13 12
Additional paid-in capital ............................... 108,256 104,107
Retained earnings ........................................ 71,981 56,832
-------- --------
Total shareholders' equity ........................... 180,250 160,951
-------- --------
Total liabilities and shareholders' equity ............... $373,981 $340,373
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
BUILDING MATERIALS
16 HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-In Retained
(IN THOUSANDS) Shares Amount Capital Earnings Total
------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ................... 9,483 $ 9 $ 59,188 $ 36,730 $ 95,927
Net income ................................. -- -- -- 10,649 10,649
Accretion of redeemable preferred stock .... -- -- -- (34) (34)
Net proceeds from public stock offering .... 2,300 2 38,486 -- 38,488
Stock options exercised and other .......... 42 1 57 -- 58
------ --------- --------- --------- ---------
Balance, December 31, 1996 ................... 11,825 12 97,731 47,345 145,088
Net income ................................. -- -- -- 9,493 9,493
Accretion of redeemable preferred stock .... -- -- -- (6) (6)
Stock issued for acquisitions .............. 492 -- 6,300 -- 6,300
Stock options exercised and other .......... 14 -- 76 -- 76
------ --------- --------- --------- ---------
Balance, December 31, 1997 ................... 12,331 12 104,107 56,832 160,951
NET INCOME ................................. -- -- -- 15,149 15,149
STOCK ISSUED FOR ACQUISITIONS .............. 299 -- 4,000 -- 4,000
STOCK OPTIONS EXERCISED AND OTHER .......... 22 1 149 -- 150
------ --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 ................... 12,652 $ 13 $ 108,256 $ 71,981 $ 180,250
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
17
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------
(IN THOUSANDS) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................................... $ 15,149 $ 9,493 $ 10,649
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization ................................................... 12,955 11,009 10,300
Deferred income taxes ........................................................... (137) (117) 487
Loss (gain) on sale of assets ................................................... 91 (466) (449)
Stock option compensation ....................................................... 16 18 68
Extraordinary item, net of tax .................................................. -- -- 342
Changes in working capital items net of effects of acquisitions and divestitures .... 16,788 15,559 (3,312)
Changes in other long-term liabilities .............................................. 3 1,212 313
Other ............................................................................... (50) (1,368) (1,474)
-------- -------- --------
Net cash provided by operating activities ........................................... 44,815 35,340 16,924
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................................................. (19,595) (13,289) (14,424)
Payments for acquisitions ........................................................... (24,330) (40,231) (8,426)
Sales of property and equipment ..................................................... 909 1,450 1,822
-------- -------- --------
Net cash used in investing activities ............................................... (43,016) (52,070) (21,028)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under revolving credit agreements ....................... 7,705 20,630 (12,040)
Issuance of common stock, net of expense ............................................ -- -- 38,488
Repayment of 10% unsecured senior subordinated notes ................................ -- -- (20,000)
Issuance of debt .................................................................... -- -- 1,685
Redemption of preferred stock ....................................................... -- (2,000) (1,000)
Principal payments on debt .......................................................... (9,457) (561) (1,712)
Other ............................................................................... 40 (228) (255)
-------- -------- --------
Net cash (used in) provided by financing activities ................................. (1,712) 17,841 5,166
-------- -------- --------
Net increase in cash ................................................................ 87 1,111 1,062
Cash, beginning of period ........................................................... 8,177 7,066 6,004
-------- -------- --------
Cash, end of period ................................................................. $ 8,264 $ 8,177 $ 7,066
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
-------- -------- --------
Cash paid during the year for--
Interest .......................................................................... $ 10,389 $ 8,353 $ 10,444
Income taxes ...................................................................... $ 6,068 $ 5,567 $ 8,070
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
BUILDING MATERIALS
18 Holding Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATIONAL STRUCTURE AND NATURE OF OPERATIONS
On September 23, 1997, Building Materials Holding Corporation was formed to
provide its predecessor and now principal subsidiary, BMC West Corporation, with
a holding company organizational structure that can accommodate future growth
from internal operations, acquisitions or joint ventures, broaden the
alternatives available for future financing and generally provide for greater
administrative and operational flexibility. BMC West Corporation's outstanding
capital stock was converted, on a share for share basis, into capital stock of
Building Materials Holding Corporation. The Company's common stock is listed on
the Nasdaq National Market under the symbol BMHC.
