<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended October 31, 1999 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 0-23442
---------------
CAMERON ASHLEY BUILDING PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-1984957
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11651 PLANO ROAD, DALLAS, TEXAS 75243
(Address of principal executive offices) (Zip Code)
214-860-5100
(Registrant's telephone number, including area code)
------------------------------------
SECURITIES REGISTERED PURSUANT TO COMMON STOCK
SECTION 12(b) OF THE ACT: (Title of Class)
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK
(Title of Class)
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT: NONE
Indicate by check 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]
Aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant (7,435,974 shares) on January 14, 2000:
$83,189,959).
The number of shares of Common Stock of the Registrant outstanding as of January
14, 2000 was 8,705,367 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
The information called for by Part III either is incorporated by reference to
the definitive Proxy Statement for the 2000 Annual Meeting of Stockholders of
the Company, or will be included in an amendment to this Annual Report on Form
10-K which in either case will be filed with the Securities and Exchange
Commission not later than 120 days after October 31, 1999.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Cameron Ashley Building Products, Inc., (together with its principal operating
subsidiaries Wm. Cameron & Co. ("Cameron"), Ashley Aluminum, LLC ("Ashley"), and
Cameron Ashley Canada, Inc. ("CA Canada"), (collectively the "Company") is a
leading North American distributor of a broad line of building products that are
used principally in home improvement, remodeling and repair work and in new
residential and commercial construction. The Company's product lines include
roofing, millwork, pool and patio enclosure materials, insulation, vinyl siding,
industrial metals and a variety of other building materials. The Company
distributes its products through its extensive 167-branch network to independent
building materials dealers, professional builders, large contractors and mass
merchandisers and national co-ops in all 50 U.S. states and throughout Canada.
COMPANY OVERVIEW
In 1999, the Company increased its ownership in Field Marketing, Inc., ("FMI")
to 70%. FMI provides various merchandising services to retailers, including:
managing shelf space, conducting in-store audits, and providing promotional
product introductions. The Company offers FMI services as a complementary
value-added service to its customers.
RECENT DEVELOPMENTS - PENDING SALE
On January 18, 2000, the Company announced that it has entered into a definitive
agreement whereby an investment group consisting of CGW Southeast Partners IV,
L.P. and an affiliate of Citicorp Venture Capital, Ltd., a subsidiary of
Citigroup Inc., along with senior management of the Company will acquire all the
outstanding shares of the Company's common stock at a price of $15.10 per share
in cash. The total consideration of the proposed merger transaction is
approximately $320 million including the assumption of debt. Financing
commitments, subject to customary conditions, are in place with both senior and
subordinated debt sources, and the transaction is expected to close in the
second calendar quarter of 2000. The Company entered into the agreement
following the unanimous recommendation by a special committee comprised of
independent directors of the Company. Credit Suisse First Boston advised the
special committee in this transaction. CGW Southeast Partners I, L.P., an
affiliate of CGW Southeast Partners IV, L.P., currently owns approximately 11%
of the Company's outstanding shares. CGW Southeast Partners IV, L.P., is a
private equity fund which supports management teams in middle-market
acquisitions and recapitalizations, and is managed by Atlanta, Georgia based
Cravey, Green & Wahlen, Inc. Richard L. Cravey and Edwin A. Wahlen, Jr., both
directors of the Company, are affiliated with the CGW-related entities.
The closing of the merger is subject to regulatory and stockholder approval and
customary conditions to closing. The agreement includes a $5 million breakup
fee. The Company will file for review by the Securities and Exchange Commission
a proxy statement to be mailed to stockholders in connection with a stockholder
meeting that will be called to consider the merger.
FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including statements in
Item 1. Business, Item 3. Legal Proceedings, Item 5. Market for the Registrant's
Common Equity and Related Stockholder Matters, and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
"forward-looking statements" that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be indicated by phrases such as "believes",
"anticipates", "expects", "intends", "foresees", "projects", "predicts",
"forecasts", "will" or similar words and are subject to known or unknown risks
and uncertainties which may cause actual results in the future to differ
materially from forecasted results. Among the key factors that could cause
results to differ materially are: (i) the inability of the parties to the
definitive merger agreement to complete the proposed buy-out; (ii) actions by
competitors, suppliers, customers, shareholders, regulators and others following
the announcement of the proposed buy-out; (iii) stock market and financing
market conditions; (iv) business and economic conditions in North America and in
the regional markets in which the Company operates; (v) adverse
2
<PAGE> 3
homebuilding conditions including those related to weather and interest rates;
(vi) reliable and cost-effective supply of products from manufacturers; and
(vii) technology risks in implementing new and/or converting existing
information systems and other risks more fully described in this Annual Report
on Form 10-K or in other Company filings with the Securities and Exchange
Commission.
Since its formation in 1991, the Company has pursued a strategy of establishing
a national building products distribution network through the acquisition of
independent building products distributors. As a result of acquisitions and
internal growth, the Company grew from $134.8 million in revenue in fiscal 1991
to $1,138.4 million in fiscal 1999, representing a compound annual growth rate
of 30.6%. Over the same period, the Company completed 43 acquisitions and added
125 distribution facilities.
According to the Home Improvement Research Institute, building products sales to
contractors in the new housing and home repair and remodeling markets grew from
approximately $70.5 billion in 1991 to approximately $115.2 billion in 1998,
representing a compound annual growth rate of 7.3%. The wholesale building
products distribution industry, which distributes to these markets, is highly
fragmented. According to the National Home Center News, sales by the 100 largest
building materials wholesale distributors were approximately $30.8 billion in
1998, representing only 26.7% of the $115.2 billion in total sales to building
contractors. Many distributors in the building materials industry are small,
privately-held companies which generally lack the purchasing power of a larger
entity and may also lack the broad lines of products and sophisticated inventory
management and control systems typically needed to operate a multi-branch
distribution network. The increasingly competitive environment faced by smaller
distributors has prompted a trend toward industry consolidation which management
believes offers significant opportunities for the Company.
The Company has established a presence in a substantial portion of North America
and as a result, the Company's financial performance is not significantly
dependent upon a single geographic region's economy. The diversity of the
Company's customer base and the wide variety of applications for the Company's
products also decrease the impact of a downturn in demand in any particular
market segment. The risks posed by the cyclical new residential construction
market are somewhat mitigated by the Company's significant participation in the
less cyclical residential remodeling and home improvement market.
INDUSTRY OVERVIEW
Prior to the 1970's, building materials were sold in both rural and metropolitan
markets largely by local dealers, such as lumberyards and hardware stores. These
dealers, who generally purchased their products from wholesale distributors,
sold building products directly to homeowners, contractors and homebuilders. In
the late 1970's and 1980's, the advent of mass merchandisers such as The Home
Depot and Lowe's altered this distribution channel dramatically in metropolitan
markets as these retailers displaced many local dealers. A core strength of
these mass merchandisers was their ability to market a broad range of
competitively priced home improvement and do-it-yourself products to the
homeowner and small contractor. Accordingly, most wholesale distributors
redirected their efforts and worked to sell directly to large contractors and
homebuilders in metropolitan markets and provide mass merchandisers with fill-in
and specialty products that mass merchandisers would not typically stock in
their retail inventory. This distribution structure remains in place today.
In metropolitan areas, mass merchandisers primarily sell products to retail
customers such as homeowners and small contractors. In rural areas, dealers such
as lumberyards and hardware stores sell products to homeowners, contractors and
homebuilders. Wholesale building products distributors, such as the Company, and
major manufacturers, such as Georgia Pacific and Weyerhaeuser, do not sell
directly to retail customers. Instead, they distribute products to (i)
professional homebuilders and contractors in metropolitan markets, (ii) dealers
in rural markets and (iii) mass merchandisers in metropolitan areas. Despite the
emergence of the mass merchandisers during the past two decades, the wholesale
building products distribution industry has experienced solid growth in the
1990s.
STRATEGY
The Company's primary strategic objective is to be a leading wholesale building
products distributor in North America. Since 1991, the Company has pursued a
strategy of aggressive growth through acquisitions and development of the
management and operational expertise required to be a leader in the industry. As
the Company moves into the next phase of its development, management plans to
(i) continue to expand through selective acquisitions, (ii) accelerate
3
<PAGE> 4
internal growth and (iii) capitalize on the economies of scale of its North
American network. By pursuing these initiatives, the Company seeks to achieve
superior sales and profit growth relative to its competitors, provide building
products manufacturers with a unified North American distribution network and
increase its market share with national account retailers, developers, large
contractors, builders and manufactured housing companies.
CONTINUE TO EXPAND THROUGH SELECTIVE ACQUISITIONS
Over the past several years, the Company's acquisition strategy has resulted in
the expansion of its operations from branch locations in two states to 39 states
and the District of Columbia and nine provinces in Canada. Going forward, the
Company intends to continue to expand through a disciplined acquisition program
in order to achieve its growth objectives and strengthen its North American
distribution network. In evaluating future acquisition candidates, the Company
will target well-established distributors which will allow the Company to enter
new markets or to expand its product lines in existing markets. The Company
seeks acquisition candidates that have complementary management teams and
product lines. The Company typically retains the existing management team of the
acquired distributor to benefit from local market knowledge and customer
relationships and provides incentive compensation tied to the profitability and
return on investment of the acquired operation. After acquiring a new
distributor, the Company concentrates on expanding product lines at the location
and improving its operational efficiency through purchasing economies, inventory
management and administrative savings.
Accelerate Internal Growth
The Company is pursuing several strategies designed to accelerate internal
growth. These strategies include:
Broadening Product Lines. The Company seeks to broaden the product lines offered
by its branches in order to improve the overall product mix available to its
customers, assist customers in managing their specialized inventory needs and
enable branches to provide "one-stop shopping" to their customers. The
distribution of a wider variety of products enhances gross profit margins by
adding higher margin specialty products to the Company's branches and reduces
unit shipping costs by allowing delivery of more products per truckload. Current
product lines the Company is seeking to broaden across the branch network
include exterior siding systems, commercial roofing and millwork. Management
continually seeks opportunities to enhance the Company's product offerings
through the acquisition of distributors offering complementary product lines and
the establishment of relationships with additional suppliers.
Enhancing Relationships with National and Regional Accounts. The Company is
expanding its sales to national and regional home center chains and hardware
co-ops by establishing programs with national vendors which enable these vendors
to rapidly replenish the special inventory needs of their large national
accounts. In addition, the Company has also developed services which provide
special order capabilities for niche products and in-store merchandising
services to its customers. Management believes that its extensive North American
network uniquely positions the Company to provide these services to national and
regional accounts.
Expanding Presence in Large Builder, Developer and Manufactured Housing
Segments. Management believes that its distribution and service network also
provides it with significant growth opportunities in the large national and
regional builder, developer and manufactured housing market segments where the
Company currently has a limited presence. The Company is seeking to expand
existing programs with several major builders to which the Company provides
specialized millwork packages and roofing products. Management believes
additional expansion of the Company's geographic network through acquisitions
will improve its ability to service these market segments.
Offering Value-Added Services. The Company is developing complementary
value-added services to offer its customers. The Company's subsidiary, FMI,
offers third party outsourced field services to fulfill several of the
retailers' traditional merchandising tasks, including managing shelf space and
position, providing inventory management, conducting in-store audits and
promotional introductions and implementing major department resets. Other
retailers such as food and drug stores have found they can take cost out of the
logistical supply chain by using a third party for such in-store merchandising
needs instead of higher-cost, permanent sales and marketing employees. Third
party servicers such as FMI allow suppliers to share the merchandising personnel
through syndication, at a lower cost, for valuable in-store representation. The
Company offers certain FMI resources as a complementary service to its strategic
vendor relationships and to the national and regional home center chains. In
fiscal 1999, services to building materials/hardware retailers represented 21%
of FMI's total revenues.
4
<PAGE> 5
Enhancing Branch Management Capability. A key aspect of the Company's strategy
is an entrepreneurial operating philosophy which seeks to maximize the Company's
responsiveness to customers' needs and to give branch managers a sense of
responsibility and accountability for the performance of their own operations.
Selling and operational capabilities at the branch level are critical to
achieving the Company's overall sales and profit objectives. To enhance branch
management capabilities, the Company has implemented a number of initiatives
which include (i) providing two weeks of intensive classroom training at one of
the country's leading distribution management programs, (ii) investing in
training courses focusing on professional selling skills and time and territory
management and (iii) providing ongoing training in standardized branch processes
and procedures.
CAPITALIZE ON ECONOMIES OF SCALE
Capturing Purchasing Economies. As a significant customer to many of its
vendors, the Company is able to obtain competitive pricing and purchasing terms,
ensure timely delivery of products and maintain appropriate inventory
availability. While individual branch managers are responsible for selecting and
ordering inventory tailored to the varied needs of customers in their local
markets, the Company generally negotiates with its major vendors on a
company-wide basis to obtain favorable pricing, volume discounts and other
beneficial purchase terms. Branch or regional managers are responsible for
inventory selection and ordering on terms negotiated centrally, so that the
Company remains responsive to local market demand, while still maximizing
purchasing leverage through volume orders. To help strengthen the Company's
overall purchasing economics, management initiated a preferred vendor program
that maintains regional flexibility, but reduces the number of vendors in
several major product categories. Management believes that further opportunities
to realize purchasing economies exist within all product categories and
operating expense areas and intends to pursue such opportunities to enhance
profitability.
Upgrading Business Information Systems. Management believes that information
technology to support organization- wide decision making is critical to
achieving the Company's sales and profit objectives. Each of the Company's
branches is equipped with on-line, real time information systems, which enable
branch management to control and monitor inventory levels, perform invoicing and
order entry and establish delivery routes and schedules. Corporate management is
also able to monitor branch and regional sales, profitability, asset management
and working capital performance by utilizing the same system. The Company is in
the process of implementing a new information system in its Cameron division to
allow it to improve operations, customer service, pricing management and
inventory and logistics management. See "Information Technology".
Increasing Operating Efficiencies. The Company centralizes many administrative
functions such as accounting and finance, information technology, employee
benefits, insurance, human resources, legal, and national account sales efforts
both to achieve economies of scale and to help branch management remain focused
on maximizing sales and profitability of their locations. Management intends to
continue its efforts to increase operating productivity throughout the Company.
In an effort to reduce operating expenses, the Company recently launched cost
reduction efforts across many administrative functions and management believes
there will continue to be opportunities to eliminate redundant functions and
facilities from time to time, particularly through operating synergies resulting
from additional acquisitions.
ACQUISITION HISTORY
Since its formation in 1991, the Company has completed 43 acquisitions and has
grown from 40 branches at the end of 1991 to 167 branches as of October 31,
1999. Set forth in the table below is a description of the Company's
acquisitions during each of the calendar years indicated:
<TABLE>
<CAPTION>
NUMBER OF LOCATION OF
BUSINESS ACQUIRED BRANCHES ACQUIRED BRANCHES
- --------------------------------------------- --------------------- ---------------------
<S> <C> <C>
1992
Thunderbird Steel ............................. 1 NM
Mike's Aluminum ............................... 1 FL
1993
Owens Corning Fiberglass (Supply Division) .... 5 GA, IL, NC, TX
Owens Corning Fiberglass (Supply Division) .... 1 MI
New Orleans Building Products ................. 1 LA
Wholesale Building Supply (Albuquerque) ....... 1 NM
Whitewater Building Products .................. 2 IN
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C> <C>
San Antonio Building Products ............. 1 TX
1994
Chesapeake Building Supply ................ 1 MD
Bright Aluminum ........................... 1 FL
Wholesale Building Supply (Santa Fe) ...... 1 NM
Bird Incorporated ......................... 10 AZ, CT, KY, MA, NY, VT
Southland Building Products ............... 6 LA, TX
CA Co. .................................... 4 ID, WA
1995
Blair Siding .............................. 1 GA
Warehouse Moulding & Door Corp. ........... 2 NM
Zaglin Wholesale .......................... 1 GA
States Dealer Supply ...................... 1 OR
Star, Inc. ................................ 7 AZ, OR, UT
1996
Premdor, Inc. (distribution facility) ..... 1 UT
Jett Supply Co. ........................... 3 CO, IL, TX
Mile High Roofing & Exterior Supply ....... 3 CO
California Roofers Supply ................. 8 CA
Dependable Roofing & Materials ............ 1 CA
Metro Roofing Supply ...................... 1 AR
Midwest Thermal Products, Inc. ............ 4 AR, MO, OK
1997
Ince Holdings, Ltd. (Boyd Division) ....... 16 Canada
Contractors Supply ........................ 2 NE
Bois Daigle, Ltd. ......................... 7 Canada
DMG Supply ................................ 3 SC
Vinyl Wholesale Supply Co. ................ 1 NC
Mid-America Siding Supply Inc. ............ 2 AR, TX
1998
J&L Services, Inc. ........................ 1 IL
Oakmont Industries, Ltd. .................. 1 Canada
Millwork Specialties, Inc. ................ 1 NY
Ozark Construction Supply ................. 1 MO
APi Supply Company ........................ 9 IL, IA, MN, MT, ND, SD, WI
Lafayette Woodworks, Inc. ................. 1 LA
Gerard Demers/Demers Express .............. 2 Canada
Washington Roofing Products Co. ........... 7 DC, MD, VA
1999
Performance Materials ..................... 1 KS
Fox Valley Building Materials ............. 1 IL
Bak-a-lum Corp. of America ................ 3 NJ
</TABLE>
PRODUCTS
The Company distributes a broad range of building products as shown in the
following table and as described below.
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998 FISCAL 1997
----------- ----------- -----------
<S> <C> <C> <C>
Roofing Products ............................. 37% 35% 38%
Millwork ..................................... 11% 11% 10%
Pool and Patio Enclosure Products ............ 6% 8% 9%
Insulation ................................... 10% 12% 9%
Vinyl Siding ................................. 6% 6% 7%
Industrial Metals ............................ 3% 3% 4%
Other Building Products* ..................... 27% 25% 23%
</TABLE>
* Includes those product lines which individually constitute less than three
percent (3%) of the Company's net sales in fiscal 1999.
6
<PAGE> 7
Roofing Products. Shingles, felt, roof tile, commercial roll roofing, coatings,
asphalt, flashings, vents and other roofing products are distributed to
residential and commercial roofing contractors and dealers, including
lumberyards and, to a lesser extent, mass merchandisers. Principal brands of
roofing products include CertainTeed, Elk, GAF, Genstar, Monier/Lifetile, Owens
Corning and Tamko. Management believes the Company is one of the largest roofing
products wholesalers in the United States.
Millwork. Millwork includes doors, door units and component parts, molding,
windows, stair parts, blinds, shutters and screens, which are distributed to
dealers, mass merchandisers, contractors and builders in the residential
construction industry. The Company's major millwork lines include ABTCo.
(prefinished moldings, shutters and architectural work), Premdor and Steves &
Sons (flush doors), ThermaTru (residential entry doors) and a variety of other
regional suppliers. The Company also pre-hangs door units for large residential
builders such as D. R. Horton and Perry Homes, mass merchandisers and
independent dealers.
Pool and Patio Enclosure Products. Pool and patio enclosure products include
aluminum extrusions, roof panels, gutters, coil, screen, awnings, handrails and
various other exterior aluminum building products. These products are sold by
the Company to residential contractors and installers, who use them in the
construction of pool enclosures, screen rooms, mobile home improvement projects,
carports and roof-over applications. A majority of the pool and patio enclosure
product line is purchased from a variety of suppliers for redistribution by the
Company. The remainder consists of roll-formed roof panels, gutters and
fold-down window awnings fabricated by the Company. The Company's fabrication
capability allows it to produce a variety of sizes and styles on an as-needed
basis to control inventory costs or fill custom orders.
Insulation. The Company distributes a broad line of insulation materials to
contractors and dealers. Principal brands distributed by the Company include
CertainTeed and Owens Corning products that are used in both residential and
commercial applications.
Vinyl Siding. Vinyl siding consists of siding, soffit and accessories. The
Company purchases vinyl siding from several industry leaders, including
CertainTeed, Rollex and Owens Corning, and distributes the product to builders,
contractors and mass merchandisers.
Industrial Metals. Industrial aluminum and stainless steel products fall
primarily into two categories, extrusions and sheet. These products are
purchased by sheet metal businesses, fabricators and manufacturers for use in a
variety of products. The Company purchases extruded products for distribution,
while third party processors and the Company cut sheet products from coils to
standard specifications. In addition, the Company has the ability to cut sheet
products to individual specifications.
Other Building Products. The Company distributes a variety of building materials
such as stucco, aluminum siding, sheathing, fireplaces, ceiling tiles, grids,
skylights, gutters, sheet rock, nails and fasteners, rebar, mesh, corrugated
metal, wood products, fencing and pneumatics. The product mix offered by each
branch is tailored to the demands of its local market.
BRANCH OPERATIONS
The Company distributes products through its network of 167 branches which are
strategically located to provide prompt delivery and responsive customer
service. The Company emphasizes individual branch profit-and-loss and working
capital responsibility and seeks to maximize the benefits of its local market
presence. A branch is typically comprised of warehouse and receiving space,
secure outdoor holding space, office space and product display areas. Local
sales efforts are coordinated and supported at the branches. The bulk of the
remaining branch activities relate to receiving, storing and delivering building
products.
Each branch is responsible for selecting and ordering inventory to meet the
needs of its customers and for creating its own localized sales, marketing and
promotional programs, supplemented by coordinated national and regional programs
at the corporate level. All branches are equipped with on-line information
systems that allow managers to control and monitor inventory levels, perform
invoicing and order entry, and establish delivery routes and schedules.
Corporate management also uses the Company's information systems to monitor
sales, profitability and working capital
7
<PAGE> 8
management by branch. The Company employs electronic data interchange ("EDI") to
enhance its ability to serve the needs of major national accounts and national
manufacturers.
Some of the Company's branches are organized into a formal "hub and spoke"
system, with large branches supporting smaller branches or mini-branches. Even
where a formal "hub and spoke" system has not been implemented, full-line
metropolitan branches typically provide fill-in service to smaller and rural
branches. Metropolitan branches are typically larger in square footage and
generally stock a full line of products, while the product mix at rural branches
is typically more limited and market specific.