BMC West Corporation (BMC West), a wholly owned subsidiary of Building
Materials Holding Corporation, is a regional distributor and retailer of
building materials in the United States, selling primarily to professional
contractors, as well as to project-oriented consumers (including professional
repair and remodel contractors hired by them). BMC West also provides
value-added conversion products, which include pre-hung doors, roof trusses and
pre-assembled windows, and lumber pre-cut to meet customer specifications. At
December 31, 1998, BMC West had 58 building materials centers, including
building materials centers and value-added facilities, located in Arizona,
California, Colorado, Idaho, Montana, Nevada, Oregon, Texas, Utah and
Washington.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Building Materials
Holding Corporation and its wholly owned subsidiary BMC West, (together the
Company). All significant intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual amounts could differ from those estimates.
NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and
reporting standards requiring derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. This Statement
is effective for fiscal quarters of fiscal years beginning after June 15, 1999.
The Company plans to adopt this Statement in the first quarter of 2000. The
Company is still in the process of reviewing this Statement; however, given that
the Company does not utilize derivative instruments, adoption of this Statement
is not currently expected to have a material impact on the Company's
consolidated results of operations or financial condition.
SEGMENT REPORTING
As of December 31, 1998, the Company adopted SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This Statement requires
public companies to disclose financial and descriptive information about its
reportable operating segments as regularly evaluated by the chief operating
decision maker(s). The Company's chief operating decision makers consist of
senior managers who work together to allocate resources to and assess the
performance of each individual location. Management believes its locations have
similar operating characteristics and has aggregated its operations into one
reportable segment.
The Company's locations principally derive revenues from wood products
(lumber, plywood and oriented strand board), value-added (roof trusses, pre-hung
doors and millwork, windows and moldings), building materials (roofing, siding,
insulation and steel products), and other revenues (paint, hardware, tools,
electrical and plumbing). Net sales by product for the years ended December 31,
1998, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales
Wood products ......... $381,221 $340,972 $333,164
Value-added ........... 275,862 175,955 147,912
Building materials .... 136,856 138,332 179,506
Other ................. 83,341 72,806 57,442
-------- -------- --------
Total revenues .......... $877,280 $728,065 $718,024
-------- -------- --------
-------- -------- --------
</TABLE>
NET INCOME PER COMMON SHARE
Net income per common share was determined by dividing net income, after
deducting the accretion on redeemable preferred stock, by the applicable shares
outstanding.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income before
extraordinary item ............... $ 15,149 $ 9,493 $ 10,991
Extraordinary item,
net of tax ....................... -- -- (342)
Class B preferred
stock accretion .................. -- (6) (34)
-------- -------- --------
Net income available to
common shareholders .............. $ 15,149 $ 9,487 $ 10,615
-------- -------- --------
-------- -------- --------
Average shares
outstanding used to
determine basic earnings
per common share ................. 12,509 11,919 10,760
Net effect of dilutive stock
options based on the treasury
stock method using average
market price (1) ................. 138 218 238
-------- -------- --------
Average shares used to
determine diluted earnings
per common share ................. 12,647 12,137 10,998
-------- -------- --------
-------- -------- --------
</TABLE>
(1) CERTAIN STOCK OPTIONS WERE NOT INCLUDED IN THE COMPUTATION, BECAUSE TO DO
SO WOULD HAVE BEEN ANTIDILUTIVE FOR THE PERIODS PRESENTED.