The Company establishes and maintains overall credit policy and terms at the
corporate level. Branch managers are generally responsible, within the Company's
policy, for overseeing the extension of credit and the collection of accounts
receivable. The Company's central credit function assists branches with major
accounts, collects delinquent accounts and determines overall credit lines and
credit approval. In certain instances, the Company obtains lien rights and
security interests where appropriate to provide security for larger accounts.
PURCHASING
The Company generally negotiates with its major vendors on a company-wide basis
to obtain favorable pricing, volume discounts and other beneficial purchase
terms. The Company negotiates large block purchases of roofing, insulation,
millwork, pool and patio and commodity products centrally to capture purchasing
economies. Branch or regional managers are responsible for inventory selection
and ordering on terms negotiated centrally, so that the Company remains
responsive to local market demand, while still maximizing purchasing leverage
through volume orders. Branch managers are also responsible for inventory
management at their respective locations.
Payment, discount and volume purchase programs are negotiated directly by the
Company with its major suppliers, with a majority of the Company's purchases
made from suppliers offering these programs. The Company is a party to
distribution agreements with certain vendors, including CertainTeed and Owens
Corning, on an exclusive or non- exclusive basis, depending on the product and
the territory involved. The agreements also provide certain price protections
for products purchased by the Company from these suppliers.
SALES AND MARKETING
The Company's marketing programs center on fostering strong customer
relationships and providing superior service. The Company focuses its marketing
efforts primarily on the residential remodeling and new housing segments and, to
a lesser extent, on the commercial and industrial segments. The Company has a
national accounts sales and marketing staff that is responsible for negotiating
programs and standards for relationships with mass merchandisers, purchasing
cooperatives, national home builders and developers and manufacturers. The
Company's marketing team also has dedicated executives focused on product lines
targeted for growth, such as vinyl siding.
The Company's sales organization consists of outside field sales personnel who
report directly to their local branch manager and are supported by inside
customer service representatives at the branch. Bonus and commission payments
constitute a substantial portion of the compensation for salespersons, and in
fiscal 1999 branch managers could earn up to 50% of their base salary in bonus
if branch performance goals were achieved or exceeded.
CUSTOMERS
The Company distributes products to a large number and variety of building
material dealers, large home builders, contractors, mass merchandisers and
national co-ops, and others.
Contractors represent the Company's single largest customer group. Management
believes that prospects of increased sales to this group are strong, based on
projected growth in home repair and remodeling work. In addition, with the
emergence and continued growth of retail mass merchandisers such as The Home
Depot and Lowe's, the Company has begun to target those merchandisers to satisfy
their fill-in and specialty product needs.
8
<PAGE> 9
The percentages of the Company's revenue attributable to the Company's various
types of customers are as follows:
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998 FISCAL 1997
----------- ----------- -----------
<S> <C> <C> <C>
Contractors .............................. 49% 51% 56%
Dealers .................................. 33% 33% 26%
Mass Merchandisers and National Co-ops ... 11% 9% 11%
Builders ................................. 5% 5% 4%
Other .................................... 2% 2% 3%
</TABLE>
INFORMATION TECHNOLOGY
In late 1997, the Company initiated a major business process re-engineering
project aimed at improving and standardizing processes and using a "best
practices" approach to reduce operating costs in the Cameron division. This
re-engineering effort centers around a new information system using J.D. Edwards
software and IBM AS/400 hardware. The system has been successfully implemented
in Canada and in parts of the U.S. and management expects the system to be fully
implemented in early fiscal 2000. The new information system and re-engineered
processes are expected to enhance the Company's competitive position by reducing
operating and administrative costs and improving customer service, pricing
management and inventory and logistics management.
COMPETITION
The Company's competition varies by product line, customer classification and
geographic market. The Company competes with many local and regional building
products distributors, and, in certain markets and product categories, with
other national building products distributors, such as ABC Supply, Allied
Building Products, and Huttig Building Products. The Company also competes with
major corporations with national distribution capability, such as Georgia-
Pacific, Weyerhaeuser and other product manufacturers that engage in direct
sales; however, the Company also acts as a distributor for certain products of
these manufacturers. The Company sells products to and, to a lesser extent,
competes with large home center chains such as The Home Depot and Lowe's for
business from smaller contractors. Competition from such large home center
chains may, in the future, include more competition for the business of larger
contractors.
Management believes that the Company's target customers generally select
building products distributors on the basis of product availability,
relationships, service and delivery, geographic coverage, responsiveness and
credit availability. The Company utilizes its purchasing power with major
suppliers to obtain products at prices generally more favorable than its smaller
competitors. The Company's relative size also permits it to attract experienced
sales and service personnel and gives the Company the resources to provide
company-wide sales, product and service training programs. By working closely
with its customers and utilizing the Company's information technology, the
Company's branches are able to maintain appropriate inventory levels and are
well positioned to deliver completed orders on time.
ENVIRONMENTAL
The Company is subject to federal, state and local environmental laws and
regulations. A number of roofing materials are considered environmentally
hazardous. The Company typically handles and stores a variety of these materials
at its distribution center locations. The Company maintains appropriate
environmental compliance programs at each of its distribution centers and has
never been the subject of any material enforcement action by any governmental
agency.
Many of the Company's distribution centers are located in areas of current or
former industrial activity, where environmental contamination may have occurred.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate releases or threatened releases of
hazardous or toxic substances or petroleum products located at such property,
and may be held liable for property damage and for investigation and remediation
costs in connection with the contamination.
Management believes the Company is in material compliance with applicable laws
and regulations governing the discharge of hazardous waste into the environment;
moreover, management does not believe there are any material environmental
liabilities at any of its distribution center locations. Nevertheless, there can
be no assurance that the Company's knowledge is complete with regard to all
material environmental liabilities and it could subsequently discover potential
environmental liabilities arising from its sites or from neighboring facilities.
9
<PAGE> 10
EMPLOYEES
As of October 31, 1999, the Company had 2,669 employees, including 195 corporate
and administrative personnel and 2,474 branch employees. At the branch level, a
total of 1,936 people were employed as warehouse and manufacturing personnel,
truck drivers, office staff and labor supervisors; and 538 were employed as
branch managers and sales personnel. Unions represent a total of approximately
134 hourly workers at the Company's Chicago, Detroit, San Antonio, New York
City, Hauppauge (Long Island), Linden, New Jersey and Houston facilities. The
Company has not experienced any work stoppages. The remainder of the Company's
employees are not represented by a union or a collective bargaining unit.
Management considers the Company's employee relations to be satisfactory.
TRADENAMES
Historically, the Company operated under various tradenames in the markets it
served, retaining the name of an acquired business to preserve local
identification. To capitalize on its increasing national presence, the Company
has converted most branch operations to the primary tradename "Cameron Ashley
Building Products." New acquisitions typically convert to the primary tradename
within 6 to 12 months after the purchase date. Some local branches continue to
use historical trade names as secondary tradenames to maintain goodwill.
SEASONALITY
The Company's first quarter and, to a lesser extent, its second quarter are
typically adversely affected by winter construction cycles and weather patterns
as the level of activity in both the home improvement and new construction
markets decreases. Management closely monitors operating expenses and inventory
levels during seasonally affected periods and to the extent possible, controls
variable operating costs to minimize seasonal effects on profitability.
EXECUTIVE OFFICERS OF THE REGISTRANT
Ronald R. Ross (age 47) has been a director of the Company since 1994. Mr. Ross
has served as Chief Executive Officer since September 1996, as Chairman of the
Board of the Company since February 1994 and as Chairman of the Board and Chief
Executive Officer of Cameron since November 1996. From December 1991 to June
1997, he served as President of Cameron. Mr. Ross was Vice President, Operations
of the Cameron Wholesale division of CertainTeed Corporation, a building
products manufacturer, from September 1987 to September 1991 and served as Vice
President and General Manager of the division until its sale to Cameron in
December 1991.
Walter J. Muratori (age 56) has been a director of the Company since 1994. Mr.
Muratori has served as Vice Chairman and Chief Operating Officer of the Company
since March 1998, as President of the Company since February 1994, and as
President of Cameron since June 1997. He also served as Chairman of the Board of
Ashley from June 1997 until its conversion to limited liability company in
November 1998. He previously served as President of Ashley from October 1991 to
June 1997. From 1989 to 1991, Mr. Muratori served as President of Talquin
Building Products, Inc., a division of Florida Progress Corporation and the
former parent of Ashley. From 1970 to 1986, Mr. Muratori held various sales and
management positions at Ashley.
Garold E. Swan (age 46) has served as Executive Vice President and Chief
Financial Officer of the Company and Cameron since April 1999. During 1998, Mr.
Swan was Senior Vice President and Chief Financial Officer of PC Service Source,
Inc., a Dallas, Texas, based personal computer service logistics provider. From
1988 to 1997, Mr. Swan was with Fibreboard Corporation, serving as Vice
President and Controller from 1988 to 1996 and as Vice President of Finance from
1996 through the company's acquisition by Owens Corning in 1997. Mr. Swan was
employed by Arthur Andersen, LLP from 1977 to 1988.
Kirk W. Black (age 38) has served as Executive Vice President and Chief
Information Officer of the Company and Cameron since June 1999. Mr. Black was a
Senior Consultant with IBM Corporation from 1997 to 1999 focusing on ERP and
E-Commerce implementation initiatives. He served as Director of Supply Chain
Systems for Paging Network, Inc., a paging and wireless service company, from
1995 to 1997. Mr. Black was employed by Andersen Consulting, LLP from 1983 to
1995.
10
<PAGE> 11
C. Steven Gaffney (age 51) has served as Executive Vice President of the Company
and as President and Chief Executive Officer of Ashley since June 1997. Mr.
Gaffney was Vice President of the Company from 1994 to June 1997. Mr. Gaffney
was Executive Vice President of Ashley from 1991 to June 1997. He previously
served as President of Ashley from 1989 to 1991 and as its Vice President from
1986 to 1989.
John S. Davis (age 43) has served as Vice President - General Counsel and
Secretary of the Company since August 1994. Prior to joining the Company, he was
employed as Associate Counsel - Mergers and Acquisitions of Electronic Data
Systems Corporation (EDS) from 1990 to August 1994. Mr. Davis was engaged in
private legal practice prior to 1990.
Thomas R. Miller (age 50) has served as Vice President - Human Resources of the
Company since December 1994. From 1980 until December 1994, Mr. Miller served as
Managing Director of Employee Relations for American Airlines, Inc.
ITEM 2. PROPERTIES
The Company operates both owned and leased branches in 39 states and the
District of Columbia; of the 167 Company branches, 35 are owned and 132 are
leased. The Company's facilities range in size from approximately 15,000 to
150,000 square feet. This building space is used for warehousing and
distribution purposes and, to a lesser extent, for sales, manufacturing and
administrative purposes. The Company owns a 24,000 square foot corporate office
building located in Dallas, Texas. The Company believes its facilities are
adequately maintained and utilized and are suitable for the purposes for which
they are used. None of the Company's owned real property is subject to any major
encumbrances.
ITEM 3. LEGAL PROCEEDINGS
On January 24, 2000 a stockholder of the Company filed suit in the Superior
Court of Fulton County, Georgia against the Company and its individual directors
alleging, among other things, breach of fiduciary duties and unfair dealing in
connection with the proposed merger transaction and seeking to enjoin the merger
and, alternatively, damages. The stockholder is also seeking class action status
and to be certified as the class representative. The Company believes that this
cause of action is without merit and will contest the plaintiff's claims by all
available means.
On November 3, 1997, Bradco Supply Corporation ("Bradco") of Avenel, New Jersey
filed suit against the Company in the Superior Court of New Jersey, alleging
various contractual claims arising out of the terms of a letter of intent dated
October 2, 1997 executed by Bradco and the Company pertaining to the acquisition
of Bradco by the Company. Bradco has alleged, among other things, a breach and
unilateral termination of the letter of intent by the Company and seeks to
recover as damages a $3 million "walk-away" fee under the terms of the letter of
intent. In December 1997, the Company removed the Bradco lawsuit to the United
States District Court, New Jersey District. Thereafter, the Company filed a
counterclaim for fraud, among other claims, seeking to recover its out of pocket
transaction expenses. Management believes the Bradco action is without merit and
has maintained a vigorous defense and counterclaim to date. However, an adverse
resolution could result in an after-tax charge to income of up to $2 million. In
September 1998, the Company filed an alternate motion to dismiss or for judgment
on the pleadings, which was denied by the Court in early 1999. Thereafter, each
of the Company and Bradco have filed motions for summary judgment on the merits
of the lawsuit and the counterclaim, respectively. The Court has yet to rule on
the motions for summary judgment. Discovery in the case is substantially
complete. The Court has ruled on certain pretrial motions, but has not yet set
a date for trial, pending its ruling on summary judgment. There is no
indication from the Court when this will occur.
In January 1998, a subsidiary of the Company and three of its employees were
subpoenaed to provide information to a grand jury of the United States District
Court, Northern District of Texas, in connection with an investigation of
possible violations of federal antitrust laws in the aluminum building products
industry, including possible violations of Section 1 of the Sherman Act. No
allegations of wrongdoing have been made against the subsidiary, the employees
or the Company. In February 1998, information was provided in response to the
subpoenas and the grand jury appearance was postponed indefinitely. In November
1998, the Company's three employees were again notified to appear before a
federal grand jury in Ft. Worth, Texas. Such appearance was again postponed
indefinitely. Thereafter, the U.S. Attorney's office agreed to an informal
interview with an officer of the Company in lieu of formal grand jury testimony.
The interview was conducted in June 1999. After the interview, the U.S. Attorney
requested additional information from the subsidiary. There has been no further
activity since the Company provided these materials to the government in August
1999.
11
<PAGE> 12
From time to time, the Company is also involved in litigation and proceedings in
the ordinary course of its business. Management believes that such ordinary
course of business litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote of security holders during the fourth
fiscal quarter ended October 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the New York Stock Exchange under the
symbol "CAB". Prior to June 17, 1998 the Common Stock was traded on the Nasdaq
National Market System. The following table sets forth, for the Company's fiscal
periods indicated, the high and low closing price per share for the Common
Stock, as reported on the New York Stock Exchange and the Nasdaq National Market
System.
HIGH LOW
------- -------
FISCAL 1999
First Quarter $13.375 $10.875
Second Quarter 13.375 8.750
Third Quarter 12.750 10.000
Fourth Quarter 12.250 8.125
HIGH LOW
------- -------
FISCAL 1998
First Quarter $19.000 $13.750
Second Quarter 20.500 14.750
Third Quarter 22.375 14.875
Fourth Quarter 16.375 9.563
As of January 10, 2000, there were approximately 64 holders of record of the
Common Stock. The Company has never declared or paid a cash dividend on its
Common Stock and does not intend to pay any cash dividends on its Common Stock
in the foreseeable future. The current policy of the Company's Board of
Directors is to retain all earnings to support operations and finance expansion.
The Credit Agreement restricts the payment of cash dividends without the prior
notice of Bank of America. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." Future declaration and payment of dividends, if any, will be
determined in light of then current conditions, including the Company's
earnings, operations, capital requirements, financial condition, restrictions in
financing agreements and other factors deemed relevant by the Board of
Directors.
In June 1998, the Company issued warrants to purchase 200,000 shares of the
Company's Common Stock at $20.00 per share to Lee R. Anderson, Sr. as partial
consideration for a covenant-not-to-compete entered into by Anderson in
connection with the sale of substantially all of the assets and business of APi
Supply Company to the Company. The warrants are for a term of five years,
commencing on the grant date of June 16, 1998, and are exercisable during the
four year period commencing one year from the date of grant. Because the
transaction involved a single, sophisticated investor, the warrants were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act. The warrants were part of the bargained consideration for the purchase of
the APi Supply Company business. The market price for the Common Stock on the
date of grant was $15.50 as compared to the strike price of $20.00 for the
warrants.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected financial data presented below as of October 31, 1999, 1998, 1997,
1996 and 1995 and for each of the five fiscal years ended October 31, 1999, have
been derived from audited consolidated financial statements of the Company. The
historical data set forth below should be read in conjunction with the
consolidated financial statements of the Company, together with the notes
thereto, included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue ................................... $ 1,138,377 $ 899,217 $ 761,590 $ 604,710 $ 503,691
Cost of sales ............................. 911,588 721,300 611,753 485,595 408,528
----------- ----------- ----------- ----------- -----------
Gross profit .............................. 226,789 177,917 149,837 119,115 95,163
Operating expenses ........................ 184,950 143,835 125,684 95,689 75,927
Re-engineering & system conversion ........ 2,578 1,545
----------- ----------- ----------- ----------- -----------
Income from operations .................... 39,261 32,537 24,153 23,426 19,236
Interest expense .......................... 11,664 8,019 5,750 3,910 3,376
Minority interest .......................... (159)
----------- ----------- ----------- ----------- -----------
Income before income taxes ................ 27,756 24,518 18,403 19,516 15,860
Provision for income taxes ................ 10,690 9,224 7,084 7,447 5,985
----------- ----------- ----------- ----------- -----------
Income before extraordinary charge ......... 17,066 15,294 11,319 12,069 9,875
----------- ----------- ----------- ----------- -----------
Extraordinary charge - early extinguishment
of debt, net of income tax ........................ 245
----------- ----------- ----------- ----------- -----------
Net income ................................ $ 17,066 $ 15,294 $ 11,319 $ 11,824 $ 9,875
=========== =========== =========== =========== ===========
Net income per share before extraordinary
charge:
Basic .............................. $ 1.97 $ 1.65 $ 1.23 $ 1.36 $ 1.22
=========== =========== =========== =========== ===========
Diluted ............................ $ 1.94 $ 1.61 $ 1.20 $ 1.30 $ 1.15
=========== =========== =========== =========== ===========
Net income per share:
Basic .............................. $ 1.97 $ 1.65 $ 1.23 $ 1.33 $ 1.22
=========== =========== =========== =========== ===========
Diluted ............................ $ 1.94 $ 1.61 $ 1.20 $ 1.28 $ 1.15
=========== =========== =========== =========== ===========
Weighted average shares outstanding:
Basic .............................. 8,661 9,250 9,195 8,879 8,068
=========== =========== =========== =========== ===========
Diluted ............................ 8,816 9,501 9,447 9,249 8,621
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
-----------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Accounts receivable, net ................... $183,453 $148,392 $115,687 $ 92,932 $ 75,502
Inventories ................................ 112,896 99,810 82,298 64,644 51,780
Total assets ............................... 435,596 361,733 293,251 219,670 175,067
Accounts payable and accrued expenses ...... 125,522 105,002 88,420 69,795 51,679
Long-term debt, less current maturities .... 155,224 135,051 79,480 52,078 38,264
Stockholders' equity ....................... 133,022 114,965 108,927 95,609 82,986
Other Data:
Branches ................................... 167 158 145 107 93
</TABLE>
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS - PENDING SALE
Please see Item 1. Business- recent Developments for information about the
pending acquisition of the Company's outstanding common stock by an investment
group consisting of CGW Southeast Partners IV, L.P., an affiliate of Citicorp
Venture Capital, LTD. and senior management of the Company. The information
contained in this Item 7 including, any "forward-looking statements" is
qualified by reference to the information set forth in Item 1. Business - Recent
Developments; and Forward Looking Statements.
GENERAL
The building products industry is affected by various factors including general
economic conditions, the level of building activity, weather conditions, the
rate of new home construction, interest rates and the availability of credit. A
significant portion of the Company's products are sold for use in the home
improvement, remodeling and repair market, which is relatively less affected by
these factors than the new residential construction market.
The Company has experienced substantial improvement in its results of operations
since its formation in 1991. The Company's revenue has more than doubled from
$504 million in fiscal 1995 to $1,138 million in fiscal 1999. This revenue
growth has been accomplished largely due to 43 acquisitions completed since
October 1992, and increased sales in existing branches. Further, the Company's
income from operations has increased from $19.2 million in 1995 to $39.3 million
in 1999, a compound annual growth rate of 19.6%.
Gross profit as a percentage of revenue increased from 18.9% in fiscal 1995 to
19.9% in fiscal 1999 which resulted primarily from the product and sales mix of
acquired businesses. The businesses acquired by the Company since October 1992
typically either have had product lines consisting of narrow assortments of
commodity products or have had a relatively high proportion of products
distributed through direct shipments from manufacturers. Both of these
characteristics result in lower selling margins and a lower gross profit as a
percentage of revenue. In implementing its operating strategy for acquired
businesses, management focuses on improving gross profit as a percentage of
revenue, which requires the integration of additional higher margin product
lines. This process takes time to implement because of market conditions,
suppliers' territorial restrictions and conversion of customers' buying
requirements and habits. The Company historically has been able to improve the
gross profit margins of acquired businesses and anticipates further improvements
as additional product mix, pricing and sales mix changes are implemented. The
growth of the Company through its acquisition strategy since 1991 has reduced
the contribution of its Ashley subsidiary as a percentage of the total
operation. Ashley is a specialty products distributor and operates with
significantly higher gross profit margins.
The net effect of these various factors has been a significant increase in the
Company's income from operations from $19.2 million in fiscal 1995 to $39.3
million in fiscal 1999. However, the increased gross profit margin discussed
previously was offset by an increase in operating expenses, which resulted in a
decrease in income from operations as a percentage of revenue from 3.9% in
fiscal 1995 to 3.5% in 1999. The operating margin decrease is primarily the
result of operating expenses associated with the software/systems development
and business process re-engineering project in the Cameron division which was
$2.6 million in fiscal 1999. While unable to accurately calculate the impact,
management believes the Company's operating expense levels were also adversely
affected by the disruption to operations by the business process re-engineering
project. Implementation of the new system requires significant changes in the
day-to-day handling of normal transactions and results in inefficiencies and
increased costs in the months following initial implementation. Management
expects that operating costs as a percent of sales will improve as branch
personnel become more experienced in operating the new system.
Management had previously budgeted $23 million for the new information system
and related re-engineering effort in its Cameron division and expects the
project to be completed near that cost estimate during 2000. The project will
require approximately $5.3 million in cost that will be expensed, with the
balance being capitalized. Total project pre- tax expenses were $1.5 million and
$2.6 million in fiscal years 1998 and 1999, respectively. Management expects
$1.1 million of project expenses in fiscal 2000. Management expects the new
information system, after its implementation,
14
<PAGE> 15
to begin to produce productivity savings beginning in the third quarter of
fiscal 2000 and provide the necessary technology infrastructure to allow the
Company to continue its growth strategy.
The following table sets forth information regarding certain components of
revenue for the periods presented in "Selected Financial Data."
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED OCTOBER 31
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue .............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................ 80.1 80.2 80.3 80.3 81.1
-------- -------- -------- -------- --------
Gross profit ......................... 19.9 19.8 19.7 19.7 18.9
Operating expenses ................... 16.2 16.0 16.5 15.8 15.0
Re-engineering & system conversion ... 0.2 0.2
-------- -------- -------- -------- --------
Income from operations ............... 3.5 3.6 3.2(1) 3.9 3.9
Interest expense ..................... 1.0 0.9 0.8 0.7 0.7
-------- -------- -------- -------- --------
Income before income taxes ........... 2.5 2.7 2.4 3.2 3.2
Provision for income taxes ........... 0.9 1.0 0.9 1.2 1.2
-------- -------- -------- -------- --------
Income before extraordinary charge ... 1.6% 1.7% 1.5% 2.0% 2.0%
======== ======== ======== ======== ========
</TABLE>
(1) Includes the effect of charges of 0.7% of revenue, as discussed below.
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
The comparability of operating results between fiscal year 1999 and fiscal year
1998 is affected by several events which occurred during those periods
(collectively referred to as the "Net Acquisition Activity"). These events
include: 1) the discontinuation of the Company's financing subsidiary, Cameron
Ashley Financial Services ("CAFS") in 1998, 2) the acquisition of seven
businesses during fiscal 1998 at a total cost of $48.8 million, 3) the
acquisition of four businesses during fiscal 1999 at a total price of
approximately $20.0 million, and 4) the increase in ownership of Field
Marketing, Inc., from 33% to 70.17% during 1999.
Revenues increased 26.6% from $899.2 million in 1998, to $1,138.4 million in
1999, an increase of $239.2 million. Of the increase in revenues, $56.1 million
resulted from an 6.4% increase in same store revenues. The remaining increase in
revenues is from the Net Acquisition Activity, specifically the acquisitions
done during 1998, which were only partially reflected in the 1998 numbers, while
revenues for the full period are shown in the 1999 results.
Gross profit increased from $177.9 million in 1998 to $226.8 million in 1999, an
increase of 27.5%. Gross profit as a percentage of net sales increased to 19.9%
in 1999 as compared to 19.8% in 1998, due primarily to changes in overall
product mix.
Operating expense increased from $143.8 million in 1998, to $184.9 million in
1999. Operating expenses include both expenses directly attributable to branch
operations and corporate expenses. The increase is primarily a result of the
increased operations as a result from the Net Acquisition Activity mentioned
above. As a percentage of net sales, operating expenses increased from 16.0% in
1998, to 16.2% in 1999. A portion of the increase is a result of increased
employee costs and increased vehicle and transportation costs. Other operating
expenses incurred for re-engineering and system conversion costs totaled $2.6
million in 1999, compared to $1.5 million a year ago. As a percent of revenue
these expenses remained flat at 0.2% for both 1998 and 1999. The full impact of
the business process re-engineering project on operating expenses cannot be
accurately calculated. However, Management believes operating expenses were
adversely affected and expects operating costs as a percentage of sales to
improve following full implementation of the new system.
Total operating expenses, including those associated with re-engineering and the
system conversion, increased from $145.4 million in 1998, to $187.5 million in
1999. Included in the operating expenses in 1998 is a charge of $2.5 million for
pre-tax costs associated with the termination of issuing customer loans by CAFS.
There were no charges in 1999 related to CAFS.
15
<PAGE> 16
Income from operations increased 20.7% from $32.5 million to $39.3 million in
1999, due to the reasons previously discussed. The direct re-engineering and
system conversion costs effectively reduced income from operations by 6.2% in
1999 and 4.5% in 1998. Including all activity, the income from operations as a
percentage of revenues dropped slightly from 3.6% in 1998 to 3.5% in 1999.
Interest expense increased from $8.0 million in 1998 to $11.7 million in 1999.
The increase is in conjunction with the increase in long-term debt, which was
the result of the Net Acquisitions Activity mentioned previously. Total
long-term debt, including current maturities, was $137.4 million on October 31,
1998, and $170.1 million on October 31, 1999.
As a result of the above factors, income before income taxes increased 13.2%
from $24.5 million in 1998 to $27.8 million in 1999. Net income increased 11.6%
from $15.3 million in 1998 to $17.1 million in 1999, an increase of $1.8
million. Net income as a percentage of revenue decreased from 1.7% in 1998 to
1.6% in 1999. Diluted EPS increased from $1.61 per share in 1998 to $1.94 per
share in 1999.
The aggregate tax rate net of minority interest increased from 37.6% in fiscal
1998 to 38.7% in fiscal 1999. During 1998, the Company recorded a deferred tax
benefit attributable to prior year acquisitions.
Fiscal 1998 Compared to Fiscal 1997
When comparing 1998 with 1997, the following significant items should be
considered:
o In fiscal 1998, the Company incurred $1.5 million of operating expenses
associated with the software/systems development and business process
re-engineering project in the Cameron division. These expenses were 0.2% of
revenue for the year and effectively reduced income from operations by 4.5%
in fiscal 1998.
o Also in fiscal 1998, the Company terminated its CAFS U.S. operations. CAFS
reported $2.5 million of pre-tax losses.
o In the fourth quarter of fiscal 1997, the Company recorded pre-tax charges
to operations of $5.6 million. These charges consisted primarily of $3.6
million for the merger of four branches in Oregon and Texas and the closure
of a small mill operation in Arizona and a $2.0 million writeoff of
unamortized costs related to the Company's management information system
and certain costs associated with the evaluation of the new system. These
charges increased cost of sales by $0.5 million and operating expenses by
$5.1 million.
Revenue increased 18.1% from $761.6 million in 1997 to $899.2 million in 1998.
This increase was due primarily to the 1998 year containing a full 12 months of
sales from the 38 branches acquired or opened in fiscal 1997, as well as the
incremental sales from the 17 branches acquired or opened in fiscal 1998.
Same-branch sales growth of 2.4%, compared to zero same-branch sales growth in
1997, also contributed to the revenue increase. The 1998 same-branch sales
growth was driven by a 3.6% increase at the Cameron division.
Gross profit as a percentage of revenue increased slightly to 19.8% in 1998
compared to 19.7% in 1997, with an overall increase of $28.1 million or 18.7% in
1998, compared to 1997. The revenue growth is due to acquisitions and internal
growth, while the slight increase in gross profit percentage was due primarily
to product mix.
Total operating expenses increased 15.7% from $125.7 million in 1997 to $145.4
million in 1998. These expenses decreased as a percentage of revenue from 16.5%
to 16.2%. Operating expenses include both expenses directly attributable to
branch operations and corporate expenses and increased primarily as a result of
acquisitions, new branch openings, CAFS, and the systems and business process
re-engineering costs. Higher revenue and gross profit allowed for absorption of
the overall expense increases without a negative impact to earnings. Operating
expenses excluding the significant items summarized above, remained level at
15.7% of revenue in fiscal 1998 compared to 1997. These expenses were 0.4% of
revenue for the year and effectively reduced income from operations 10.5% in
fiscal 1998.
Income from operations increased 34.7% from $24.2 million in 1997 to $32.5
million in 1998 and increased as a percentage of revenue from 3.2% to 3.6% for
the reasons indicated above.
16
<PAGE> 17
Interest expense increased $2.3 million in 1998 compared to 1997 as a result of
higher borrowings required for 1998 acquisitions, working capital requirements,
and a corporate share repurchase program.
As a result of the above factors, income before taxes increased 33.2% from $18.4
million in 1997 to $24.5 million in 1998. Net income increased 35.1% from $11.3
million in 1997 to $15.3 million in 1998, and net income as a percentage of
revenue increased 0.2% from 1.5% in 1997 to 1.7% in 1998. Diluted earnings per
share increased from $1.20 per share in the 1997 period to $1.61 per share in
the 1998 period, a 34.2% increase.
The aggregate tax rate decreased from 38.5% in fiscal 1997 to 37.6% in fiscal
1998. During 1998, the Company recorded a deferred tax benefit attributable to
prior year acquisitions.
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on results
of operations for the periods presented. Substantial increases in costs,
however, could have an impact on the Company and the industry. Management
believes that, to the extent inflation affects its costs in the future, the
Company can generally offset inflation by increasing prices if competitive
conditions permit.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary needs for capital resources have been to
finance acquisitions, working capital and capital expenditures. Borrowings for
working capital typically increase during periods of sales expansion when higher
levels of inventory and receivables are needed and decrease as inventories and
receivables are converted to cash and are subsequently used to pay down debt.
During the fourth quarter of fiscal 1997, the Company initiated a business
process re-engineering project that includes the implementation of a new
computer system and is estimated to cost approximately $23 million. Management
expects this system to be fully implemented during second calendar quarter 2000
and has incurred $21 million through October 31, 1999, on this project. The
Company had $155.2 million of long- term debt, less current maturities,
outstanding as of October 31, 1999.
Under the terms of the Senior Notes and the Revolver, the Company is subject to
various restrictive covenants regarding, among other things, payment of any
dividends, capital expenditures limitations, incurrence of indebtedness from
others in excess of certain amounts and consummation of any merger or
acquisitions of an entity that is not engaged in the building materials
distribution business without the consent of the lenders. Financial covenants
include, but are not limited to, maintaining current ratios, minimum net worth
ratios, fixed charges ratios and debt to cash flow ratios. The Company was in
compliance with the restrictive covenants contained in its various credit
agreements at October 31, 1999. It is anticipated that the Senior Notes and the
Revolver will be refinanced pursuant to commitments obtained by the investment
group which as agreed to acquire the Company's outstanding common stock in the
pending sale transaction. Otherwise, the consent of the various lenders under
the Company's current credit agreements would be required to complete the
pending transaction.
Net cash generated from operating activities was $14.4 million and $19.3 million
for the year ended October 31, 1999 and 1998, respectively. In 1998, $4.3
million increase in operating cash flow was due to the termination of CAFS and
the sale of its loan properties. Capital expenditures were $19.4 million and
$10.1 million for the year ended October 31, 1999 and 1998, respectively. Four
acquisitions were made in fiscal 1999 for $20.0 million, and seven acquisitions
were made in fiscal 1998 for $48.8 million.
Except as affected by the pending sale transaction, the Company believes that
its current cash position, funds from operations and the availability of funds
under its credit agreements will be sufficient to meet anticipated liquidity
requirements for the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued certain new pronouncements
during 1999 that have various disclosure or reporting requirements. See Note 2
to the Consolidated Financial Statements of the Company for a discussion of the
new standards.
17
<PAGE> 18
SEASONALITY AND QUARTERLY FINANCIAL INFORMATION
The business of the Company is, to a significant degree, seasonal. Because a
substantial portion of the building products distributed by the Company are
intended for exterior use, sales by the Company tend to be lower during periods
of inclement weather; this is particularly true with respect to the Company's
Canadian and Northern United States operations. Accordingly, weather conditions
occurring during the first and second quarters (November-April) of the Company's
fiscal year usually result in the generation of lower sales revenues during
those time periods than in other periods of the Company's fiscal year. The
Company anticipates that these seasonal fluctuations will continue in the
future.
The following table sets forth selected quarterly financial information. This
information is derived from unaudited financial statements of the Company and
includes, in the opinion of management, only normal and recurring adjustments
that management considers necessary for a fair statement of the results for such
periods. The operating results for any quarter are not necessarily indicative of
results for any future period. Quarterly results have been adjusted to reflect
change in method of accounting for the Company's investment in Field Marketing,
Inc., which increased to a 70% ownership during 1999, (see Note 3 to the
consolidated financial statements of the Company). This adjustment had no effect
on net income or diluted earnings per share.
<TABLE>
<CAPTION>
FISCAL 1999
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue .................................$ 223,417 $ 270,103 $ 320,992 $ 323,865
Gross profit ............................ 44,740 54,097 63,296 64,656
Operating expenses ...................... 42,167 45,607 48,836 50,918
Income from operations .................. 2,573 8,490 14,460 13,738
Net income .............................. (43) 3,477 6,662 6,970
Net income per share - diluted .......... 0.00 0.40 0.76 0.78
Gross profit as a percentage
of revenue ............................ 20.0% 20.0% 19.7% 19.9%
Operating expenses as a percentage
of revenue ............................ 18.9% 16.9% 15.2% 15.7%
Income from operations as a percentage
of revenue ............................ 1.1% 3.1% 4.5% 4.2%
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- --------- ---------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue .................................... $ 167,090 $ 196,896 $ 249,322 $ 285,909
Gross profit ............................... 33,918 39,547 48,790 55,662
Operating expenses ......................... 31,324 33,140 37,609 43,307
Income from operations ..................... 2,594 6,407 11,181 12,355
Net income ................................. 640 2,748 5,365 6,541
Net income per share - diluted ............. 0.07 0.29 0.56 0.72
Gross profit as a percentage
of revenue ............................... 20.3% 20.1% 19.6% 19.5%
Operating expenses as a percentage
of revenue ............................... 18.7% 16.9% 15.1% 15.1%
Income from operations as a percentage
of revenue ............................... 1.6% 3.3% 4.5% 4.3%
</TABLE>
18
<PAGE> 19
YEAR 2000 COMPLIANCE
The Company utilizes a significant number of computer software programs and
information systems in its internal operations, including applications used in
financial business systems and various administration functions ("IT systems").
The Company also makes use of a variety of machinery and equipment in its
business which are operated by or reliant upon non-information technology
systems ("non-IT systems"), for example equipment or mechanical systems which
contain embedded technology such as microcontrollers. To the extent that the
source code of the software applications of these IT systems or the embedded
technologies of these non-IT systems are unable to appropriately interpret and
process the calendar year 2000 ("Year 2000"), some level of modification or
possible replacement of such applications could be necessary for proper
continuous performance. This potential problem is commonly referred to as the
Year 2000 compliance issue.
During 1998 and 1999 the management of the Company completed evaluation of the
status of the Company's internal IT and non-IT systems for compliance with the
Year 2000 issue. The Company has experienced no material adverse effects from
Year 2000 issues to date. All computer systems, telephone, facsimile systems,
and security systems are functioning normally. Management does not anticipate
any significant Year 2000 issues to occur.
Major IT Systems. The Company initiated a major re-engineering project in late
1997, centered around a new information system for the Cameron division. The new
system is operational and is being implemented on a gradual rollout basis in all
of the Company's branch locations. The implementation is scheduled to be
completed by second calendar quarter 2000.
Costs to Address Year 2000 Issues. It is important to note that, although Year
2000 compliance was a necessary byproduct of the Cameron division system
re-engineering project, it is only one portion of the benefit to be derived by
the Company from the new system conversion. While cost of the project
constitutes the vast majority of the Company's IT budget for the relevant
periods, such cost is not confined solely to the Year 2000 issue and is not
displacing other critical IT projects. It is not possible to segregate the total
expense to the Company strictly for Year 2000 compliance from the total system
conversion project budget.
As of October 31, 1999, the costs of the new information system and related
re-engineering project in the Cameron division were approximately $21.0 million.
The Company currently expects that the final project cost to be approximately
$23 million. The Company's results of operations reflect the amount of
re-engineering and system conversion costs that have been expensed and not
capitalized. The Company's source of funds for the system re- engineering
project is cash generated by operations and borrowings under existing bank
facilities.
The costs of Year 2000 compliance verification and testing in the Company, and
the costs for making other IT systems and non-IT systems Year 2000 compliant,
have not been material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk associated with
trading or other market risk sensitive instruments. The majority of the
Company's debt is at a fixed rate and, thus, is not exposed to interest rate
risk.
In February 1998, the Company's Canadian subsidiary entered into a cross
currency swap on $7.0 million of its U.S. dollar denominated unsecured senior
notes to reduce its exposure to foreign currency fluctuations. The Company
initially paid $7.0 million in exchange for Canadian $10.1 million which amounts
will be repaid at the termination date of September 16, 2004. The Company will
pay at a fixed rate of 6.45% and receive a fixed rate of 6.71%.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS OF REGISTRANT:
<TABLE>
CAMERON ASHLEY BUILDING PRODUCTS, INC.
<S> <C>
Independent Auditors' Report ................................................................. 21
Consolidated Balance Sheets, October 31, 1999 and 1998 ....................................... 22
Consolidated Statements of Income and Comprehensive Income
for the Years Ended October 31, 1999, 1998 and 1997 .......................................... 23
Consolidated Statements of Stockholders' Equity
for the Years Ended October 31, 1999, 1998 and 1997 .......................................... 24
Consolidated Statements of Cash Flows for the Years Ended October 31, 1999, 1998 and 1997 .... 25
Notes to Consolidated Financial Statements ................................................... 26
Independent Auditors' Report on Financial Statement Schedule ................................ 46
Supplemental Consolidating Information:
Schedule II - Valuation and Qualifying Accounts .......................................... 47
Index to Exhibits ........................................................................ 48
</TABLE>
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Cameron Ashley Building Products,
Inc.:
We have audited the accompanying consolidated balance sheets of Cameron Ashley
Building Products, Inc. and subsidiaries (the "Company") as of October 31, 1999
and 1998 and the related consolidated statements of income and comprehensive
income, stockholders' equity and of cash flows for each of the three years in
the period ended October 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, such consolidated financial statements
present fairly, in all material respects, the financial position of Cameron
Ashley Building Products, Inc. and subsidiaries at October 31, 1999 and 1998 and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
December 22, 1999, (January 24, 2000, as to Note 16)
21
<PAGE> 22
CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 3 $ 3,706
Accounts receivable, less allowances of $4,623 in 1999 and $3,214 in
1998 ............................................................... 183,453 148,392
Inventories ............................................................ 112,896 99,810
Prepaid expenses and other assets ...................................... 2,314 1,999
Deferred income taxes .................................................. 5,064 3,703
-------- --------
Total current assets ..................................................... 303,730 257,610
PROPERTY, PLANT AND EQUIPMENT, NET ....................................... 63,040 50,454
INTANGIBLE ASSETS, NET ................................................... 67,244 48,865
OTHER ASSETS ............................................................. 1,582 4,804
-------- --------
TOTAL .................................................................... $435,596 $361,733
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................. $ 97,828 $ 80,950
Accrued expenses ................................................................. 27,694 24,052
Line of credit ................................................................... 4,896
Current maturities of debt ....................................................... 10,014 2,346
-------- --------
Total current liabilities .......................................................... 140,432 107,348
LONG-TERM DEBT, LESS CURRENT MATURITIES ............................................ 155,224 135,051
MINORITY INTEREST .................................................................. 476
DEFERRED INCOME TAXES .............................................................. 6,442 4,369
-------- --------
Total liabilities ................................................................ 302,574 246,768
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock; authorized 100,000 shares; no shares issued and outstanding
Common stock, no par value; authorized 20,000,000 shares; 9,882,000 and
9,834,000 shares issued in 1999 and 1998,
respectively ..................................................................... 64,700 64,329
Treasury stock 1,190,000 shares, at cost, ........................................ (13,633) (13,633)
Accumulated comprehensive income ................................................. (867) (1,487)
Retained earnings ................................................................ 82,822 65,756
-------- --------
Total stockholders' equity ................................................... 133,022 114,965
-------- --------
TOTAL ........................................................................ $435,596 $361,733
======== ========
</TABLE>
See notes to consolidated financial statements
22
<PAGE> 23
CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUE ................................................................ $ 1,138,377 $ 899,217 $ 761,590
COST OF SALES .......................................................... 911,588 721,300 611,753
----------- ----------- -----------
GROSS PROFIT .......................................................... 226,789 177,917 149,837
OPERATING EXPENSES ..................................................... 184,950 143,835 125,684
RE-ENGINEERING & SYSTEM CONVERSION ..................................... 2,578 1,545 0
----------- ----------- -----------
INCOME FROM OPERATIONS ................................................. 39,261 32,537 24,153
INTEREST EXPENSE ....................................................... 11,664 8,019 5,750
MINORITY INTEREST ...................................................... (159) 0 0
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ............................................. 27,756 24,518 18,403
PROVISION FOR INCOME TAXES ............................................. 10,690 9,224 7,084
----------- ----------- -----------
NET INCOME ............................................................. 17,066 15,294 11,319
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS,
net of income tax expense (benefits) of $388, ($784) and ($116) .... 620 (1,301) (186)
----------- ----------- -----------
COMPREHENSIVE INCOME ................................................... $ 17,686 $ 13,993 $ 11,133
=========== =========== ===========
NET INCOME PER SHARE:
BASIC ............................................................ $ 1.97 $ 1.65 $ 1.23
=========== =========== ===========
DILUTED .......................................................... $ 1.94 $ 1.61 $ 1.20
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC ............................................................ 8,661 9,250 9,195
=========== =========== ===========
DILUTED .......................................................... 8,816 9,501 9,447
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ACCUMULATED
RETAINED TREASURY COMPREHENSIVE
SHARES VALUE EARNINGS STOCK INCOME (LOSS) TOTAL
--------- --------- --------- --------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF NOVEMBER 1, 1996 .................. 9,477 $ 60,641 $ 39,143 $ (4,175) $ 0 $ 95,609
Proceeds from exercise of stock options
including tax benefits of $1,059 ............. 255 2,198 2,198
Proceeds from employee stock
purchase plan ................................ 13 108 108
Purchase of treasury stock (8,547 shares) ...... (121) (121)
Net income ...................................... 11,319 11,319
Comprehensive income ............................ (186) (186)
--------- --------- --------- --------- --------- ---------
BALANCE AS OF NOVEMBER 1, 1997 .................. 9,745 62,947 50,462 (4,296) (186) 108,927
Proceeds from exercise of stock options
including tax benefits of $208 .............. 71 913 913
Proceeds from employee stock
purchase plan ................................ 18 239 239
Purchase of treasure stock (749,000) ............... (9,337) (9,337)
Issuance of stock warrants
to acquire business .......................... 230 230
Net income ...................................... 15,294 15,294
Comprehensive income ............................ (1,301) (1,301)
--------- --------- --------- --------- --------- ---------
BALANCE AS OF NOVEMBER 1, 1998 .................. 9,834 64,329 65,756 (13,633) (1,487) 114,965
Proceeds from exercise of stock options
including tax benefits of $28 ................ 10 54 54
Proceeds from employee stock
purchase plan ................................ 38 317 317
Net income ...................................... 17,066 17,066
Comprehensive income ............................ 620 620
--------- --------- --------- --------- --------- ---------
BALANCE AS OF OCTOBER 31, 1999 .................. 9,882 $ 64,700 $ 82,822 $ (13,633) $ (867) $ 133,022
========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................................... $ 17,066 $ 15,294 $ 11,319
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization .............................. 12,511 10,071 9,287
Loss on sale of property and equipment ..................... 18 12 2
Deferred income taxes ...................................... 669 1,998 (1,522)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable ................................. (20,170) (11,031) (3,689)
Notes receivable held for sale ...................... 0 16,462 (16,462)
Inventories ......................................... (4,831) 995 (642)
Prepaid expenses and other assets ................... 84 775 957
Accounts payable and accrued expenses ............... 11,455 (2,426) 5,403
Warehouse line of credit ............................ 0 (12,189) 12,189
Other current liabilities ........................... (2,445) (706) (157)
-------- -------- --------
Net cash provided by operating activities ........... 14,357 19,255 16,685
-------- -------- --------
INVESTING ACTIVITIES:
Cash paid for acquisitions ..................................... (18,511) (47,381) (33,034)
Purchases of property, plant and equipment ..................... (19,426) (10,110) (11,236)
Investment in affiliate ........................................ (3,874) (442) (2,640)
Other .......................................................... 24 29 (16)
-------- -------- --------
Net cash used in investing activities ................... (41,787) (57,904) (46,926)
-------- -------- --------
FINANCING ACTIVITIES:
Net borrowings ................................................. 23,581 50,920 24,797
Repayments of seller financing of acquired businesses .......... (1,640) (1,279) (566)
Proceeds from employee stock purchase plan ..................... 317 239 108
Exercise of stock options ...................................... 54 913 2,198
Purchase of treasury stock ..................................... 0 (9,337) (121)
Other .......................................................... 1,415 0 (354)
-------- -------- --------
Net cash provided by financing activities ............... 23,727 41,456 26,062
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... (3,703) 2,807 (4,179)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .............................................. 3,706 899 5,078
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................... $ 3 $ 3,706 $ 899
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ..................................... $ 11,885 $ 7,736 $ 5,913
======== ======== ========
Cash paid for income taxes ................................. $ 13,517 $ 6,230 $ 7,046
======== ======== ========
Debt of acquired business .................................. $ 1,490 $ 1,435 $ 8,877
======== ======== ========
Stock warrants issued to acquire businesses ................ $ 0 $ 230 $ 0
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
CAMERON ASHLEY BUILDING PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Cameron Ashley Building Products, Inc., and its majority owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
The Company distributes building products to independent dealers (lumberyards
and hardware stores), professional builders, contractors and mass merchandisers
throughout the United States and in Mexico and Canada. Products distributed by
the Company are used primarily in new residential construction and home
improvement, remodeling and repair work, as well as in commercial and industrial
applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS. All highly liquid debt instruments with a maturity of three
months or less when purchased are classified as cash equivalents.