In 1997, the Company adopted SFAS No. 128, Earnings per Share. Pursuant to
the provisions of SFAS No. 128, prior periods have been recalculated.
<PAGE>
19
EXTRAORDINARY ITEM
In 1996, the Company repaid $20 million of 10% unsecured senior subordinated
notes prior to maturity. In connection with this early debt retirement, the
Company wrote off $565,000 of related deferred loan costs and unamortized debt
discount. These write-offs are included in the 1996 consolidated statement of
income as an extraordinary item, net of a $223,000 tax benefit. The per share
effect for the extraordinary item, net of tax, was $.03 for both basic and
diluted earnings per share.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments that had a maturity of three
months or less at the date of purchase to be cash equivalents.
INVENTORIES
Inventories consist principally of merchandise purchased for resale and are
stated at the lower of average cost or market.
DEFERRED LOAN COSTS
Loan costs are capitalized upon the issuance of long-term debt and amortized
over the life of the related debt using the effective interest rate method.
Interest expense includes amortization of deferred loan costs of $410,000 in
1998, $315,000 in 1997 and $628,000 in 1996.
GOODWILL
Goodwill is amortized on a straight-line basis over 30 years. Accumulated
amortization of goodwill was $3,840,000 as of December 31, 1998 and $2,454,000
as of December 31, 1997.
Annually, the Company reviews the recoverability of all long-lived assets
and related goodwill. The evaluation of possible impairment is based primarily
on the ability to recover the cost of long-lived assets from expected future
operating cash flows on an undiscounted basis. In management's opinion, no such
impairment existed at December 31, 1998.
OTHER ASSETS
The majority of other assets consist of non-compete agreements arising from
acquisitions and trade rebates receivable from cooperative supplier
organizations. The non-compete agreements are amortized over the life of the
related agreements (three to five years).
REVENUE RECOGNITION
Revenues are recognized when title to the goods passes to the buyer, which is
generally at the time of sale.
2. ACQUISITIONS
Businesses acquired in 1998 and 1997 were accounted for using the purchase
method of accounting. Under this accounting method, the consideration was
allocated to the assets acquired and liabilities assumed based on the estimated
fair values at date of acquisition. Any excess of the purchase price over the
estimated fair value of the net assets acquired and liabilities assumed was
recorded as goodwill. Operating results of the acquired businesses are included
in the consolidated statements of income from the date of acquisition.
In 1998, the Company completed eight acquisitions involving three building
materials centers and eleven value-added facilities located in Colorado,
Montana, Nevada, Oregon, Texas and Washington. The total consideration given was
$33,978,000, consisting of $24,330,000 in cash, a note payable for $5,023,000,
299,343 shares of common stock valued at $4,000,000 and other assumed operating
liabilities of $625,000. The issuance of the note payable, payment of the
Company's common stock and the assumption of operating liabilities are
considered non-cash transactions for purposes of the consolidated statement of
cash flows.
The following summarized unaudited pro forma results of operations assume
the 1998 acquisitions occurred as of the beginning of 1997. The pro forma data
has been prepared for comparative purposes only. It does not purport to be
indicative of the results of operations that would have resulted had the
acquisitions been consummated at the beginning of the years presented, or that
may occur in the future.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997
-------- --------
<S> <C> <C>
Net sales ................................... $920,140 $796,448
Net income .................................. 15,313 9,656
Per diluted common share .................. 1.20 .78
</TABLE>
In 1997, the Company completed five acquisitions involving two building
materials centers and six value-added facilities. These operations are located
in Colorado, Nevada, Oregon, Texas, Utah and Washington. Total consideration
given was $52,797,000, consisting of $40,231,000 cash, a long-term note for
$3,700,000, 492,036 shares of common stock valued at $6,300,000 and other
assumed operating liabilities of $2,566,000. The issuance of the note payable,
payment of the Company's common stock and the assumption of operating
liabilities are considered non-cash transactions for purposes of the
consolidated statement of cash flows.