INVENTORIES. Inventories are stated at the lower of last-in, first-out ("LIFO")
cost or market. Included in inventory cost are costs directly associated with
the fabrication of the Company's products. Substantially all of the Company's
inventory is finished goods.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is recorded at
cost. Costs associated with major additions are capitalized and depreciated.
Upon disposal, the cost of properties and related accumulated depreciation are
removed from the accounts, with gains and losses reflected in earnings. Assets
are generally depreciated on the straight-line method over the estimated service
lives of the related assets, which range from 1 to 25 years. Leasehold
improvements are depreciated over the shorter of their estimated useful lives or
the term of the related lease. Management routinely evaluates its recorded
investments for impairment in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
to the Disposed Of," based on projected undiscounted cash flows and other
methods when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Management believes the investments
to be recoverable.
RE-ENGINEERING AND SYSTEM CONVERSION COSTS. All costs incurred in connection
with re-engineering, training, and business process improvement activities are
expensed as incurred including all related internal and third party costs.
System conversion costs and the costs of new hardware and software are accounted
for in accordance with the Financial Accounting Standards Board's Emerging Issue
Task Force Issue No. 97-13 and the American Institute of Certified Public
Accountants' Statement of Position 98-1.
INTANGIBLE ASSETS. Intangible assets consist primarily of noncompete agreements,
which are recorded at cost and are amortized over periods of three to five
years, the contractual term of the agreements, and goodwill, which is primarily
amortized over 25 years. Goodwill relates primarily to market entry and the
earnings potential of acquired branches. If branches were closed, sold, or had
sustained poor performance, goodwill related to such market would be evaluated
for impairment based upon undiscounted cash flows from the specific geographic
area. During fiscal 1999, there was no change in estimated useful life or
recoverability of any intangible assets.
FOREIGN CURRENCY TRANSLATION ADJUSTMENT. Included in other comprehensive income
is the unrealized adjustments resulting from translating the financial
statements of the Company's foreign subsidiary. The functional currency of the
Company's foreign subsidiary is the local currency of the country. Accordingly,
assets and liabilities of the foreign subsidiary are translated to U.S. dollars
at year-end exchange rates. Income and expense items are translated at the
average rates prevailing during the year.
REVENUE RECOGNITION. Sales are recorded at the time merchandise is delivered and
are reported net of estimated payment discounts and returns and allowances.
26
<PAGE> 27
INCOME TAXES. Income taxes are provided for using the asset and liability method
under which deferred income taxes are recognized for the tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities by applying enacted statutory tax
rates. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company periodically
evaluates the collectibility of deferred tax assets and provides a valuation
allowance for the portion of such assets not considered realizable.
CONCENTRATION OF CREDIT RISK. The Company is engaged in the distribution of
building products throughout the United States. The Company grants credit to
customers, substantially all of whom are dependent upon the construction
economic sector. The Company continuously evaluates its customers' financial
condition but does not generally require collateral. The concentration of credit
risk with respect to trade accounts receivable is limited due to the Company's
large customer base located throughout the United States. The Company maintains
an allowance for doubtful accounts based upon the expected collectibility of its
accounts receivable.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimated.
INCOME PER SHARE. The computation of basic and diluted income per share is
computed by dividing net income by the weighted average shares outstanding
during the period (see Note 10). Common stock equivalents are included in the
computation if they are dilutive.
DERIVATIVE FINANCIAL INSTRUMENTS. Derivative financial instruments are utilized
by the Company to reduce foreign currency exchange rate risks. Derivative
financial instruments include foreign currency swaps. The Company does not hold
or issue derivative financial instruments for speculative or trading purposes.
Gains and losses resulting from the termination of derivative financial
instruments are recognized over the shorter of the remaining original contract
lives of the derivative financial instruments or the lives of the related hedged
positions or, if the hedged positions are terminated, are recognized in the
current period as gain or loss.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1997, the FASB issued SFAS No. 130
"Reporting Comprehensive Income" which establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 130 did not have a significant impact on the Company's
financial position or results of operations.
The FASB also issued in June 1997, SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" which establishes standards for the way
public companies disclose information about operating segments, products and
services, geographic areas and major customers. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. Prior
periods have been restated to reflect the adoption of SFAS No. 131, which has no
impact on the Company's financial position or results of operations. (See Note
14)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for accounting
and reporting for derivative instruments. It requires entities to record all
derivative instruments on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The portion of all hedges
not effective in achieving offsetting changes in fair value is recognized in
earnings. In June 1999, the FASB issued SFAS No. 137 which defers the
implemenation date of SFAS No. 133 to be effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management has not completed an
evaluation of the impact of the provisions of this statement on the Company's
financial statements.
27
<PAGE> 28
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
to current-year presentation.
3. ACQUISITIONS
Over the past three years, the Company has acquired certain net assets and
operations of various building materials distributors. All of these transactions
were accounted for as purchases; therefore, results of operations of the Company
include the operations of the businesses subsequent to their acquisitions.
During fiscal 1997, eight businesses were acquired at a total cost of $41.9
million. During fiscal 1998, seven businesses were acquired at a total cost of
$48.8 million, including the purchase of certain assets and liabilities of APi
Supply Company ("APi") as of June 15, 1998, for $35.3 million cash and $.8
million in debt assumed. Additionally, the company issued warrants to purchase
200,000 shares of the Company's common stock at $20.00 per share as
consideration for a noncompete agreement with APi's previous owner. These
warrants are fully vested on the first anniversary and expire on the fifth
anniversary of the acquisition date. During fiscal 1999, four businesses were
acquired at a total cost of $20.0 million. Pro forma revenue as if the 1999
acquisitions had occurred at the beginning of the year would have been $1,155.6
million and $1,004.7 million for 1999 and 1998, respectively. Pro forma results
of operations and income per share for these acquisitions are not presented due
to the immaterial effect on historical results.
On October 31, 1997, the Company acquired a one-third interest in Field
Marketing, Inc., ("FMI") for $2.6 million. During 1999, the Company increased
its interest in FMI to approximately 70% through additional stock purchases
totaling $3.5 million. The seller may put the remaining stock and the Company
may call such stock under certain conditions at prices based upon future
performance. FMI provides certain marketing services to the Company. FMI was
paid $225,000 in 1999 and $9,000 in 1998 for marketing services. Concurrent with
attaining majority ownership, the Company changed from the equity method of
accounting to consolidation. Pro forma revenue as if the change in interest had
occurred at the beginning of the year would increase by $7.8 million.
4. INVENTORIES
The Company values its inventories using the LIFO method. Had the Company used
the first-in, first-out ("FIFO") method, inventories would have been
approximately $2,315,000 and $1,936,000 higher at October 31, 1999 and 1998,
respectively. Under FIFO, income from operations for the year ended October 31,
1999 would have been higher by approximately $369,000, for the year ended
October 31, 1998 would have been lower by approximately $691,000, and for the
year ended October 31, 1997 would have been higher by approximately $400,000.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at October 31:
<TABLE>
<CAPTION>
USEFUL LIVES (YEARS) 1999 1998
-------------------- ------ ------
<S> <C> <C> <C>
Land ......................... -- $ 3,730 $ 3,723
Buildings and improvements ... 25 22,721 22,597
Machinery and equipment ...... 3 to 10 14,181 13,205
Furniture and fixtures ....... 3 to 7 31,613 19,852
Transportation equipment ..... 5 to 7 22,758 19,029
Other ........................ 1 517 347
-------- --------
95,520 78,753
Accumulated depreciation ........................ (32,480) (28,299)
-------- --------
Property, plant and equipment, net............... $ 63,040 $ 50,454
======== ========
</TABLE>
Included in property and equipment at October 31, 1999 and 1998, is $9,959,000
and $7,798,000, respectively, of equipment under capital leases.
28
<PAGE> 29
Intangible assets consist of the following at October 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Noncompete agreements .................... $ 3,423 $ 3,424
Goodwill ................................. 73,808 52,728
Other .................................... 1,606 1,397
-------- --------
78,837 57,549
Accumulated amortization ................. (11,593) (8,684)
-------- --------
Intangible assets, net ........... $ 67,244 $ 48,865
======== ========
</TABLE>
7. DEBT
Debt consists of the following at October 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Senior Debt:
Unsecured Senior Notes with maturities and interest rates as follows:
$10,000 due April 15, 2001 bearing interest at 6.79% $15,000 due April
15, 2002 bearing interest at 6.79%
with scheduled payments of $5 million on April 15, 2000
and April 15, 2001
$10,000 due April 15, 2003 bearing interest at 7.21% $15,000 due April
15, 2006 bearing interest at 7.61% $3,000 due April 7, 2004 bearing
interest at 6.71% $63,000 due April 7, 2010 bearing interest at 6.90%
with payments of $12.6 million beginning April 7, 2006 $10,000
(Canadian $) due October 7, 2004 bearing interest at 6.45% $7,000 due
October 7, 2004 bearing interest at 6.71%
Interest is due semi-annually, with an average interest rate of 6.93% ................ $ 129,797 $ 129,050
Bank of America (as lead agent):
Revolving credit note due January 15, 2002; unsecured;
interest is due quarterly at the LIBOR rate or Banker's
acceptance rate plus 0.50% to 2.0%, or at a base rate
(defined in the agreement as prime). At October 31,
1999 and 1998, the interest rate was 7.32% and 8.00% respectively .............. 26,192 2,500
Revolving credit note due April 30, 2000, secured, interest paid monthly
at prime plus 0.5% at October 31, 1999, and the interest rate was 8.75% .............. $ 4,896 0
Seller financing of acquired business:
Various terms, interest rates ranging from 6% to 9% .................................. 2,315 369
Other, including capital leases (see Note 9) ......................................... 6,934 5,478
--------- ---------
170,134 137,397
Less current maturities .............................................................. (14,910) (2,346)
--------- ---------
Long-term debt ....................................................................... $ 155,224 $ 135,051
========= =========
</TABLE>
In February 1999, the Company's Canadian subsidiary entered into a cross
currency swap on $7.0 million of its U.S. dollar denominated unsecured senior
notes to reduce its exposure to foreign currency exchange rate fluctuations. The
Company initially paid $7.0 million in exchange for Canadian $10.1 million which
amounts will be repaid at the termination date of September 16, 2004. The
Company will pay at a fixed rate of 6.45% and receive a fixed rate of 6.71%. The
swap agreement did not have a material effect on the Company's operations during
1999.
The seller notes payable are subordinated to the obligations under the Bank of
America agreement.
In March 1999, the Company amended the credit facility with Bank of America and
other banks (collectively referred to as "Bank of America"). The financing
agreement with Bank of America covers a revolving line of credit up to $80
million U.S. dollars and $25 million Canadian dollars. The financing agreement
restricts distributions to stockholders to 50% of net income, issuance of stock
by the Company's subsidiaries, the assumption of debt and liens by the Company's
subsidiaries, and requires compliance with certain financial ratios and
covenants. The obligations of the
29
<PAGE> 30
Company to Bank of America are unsecured. The Bank of America revolving credit
note also requires the Company to pay a quarterly commitment fee on the unused
balance ranging from 0.2% to 0.5% on the difference between the revolving
commitment and revolving advances outstanding. At October 31, 1999 and 1998, the
Company had letters of credit of $1.3 million and $2.3 million issued under this
credit facility.
Aggregate maturities of long-term debt during the fiscal years subsequent to
October 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................$ 14,910
2001........................................................ 18,738
2002........................................................ 31,689
2003........................................................ 10,000
2004........................................................ 16,797
Thereafter............................................... 78,000
--------
Total................................................$ 170,134
</TABLE>
8. INCOME TAXES
The provision for income taxes computed by applying the federal statutory tax
rate to income before income taxes and minority interest differs from the actual
provision for income taxes as set forth below for the years ended October 31:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statutory rates .................. $ 9,660 35.0% $ 8,580 35.0% $ 6,441 35.0%
State taxes based on income net of
federal income tax benefit ..................... 801 2.9% 225 0.9% 424 2.3%
Other............................................. 229 0.8% 419 1.7% 219 1.2%
---------- ---- ---------- ---- ---------- ----
Total income tax expense.................... $ 10,690 38.7% $ 9,224 37.6% $ 7,084 38.5%
========== ==== ========== ==== ========== ====
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<S> <C> <C> <C>
Current year income taxes:
United States ...... $ 9,523 $ 6,717 $ 8,459
Foreign ............ 455 576 147
Deferred income taxes:
United States ...... 894 1,635 (2,144)
Foreign ............ (182) 296 622
-------- -------- --------
Total income tax expense ..... $ 10,690 $ 9,224 $ 7,084
======== ======== ========
</TABLE>
The components of the deferred tax assets (liabilities) consist of the following
at October 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts ... $ 2,050 $ 1,436
Inventory ......................... 46 (154)
Accrued liabilities ............... 2,639 2,330
Sales returns and allowances ...... 85 51
Other ............................. 244 40
---------- ----------
Current ......................... 5,064 3,703
---------- ----------
Property, plant and equipment ..... (5,146) (3,843)
Deferred charges .................. (539) (363)
Other ............................. (757) (163)
---------- ----------
Noncurrent ........................ (6,442) (4,369)
---------- ----------
Total .......................... $ (1,378) $ (666)
========== ==========
</TABLE>
Management believes that no valuation allowance against net deferred tax
benefits is necessary. Deferred U.S. federal income taxes are not provided on
certain undistributed earnings of foreign subsidiaries as management plans to
continue
30
<PAGE> 31
reinvesting these earnings outside the United States. Determination of such tax
amounts is not practical because potential offset by U.S. foreign tax credits
would be available under various assumptions involving the tax calculation.
9. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under noncancellable lease agreements during the
years subsequent to October 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
2000 $ 3,902 $ 10,069
2001 2,987 8,099
2002 491 6,574
2003 -- 4,419
2004 -- 2,685
Thereafter -- 2,994
---------- ----------
Total minimum lease payments 7,380 $ 34,840
==========
Amount representing interest (462)
----------
Present value of minimum lease payments
(including current portion of $3,551) $ 6,918
==========
</TABLE>
During the years ended October 31, 1999, 1998, and 1997, the Company incurred
rent expense of approximately $12,684,000, $8,642,000, and $8,468,000
respectively.
On November 3, 1997, Bradco Supply Corporation ("Bradco") of Avenel, New Jersey
filed suit against the Company in the Superior Court of New Jersey, alleging
various contractual claims arising out of the terms of a letter of intent dated
October 2, 1997 executed by Bradco and the Company pertaining to the acquisition
of Bradco by the Company. Bradco has alleged, among other things, a breach and
unilateral termination of the letter of intent by the Company and seeks to
recover as damages a $3 million "walk-away" fee under the terms of the letter of
intent. In December 1997, the Company removed the Bradco lawsuit to the United
States District Court, New Jersey District. Thereafter, the Company filed a
counterclaim for fraud, among other claims, seeking to recover its out of pocket
transaction expenses. Management believes the Bradco action is without merit and
has maintained a vigorous defense and counterclaim to date. However, an adverse
resolution could result in an after-tax charge to income of up to $2 million. In
September 1998, the Company filed an alternate motion to dismiss or for judgment
on the pleadings, which was denied by the Court in early 1999. Thereafter, each
of the Company and Bradco have filed motions for summary judgment on the merits
of the lawsuit and the counterclaim, respectively. The Court has yet to rule on
the motions for summary judgment. Discovery in the case is substantially
complete. The Court has ruled on certain pretrial motions, but has not yet set
a date for trial, pending its ruling on summary judgment. There is no
indication from the Court when this will occur.
In January 1998, a subsidiary of the Company and three of its employees were
subpoenaed to provide information to a grand jury of the United States District
Court, Northern District of Texas, in connection with an investigation of
possible violations of federal antitrust laws in the aluminum building products
industry, including possible violations of Section 1 of the Sherman Act. No
allegations of wrongdoing have been made against the subsidiary, the employees
or the Company. In February 1998, information was provided in response to the
subpoenas and the grand jury appearance was postponed indefinitely. In November
1998, the Company's three employees were again notified to appear before a
federal grand jury in Ft. Worth, Texas. Such appearance was again postponed
indefinitely. Thereafter, the U.S. Attorney's office agreed to an informal
interview with an officer of the Company in lieu of formal grand jury testimony.
The interview was conducted in June 1999. After the interview, the U.S. Attorney
requested additional information from the subsidiary. There has been no further
activity since the Company provided these materials to the government in August
1999.
From time to time, the Company is also involved in litigation and proceedings in
the ordinary course of its business. Management believes that such ordinary
course of business litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
31
<PAGE> 32
10. CAPITAL STOCK AND NET INCOME PER SHARE
During fiscal 1995, the Company's board of directors authorized the repurchase
of up to 750,000 shares of the Company's common stock. During fiscal 1998, the
Company's board of directors authorized the repurchase of an additional 750,000
shares of the Company's common stock. Through October 31, 1998, the Company had
repurchased 1,189,911 shares of the Company's common stock at an average price
per share of $11.46. No shares were repurchased during fiscal 1999.
A reconciliation of the numerators and denominators of the basic and diluted EPS
computations is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NUMERATOR
Net income (basic and diluted earnings) .............. $ 17,066 $ 15,294 $ 11,319
---------- ---------- ----------
BASIC EPS DENOMINATOR
Weighted average shares outstanding .................. 8,661 9,250 9,195
========== ========== ==========
DILUTED EPS DENOMINATOR
Weighted average shares outstanding (basic) ........... 8,661 9,250 9,195
Stock options outstanding ............................ 1,643 1,418 1,129
Less: Anti-dilutive options .......................... (1,274) (427) (787)
Dilutive effect (treasury stock method) .... (214) (740) (90)
---------- ---------- ----------
Total dilution effect ................................ 155 251 252
Weighted average shares outstanding (diluted) ........ 8,816 9,501 9,447
========== ========== ==========
</TABLE>
11. EMPLOYEE AND DIRECTOR STOCK OPTION AND PURCHASE PLANS
The Company's Stock Incentive Plan and 1996 Stock Incentive Plan (collectively
referred to as the "Incentive Plans") provide for the issuance of options,
phantom shares, stock awards, stock appreciation rights, performance unit awards
or dividend equivalent rights. Options, which constitute the only issuances
under the Incentive Plans, have generally been granted at fair market value of
the Company's common stock on the date of grant.