The following summarized unaudited pro forma results of operations assume
the 1997 acquisitions occurred as of the beginning of 1996. The pro forma data
has been prepared for comparative purposes only. It does not purport to be
indicative of the results of operations that would have resulted had the
acquisitions been consummated at the beginning of the years presented, or that
may occur in the future.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996
-------- --------
<S> <C> <C>
Net sales .................................... $794,781 $833,800
Net income ................................... 11,011 11,978
Per diluted common share ................... .88 1.05
</TABLE>
3. TRADE RECEIVABLES
Receivables consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Trade receivables ...................... $ 90,968 $ 84,105
Allowance for doubtful accounts ........ (2,062) (1,617)
------- -------
88,906 82,488
Other .................................. 3,207 2,384
------- -------
$92,113 $84,872
------- -------
------- -------
</TABLE>
<PAGE>
BUILDING MATERIALS
20 Holding Corporation
BMC West sells building materials, primarily to professional contractors,
as well as to advanced, project-oriented consumers, through its 58 building
materials centers, including building materials centers and value-added
facilities, located in ten western states. No one customer exceeds 1% of net
sales. Because the customers are disbursed among BMC West's various markets, its
credit risk to any one customer or state economy is not considered significant.
BMC West performs ongoing credit evaluations of its customers and provides an
allowance for doubtful accounts.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land .............................................. $ 38,794 $ 32,954
Buildings and improvements ........................ 76,018 67,368
Machinery and fixtures ............................ 30,725 24,921
Handling and delivery equipment ................... 30,812 25,661
Construction in progress .......................... 6,915 2,104
-------- --------
183,264 153,008
Less accumulated depreciation ..................... 43,679 34,768
-------- --------
$139,585 $118,240
-------- --------
-------- --------
</TABLE>
Property and equipment are recorded at cost. Major additions and
improvements are capitalized while maintenance and repairs that do not increase
the useful life of the property are expensed as incurred.
Amounts recorded for property sold or retired are removed from the asset
and related depreciation accounts and the net gain or loss is included in the
determination of net income.
The provision for depreciation is computed using the straight-line method.
The estimated useful lives are ten to thirty years for buildings and
improvements, seven to ten years for machinery and fixtures and three to ten
years for handling and delivery equipment.
5. LONG-TERM DEBT
Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revolving credit agreement borrowings .............. $ 42,415 $ 34,710
8.10% unsecured senior notes ....................... 16,667 25,000
9.18% unsecured senior notes ....................... 50,000 50,000
Other .............................................. 8,723 4,850
-------- --------
117,805 114,560
Less current portion ............................... -- 1,150
-------- --------
$117,805 $113,410
-------- --------
-------- --------
</TABLE>
During the third quarter of 1998, management renegotiated the revolving
credit agreement with Wells Fargo Bank. The amended and restated credit
agreement was effective September 30, 1998 and expires February 28, 2000. The
amended and restated revolving credit agreement increased the Company's
borrowing capacity from $70 million under the previous revolving credit
agreement to $100 million, limited by eligible receivables and inventories, for
the period September 30, 1998 to March 31, 1999. After March 31, 1999 the
borrowing capacity will return to $70 million until the revolving credit
agreement expires in 2000. Borrowings under the agreement bear interest at prime
plus 0% to .25%, or LIBOR plus .625% to 1.625%. A fee of .20% to .375% per annum
is charged on the unused portion of the loan commitment. At year-end 1998, the
Company had $57,585,000 of unborrowed capacity under this agreement.
The 8.10% unsecured senior notes, issued in 1993, are due in 2000. The
notes principal payments began in 1998 and continue through 2000. The notes may
be redeemed, in whole or in part, at the option of the Company, at any time at
the principal amount plus accrued interest and a make-whole payment. The
make-whole payment is due only if the interest rate (as measured by agreement
with the creditor) at the date of redemption is less than 8.10%. Interest is
payable semi-annually on April 30 and October 31.
The 9.18% unsecured senior notes, issued in 1995, are due in 2006. The
notes require annual principal payments beginning in 2001 through 2006. The
notes may be redeemed, in whole or in part, at the option of the Company at any
time, at the principal amount plus accrued interest and a make-whole payment.
The make-whole payment is due only if the interest rate (as measured by
agreement with the creditor) at the date of redemption is less than 9.18%.
Interest is payable semi-annually on April 30 and October 31.
The scheduled principal payments of long-term debt are $13,356,000 in 1999,
$54,448,000 in 2000, $8,333,000 in 2001, $8,334,000 in 2002, $8,334,000 in 2003
and $25,000,000 thereafter. At December 31, 1998, amounts outstanding under the
8.10% unsecured senior notes in the amount of $8,333,000 and an acquisition
related note payable for $5,023,000 were classified as long-term based on the
Company's ability and intent to refinance these obligations on a long-term
basis.
The agreements related to the above borrowings contain covenants providing
for the maintenance of certain financial ratios and conditions including total
funded debt to earnings before interest, taxes, depreciation and amortization
(EBITDA) and limitations on capital expenditures, among certain other
restrictions. The Company is in compliance with these covenants and conditions.
All long-term debt is a legal obligation of BMC West. Building Materials
Holding Corporation has guaranteed all long-term debt.
6. CLASS B PREFERRED STOCK
In 1987, the Company authorized and issued 50,000 shares of Class B preferred
stock with a total mandatory redemption requirement of $5,000,000, due
$1,000,000 annually through 1996 and $2,000,000 in 1997. As of December 31,
1996, 20,000 shares of Class B preferred stock were outstanding. During 1997,
these remaining shares were redeemed for $2,000,000.
<PAGE>
21
7. INCOME TAXES
Income taxes for the years ended December 31, 1998, 1997 and 1996 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current income taxes
Federal .......................... $ 8,853 $ 5,480 $ 5,611
State ............................ 1,040 835 837
------- ------- -------
9,893 6,315 6,448
------- ------- -------
Deferred income taxes
Federal .......................... (126) (102) 423
State ............................ (11) (15) 64
------- ------- -------
(137) (117) 487
------- ------- -------
$ 9,756 $ 6,198 $ 6,935
------- ------- -------
------- ------- -------
</TABLE>
A reconciliation of the statutory Federal income tax rate to the rate as
provided in the consolidated statements of income follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate .................. 35.0% 35.0% 35.0%
State income taxes .............. 3.0 3.4 3.3
Other ........................... 1.2 1.1 .4
---- ---- ----
39.2% 39.5% 38.7%
---- ---- ----
---- ---- ----
</TABLE>
Deferred income taxes are provided to reflect temporary differences between
the financial and tax bases of assets and liabilities using presently enacted
tax rates and laws.
The components of deferred income taxes included in the Company's year-end
balance sheets were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets
Tax basis in excess of book basis of
acquired assets ................................... $ 30 $ 30
Inventories, tax basis in excess of
book basis ........................................ 1,901 1,910
Reserves not yet deductible for tax ............... 2,077 1,483
Other ............................................. 1,834 2,014
------- -------
Total deferred tax assets ......................... 5,842 5,437
Less valuation allowance .......................... 558 563
------- -------
5,284 4,874
------- -------
Deferred tax liabilities
Tax in excess of book depreciation ................ 7,046 6,356
Deferred costs deducted for taxes ................. 1,154 1,109
------- -------
Total deferred tax liabilities .................... 8,200 7,465
------- -------
$(2,916) $(2,591)
------- -------
------- -------
Classified as
Deferred income tax benefit
(current assets) .................................. $ 2,488 $ 2,131
Deferred income taxes
(long-term liabilities) ........................... (5,404) (4,722)
------- -------
$(2,916) $(2,591)
------- -------
------- -------
</TABLE>
The valuation allowance relates to the difference in tax and book basis of
land acquired in conjunction with the initial acquisition of the Company.