Summary of Stock Options Outstanding at October 31, 1999:
STOCK OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WT.AVG.
NUMBER OF REMAINING WT. AVG.
EXERCISABLE NUMBER CONTRACT EXERCISE
OPTIONS OF OPTIONS LIFE (YRS) PRICE
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
$ 0.95- 1.42 168,898 168,898 2.0 $ 0.98
$ 2.25- 5.38 92,873 135,783 5.5 3.67
$ 8.38-13.63 334,720 900,188 8.1 12.32
$14.25-18.63 215,745 429,308 7.6 15.36
------- --------- --------
812,236 1,634,177 $ 11.23
======= ========= ========
</TABLE>
32
<PAGE> 33
The following table summarizes the Company's Incentive Plans stock option
activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTION
EXERCISE PRICE
PRICE SHARES RANGE
--------- ------ -----
<S> <C> <C> <C>
Outstanding at November 1, 1996 ... 7.59 1,076,788 $ 0.95-$17.50
Granted ......................... 14.91 313,334 $13.38-$17.88
Exercised ....................... 3.83 (254,196) $ 0.95-$16.25
Canceled ........................ 14.40 (21,914) $ 9.50-$16.00
---------
Outstanding at October 31, 1997 ... 10.38 1,114,012 $ 0.95-$17.88
Granted ......................... 16.14 410,879 $ 8.38-$20.38
Exercised ....................... 7.66 (67,061) $ 0.95-$16.25
Canceled ........................ 14.57 (51,277) $10.00-$17.88
---------
Outstanding at October 31, 1998 ... 12.04 1,406,533 $ 0.95-$20.38
Granted ......................... 11.69 606,864 $ 2.25-$13.12
Exercised ....................... 2.77 (9,536) $ 0.98-$ 9.50
Canceled ........................ 15.58 (369,704) $10.00-$20.38
---------
Outstanding at October 31, 1999 ... $11.23 1,634,177 $ 0.95-$18.63
=========
Exercisable at October 31, 1999 ... $ 9.69 812,236 $ 0.95-$18.63
=========
</TABLE>
During 1997, 9,000 options were granted under the incentive plan to
nonmanagement directors at less than fair market value of the Company's common
stock and $63,000 in compensation expenses was recorded. None were granted to
nonmanagement directors in 1999 or 1998. These options generally vest over
six-month to three-year periods and expire within ten years of grant date. Such
options are included in the tables above.
On December 1, 1998, the Company canceled 120,000 stock options with a weighted
average exercise price of $19.00 and reissued 120,000 stock options with a
weighted average exercised price of $13.00 for three executive officers of the
Company. Approximately 40,000 of such repriced options were canceled and not
reissued in May 1999 upon the resignation of one of these executive officers.
A NonManagement Directors Plan (the "Directors Plan") provides for the issuance
of up to 25,000 options to purchase shares at an exercise price equal to fair
market value of the Company's common stock on date of grant. The following table
summarizes the Company's Directors Plan stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTION
EXERCISE PRICE
PRICE SHARES RANGE
-------- ------ ------
<S> <C> <C> <C>
Outstanding at November 1, 1996 ... 12.55 15,000 $7.75-$18.25
Outstanding at October 31, 1997 ... 12.55 15,000 $7.75-$18.25
Exercised .................... (9.66) (4,000) $7.75-$12.00
------
Outstanding at October 31, 1998 ... $12.57 11,000 $7.75-$18.25
Canceled ..................... $12.57 (2,000) $7.75-$18.25
------
Outstanding at October 31, 1999 ... $12.57 9,000 $7.75-$18.25
======
Exercisable at October 31, 1999 ... $12.57 9,000 $7.75-$18.25
======
</TABLE>
At October 31, 1999, 529,626 and 12,000 additional options were available for
future grant under the Incentive and Directors' Plans, respectively, and
2,180,244 shares of common stock were reserved for issuance upon the exercise of
outstanding options or future option grants under all plans.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations in accounting for its
stock option plans. Accordingly, compensation expense is recognized for
33
<PAGE> 34
the Company's stock option plans, except as noted above, since the exercise
price of the Company's stock option grants was the fair market value of the
underlying stock on the date of grant only for those grants of stock options
share the exercise price is lower than the fair market value on the grant date.
The Company has adopted the pro forma disclosure features of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). As required by SFAS No. 123, pro forma information
regarding net income and earnings per share has been determined as if the
Company had accounted for its employee stock options granted subsequent to
November 1, 1995, using the fair value method prescribed by SFAS No. 123. Pro
forma disclosures for 1999, 1998 and 1997 are presented below. Because the SFAS
No. 123 method of accounting has not been applied to options granted prior to
November 1, 1995, the pro forma effect will not be fully reflected until 2000.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported ....... $ 17,066 $ 15,294 $ 11,319
Pro forma ......... $ 16,077 $ 14,095 $ 10,585
Earnings per share:
As reported:
Basic .......... $ 1.97 $ 1.65 $ 1.23
Diluted ........ $ 1.94 $ 1.61 $ 1.20
Pro forma:
Basic .......... $ 1.86 $ 1.52 $ 1.15
Diluted ........ $ 1.82 $ 1.49 $ 1.12
</TABLE>
The estimated fair value of options granted during 1999, 1998 and 1997 was
$5.64, $8.15 and $7.38 per share, respectively. For the purpose of determining
fair value of each option, the Company used the Black-Scholes model with the
following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 5.9% 6.2% 6.4%
Expected life 5.4 years 5.3 years 5.2 years
Expected volatility 44.2% 44.3% 43.4%
Expected dividends 0.0% 0.0% 0.0%
</TABLE>
During fiscal 1995, the Company adopted an Employee Stock Purchase Plan under
which employees are granted a right to purchase shares of the Company's common
stock. The purchase price is 85% of the fair market value of the stock at the
end of the quarter. Shares were purchased at prices ranging from $9.00 to $13.06
during fiscal 1999 and $11.19 to $18.63 during fiscal 1998. At October 31, 1999
and 1998, there were 112,587 and 150,930 shares of common stock reserved for
purchase under the plan.
On August 19, 1997, the Board of Directors of the Company adopted a shareholders
rights plan and declared a dividend distribution of one Right for each
outstanding share of the Company's common stock to stockholders of record at the
close of business on September 10, 1997. Each Right entitles the registered
holder to purchase from the Company 1/10,000 of a share of Series A Preferred
Stock (the "Preferred Stock") at a purchase price of $72 per 1/10,000 of a
share, subject to adjustment. Initially, the Rights will be attached to all
Common Stock certificates representing shares then outstanding, and no separate
Rights Certificates will be distributed. The Rights will separate from the
Common Stock upon the earlier of (i) ten business days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired or obtained the right to acquire beneficial
ownership of 15% or more of the outstanding shares of Common Stock (the "Stock
Acquisition Date") or (ii) ten business days (or such later date as the Board of
Directors determines) following the commencement of a tender or exchange offer
that would result in a person or group beneficially owning 15% or more of such
outstanding shares of Common Stock. The date the Rights separate is referred to
as the "Distribution Date".
In the event that any person or group becomes an Acquiring Person, each holder
of a Right (other than the Acquiring Person and certain related parties) will
thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of the Company) having
a value equal to two times the Purchase Price of the Right. At any time after
any person or group becomes an Acquiring Person and prior to the acquisition by
such
34
<PAGE> 35
person or group of 50% or more of the outstanding shares of Common Stock, the
Board of Directors of the Company may, without payment of the Purchase Price by
the holder, exchange the rights (other than Rights owned by such person or
group, which will become void), in whole or in part, for shares of Common Stock
at an exchange ratio of one-half the number of shares of Common Stock (or in
certain circumstances, Preferred Stock) for which a Right is exercisable
immediately prior to the time of the Company's decision to exchange the Rights
(subject to adjustment). At any time until ten business days following the Stock
Acquisition Date, the Company may redeem the Rights in whole, but not in part,
at a price of $0.001 per Right (payable in cash, shares of Common Stock or other
considerations deemed appropriate by the Board of Directors). Immediately upon
the action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $0.001 redemption price. The rights expire on September 10, 2007.
12. EMPLOYEE BENEFITS
The Company has 401(k) plans that cover substantially all employees. The
Company's funding target is to match the employee's contributions up to 4% of
the employee's base salary, not to exceed certain allowable limits. Employees
vest in Company contributions evenly over four years. The Company's
contributions for the years ended October 31, 1999, 1998 and 1997 were
$1,257,000, $1,183,000 and $916,000.
13. FINANCIAL INSTRUMENTS
The Company is, from time to time, a party to financial instruments with
off-balance sheet risk in the normal course of business to hedge against changes
in interest and foreign currency exchange rates. The Company may reduce its
exposure to fluctuations in interest and foreign currency exchange rates by
creating offsetting positions through the use of derivative financial
instruments. The Company currently does not use derivative financial instruments
for trading or speculative purposes, nor is the Company party to highly
leveraged derivatives. These financial instruments include interest rate and
foreign currency swap agreements. The instruments involve, to varying degrees,
elements of interest and foreign currency exchange rate risk in excess of the
amount recognized in the consolidated statements of financial condition. The
Company controls the risk of its hedging agreements, interest rate and foreign
currency swaps through approvals, limits and monitoring procedures.
The following disclosure of the estimated fair value of financial instruments is
made in accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The effect of using different market assumptions and/or estimation
methodologies may be material to the estimated fair value amounts.
The carrying amount and fair value of certain financial instruments consist of
the following at October 31:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ................. $ 3 $ 3 $ 3,706 $ 3,706
Accounts receivable, net .................. 183,453 183,453 148,392 148,392
Liabilities:
Accounts payable .......................... 97,828 97,828 80,950 80,950
Line of credit ............................ 4,896 4,896 -- --
Current maturities of debt ................ 10,014 10,014 2,346 2,346
Long-term debt ............................ 155,224 153,028 135,051 145,109
Off balance sheet foreign currency swap: .... -- 82 -- 593
</TABLE>
Cash and cash equivalents, accounts receivable, accounts payable and current
maturities of debt . The carrying amounts of these items approximate their fair
value due to their short-term nature or are the amounts payable on demand.
35
<PAGE> 36
Line of credit; long-term debt and foreign currency swap. Interest rates that
are currently available to the Company for issuance of debt with similar terms
and remaining maturities are used to estimate fair value of debt. The fair value
of the foreign currency swap was estimated using market quotes.
The fair value estimates presented herein are based on pertinent information
available to management as of October 31, 1999 and 1998. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since the date presented, and therefore, current
estimates of fair value may differ significantly from the amounts presented
herein.
14. SEGMENT INFORMATION
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." The
Company adopted this statement at November 1, 1998. Adoption of the standard has
no impact on net income.
The Company operates its business using four reportable segments. These segments
represent distinct operating subsidiaries of the Company. The segments include
Wm. Cameron & Co., CA Canada, Inc., Ashley Aluminum, L.L.C., and all other. The
segments are managed separately because of their geographical locations and
their differing products and services. Each of these businesses requires
distinct operating and marketing strategies. Management reviews the performance
of the Company based on these operating segments.
The Wm. Cameron & Co. segment is engaged in distribution, marketing, selling and
manufacturing of building products within the continental United States. The CA
Canada, Inc. segment is engaged in distribution, marketing, selling and
manufacturing of building products within Canada. The Ashley Aluminum, L.L.C.,
segment manufactures, markets, and distributes various building material
products, including pool and patio enclosure materials. The corporate and other
segment includes Field Marketing, Inc. and corporate support staff services.
The segments are measured on operating profits before interest expense, income
taxes and minority interest. Certain expenses are allocated to the operating
segments. For some of these allocated expenses, the related assets and
liabilities remain in the corporate and other segment. The segments follow the
same accounting principles described in the Summary of Significant Accounting
Policies. Sales between the segments are recorded primarily at market prices.
36
<PAGE> 37
No single customer accounts for 10% or more of consolidated trade sales. An
analysis of operations by segment for the years ended October 31, 1999 and
October 31, 1998, is as follows:
<TABLE>
<CAPTION>
CORPORATE INTERCOMPANY
WM CAMERON CA CANADA ASHLEY AND OTHER ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
OCTOBER 31, 1999
Sales to customers ................ $ 815,915 $ 132,975 $ 165,156 $ 25,465 (1,134) $1,138,377
Segment Operating Profit (Loss) ... 27,431 3,067 14,954 (6,032) 39,420
Interest Expense .................. 11,664 11,664
----------
Income before income taxes ........ $ 27,756
==========
Segment assets at October 31, 1999 $ 310,660 $ 52,436 $ 45,889 $ 26,611 $ 435,596
OCTOBER 31, 1998
Sales to customers ................ $ 620,534 $ 121,126 $ 157,557 $ 899,217
Segment Operating Profit (Loss) ... 21,213 3,419 13,390 (5,485) 32,537
Interest Expense .................. 8,019 8,019
----------
Income before income taxes ........ $ 24,518
==========
Segment assets at October 31, 1998 $ 259,021 $ 44,043 $ 46,902 $ 11,767 $ 361,733
OCTOBER 31, 1997
Sales to customers ................ $ 488,122 $ 115,140 $ 157,422 $ 906 $ 761,590
Segment Operating Profit (Loss) ... 11,047 3,265 13,336 (3,495) 24,153
Interest Expense .................. 5,750 5,750
----------
Income before income taxes ........ $ 18,403
==========
Segment assets at October 31, 1997 $ 190,663 $ 34,716 $ 46,452 $ 21,420 $ 293,251
</TABLE>
15. CONSULTING AGREEMENTS
The Company had an agreement which expired in December 1998 with an affiliate of
a major shareholder for financial and management consulting services to be
provided to the Company. This agreement, executed in November 1996, amended and
superseded prior consulting agreements with the Company's operating
subsidiaries. Fees under these agreements with the Company and its operating
subsidiaries paid during the fiscal years ended October 31, 1999, 1998 and 1997,
totaled $72,000, $180,000 and $280,000, respectively.
16. SUBSEQUENT EVENTS
On January 18, 2000, the Company announced that it has entered into a definitive
agreement whereby an investment group consisting of CGW Southeast Partners IV,
L.P. and an affiliate of Citicorp Venture Capital, Ltd., a subsidiary of
Citigroup Inc., along with senior management of the Company will acquire all the
outstanding shares of Cameron Ashley's common stock at a price of $15.10 per
share in cash. The total consideration of the proposed transaction is
approximately $320 million including the assumption of debt. Financing
commitments, subject to customary conditions, are in place with both senior and
subordinated debt sources, and the transaction is expected to close in the
second calendar quarter of 2000. The Company entered into the agreement
following the unanimous recommendation by the
37
<PAGE> 38
Special Committee, comprised of independent directors of the Company. Credit
Suisse First Boston advised the Special Committee in this transaction. CGW
Southeast Partners I, L.P., an affiliate of CGW Southeast Partners IV, L.P.,
currently owns approximately 11% of the Company's outstanding shares. CGW
Southeast Partners IV, L.P., is a private equity fund which supports management
teams in middle-market acquisitions and recapitalizations, and is managed by
Atlanta, Georgia, based Cravey, Green & Wahlen, Inc. Two directors of the
Company are affiliated with the CGW-related entities.
The closing of the merger is subject to regulatory and stockholder approval and
customary conditions to closing. The agreement includes a $5 million breakup
fee. The Company will file for review by the Securities and Exchange Commission
a proxy statement to be mailed to stockholders in connection with a stockholder
meeting that will be called to consider the merger.
On January 24, 2000 a stockholder of the Company filed suit in the Superior
Court of Fulton County, Georgia against the Company and its individual directors
alleging, among other things, breach of fiduciary duties and unfair dealing in
connection with the proposed merger transaction and seeking to enjoin the merger
and, alternatively, damages. The stockholder is also seeking class action
status and to be certified as the class representative. The Company believes
that this cause of action is without merit and will contest the plaintiff's
claims by all available means.
38
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Director and Nominee Information", "Executive Officers of
the Company" and "Section 16(a) Beneficial Owner Reporting Compliance" appearing
in the Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders
sets forth certain information with respect to the directors and executive
officers of the Company and is incorporated herein by reference. Certain
information with respect to the executive officers of the Registrant is included
elsewhere in Part I hereof under the caption "Executive Officers of the
Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing in the Registrant's
Proxy Statement for the 2000 Annual Meeting of Shareholders sets forth certain
information with respect to the compensation of management of the Registrant and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Principal Shareholders of the Company" and "Election of
Directors" appearing in the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders set forth certain information with respect to the
ownership of the Registrant's Common Stock and are incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Compensation Committee Interlocks and Insider
Participation" appearing in the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders sets forth certain information with respect to these
matters and is incorporated herein by reference.
39
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS INCORPORATED BY REFERENCE OR FILED WITH THIS REPORT;
<TABLE>
<S> <C>
1. FINANCIAL STATEMENTS
The Financial Statements of the Company are listed in Item 8
of Part II.
2. FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report on Financial Statement Schedule.
Schedule II - Valuations and Qualifying Accounts
The other schedules have been omitted because they are
inapplicable.
3. EXHIBITS INCORPORATED BY REFERENCE OR FILED WITH THIS REPORT
</TABLE>
The exhibits listed below are filed with or incorporated by reference
into this Annual Report on Form 10-K. The exhibits which are denominated with an
asterisk (*) were previously filed as part of, and are hereby incorporated by
reference from, the Company's Registration Statement on Form S-1 (No. 33-75054)
filed with the Commission on February 8, 1994 and effective on March 24, 1994.
Other exhibits denominated with numbered footnotes are incorporated by reference
to the other filings with the Commission set forth below. Unless otherwise
indicated, the exhibit number corresponds to the exhibit number incorporated by
reference. ITEMS LISTED IN ALL CAPS AND BOLDFACE CONSTITUTE MANAGEMENT CONTRACTS
OR COMPENSATORY PLANS OR ARRANGEMENTS.
<TABLE>
<S> <C>
2.1 - Agreement and plan of Merger dated as of January
17, 2000, by and among Cameron Ashley Building Products, Inc.,
CBP Holdings and CBP Acquisition Corp.(14)
3.1 - Amended and Restated Articles of Incorporation., as amended.
3.2 - Amended and Restated Bylaws.*
4 - Rights Agreement dated as of August 19, 1997 by and between
the Company and SunTrust Bank, Atlanta as Rights Agent.(12)
4.1 - See Articles II, III, IV of the Amended and Restated Articles
of Incorporation filed as Exhibit 3.1 and Articles 2,7,8 and 9
of the Amended and Restated Bylaws filed as Exhibit 3.2.
10.1 - Intentionally omitted.
10.2 - Intentionally omitted.
10.3 - Intentionally omitted.
10.4 - CAMERON ASHLEY INC. STOCK INCENTIVE PLAN.*
10.5 - FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT.*
10.6 - CAMERON ASHLEY INC. NON-MANAGEMENT DIRECTORS' STOCK OPTION PLAN.*
10.6.1 - TECHNICAL AMENDMENT TO CAMERON ASHLEY INC. NON-MANAGEMENT
DIRECTORS' STOCK OPTION PLAN.(2)
10.7 - Intentionally omitted.
10.7.1 - Intentionally omitted.
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C>
10.7.2 - EMPLOYMENT AGREEMENT DATED MAY 25, 1999 BETWEEN THE COMPANY
AND RONALD R. ROSS.(13)
10.8 - Intentionally omitted.
10.8.1 - Intentionally omitted.
10.8.2 - EMPLOYMENT AGREEMENT DATED MAY 25, 1999 BETWEEN THE COMPANY
AND WALTER J. MURATORI.(13)
10.9 - Intentionally omitted
10.10 - EMPLOYMENT AGREEMENT DATED DECEMBER 1, 1997 BETWEEN WM. CAMERON
& CO. AND C. STEVEN GAFFNEY.(6)
10.11 - FORM OF INDEMNIFICATION AGREEMENT BETWEEN THE COMPANY AND EACH OF
ITS DIRECTORS.*
10.11.1 - FORM OF INDEMNIFICATION AGREEMENT BETWEEN THE COMPANY AND EACH
OF ITS EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS OF THE COMPANY. (1)
10.12 - Intentionally omitted.
10.13 - Intentionally omitted.
10.14 - Intentionally omitted.
10.15 - Intentionally omitted.
10.16 - Intentionally omitted.
10.17 - CAMERON ASHLEY INC. 1995 QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN. (3)
10.18 - Intentionally omitted.
10.18.1 - Intentionally omitted.
10.18.2 - Intentionally omitted.
10.18.3 - Intentionally omitted.
10.18.4 - Intentionally omitted.
10.18.5 - Intentionally omitted.
10.18.6 - Third Restated Credit Agreement dated March 31, 1999 among
the Company, CA Canada, Inc., Bank of America (formerly
NationsBank, N.A.), as Agent and Issuing Bank, ABN AMRO
Bank, N.V., as Co-Agent, Canadian Imperial Bank of Commerce,
as Canadian Issuing Bank and Canadian Agent, and other
Lenders.(10)
10.19 - Form of Note Purchase Agreement between the Company and various
Purchasers dated as of April 1, 1996(4)
10.19.1 - First Amendment to Note Purchase Agreement between the Company
and various Note Purchasers dated as of January 15, 1997.(6)
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C>
10.19.2 - Second Amendment and Waiver to Note Purchase Agreements between
the Company and various Note Purchases dated as of April 1,
1998.(9)
10.19.3 - Third Amendment to Note Purchase Agreement between the Company
and various Note Purchasers dated as of July 1, 1998.(9)
10.20 - Intentionally omitted.
10.20.1 - CHANGE IN CONTROL EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
RONALD R. ROSS DATED AS OF JUNE 1, 1999.(13)
10.20.2 - FIRST AMENDMENT TO CHANGE IN CONTROL AGREEMENT BETWEEN THE
COMPANY AND RONALD R. ROSS DATED OCTOBER 31, 1999.(13)
10.21 - Intentionally omitted.