8. SHAREHOLDERS' EQUITY
PUBLIC STOCK OFFERING
In the second quarter of 1996, the Company issued 2,300,000 shares of common
stock at $18.00 per share. The proceeds from this offering, less underwriting
and other issuance costs, of $38.5 million were used principally to reduce debt.
SHAREHOLDERS' RIGHTS PLAN
The Company adopted a shareholder rights plan in 1997 which expires in 2007.
Under the plan, if a company acquires 15% or more of the Company's stock or
makes a tender or other offer to do so without the approval of the Board of
Directors, shareholders would have the right to purchase stock of the Company or
the acquiring company at a significant discount. The Board of Directors of the
Company has the right to redeem the rights for a nominal amount, to extend the
period before shareholders may exercise the rights or to take other actions
permitted by the plan. The rights trade with the Company's stock but do not give
shareholders any voting rights. The rights plan is intended to encourage any
person seeking to acquire the Company to negotiate with the Board of Directors.
STOCK OPTION PLANS
The Company has the following four stock option plans: the 1991 Senior
Management and Field Management Plan, the 1992 Non-Qualified Stock Option Plan,
the 1993 Employee Stock Option Plan and the 1993 Non-Employee Stock Option Plan
(the Stock Option Plans). A total of 1,397,000 shares of common stock have been
reserved for potential grants under the Stock Option Plans. The Company accounts
for these plans under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES. Under this opinion, compensation cost is recognized
for options granted at an exercise price below the fair market value on the date
the option is granted.
Had compensation cost for these plans been determined consistent with SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's 1998 net income
would have been reduced on a pro forma basis by $437,000 and basic and diluted
earnings per share would have been reduced on a pro forma basis by $.03. The
1997 pro forma reductions would have been a reduction in net income of $351,000
and a reduction in basic and diluted earnings per share of $.03. The 1996 pro
forma reductions would have been a reduction in net income of $204,000 and a
reduction in basic and diluted earnings per share of $.02.
Because SFAS No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
The 1991 Senior Management and Field Management Plan provides for the
granting of options to purchase shares of the Company's common stock at exercise
prices below fair market value. The difference between the exercise price and
fair market value was recognized ratably over the vesting period as compensation
<PAGE>
BUILDING MATERIALS
22 Holding Corporation
expense and was $16,000 in 1998, $18,000 in 1997 and $68,000 in 1996. At
December 31, 1998, options to purchase 154,045 shares of the Company's common
stock remain outstanding.
The 1992 Non-Qualified Stock Option Plan and the 1993 Employee Stock
Option Plan provide for the granting of options, at the discretion of the Board
of Directors, to purchase shares of the Company's common stock. The exercise
price is equal to the fair market value of the Company's common stock on the
date the options are granted. Options vest over five years and expire at the end
of ten years if unexercised.
The 1993 Non-Employee Stock Option Plan is available only to nonemployee
directors. Options granted under this plan have an exercise price equal to the
fair market value of the Company's common stock on the date the options are
granted. The options are exercisable one year following the date of grant and
expire at the end of ten years if unexercised.
During 1997, as an additional incentive to attract a member of senior
management, the Board of Directors authorized and issued an award of 50,000
options. The exercise price was equal to the fair market value of the Company's
common stock on the date the options were granted. These options vest after five
years or pursuant to the Company's common stock reaching certain fair market
values. These options expire ten years from the date of grant, or 2007, and are
included in the tables below.
A summary of the status of the Stock Option Plans at December 31, 1998,
1997 and 1996, and changes during the years then ended is presented in the table
and narrative below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of the year .... 795,704 $ 11.24 603,060 $ 10.76 542,286 $ 8.96
Options granted ..................... 173,470 12.52 227,170 12.47 94,055 19.39
Options exercised ................... (21,907) 3.05 (13,946) 4.46 (24,283) 2.44
Options forfeited ................... (26,272) 15.00 (20,580) 15.35 (8,998) 15.27
------- --------- ------- --------- ------- ---------
Balance at end of the year .......... 920,995 $ 11.57 795,704 $ 11.24 603,060 $ 10.76
------- --------- ------- --------- ------- ---------
------- --------- ------- --------- ------- ---------
Exercisable at end of the year ...... 606,187 $ 10.74 526,285 $ 9.78 455,437 $ 8.58
Weighted average fair value of
options granted (Black-Scholes) $6.24 $5.93 $9.49
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- --------------------------------
Number Number
Outstanding at Weighted-Average Exercisable at
Range of December 31, Remaining Weighted-Average December 31, Weighted-Average
Exercise Price 1998 Contractual Life Exercise Price 1998 Exercise Price
-------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.21 to $ 5.67 252,450 2.5 Years $ 2.95 252,450 $ 2.95
$ 8.67 to $17.00 555,315 7.7 13.26 266,287 13.97
$19.50 to $29.75 113,230 6.7 22.49 87,450 23.37
------- --------- ------ ------- ------
$ 1.21 to $29.75 920,995 6.1 $11.57 606,187 $10.74
------- --------- ------ ------- ------
------- --------- ------ ------- ------
</TABLE>
Beginning in 1995, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996: risk-free
interest rates of 5.5%, 6.0% and 6.2%, respectively; estimated lives of 6 years,
6 years and 5.7 years, respectively; and expected stock price volatility of
42.7%, 38.0% and 41.2%, respectively.
9. RETIREMENT PLANS
The Company has a savings and retirement plan for its salaried and certain of
its hourly employees whereby the eligible employees may contribute a percentage
of their earnings to a trust, i.e. a 401(k) plan. The Company also makes
contributions to the trust based on a percentage of the contributions made by
the participating employees and a percentage of net income for the period. The
Company's contributions are charged against operations and were $2,402,000 in
1998, $1,449,000 in 1997 and $1,274,000 in 1996.
In 1993, the Company established a supplemental retirement plan for
selected key management employees and directors. The cost is based on the
Company achieving certain operating earnings levels. Pursuant to this plan, the
Company charged operations for $645,000 in 1998, $606,000 in 1997 and $638,000
in 1996. In 1994, the Company purchased Company-owned life insurance in order to
have a funding mechanism for this plan. Retirement payments will be paid to the
participants or their beneficiaries over a 15-year period subsequent to
retirement or death.
The Company does not provide any other postretirement benefits for its
employees.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases real property, vehicles and office equipment under operating
leases. Rental expense was $6,503,000 in 1998, $5,180,000 in 1997 and $4,162,000
in 1996. Certain of the leases
<PAGE>
23
are noncancellable and have minimum lease payment requirements of $5,672,000 in
1999, $4,698,000 in 2000, $3,429,000 in 2001, $2,025,000 in 2002 and $1,350,000
in 2003.
LEGAL PROCEEDINGS
The Company is involved in litigation and other legal matters arising in the
normal course of business. In the opinion of management, the Company's recovery
or liability, if any, under any of these matters will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
11. OTHER DATA
Other income consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest income, primarily
from outstanding
accounts receivable ................. $ 923 $ 1,530 $ 1,351
(Loss) gain on sale of assets ......... (91) 466 449
Other income (expense) ................ 262 (114) (532)
------- ------- -------
$ 1,094 $ 1,882 $ 1,268
------- ------- -------
------- ------- -------
</TABLE>
Changes in working capital items, net of acquisitions, in the statement of
cash flows were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Decrease (increase) in receivables .... $ 733 $ (3,064) $ (472)
Decrease (increase) in inventories .... 5,974 9,452 (7,103)
Decrease (increase) in
prepaid expenses .................... 1,213 (1,484) (593)
Increase in accounts payable
and accrued expenses ................ 8,868 10,655 4,856
-------- -------- --------
$ 16,788 $ 15,559 $ (3,312)
-------- -------- --------
-------- -------- --------
</TABLE>
12. FINANCIAL INSTRUMENTS
The book value compared with the fair value of financial instruments at December
31, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term debt:
Variable rate debt .... $ 42,415 $ 42,415 $ 34,710 $ 34,710
Fixed rate debt ....... 75,390 79,713 79,850 82,426
-------- -------- -------- --------
$117,805 $122,128 $114,560 $117,136
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The book values of cash and cash equivalents, accounts receivable, accounts
payable and variable interest rate long-term debt approximated fair value due to
either the short-term maturities or current variable interest rates of these
instruments.