10.21.1 - CHANGE IN CONTROL EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
WALTER J. MURATORI DATED AS OF JUNE 1, 1999.(13)
10.21.2 - FIRST AMENDMENT TO CHANGE IN CONTROL EMPLOYMENT AGREEMENT
BETWEEN THE COMPANY AND WALTER J. MURATORI DATED OCTOBER 15,
1999.(13)
10.22 - Intentionally omitted.
10.23 - CAMERON ASHLEY BUILDING PRODUCTS, INC. 1996 STOCK INCENTIVE
PLAN. (5)
10.23.1 - FIRST AMENDMENT TO THE CAMERON ASHLEY BUILDING PRODUCTS, INC.
1996 STOCK INCENTIVE PLAN, DATED DECEMBER 11, 1996.(5)
10.24 - EMPLOYMENT AGREEMENT DATED OCTOBER 13, 1997 BETWEEN CAMERON AND
JOHN S. DAVIS. (6)
10.25 - Form of Note Purchase Agreement between the Company and various
Purchasers dated as of April 7, 1996.(7)
10.25.1 - Form of Note Purchase Agreement between CA Canada, Inc., and
various Note Purchasers dated as of April 7, 1996.(7)
10.26 - Intentionally omitted.
10.27 - Intentionally omitted.
10.28 - Warrant Agreement dated June 16, 1998 between the Company and
Lee R. Anderson, Sr. (9).
10.29 - EMPLOYMENT AGREEMENT DATED APRIL 12, 1999 BETWEEN CAMERON AND
GAROLD E. SWAN. (10)
10.30 - EMPLOYMENT AGREEMENT DATED JUNE 1, 1999 BETWEEN CAMERON AND
KIRK W. BLACK. (11)
10.31 - CHANGE IN CONTROL EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
GAROLD E. SWAN DATED AS OF OCTOBER 25, 1999.
10.32 - CHANGE IN CONTROL EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
C. STEVEN GAFFNEY DATED AS OF OCTOBER 25, 1999.
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
10.33 - CHANGE IN CONTROL EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
JOHN S. DAVIS DATED AS OF OCTOBER 25, 1999.
10.34 - EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND THOMAS R. MILLER
DATED AS OF SEPTEMBER 1, 1999.
10.35 - CHANGE IN CONTROL EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
THOMAS R. MILLER DATED AS OF OCTOBER 25, 1999.
11.1 - Statement regarding computation of per share earnings.
21.1 - List of Subsidiaries of the Registrant.
23.1 - Consent of Deloitte & Touche LLP.
27 - Financial Data Schedule
99.1 - Press Release dated January 18, 2000 (14)
</TABLE>
(1) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1, (No. 33- 88778) filed with the
Commission on January 26, 1995 and effective on March 2, 1995.
(2) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended January 31, 1995, filed
with the Commission on March 17, 1995.
(3) Incorporated by reference to Exhibit 4.2 filed with the Company's
Registration Statement on Form S-8 (No. 33- 90782) filed with the
Commission on March 30, 1995.
(4) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 30, 1996 filed with
the Commission on June 7, 1996.
(5) Incorporated by reference to the exhibited filed with the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1996 filed with
the Commission on January 29, 1997.
(6) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997 filed with
the Commission on January 29, 1998.
(7) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 30, 1998 filed with
the Commission on June 2, 1998.
(8) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 31, 1998 filed with
the Commission on September 14, 1998.
(9) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1998.
(10) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 30, 1999.
(11) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q/A for the fiscal quarter ended July 31, 1999.
(12) Incorporated by reference to the exhibit filed with the Company's current
report on Form 8-K dated August 19, 1997 filed with the Commission on
August 25, 1997.
(13) Incorporated by reference to the exhibit filed with the Company's Amended
Quarterly Report on Form 10-Q/A for the fiscal quarter ended July 31, 1999.
(14) Incorporated by reference to the exhibit filed with the Company's current
report on Form 8-K dated January 20, 2000.
(b) Current Reports on Form 8-K: No Current Reports on Form 8-K were filed by
the Registrant during the fourth quarter of the fiscal year ended October
31, 1999.
(c) Exhibits:
The Index to Exhibits filed or incorporated by reference pursuant Item 601
of Regulation S-K and the Exhibits being filed with this Report are
included following the signature pages to this Form 10-K.
(d) Financial Statements of Subsidiaries or Affiliates:
Not Applicable.
43
<PAGE> 44
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 on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on January
25, 2000.
CAMERON ASHLEY BUILDING PRODUCTS, INC.
By: /s/ Garold E. Swan
------------------
Garold E. Swan
Executive Vice President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Garold E. Swan and John S. Davis, jointly
and severally, his attorney-in-fact, each with full power of substitution, for
him in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K and to file the same, with exhibits there to and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed by the following person on behalf of
the Registrant and in the capacities indicated on January 25, 2000.
SIGNATURE TITLE
/s/ Ronald R. Ross Chairman of the Board and Chief Executive Officer
- ------------------- (Principal Executive Officer)
Ronald R. Ross
/s/ Walter J. Muratori President and Director
- -----------------------
Walter J. Muratori
/s/ Garold E. Swan Executive Vice President and Chief Financial Officer
- ----------------------- (Principal Financial and Accounting Officer)
Garold E. Swan
/s/ J. Veronica Biggins Director
- ------------------------
J. Veronica Biggins
/s/ Richard L. Cravey Director
- ----------------------
Richard L. Cravey
/s/ Harry K. Hornish Director
- ---------------------
Harry K. Hornish
/s/ Lawrence P. Klamon Director
- -----------------------
Lawrence P. Klamon
/s/ Alan K. Swift Director
- ------------------
Alan K. Swift
/s/ Edwin A. Wahlen, Jr. Director
- ------------------------
Edwin A. Wahlen, Jr.
44
<PAGE> 45
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
----
<S> <C>
Independent Auditors' Report on Financial Statement Schedule 46
Schedule II - Valuation and Qualifying Accounts 47
Index to Exhibits 48
</TABLE>
45
<PAGE> 46
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Cameron Ashley Building Products,
Inc.:
We have audited the consolidated financial statements of Cameron Ashley Building
Products, Inc. and subsidiaries as of October 31, 1999 and 1998 and for each of
the three years in the period ended October 31, 1999 and have issued our report
thereon dated December 22, 1999, (January 24, 2000, as to Note 16). Our audits
also included the financial statement schedule listed in Item 14(a)(2) of this
Form 10-K. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas,
December 22, 1999
46
<PAGE> 47
SCHEDULE II
<TABLE>
<CAPTION>
CAMERON ASHLEY BUILDING PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
BALANCE AT CHARGES IN BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ADDITIONS CHARGE-OFFS PERIOD
- -------------------------------- ------------- ------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended October 31, 1997 $ 2,719 3,128 146(1) 2,498 $ 3,495
Year Ended October 31, 1998 $ 3,495 2,222 389(1) 2,892 $ 3,214
Year Ended October 31, 1999 $ 3,214 3,823 482(1) 2,896 $ 4,623
</TABLE>
(1) Amount represents the allowance for doubtful accounts of acquired businesses
as of the date of acquisition.
<TABLE>
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Year Ended October 31, 1997 $ 0 341 0 157 $ 184
Year Ended October 31, 1998 $ 184 0 0 184 $ 0
Year Ended October 31, 1999 $ 0 0 0 0 $ 0
</TABLE>
47
<PAGE> 48
INDEX TO EXHIBITS
(Includes only exhibits not incorporated by reference. See item 14 for
incorporated exhibits.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 - Amended and Restated Articles of Incorporation, as amended.
10.31 - Change in Control Employment Agreement between the Company and
Garold E. Swan dated as of October 25, 1999
10.32 - Change in Control Employment Agreement between the Company and
C. Steven Gaffney dated as of October 25, 1999
10.33 - Change in Control Employment Agreement between the Company and
John S. Davis dated as of October 25, 1999
10.34 - Employment agreement between the Company and Thomas R. Miller
Dated as of September 1, 1999.
10.35 - Change in control employment agreement between the Company and
Thomas R. Miller dated as of October 25,1999.
11.1 - Statement regarding computation of earnings per share.
21.1 - Subsidiaries of the Registrant.
23.1 - Consent of Deloitte & Touche LLP.
27 - Financial Data Schedule
</TABLE>
48
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
CGW BUILDING MATERIALS GROUP, INC.
I.
The name of the Corporation is CAMERON ASHLEY INC.
II.
The Corporation shall have authority to issue 20,100,000 shares of capital
stock, of which 20,000,000 shares shall be designated "Common Stock," and
100,000 shares shall be designated "Preferred Stock."
The designations and preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption and liquidation of the shares of capital stock are as
follows:
Common Stock
Subject to all of the rights of the Preferred Stock as expressly provided
herein, by law or by the Board of Directors pursuant to this Article II, the
Common Stock of the Corporation shall possess all such rights and privileges as
are afforded to capital stock by applicable law in the absence of any express
grant of rights or privileges provided for herein, including, but not limited
to, the following rights and privileges:
(a) The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders;
(b) The holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor; and
(c) Upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference, if any, which may be granted to the holders of
Preferred Stock.
Preferred Stock
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of each
series of Preferred Stock, including any preferences, conversion and other
rights, voting powers, restrictions,
<PAGE> 2
limitations as to dividends, qualifications, and terms and conditions of
redemption and liquidation shall be as set forth in resolutions adopted by the
Board of Directors, and articles of amendment shall be filed with the Georgia
Secretary of State as required by law to be filed with respect to issuance of
such Preferred Stock, prior to the issuance of any such shares.
The Board of Directors is expressly authorized at any time to adopt
resolutions providing for the issuance of, or providing for a change in the
number of, shares of any particular series of Preferred Stock and, if and to the
extent from time to time required by law, to file articles of amendment which
are effective without shareholder action to increase or decrease the number of
shares included in each series of Preferred Stock (but not to decrease the
number of shares in any series below the number of shares then issued), and,
prior to the issuance of any shares of the class or shares of the series so
affected, to set or change in any one or more respects the designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and conditions of
redemption and liquidation relating to the shares of each series.
III.
Except as otherwise provided in these Amended and Restated Articles of
Incorporation or pursuant to the terms of any authorized series of Preferred
Stock, the vote required for shareholder action on all matters shall be the
minimum vote required by the Georgia Business Corporation Code.
IV.
(a) The business and affairs of the Corporation shall be managed by, or
under the direction of, a Board of Directors comprised as follows:
1. The number of directors shall be fixed from time to time in
accordance with the Bylaws of the Corporation.
2. The directors shall be divided into three classes, designated as
Class I, Class II and Class III. Each class shall consist, as nearly as may
be possible, of one-third of the total number of directors constituting the
entire Board of Directors. At each Annual Meeting of Shareholders,
successors to the class of directors whose term expires at that Annual
Meeting of Shareholders shall be elected for a three-year term. If the
number of directors has changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to the Board of Directors to fill a vacancy resulting from an
increase in such a class shall hold office for a term that expires at the
next Annual
-2-
<PAGE> 3
Meeting of Shareholders, and in no case shall a decrease in the number of
directors for a class shorten the term of an incumbent director.
A director shall hold office until the Annual Meeting of Shareholders
for the year in which his or her term expires and until his or her
successor shall be elected and qualified, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
3. Any vacancy on the Board of Directors that results from an increase
in the number of directors or from prior death, resignation, retirement,
disqualification or removal from office of a director may be filled by a
majority of the Board of Directors then in office, though less than a
quorum, or by the sole remaining director. Any director elected to fill a
vacancy resulting from the death, resignation, retirement, disqualification
or removal from office of a director, shall have the same remaining term as
that of his or her predecessor.
4. At any meeting of shareholders with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual
director may be removed only for cause, by the affirmative vote of the
holders of a majority of all outstanding shares entitled to vote at an
election of directors.
(b) Except as may be prohibited by law or by these Amended and Restated
Articles of Incorporation, the Board of Directors shall have the right to make,
alter, amend, change, add to, or repeal the Bylaws of the Corporation, and have
the right (which, to the extent exercised, shall be exclusive) to establish the
rights, powers, duties, rules and procedures that from time to time shall govern
the Board of Directors, each of its members, including without limitation, the
vote required for any action by the Board of Directors, and that from time to
time shall affect the directors' powers to manage the business and affairs of
the Corporation. No Bylaw shall be adopted by shareholders that shall impair or
impede the implementation of the foregoing.
(c) Notwithstanding any other provisions of these Amended and Restated
Articles of Incorporation or the Bylaws of the Corporation (and notwithstanding
the fact that a lesser percentage for separate class vote for certain actions
may be permitted by law, by these Amended and Restated Articles of Incorporation
or by the Bylaws of the Corporation), the affirmative vote of the holders of not
less than eighty percent (80%) of the votes entitled to be cast by the holders
of all then outstanding shares of voting stock, voting together as a single
class, shall be required to make, alter, amend, change, add to or repeal any
provision of these Amended and Restated Articles of Incorporation or the Bylaws
of the Corporation inconsistent with this Article IV; provided, however, that
this Article IV(c) shall not apply to, and such eighty percent (80%) vote shall
not be required to alter, amend, change, add to or repeal any provisions of the
Bylaws relating to this Article IV, or this Article IV of these Amended and
Restated Articles of Incorporation, recommended by not less than two-thirds
(2/3) of the members of the Board of Directors.
-3-
<PAGE> 4
(d) The invalidity or unenforceability of this Article IV, or any portion
hereof, or of any action taken pursuant to this Article IV shall not affect the
validity or enforceability of any other provision of these Amended and Restated
Articles of Incorporation, any action taken pursuant to such other provision, or
any action taken pursuant to this Article IV.
V.
No director shall have any personal liability to the Corporation or to its
shareholders for monetary damages for breach of duty of care or other duty as a
director, by reason of any act or omission occurring subsequent to the date when
this provision becomes effective, except that this provision shall not eliminate
or limit the liability of a director for:
(a) Any appropriation of any business opportunity of the Corporation
in violation of his or her duties;
(b) Acts or omissions which involve intentional misconduct or a
knowing violation of law;
(c) Liabilities of a director imposed by Section 14-2-832 of the
Georgia Business Corporation Code; or
(d) Any transaction from which the director derived an improper
personal benefit.
VI.
The Corporation shall indemnify its officers and directors to the fullest
extent permitted under the Georgia Business Corporation Code as it exists now or
as hereafter may be amended. Such indemnification shall not be deemed exclusive
of any additional indemnification that the Board of Directors may deem advisable
or of any rights to which those indemnified may otherwise be entitled, whether
by statute, agreement with the Corporation or otherwise. The Board of Directors
may determine from time to time whether and to what extent to maintain insurance
providing indemnification for officers and directors and such insurance need not
be limited to the Corporation's power of indemnification under the Georgia
Business Corporation Code.
VII.
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors, and individual directors, in
addition to considering the effects of
-4-
<PAGE> 5
any action on the Corporation or its shareholders, may consider the interests of
the employees, customers, suppliers, and creditors of the Corporation and its
subsidiaries, the communities in which offices or other establishments of the
Corporation and its subsidiaries are located, and all other factors such
directors consider pertinent; provided, however, this Article VII is used solely
to grant discretionary authority to the directors and shall not be deemed to
provide to any constituency any right to be considered.
IN WITNESS WHEREOF, CGW BUILDING MATERIALS GROUP, INC. has caused these
Amended and Restated Articles of Incorporation to be executed by its duly
authorized officer on the 7th day of February, 1994.
CGW BUILDING MATERIALS GROUP, INC.
BY: /s/ JOHN H. BRADBERRY
-------------------------------
Name: John H. Bradberry
------------------------
Its: VICE PRESIDENT
------------------------
-5-
<PAGE> 6
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
CAMERON ASHLEY INC.
Cameron Ashley Inc. hereby files these Articles of Amendment and states as
follows:
1. The name of the corporation is Cameron Ashley Inc. (the "Corporation").
2. The Amended and Restated Articles of Incorporation of the Corporation
are hereby amended by adding thereto a new Article VIII as follows:
VIII
Any shares of common stork of the Corporation that are reacquired by the
Corporation shall become treasury shares.
3. The foregoing amendment was adopted by the Corporation's Board of
Directors on August 30, 1995. As provided in Section 14-2-631 of the Georgia
Business Corporation Code, the foregoing amendment did not require the approval
of the Corporation's shareholders.
IN WITNESS WHEREOF, the undersigned executes these Articles of Amendment
this 30th day of August 1995.
CAMERON ASHLEY INC.
By: /s/ JOHN S. DAVIS
-------------------------------
Title: Vice President,
Senior Counsel & Secretary
---------------------------
<PAGE> 7
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
CAMERON ASHLEY INC.
Cameron Ashley Inc. hereby files these Articles of Amendment and states as
follows:
1. The name of the corporation is Cameron Ashley Inc. (the "Corporation").
2. Effective upon the date of filing of these Articles of Amendment, the Amended
and Restated Articles of Incorporation of the Corporation shall be amended by
deleting Article I in its entirety and substituting in lieu thereof the
following:
"The name of the Corporation is Cameron Ashley Building Products, Inc."
3. All other provisions of the Amended and Restated Articles of Incorporation of
the Corporation shall remain in full force and effect.
4. This amendment was duly adopted by the Board of Directors of the Corporation
on November 20, 1995 and shareholder action was not required.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment this 20th day of November, 1995.
By: /s/ JOHN S. DAVIS
--------------------------------------
Name: John S. Davis
-------------------------------
Title: Vice President & Secretary
-------------------------------
<PAGE> 8
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
CAMERON ASHLEY BUILDING PRODUCTS, INC.
I.
The name of the corporation is Cameron Ashley Building Products, Inc. (the
"Corporation").
II.
Article II. of the Articles of Incorporation is hereby amended by adding a
new Section II-A., which shall consist of designation of Series A Preferred
Stock set forth on Exhibit "A" hereto.
III.
The foregoing amendment was adopted by the Corporation's Board of Directors
on August 19, 1997. Pursuant to Sections 14-2-1002 and 14-2-602 of the Georgia
Business Corporation Code and the Corporation's Articles of Incorporation,
shareholder approval of the amendment was not required.
IN WITNESS WHEREOF, the undersigned has caused these Articles of
Amendment to be duly executed this 25th day of June, 1998.
CAMERON ASHLEY BUILDING PRODUCTS, INC.
By: /s/ JOHN S. DAVIS
-----------------------------------
Name: John S. Davis
---------------------------
Title: Vice President
---------------------------
<PAGE> 9
EXHIBIT "A"
Series A Preferred Stock
Section 1. Designation and Amount. The shares of such series shall be
designated as Series A Preferred Stock and the number of shares constituting
such series shall be 10,000.
Section 2. Dividends and Distributions
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for that purpose,
quarterly dividends payable in cash on the 1st day of November, February, May
and August in each year commencing November 1, 1997 (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $0.01 or (b) subject to the
provision for adjustment hereinafter set forth, ten thousand (10,000) times the
aggregate per share amount of all cash dividends, and ten thousand (10,000)
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of the common
stock of the Corporation, no par value ("the Common Stock"), or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any time after August 19,
1997 (the "Rights Declaration Date") (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $0.01 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date
<PAGE> 10
of issue of such shares of Series A Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than thirty (30) days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth each
share of Series A Preferred Stock shall entitle the holder thereof to ten
thousand (10,000 votes on all matters submitted to a vote of the shareholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then it each such case
the number of votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation. Except as otherwise provided herein or by law,
the holders of the shares of Series A Preferred Stock shall not be entitled to
vote as a separate class on any matters submitted to a vote of the shareholders.
(C) (i) If at any time dividends on any Series A Preferred Stock shall
be in arrears in an amount equal to six (6) quarterly dividends thereon, the
holders of the Series A Preferred Stock, voting as a separate series from all
other series of Preferred Stock and classes of capital stock, shall be entitled
to elect two members of the Board of Directors in addition to any directors
elected by any other series, class or classes of securities, and the authorized
number of directors will automatically be increased by two. Promptly thereafter,
the Board of Directors of this Corporation shall, as soon as may be practicable,
call a special meeting of holders of Series A Preferred Stock for the purpose of
electing such members of the Board of Directors. Said special meeting shall in
any event be held within 45 days of the occurrence of such arrearage.
-2-
<PAGE> 11
(ii) During any period when the holders of Series A Preferred
Stock, voting as a separate series, shall be entitled and shall have exercised
their right to elect two directors, then and during such time as such right
continues (a) the then authorized number of directors shall be increased by two,
and the holders of Series A Preferred Stock, voting as a separate series, shall
be entitled to elect the additional directors so provided for, and (b) each such
additional director shall not be a member of any existing class of the Board of
Directors, but shall serve until the next annual meeting of shareholders for the
election of directors, or until his successor shall be elected and shall
qualify, or until his right to hold such office terminates pursuant to the
provisions of this Section 3(C).
(iii) A director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Preferred Stock
entitled to vote in an election of such Director.
(iv) If during any interval between annual meetings of
shareholders for the election of directors and while the holders of Series A
Preferred Stock shall be entitled to elect two directors, there is no such
director in office by reason of resignation, death or removal, then, promptly
thereafter, the Board of Directors shall call a special meeting of the holders
of Series A Preferred Stock for the purpose of filling such vacancy and such
vacancy shall be filled at such special meeting. Such special meeting shall in
any event be held within 90 days of the occurrence of such vacancy, unless an
annual meeting of shareholders is scheduled during such 90-day period.
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A Preferred Stock
outstanding are paid, and, in addition thereto, at least one regular dividend
has been paid subsequent to curing such arrearage, the term of office of any
directors elected pursuant to this Section 3(C), or his successor, shall
automatically terminate, and the authorized number of directors shall
automatically decrease by two, the rights of the holders of the shares of the
Series A Preferred Stock to vote as provided in this Section 3(C) shall cease,
subject to renewal from time to time upon the same terms and conditions, and the
holders of shares of the Series A Preferred Stock shall have only the limited
voting rights elsewhere herein set forth.
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
-3-
<PAGE> 12
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to, the Series A Preferred Stock;
(ii) declare or pay dividends on, or make any other distributions
on, any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all such junior stock
on which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity with the
Series A Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
-4-
<PAGE> 13
$144.00 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Notwithstanding any provision of the
Amended And Restated Articles of Incorporation, as amended, to the contrary,
following the payment of the full amount of the Series A Liquidation Preference,
no additional distributions shall be made to the holders of shares of Series A
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
ten thousand (10,000) (as appropriately adjusted as set forth in paragraph (C)
of this Section to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii)
immediately above being referred to as the "Adjustment Number"). Following the
payment of the full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Preferred Stock and
Common Stock, respectively, holders of Series A Preferred Stock and holders of
shares of Common Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment Number to
one (1) with respect to such Preferred Stock and Common Stock, on a per share
basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation. Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock,
securities, cash or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to ten thousand (10,000) times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (ii) combine the
outstanding
-5-
<PAGE> 14
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. Redemption. The outstanding shares of Series A Preferred Stock
may be redeemed at the option of the Board of Directors as a whole, but not in
part, at any time, or from time to time, at a cash price per share equal to one
hundred five percent (105%) of (i) the product of the Adjustment Number times
the Average Market Value (as such term is hereinafter defined) of the Common
Stock, plus (ii) all dividends which on the redemption date have accrued on the
shares to be redeemed and have not been paid, or declared and a sum sufficient
for the payment thereof set apart, without interest. The "Average Market Value"
is the average of the closing sale prices of the Common Stock during the thirty
(30) day period immediately preceding the date before the redemption date on the
Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is
not quoted on the Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended, on
which such stock is listed, or, if such stock is not listed on any such
exchange, the average of the closing sale prices with respect to a share of
Common Stock during such thirty (30) day period, as quoted on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use, or if no such quotations are available, the fair market
value of the Common Stock as determined by the Board of Directors in good faith.
Section 9. Ranking. The Series A Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment. Except as otherwise provided in the Amended And
Restated Articles of Incorporation, as amended, or by law, the Amended And
Restated Articles of Incorporation of the Corporation, as amended, shall not be
further amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a majority or more
of the outstanding shares of Series A Preferred Stock, voting separately as a
class.
Section 11. Fractional Shares. At the Corporation's sole discretion, Series
A Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Preferred Stock.
-6-
<PAGE> 1
EXHIBIT 10.31
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between Cameron Ashley Building Products, Inc., a
Georgia corporation (the "Company") and GAROLD E. SWAN (the "Executive"), dated
as of the 25th day of October, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change in Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change in Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change in Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change in Control Period (as defined in Section l(b)) on which a Change in
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, the "Effective Date" shall mean the date immediately
prior to the date of the Executive's termination of employment, if such
termination occurs either (i) within six (6) months prior to a Change in
Control; or (ii) prior to a Change in Control and reasonably demonstrated by the
Executive to be at the request of a third party who has taken steps reasonably
calculated to effect a Change on Control or otherwise arising in connection with
or anticipation of a Change in Control.
(b) The "Change in Control Period" shall mean the period
commencing on the date hereof and ending on the fifth anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change in Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change in Control Period shall not be so extended.
(c) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of
<PAGE> 2
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2. Change in Control. For the purposes of this Agreement, a "Change in
Control" shall mean the first to occur of the following events:
(i) any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Section 13(d) and 14(d) thereof), excluding the Company, any Subsidiary and any
employee benefit plan sponsored or maintained by the Company or any Subsidiary
(including any trustee of such plan acting as trustee thereof), but including a
'group' as defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes
the beneficial owner of shares of the Company having at least thirty percent
(30%) of the total number of votes that may be cast for the election of
directors of the Company (the "Voting Shares") (such 30% or greater percentage
hereinafter referred to as the "Voting Share Percentage"); provided that no
Change of Control will occur as a result of an acquisition of stock by the
Company which increases, proportionately, the stock representing the voting
power of the Company owned by such person or group above the Voting Share
Percentage, and provided further that if such person or group acquires stock
representing more than the Voting Share Percentage by reason of share purchases
by the Company, and after such share purchases by the Company acquires any
additional shares representing voting power of the Company, then a Change of
Control shall occur;
(ii) the shareholders of the Company shall approve any merger
or other business combination of the Company, sale of the Company's assets or
combination of the foregoing transactions (a "Transaction") other than a
Transaction involving only the Company, or one or more of its Subsidiaries, or a
Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity; or
(iii) within any 24-month period beginning on or after the
Effective Date, the persons who were directors of the Company immediately before
the beginning of such period (the "Incumbent Directors") shall cease (for any
reason other than death) to constitute at least a majority of the Board of
Directors or the board of directors of any successor to the Company, provided
that any director who was not a director as of the Effective Date shall be
deemed to be an Incumbent Director if such director was elected to the Board of
Directors by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors either
actually or by prior operation of this clause (iii); and provided further that
any director elected to the Board of Directors to avoid or settle a threatened
or actual proxy contest shall in no event be deemed to be an Incumbent Director.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company
-2-
<PAGE> 3
subject to the terms and conditions of this Agreement, for the period commencing
on the Effective Date and ending on the second anniversary of such date (the
"Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
-3-
<PAGE> 4
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's highest bonus under the Company's Annual Incentive Bonus
Plan, or any comparable bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective Date (annualized in the
event that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid
no later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of
-4-
<PAGE> 5
related expenses, in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in effect for
the Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief
-5-
<PAGE> 6
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company business to
a substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
-6-
<PAGE> 7
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore paid, (2)
the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year during
-7-
<PAGE> 8
the Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of which is the number
of days in the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) subject to any prior election by the
Executive to receive such deferred amounts in installments, any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two
and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. the amount equal to the excess of (a) the
actuarial equivalent of the benefit the Executive would have been paid under all
employee retirement plans maintained by the Company in effect as of his date of
termination, including, to the extent such plan is then maintained by the
Company, the Cameron Ashley 401(k) Plan and any successor plan or plans, if he
had been fully vested and had continued to be covered for a period of
twenty-four (24) months from the Date of Termination as if the Executive had
earned the compensation described in Section 4(b)(i) and (ii) hereof during such
period and had made contributions sufficient to earn the maximum matching
contribution, if any, under such plan (less any amounts he would have been
required to contribute), over (b) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under such plan(s) as of the Date of
Termination.
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes re-employed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until two years after the Date of
Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or
-8-
<PAGE> 9
provided or which the Executive is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations
-9-
<PAGE> 10
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set- off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except to
the extent provided in Section 6(a)(ii) hereof, such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this
-10-
<PAGE> 11
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte & Touche LLP or such other certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall-be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
-11-
<PAGE> 12
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of
-12-
<PAGE> 13
such advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than-by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
-13-
<PAGE> 14
If to the Executive:
Garold E. Swan
9641 Viewside Drive
Dallas, Texas 75231
If to the Company:
Cameron Ashley Building Products, Inc.
11651 Plano Road
Dallas, Texas 75243
Attention: Chairman
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof, including the Prior
Agreement, and the parties acknowledge that this Agreement is executed in
renewal and extension of the Prior Agreement.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Garold E. Swan
----------------------------------------
Garold E. Swan
CAMERON ASHLEY BUILDING
PRODUCTS, INC.
By: /s/ Ronald R. Ross
------------------------------------
Ronald R. Ross, Chairman & CEO
-15-
<PAGE> 1
EXHIBIT 10.32
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between Cameron Ashley Building Products, Inc., a
Georgia corporation (the "Company") and C. STEVEN GAFFNEY (the "Executive"),
dated as of the 25th day of October, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change in Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change in Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change in Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change in Control Period (as defined in Section l(b)) on which a Change in
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, the "Effective Date" shall mean the date immediately
prior to the date of the Executive's termination of employment, if such
termination occurs either (i) within six (6) months prior to a Change in
Control; or (ii) prior to a Change in Control and reasonably demonstrated by the
Executive to be at the request of a third party who has taken steps reasonably
calculated to effect a Change on Control or otherwise arising in connection with
or anticipation of a Change in Control.
(b) The "Change in Control Period" shall mean the period
commencing on the date hereof and ending on the fifth anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change in Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change in Control Period shall not be so extended.
(c) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of
<PAGE> 2
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2. Change in Control. For the purposes of this Agreement, a "Change in
Control" shall mean the first to occur of the following events:
(i) any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Section 13(d) and 14(d) thereof), excluding the Company, any Subsidiary and any
employee benefit plan sponsored or maintained by the Company or any Subsidiary
(including any trustee of such plan acting as trustee thereof), but including a
'group' as defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes
the beneficial owner of shares of the Company having at least thirty percent
(30%) of the total number of votes that may be cast for the election of
directors of the Company (the "Voting Shares") (such 30% or greater percentage
hereinafter referred to as the "Voting Share Percentage"); provided that no
Change of Control will occur as a result of an acquisition of stock by the
Company which increases, proportionately, the stock representing the voting
power of the Company owned by such person or group above the Voting Share
Percentage, and provided further that if such person or group acquires stock
representing more than the Voting Share Percentage by reason of share purchases
by the Company, and after such share purchases by the Company acquires any
additional shares representing voting power of the Company, then a Change of
Control shall occur;
(ii) the shareholders of the Company shall approve any merger
or other business combination of the Company, sale of the Company's assets or
combination of the foregoing transactions (a "Transaction") other than a
Transaction involving only the Company, or one or more of its Subsidiaries, or a
Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity; or
(iii) within any 24-month period beginning on or after the
Effective Date, the persons who were directors of the Company immediately before
the beginning of such period (the "Incumbent Directors") shall cease (for any
reason other than death) to constitute at least a majority of the Board of
Directors or the board of directors of any successor to the Company, provided
that any director who was not a director as of the Effective Date shall be
deemed to be an Incumbent Director if such director was elected to the Board of
Directors by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors either
actually or by prior operation of this clause (iii); and provided further that
any director elected to the Board of Directors to avoid or settle a threatened
or actual proxy contest shall in no event be deemed to be an Incumbent Director.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
-2-
<PAGE> 3
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus
-3-
<PAGE> 4
(the "Annual Bonus") in cash at least equal to the Executive's highest bonus
under the Company's Annual Incentive Bonus Plan, or any comparable bonus under
any predecessor or successor plan, for the last three full fiscal years prior to
the Effective Date (annualized in the event that the Executive was not employed
by the Company for the whole of such fiscal year) (the "Recent Annual Bonus").
Each such Annual Bonus shall be paid no later than the end of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and
-4-
<PAGE> 5
policies of the Company and its affiliated companies in effect for the Executive
at any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief
-5-
<PAGE> 6
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company business to
a substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
-6-
<PAGE> 7
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was
-7-
<PAGE> 8
employed for less than twelve full months), for the most recently completed
fiscal year during the Employment Period, if any (such higher amount being
referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (3) subject to any prior
election by the Executive to receive such deferred amounts in installments, any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in clauses (1),
(2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
C. the amount equal to the excess of (a) the
actuarial equivalent of the benefit the Executive would have been paid under all
employee retirement plans maintained by the Company in effect as of his date of
termination, including, to the extent such plan is then maintained by the
Company, the Cameron Ashley 401(k) Plan and any successor plan or plans, if he
had been fully vested and had continued to be covered for a period of
twenty-four (24) months from the Date of Termination as if the Executive had
earned the compensation described in Section 4(b)(i) and (ii) hereof during such
period and had made contributions sufficient to earn the maximum matching
contribution, if any, under such plan (less any amounts he would have been
required to contribute), over (b) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under such plan(s) as of the Date of
Termination.
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes re-employed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until two years after the Date of
Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion; and
-8-
<PAGE> 9
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall
-9-
<PAGE> 10
terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such case,
all Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except to
the extent provided in Section 6(a)(ii) hereof, such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes
-10-
<PAGE> 11
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte & Touche LLP or such other certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall-be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due).
-11-
<PAGE> 12
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund
-12-
<PAGE> 13
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), a determination is made that- the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall-be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than-by a written
-13-
<PAGE> 14
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Steve Gaffney
Tampa, Florida
If to the Company:
Cameron Ashley Building Products, Inc.
11651 Plano Road
Dallas, Texas 75243
Attention: Chairman
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other
-14-
<PAGE> 15
agreement between the parties with respect to the subject matter hereof,
including the Prior Agreement, and the parties acknowledge that this Agreement
is executed in renewal and extension of the Prior Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ C. Steven Gaffney
----------------------------------------
C. Steven Gaffney
CAMERON ASHLEY BUILDING
PRODUCTS, INC.
By: /s/ Ronald R. Ross
-----------------------------------
Ronald R. Ross, Chairman & CEO
-15-
<PAGE> 1
EXHIBIT 10.33
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between Cameron Ashley Building Products, Inc., a
Georgia corporation (the "Company") and JOHN S. DAVIS (the "Executive"), dated
as of the 25th day of October, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change in Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change in Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change in Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change in Control Period (as defined in Section l(b)) on which a Change in
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, the "Effective Date" shall mean the date immediately
prior to the date of the Executive's termination of employment, if such
termination occurs either (i) within six (6) months prior to a Change in
Control; or (ii) prior to a Change in Control and reasonably demonstrated by
the Executive to be at the request of a third party who has taken steps
reasonably calculated to effect a Change on Control or otherwise arising in
connection with or anticipation of a Change in Control.
(b) The "Change in Control Period" shall mean the period
commencing on the date hereof and ending on the fifth anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change in Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change in Control Period shall not be so extended.
(c) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
<PAGE> 2
2. Change in Control. For the purposes of this Agreement, a "Change in
Control" shall mean the first to occur of the following events:
(i) any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Section 13(d) and 14(d) thereof), excluding the Company, any Subsidiary and any
employee benefit plan sponsored or maintained by the Company or any Subsidiary
(including any trustee of such plan acting as trustee thereof), but including a
'group' as defined in Section 13(d)(3) of the Exchange Act (a "Person"),
becomes the beneficial owner of shares of the Company having at least thirty
percent (30%) of the total number of votes that may be cast for the election of
directors of the Company (the "Voting Shares") (such 30% or greater percentage
hereinafter referred to as the "Voting Share Percentage"); provided that no
Change of Control will occur as a result of an acquisition of stock by the
Company which increases, proportionately, the stock representing the voting
power of the Company owned by such person or group above the Voting Share
Percentage, and provided further that if such person or group acquires stock
representing more than the Voting Share Percentage by reason of share purchases
by the Company, and after such share purchases by the Company acquires any
additional shares representing voting power of the Company, then a Change of
Control shall occur;
(ii) the shareholders of the Company shall approve any merger
or other business combination of the Company, sale of the Company's assets or
combination of the foregoing transactions (a "Transaction") other than a
Transaction involving only the Company, or one or more of its Subsidiaries, or
a Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity; or
(iii) within any 24-month period beginning on or after the
Effective Date, the persons who were directors of the Company immediately
before the beginning of such period (the "Incumbent Directors") shall cease
(for any reason other than death) to constitute at least a majority of the
Board of Directors or the board of directors of any successor to the Company,
provided that any director who was not a director as of the Effective Date
shall be deemed to be an Incumbent Director if such director was elected to the
Board of Directors by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually or by prior operation of this clause (iii); and provided
further that any director elected to the Board of Directors to avoid or settle
a threatened or actual proxy contest shall in no event be deemed to be an
Incumbent Director.
-2-
<PAGE> 3
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the second
anniversary of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce
-3-
<PAGE> 4
any other obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's highest bonus under the Company's Annual Incentive Bonus
Plan, or any comparable bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective Date (annualized in the
event that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid
no later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
-4-
<PAGE> 5
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
-5-
<PAGE> 6
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
-6-
<PAGE> 7
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company business to
a substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of
such notice, specifies the termination date (which date shall be not more than
30 days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such
-7-
<PAGE> 8
termination and (iii) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination, and the denominator
of which is 365 and (3) subject to any prior election by the Executive to
receive such deferred amounts in installments, any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1)
two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
C. the amount equal to the excess of (a) the
actuarial equivalent of the benefit the Executive would have been paid under all
employee retirement plans maintained by the Company in effect as of his date of
termination, including, to the extent such plan is then maintained by the
Company, the Cameron Ashley 401(k) Plan and any successor plan or plans, if he
had been fully vested and had continued to be covered for a period of
twenty-four (24) months from the Date of Termination as if the Executive had
earned the compensation described in Section 4(b)(i) and (ii) hereof during such
period and had made contributions sufficient to earn the maximum matching
contribution, if any, under such plan (less any amounts he would have been
required to contribute), over (b) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under such plan(s) as of the Date of
Termination.
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the
-8-
<PAGE> 9
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section 4(b)(iv)
of this Agreement if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive becomes
re-employed with another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until two
years after the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further
-9-
<PAGE> 10
obligations to the Executive, other than for payment of Accrued Obligations and
the timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the Executive shall
be entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set- off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except to
the extent provided in Section 6(a)(ii) hereof, such amounts shall not be
reduced whether or not the Executive obtains other employment.
-10-
<PAGE> 11
The Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte & Touche LLP or such other certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive shall
-11-
<PAGE> 12
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall-be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
-12-
<PAGE> 13
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation of the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest- free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that- the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall-be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10
-13-
<PAGE> 14
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than-by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
John S. Davis
2704 Westminster
Dallas, Texas 75205
-14-
<PAGE> 15
If to the Company:
Cameron Ashley Building Products, Inc.
11651 Plano Road
Dallas, Texas 75243
Attention: Chairman
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof, including the Prior
Agreement, and the parties acknowledge that this Agreement is executed in
renewal and extension of the Prior Agreement.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf, all
as of the day and year first above written.
/s/John S. Davis
----------------------------------
John S. Davis
CAMERON ASHLEY BUILDING
PRODUCTS, INC.
By: /s/Ronald R. Ross
------------------------------
Ronald R. Ross, Chairman & CEO
-16-
<PAGE> 1
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made, effective as of the 1st day of September, 1999,
between WM. CAMERON & CO., a Georgia corporation dba CAMERON ASHLEY BUILDING
PRODUCTS (the "Company") and Thomas R. Miller, a resident of the State of Texas
("Executive").
BACKGROUND
Executive has been employed by the Company as an executive employee
since December 1,1994. In recognition of Executive's prior service to the
Company and the Company's desire to retain the future services of Executive, the
Company desires to enter into a written agreement for the employment
relationship with Executive, and Executive desires to continue employment on the
terms and conditions set forth.
AGREEMENT
In consideration of the continued employment of Executive by the
Company, the premises, and the mutual agreements hereinafter set forth, the
parties agree:
1. Definitions. The following terms used herein shall have the
definitions set forth below:
(a) "Business" or "Business of the Company" means the business of
distribution of building materials.
(b) "Cause" means conduct amounting to fraud or dishonesty against
the Company; Executive's willful violation of Sections 2(a) or (b) hereof, or
any of the Company's work rules or policies or repeated absences from work
without a reasonable excuse, if the Board of Directors of the Parent notifies
Executive of such violation or absence in writing and Executive fails to cure
such violation or absenteeism within five (5) days after written notice has been
given, provided that written notice relating to such violation or absenteeism
shall only be given once as it relates to a particular manner of conduct;
intoxication with alcohol or drugs while on Company business during regular
business hours; a conviction or plea of guilty or nolo contendere to a felony or
a crime involving dishonesty against the Company; or Executive's failure to
observe the requirements of Sections 2(c), 5 or 6 hereof.
(c) "Disability" means (i) the inability of Executive to perform the
duties of Executive's employment due to physical or emotional incapacity or
illness, where such inability is expected to be a long-continued and indefinite
duration or (ii) Executive shall be entitled to (x) disability retirement
benefits under the federal Social Security Act or (y) recover benefits under any
long-term disability plan or policy maintained by the Company. In the event of a
dispute, the determination of Disability shall be made by the Board of Directors
of the Company and shall be supported by advice of a physician competent in the
area to which such Disability relates.
(d) "Effective Date" means the date set forth above.
<PAGE> 2
2. Terms of Engagement; Duties
(a) The Company hereby employs Executive, commencing on the
Effective Date, and Executive hereby accepts employment by the Company subject
to the terms and conditions hereof. Executive is engaged initially with the
title and functions of Vice President of Human Resources of the Company and of
the Company's parent company, Cameron Ashley Building Products, Inc. ("Parent").
Executive shall perform the duties assigned by the Board of Directors of the
Company and the Parent from time to time, and as are provided in the Bylaws of
the Company and the Parent. Nothing herein shall preclude the Chairman and Chief
Executive Officer of the Company from changing the Employee's title and duties
if such officer has concluded in his reasonable judgment that such change is in
the Company's best interests.
(b) Throughout the term of this Agreement, Executive shall:
(i) devote all of Executive's business effort, time, energy,
and skill (reasonable vacations and reasonable absences due to illness
excepted) to the duties assigned by the Board of Directors of the
Company and the Parent;
(ii) faithfully, loyally, and industriously perform such
duties, subject to the control and supervision of the Board of
Directors of the Company and the Parent; and
(iii) diligently follow and implement all lawful management
policies and decisions of the Company and the Parent that are
communicated to Executive.
(c) During the term of this Agreement, Executive shall not be
engaged (whether or not during normal business hours) in any other business or
professional activity, whether or not such activity is pursued for gain, profit
or other pecuniary advantage that is contrary to the provisions of Section
2(b)(i) above; provided, however, that this restriction shall not be construed
as preventing Executive from (i) investing his personal assets in businesses
which do not compete with the Company in such form or manner as will not require
any services on the part of Executive in the operation or the affairs of the
companies in which such investments are made and in which his participation is
solely that of an investor or (ii) purchasing securities in any corporation
whose securities are regularly traded provided that such purchase shall not
result in his collectively owning beneficially at any time five (5%) percent or
more of the equity securities of any corporation engaged in a business
competitive to that of the Company.
3. Compensation. In consideration of the services rendered by Executive
pursuant to this Agreement, the Company shall provide the following:
(a) A base salary of One Hundred Fifty Seven Thousand Five Hundred
Dollars ($157,500) per annum (the "Base Salary") which Base Salary will be
reviewed periodically and may be increased by the Company from time to time. The
Base Salary shall be paid in accordance with the Company's standard payroll
practices in effect from time to time, and shall be subject to such deductions
and withholdings as are required by law or by policies of the Company.