The fair value of fixed rate debt has been estimated based upon the
discounted cash flows using the Company's incremental rate of borrowing for
similar debt. During the years ended December 31, 1998 and 1997, the Company had
no derivative financial instruments.
13. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED)
Operating results by quarter for 1998 and 1997 were as follows (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
NET SALES............ $183,631 $226,017 $249,757 $217,875
GROSS PROFIT......... 43,965 54,604 61,108 54,481
INCOME FROM
OPERATIONS........... 3,902 10,532 13,565 7,124
NET INCOME........... 850 4,754 6,723 2,822
NET INCOME
PER DILUTED
COMMON SHARE(1)...... .07 .38 .53 .22
COMMON STOCK PRICES:
HIGH................. $ 13 5/8 $ 14 7/8 $ 14 7/16 $ 13 1/16
LOW.................. 10 5/8 11 1/2 10 1/2 9 5/16
1997
Net sales............ $146,769 $190,616 $201,950 $188,730
Gross profit......... 34,290 43,487 46,437 44,196
Income from
operations........... 2,841 8,082 9,207 4,227
Net income........... 456 3,460 4,212 1,365
Net income
per diluted
common share(1)...... .04 .29 .35 .11
Common stock prices:
High................. $ 14 5/16 $ 13 7/8 $ 13 1/4 $13 1/2
Low.................. 11 1/2 10 3/4 11 1/16 10 1/4
</TABLE>
(1) NET INCOME PER SHARE CALCULATIONS ARE BASED ON THE AVERAGE COMMON SHARES
OUTSTANDING FOR EACH PERIOD PRESENTED. ACCORDINGLY, THE TOTAL OF THE PER
SHARE FIGURES FOR THE QUARTERS MAY NOT EQUAL THE PER SHARE FIGURE REPORTED
FOR THE YEAR.
<PAGE>
BUILDING MATERIALS
24 HOLDING CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Building Materials Holding Corporation:
We have audited the accompanying consolidated balance sheets of Building
Materials Holding Corporation (a Delaware corporation) and subsidiary as of
December 31, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 1998, 1997
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the
<PAGE>
PUBLIC ACCOUNTANTS
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Building Materials Holding
Corporation and subsidiary as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/S/ ARTHUR ANDERSEN LLP
- -----------------------------
Boise, Idaho
January 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,264
<SECURITIES> 0
<RECEIVABLES> 94,175
<ALLOWANCES> 2,062
<INVENTORY> 78,746
<CURRENT-ASSETS> 183,966
<PP&E> 183,264
<DEPRECIATION> 43,679
<TOTAL-ASSETS> 373,981
<CURRENT-LIABILITIES> 67,222
<BONDS> 117,805
0
0
<COMMON> 13
<OTHER-SE> 180,237
<TOTAL-LIABILITY-AND-EQUITY> 373,981
<SALES> 877,280
<TOTAL-REVENUES> 877,280
<CGS> 663,122
<TOTAL-COSTS> 843,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,218
<INCOME-PRETAX> 24,905
<INCOME-TAX> 9,756
<INCOME-CONTINUING> 15,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,149
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.20
</TABLE>