-2-
<PAGE> 3
(b) Executive shall be eligible to be considered for an annual
cash performance bonus, which may consist of an amount of up to sixty percent
(60%) of the Base Salary in the applicable year based on the attainment of
performance objectives established by the Board of Directors of the Company and
the Parent in good faith and Executive's contributions to the attainment of
those objectives, and shall be in such amount and payable in such manner and on
such terms as are determined by the Board of Directors of the Company and the
Parent in good faith. Nothing contained in this subsection (b) shall obligate
the Company to pay a bonus to Executive, unless the Board of Directors of the
Company and the Parent determines to award such a bonus to Executive.
(c) The right to participate in any insurance plans maintained
by the Company from time to time to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate, and such other fringe benefits as are provided to the other senior
management employees of the Company, provided that the Company shall not be
required to adopt or continue any insurance plans or fringe benefits.
(d) Reimbursement for all reasonable business expenses
incurred by Executive in connection with the Business of the Company (including
car allowance of $600.00 per month) subject to compliance with the expense
reimbursement policies established by the Company and in sufficient detail to
comply with Internal Revenue Service Regulations.
(e) The remuneration and benefits set forth in this Section 3
shall be the only compensation payable to Employee with respect to his
employment hereunder, and Employee shall not be entitled to receive any
compensation in addition to that set forth in this Section 3 for any services
rendered by him in any capacity to the Company or any affiliated corporation
unless agreed to in writing by the Company or such affiliated corporation.
4. Term and Termination of this Agreement. The term of employment of
Executive pursuant to this Agreement shall commence on the Effective Date and
shall continue for a term of five (5) years, or until sooner terminated as
provided herein.
(a) Executive's employment hereunder may be terminated:
(i) Upon the death or Disability of
Executive;
(ii) By the Company, immediately for Cause;
(iii) By Executive upon ninety (90) days
prior written notice to the Company;
(iv) By Company immediately upon written
notice to Executive; or
(v) By mutual agreement between Executive
and the Company.
-3-
<PAGE> 4
(b) Except as set forth below, upon termination of Executive's
employment hereunder pursuant to this Section 4, the Company shall have no
further obligation to Executive or his personal representative with respect to
remuneration due under this Agreement, except for Base Salary earned but unpaid
at date of termination, provided however, Executive's covenants in Sections 5
and 6 of this Agreement shall survive the termination of Executive's employment
hereunder. Upon termination of Executive's employment hereunder pursuant to
Section 4(a)(iv) above, Executive shall be entitled to receive severance pay
(the "Severance Amount") consisting of an amount equal to Executive's then
current annualized Base Salary paid over a twelve (12) month period in
accordance with the Company's standard payroll practices in effect at the time
of termination. Executive may also elect Company paid executive outplacement
services provided by Drake, Beam, Morin (Dallas, Texas) for such period of
severance. If Executive elects to continue coverage on the Company's health plan
upon termination of employment pursuant to Section 4(a)(iv) above, the Company
will pay the monthly premiums for the first twelve months of the eligible
continuation period or until Executive obtains employment and has satisfied any
necessary waiting periods under the new employer's health plan, whichever is
sooner. It is understood that Executive's coverage under the Company's
disability, accidental death or dismemberment and group life insurance plans
cease as of the date of termination. If Executive fails to observe the
requirements of Sections 5 or 6 hereof, then the Company shall have no
obligation to pay any portion of the Severance Amount remaining unpaid to
Executive.
5. Ownership, Non-Disclosure, and Non-Use of Trade Secrets.
(a) The following terms used in this Section 5 shall have the
definitions set forth below:
(i) "Excluded Information" means any data or
information that is a Trade Secret hereunder (1) that has been
voluntarily disclosed to the public by the Company or has become
generally known to the public (except where such public disclosure has
been made by or through the Executive or by a third person or entity
with the knowledge of the Executive without authorization by the
Company); (2) that has been independently developed and disclosed by
parties other than the Executive or the Company to the Executive or to
the public generally without a breach of any obligation of
confidentiality by any such person running directly or indirectly to
the Company; or (3) that otherwise enters the public domain through
lawful means.
(ii) "Trade Secrets" means information which
derives economic value, actual or potential, from not being generally
known and not being readily ascertainable to other persons who can
obtain economic value from its disclosure or use and which is the
subject of efforts that are reasonable under the circumstances to
maintain its secrecy or confidentiality. Trade Secrets may include
either technical or non-technical data, including without limitation,
(1) any useful process, machine, chemical formula, composition of
matter, or other device which (A) is new or which Executive has a
reasonable basis to believe may be new, (B) is being used or studied by
the Company and is not described in a printed patent or in any
literature already published and distributed externally by the Company,
and
-4-
<PAGE> 5
(C) is not readily ascertainable from inspection of a product of the
Company; (2) any engineering, technical, or product specifications
including those of features used in any current product of the Company
or to be used, or the use of which is contemplated, in a future product
of the Company; (3) any application, operating system, communication
system, or other computer software (whether in source or object code)
and all flow charts, algorithms, coding sheets, routines, subroutines,
compilers, assemblers, design concepts, test data, documentation, or
manuals related thereto, whether or not copyrighted, patented or
patentable, related to or used in the Business of the Company; or (4)
information concerning the customers, suppliers, products, pricing
strategies of the Company, personnel assignments and policies of the
Company, or matters concerning the financial affairs and management of
the Company or any parent, subsidiary, or affiliate of the Company;
provided however, that Trade Secrets shall not include any Excluded
Information.
(b) Executive acknowledges and agrees that all Trade Secrets,
and all physical embodiments thereof, are confidential to and shall be and
remain the sole and exclusive property of the Company and that any Trade Secrets
produced by the Executive during the period of Executive's employment by the
Company shall be considered "work for hire" as such term is defined in 17 U.S.C.
Section 101, the ownership and copyright of which shall be vested solely in the
Company. Executive agrees (i) immediately to disclose to the Company all Trade
Secrets developed in whole or part by Executive during the term of Executive's's
employment by the Company, and (ii) at the request and expense of the Company,
to do all things and sign all documents or instruments reasonably necessary in
the opinion of the Company to eliminate any ambiguity as to the rights of the
Company in such Trade Secrets including, without limitation, providing to the
Company Executive's full cooperation in any litigation or other proceeding to
establish, protect, or obtain such rights. Upon request by the Company, and in
any event upon termination of Executive's employment by the Company for any
reason, Executive shall promptly deliver to the Company all property belonging
to the Company including, without limitation, all Trade Secrets (and all
embodiments thereof) then in Executive's custody, control or possession.
(c) Executive agrees that all Trade Secrets of the Company
received or developed by Executive as a result of Executive's employment with
the Company will be held in trust and strictest confidence, that Executive will
protect such Trade Secrets from disclosure, and that Executive will make no use
of such Trade Secrets, except in connection with Executive's employment
hereunder, without the Company's prior written consent. The obligations of
confidentiality contained in this Agreement will apply during Executive's
employment by the Company and (i) with respect to all Trade Secrets consisting
of scientific or technical data, at any and all times after expiration or
termination (for whatever reason) of such employment; and (ii) with respect to
all other Trade Secrets, for a period of two (2) years after such expiration or
termination, unless a longer period of protection is provided by law.
6. Noncompete; Nonsolicitation Covenants.
(a) The following terms used in this Section 6 shall have the
definitions set forth below:
-5-
<PAGE> 6
(i) "Affiliate" means any person or entity
directly or indirectly controlling, controlled by, or under common
control with Executive. As used herein, the word "control" means the
power to direct the management and affairs of a person.
(ii) "Area" means all of North America.
(iii) "Competing Enterprise" means any
person or any business organization of whatever form, engaged directly
or indirectly within the Area in the Business of the Company.
(b) Executive covenants that Executive shall, during the term
of this Agreement and for a period of one (1) year following the termination,
for whatever reason, of Executive's employment by the Company, observe the
following separate and independent covenants:
(i) Neither Executive nor any Affiliate
will, without the prior written consent of the Company, within the
Area, either directly or indirectly, (A) become financially interested
in a Competing Enterprise (other than as a holder of less than five
percent of the outstanding voting securities of any entity whose voting
securities are listed on a national securities exchange or quoted by
the National Association of Securities Dealers, Inc. automated
quotation system), or (B) engage in or be employed by any Competing
Enterprise as a consultant, officer, director, or executive or
managerial employee.
(ii) Neither Executive nor any Affiliate
will, without the prior written consent of the Company, either directly
or indirectly, on Executive's own behalf or in the service or on behalf
of others, solicit, divert, or appropriate, or attempt to solicit,
divert, or appropriate, to any Competing Enterprise within the Area, or
make any disparaging comment about the Company to, any person or entity
whose account with the Company was serviced by or under Executive's
direction or supervision during the term of this Agreement.
(iii) Neither Executive nor any Affiliate
will, without the Company's prior written consent, either directly or
indirectly, on Executive's own behalf or in the service or on behalf of
others, solicit, divert, or hire away, or attempt to solicit, divert,
or hire away, or make any disparaging comment about the Company to, any
person employed by the Company, whether or not such employee is a
full-time or a temporary employee of the Company and whether or not
such employment is pursuant to written agreement and whether or not
such employment is at will.
7. Remedies. Executive acknowledges and agrees that the Company is
engaged in the Business of the Company in and throughout the Area, and that by
virtue of the training, duties, and responsibilities attendant with Executive's
employment by the Company and the special knowledge of the business and
operations of the Company that Executive will have as a consequence of
Executive's employment by the Company, great loss and irreparable damage would
be suffered by the Company if the Executive should breach or violate any of the
terms or provisions of the covenants and agreements set forth herein. Executive
further acknowledges and agrees that each such covenant and agreement is
reasonably necessary to protect and preserve the interest of the
-6-
<PAGE> 7
Company. Therefore, in addition to all the remedies provided at law or in
equity, Executive agrees and consents that the Company shall be entitled to a
temporary restraining order and a permanent injunction to prevent a breach or
contemplated breach of any of the covenants or agreements of Executive contained
herein. The existence of any claim, demand, action or cause of action of
Executive against the Company shall not constitute a defense to the enforcement
by the Company of any of the covenants or agreements herein whether predicated
upon this Agreement or otherwise, and shall not constitute a defense to the
enforcement by the Company of any of its rights hereunder.
8. General Provisions.
(a) In the event that any one or more of the provisions, or
parts of any provisions, contained in the Agreement shall for any reason be held
to be invalid, illegal, or unenforceable in any respect by a court of competent
jurisdiction, the same shall not invalidate or otherwise affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
Specifically, but without limiting the foregoing in any way, each of the
covenants of the parties to this Agreement contained herein shall be deemed and
shall be construed as a separate and independent covenant and should any part or
provision of any of such covenants be held or declared invalid by any court of
competent jurisdiction, such invalidity shall in no way render invalid or
unenforceable any other part or provision thereof or any other covenant of the
parties not held or declared invalid.
(b) This Agreement and the rights and obligations of the
Company hereunder may be assigned by the Company to any subsidiary of or
successor to the Company, and shall inure to the benefit of, shall be binding
upon, and shall be enforceable by any such assignee, provided that any such
assignee shall agree to assume and be bound by this Agreement. This Agreement
and the rights and obligations of Executive hereunder may not be assigned by
Executive.
(c) The waiver by the Company of any breach of this Agreement
by Executive shall not be effective unless in writing, and no such waiver shall
operate or be construed as a waiver of the same or another breach on a
subsequent occasion.
(d) This Agreement and the rights of the parties hereunder
shall be governed by and construed in accordance with the laws of the State of
Texas. The parties agree that any appropriate state court located in Dallas
County, Texas or any Federal Court located in Dallas, Texas shall have exclusive
jurisdiction of any case or controversy arising under or in connection with this
Agreement and shall be a proper forum in which to adjudicate such case or
controversy. The parties consent to the jurisdiction of such courts.
(e) This Agreement embodies the entire agreement of the
parties relating to the employment of Executive by the Company. No amendment or
modification of this Agreement shall be valid or binding upon the Company or
Executive unless made in writing and signed by the parties. All prior
understandings and agreements relating to the employment of Executive by the
Company (including the Prior Agreement) are hereby expressly terminated and
superseded.
-7-
<PAGE> 8
(f) Any notice, request, demand, or other communication
required to be given hereunder shall be made in writing and shall be deemed to
have been fully given if personally delivered or if mailed by United States
Mail, certified or registered, postage prepaid, to the parties at the following
addresses (or at such other addresses as shall be given in writing by any party
to the other party hereto):
If to Executive:
Thomas R. Miller
1113 Hidden Oaks Drive
Bedford, Texas 76022
If to the Company:
Wm. Cameron & Co. dba Cameron Ashley Building
Products
11651 Plano Road
Dallas, TX 75243
(g) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, and it shall not
be necessary for the same counterpart of this agreement be signed by all of the
undersigned in order for the agreements set forth herein to be binding upon all
of the undersigned in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company and Executive have each
executed and delivered this Agreement as of the date first above written.
COMPANY:
WM. CAMERON & CO. dba
Cameron Ashley Building Products
By: /s/ Ronald R. Ross
----------------------------------
Ronald R. Ross, Chairman & CEO
EXECUTIVE:
/s/ Thomas R. Miller
---------------------------------------
Thomas R. Miller
-8-
<PAGE> 1
EXHIBIT 10.35
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between Cameron Ashley Building Products, Inc., a
Georgia corporation (the "Company") and THOMAS R. MILLER (the "Executive"),
dated as of the 25th day of October, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change in Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change in Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change in Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change in Control Period (as defined in Section l(b)) on which a Change in
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, the "Effective Date" shall mean the date immediately
prior to the date of the Executive's termination of employment, if such
termination occurs either (i) within six (6) months prior to a Change in
Control; or (ii) prior to a Change in Control and reasonably demonstrated by the
Executive to be at the request of a third party who has taken steps reasonably
calculated to effect a Change on Control or otherwise arising in connection with
or anticipation of a Change in Control.
(b) The "Change in Control Period" shall mean the period
commencing on the date hereof and ending on the fifth anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change in Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change in Control Period shall not be so extended.
(c) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain.
<PAGE> 2
2. Change in Control. For the purposes of this Agreement, a "Change in
Control" shall mean the first to occur of the following events:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section
13(d) and 14(d) thereof), excluding the Company, any Subsidiary and any employee
benefit plan sponsored or maintained by the Company or any Subsidiary (including
any trustee of such plan acting as trustee thereof), but including a 'group' as
defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes the
beneficial owner of shares of the Company having at least thirty percent (30%)
of the total number of votes that may be cast for the election of directors of
the Company (the "Voting Shares") (such 30% or greater percentage hereinafter
referred to as the "Voting Share Percentage"); provided that no Change of
Control will occur as a result of an acquisition of stock by the Company which
increases, proportionately, the stock representing the voting power of the
Company owned by such person or group above the Voting Share Percentage, and
provided further that if such person or group acquires stock representing more
than the Voting Share Percentage by reason of share purchases by the Company,
and after such share purchases by the Company acquires any additional shares
representing voting power of the Company, then a Change of Control shall occur;
(ii) the shareholders of the Company shall approve any merger or
other business combination of the Company, sale of the Company's assets or
combination of the foregoing transactions (a "Transaction") other than a
Transaction involving only the Company, or one or more of its Subsidiaries, or a
Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity; or
(iii) within any 24-month period beginning on or after the Effective
Date, the persons who were directors of the Company immediately before the
beginning of such period (the "Incumbent Directors") shall cease (for any reason
other than death) to constitute at least a majority of the Board of Directors or
the board of directors of any successor to the Company, provided that any
director who was not a director as of the Effective Date shall be deemed to be
an Incumbent Director if such director was elected to the Board of Directors by,
or on the recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually or by prior
operation of this clause (iii); and provided further that any director elected
to the Board of Directors to avoid or settle a threatened or actual proxy
contest shall in no event be deemed to be an Incumbent Director.
- 2 -
<PAGE> 3
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce
- 3 -
<PAGE> 4
any other obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's highest bonus under the Company's Annual Incentive Bonus
Plan, or any comparable bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective Date (annualized in the
event that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid
no later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
- 4 -
<PAGE> 5
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
- 5 -
<PAGE> 6
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company. For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
- 6 -
<PAGE> 7
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company business to
a substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such
- 7 -
<PAGE> 8
termination and (iii) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination, and the denominator
of which is 365 and (3) subject to any prior election by the Executive to
receive such deferred amounts in installments, any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1)
two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
C. the amount equal to the excess of (a) the
actuarial equivalent of the benefit the Executive would have been paid under all
employee retirement plans maintained by the Company in effect as of his date of
termination, including, to the extent such plan is then maintained by the
Company, the Cameron Ashley 401(k) Plan and any successor plan or plans, if he
had been fully vested and had continued to be covered for a period of
twenty-four (24) months from the Date of Termination as if the Executive had
earned the compensation described in Section 4(b)(i) and (ii) hereof during such
period and had made contributions sufficient to earn the maximum matching
contribution, if any, under such plan (less any amounts he would have been
required to contribute), over (b) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under such plan(s) as of the Date of
Termination.
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the
- 8 -
<PAGE> 9
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section 4(b)(iv)
of this Agreement if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive becomes
re-employed with another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until two
years after the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further
- 9 -
<PAGE> 10
obligations to the Executive, other than for payment of Accrued Obligations and
the timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the Executive shall
be entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except to
the extent provided in Section 6(a)(ii) hereof, such amounts shall not be
reduced whether or not the Executive obtains other employment.
- 10 -
<PAGE> 11
The Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte & Touche LLP or such other certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive shall
- 11 -
<PAGE> 12
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
- 12 -
<PAGE> 13
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation of the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that- the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10
- 13 -
<PAGE> 14
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Thomas R. Miller
1113 Hidden Oaks Drive
Bedford, Texas 76022
- 14 -
<PAGE> 15
If to the Company:
Cameron Ashley Building Products, Inc.
11651 Plano Road
Dallas, Texas 75243
Attention: Chairman
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof, including the Prior
Agreement, and the parties acknowledge that this Agreement is executed in
renewal and extension of the Prior Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ THOMAS R. MILLER
----------------------------------
Thomas R. Miller
- 15 -
<PAGE> 16
CAMERON ASHLEY BUILDING
PRODUCTS, INC.
By: /s/ Ronald R. Ross
------------------------------
Ronald R. Ross, Chairman & CEO
- 16 -
<PAGE> 1
EXHIBIT 11.1
CAMERON ASHLEY BUILDING PRODUCTS, INC. COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED
1999 1998
-------------------------------- ----------------------------------
INCOME SHARES SHARE INCOME SHARES PER-SHARE
(NUMERATOR) DENOMINATOR AMOUNT (NUMERATOR) DENOMINATOR AMOUNT
----------- ----------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available
to common
stockholders $ 17,066 8,661 $ 1.97 $ 15,294 $ 9,250 $ 1.65
======= ========
EFFECT OF DILUTIVE
SECURITIES 155 251
------- ---------
DILUTED EPS
Income available
to common
stockholders
assuming dilution $ 17,066 8,816 $ 1.94 $ 15,294 9,501 $ 1.61
========== ======= ======= ========== ========= ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES AND STATE OR JURISDICTION OF INCORPORATION
Wm. Cameron & Co. (Georgia); Ashley Aluminum, LLC (Georgia); CABP, Inc.
(Arizona); Cameron Ashley Canada, Inc. (Canada)
NAMES UNDER WHICH EACH SUBSIDIARY DOES BUSINESS
<TABLE>
<CAPTION>
WM. CAMERON & CO. ASHLEY ALUMINUM, LLC
-------------------------------------- ----------------------------------
<S> <C>
Cameron Ashley Building Products Cameron Ashley Building Products
CABP CABP
Southwest Express Zaglin Wholesale
Southwest Roofing Supply Glaco
Mid America Siding Supply Greater Louisville Aluminum Co.
Metro Roofing Supply Southland Building Products
Midwest Insulation & Roofing Vinyl Wholesale
Mile High Roofing & Exterior Supply DMG Supply
Atlantic Building Products
Albuquerque Door Company CAMERON ASHLEY CANADA, INC.
Thunderbird Steel ----------------------------------
New York Building Products Cameron Ashley Building Products
Lafayette Woodworks CABP
Ozark Construction Supply Boyd Distributors
Millwork Specialties Boyd Division
Washington Roofing Products Co. Daigle Lumber Ltd.
J&L Services Bois Daigle Ltee.
Performance Materials Supply Oakmont Industries
Bak-A-Lum Corp. of America Gerard Demers
Fox Valley Building Materials Demers Express
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-80326 and Registration Statement No. 33-90782 of Cameron Ashley Building
Products, Inc. on Forms S-8 of our report dated December 22, 1999, (January 24,
2000, as to Note 16) appearing in this Annual Report on Form 10-K of Cameron
Ashley Building Products, Inc. for the year ended October 31, 1999.
DELOITTE & TOUCHE, LLP
Dallas, Texas
January 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 18,453
<ALLOWANCES> 4,623
<INVENTORY> 112,896
<CURRENT-ASSETS> 303,730
<PP&E> 63,040
<DEPRECIATION> 0
<TOTAL-ASSETS> 435,596
<CURRENT-LIABILITIES> 140,432
<BONDS> 0
0
0
<COMMON> 64,700
<OTHER-SE> 68,322
<TOTAL-LIABILITY-AND-EQUITY> 435,596
<SALES> 1,138,377
<TOTAL-REVENUES> 1,138,377
<CGS> 911,588
<TOTAL-COSTS> 187,528
<OTHER-EXPENSES> (159)
<LOSS-PROVISION> 4,101
<INTEREST-EXPENSE> 11,664
<INCOME-PRETAX> 27,756
<INCOME-TAX> 10,690
<INCOME-CONTINUING> 17,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,066
<EPS-BASIC> 1.97
<EPS-DILUTED> 1.94
</TABLE>
