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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
For the quarterly period ended SEPTEMBER 30, 1998
Commission file number 333-43225
WESCO INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 25-1723345
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
COMMERCE COURT
FOUR STATION SQUARE, SUITE 700
PITTSBURGH, PENNSYLVANIA 15219 (412) 454-2254
(Address of principal executive offices) (Registrant's telephone number, including area code)
</TABLE>
N/A
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No .
--- ---
As of September 30, 1998, WESCO International, Inc. had 517,626 shares and
80,504 shares of Class A and Class B of its common stock outstanding,
respectively.
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 2
Unaudited Condensed Consolidated Statements of Operations for
the three months and nine months ended September 30, 1998
and 1997 3
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997 4
Unaudited Notes to Condensed Consolidated Financial
Statements 5
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 15
Signatures 15
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WESCO
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30 DECEMBER 31
Dollars in thousands, except par values 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $25,579 $7,620
Trade accounts receivable, net of allowance for doubtful accounts of
$7,798 and $10,814, in 1998 and 1997, respectively 194,483 351,170
Other accounts receivable 19,218 17,261
Inventories 334,449 299,406
Income taxes receivable 15,166 3,405
Prepaid expenses and other current assets 2,439 3,699
Deferred income taxes 41,338 14,277
---------------------------
Total current assets 632,672 696,838
Property, buildings and equipment, net 101,483 95,082
Trademarks, net of accumulated amortization of $732
and $586, in 1998 and 1997, respectively 3,262 3,408
Goodwill, net of accumulated amortization of $7,130
and $4,522, in 1998 and 1997, respectively 189,069 65,923
Other assets 25,871 9,609
---------------------------
Total assets $952,357 $870,860
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $382,646 $311,796
Accrued payroll and benefit costs 17,770 27,694
Current portion of long-term debt 16,884 891
Restructuring reserve 4,424 3,982
Other current liabilities 22,850 16,172
---------------------------
Total current liabilities 444,574 360,535
Long-term debt 578,761 294,275
Other noncurrent liabilities 6,299 5,875
Deferred income taxes 18,734 16,662
---------------------------
Total liabilities 1,048,368 677,347
Redeemable Class A common stock, $.01 par value; 82,840 and 89,306 shares
issued and outstanding, in 1998 and 1997, respectively, and options
(redemption value of redeemable common stock and vested options of
$110,944 and $68,597, in 1998 and 1997, respectively) 24,403 8,978
STOCKHOLDERS' EQUITY:
Class A common stock, $.01 par value; 2,000,000 authorized, 434,786 and
933,280 shares issued and outstanding, in 1998 and 1997, respectively 6 9
Class B nonvoting convertible common stock, $.01 par value; 2,000,000
shares authorized, 80,504 issued and outstanding in 1998 -- --
Additional capital 324,210 93,319
Retained (deficit) earnings (443,449) 89,366
Common stock to be issued under option -- 2,500
Accumulated other comprehensive loss (1,181) (659)
---------------------------
Total stockholders' equity (120,414) 184,535
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Total liabilities and stockholders' equity $952,357 $870,860
===========================
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The accompanying notes are an integral part of the condensed
consolidated financial statements.
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
In thousands 1998 1997 1998 1997
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Sales, net $777,701 $679,991 $2,219,456 $1,916,144
Cost of goods sold 639,847 559,078 1,821,616 1,576,193
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Gross profit 137,854 120,913 397,840 339,951
Selling, general and administrative expenses 105,697 94,656 310,804 272,493
Depreciation and amortization 3,851 2,814 10,179 8,381
Recapitalization costs -- -- 51,800 --
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Income from operations 28,306 23,443 25,057 59,077
Interest expense, net 13,119 5,236 29,599 14,945
Other expenses 3,674 -- 6,244 --
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Income (loss) before income taxes 11,513 18,207 (10,786) 44,132
Provision (benefit) for income taxes (14,925) 7,218 (27,618) 17,525
-------------------------------------------------------------
Net income $26,438 $10,989 $16,832 $26,607
=============================================================
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The accompanying notes are an integral part of the condensed
consolidated financial statements.
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WESCO
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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NINE MONTHS ENDED
SEPTEMBER 30
In thousands 1998 1997
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OPERATING ACTIVITIES:
Net income $16,832 $26,607
Adjustments to reconcile net income to net cash provided by
operating activities:
Recapitalization costs 40,500 --
Depreciation and amortization 10,179 8,381
Amortization of debt issuance costs and interest rate caps 1,276 204
Deferred income taxes (24,989) --
Changes in assets and liabilities, excluding the effects of acquisitions:
Sale of trade accounts receivable 274,245 --
Trade and other receivables (33,728) (42,280)
Inventories 1,280 (38,034)
Prepaid and other current assets 1,709 (1,853)
Other assets (5,883) (2,633)
Accounts payable 22,878 44,211
Accrued payroll and benefit costs (10,224) (6,006)
Restructuring reserve (2,936) (230)
Other current and noncurrent liabilities 5,569 5,277
----------------------------
Net cash provided (used) by operating activities 296,708 (6,356)
INVESTING ACTIVITIES:
Capital expenditures (9,420) (8,202)
Proceeds from the sale of property, buildings and equipment 1,189 1,299
Acquisitions, net of cash acquired (163,960) (13,914)
----------------------------
Net cash used by investing activities (172,191) (20,817)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 935,311 415,494
Debt issuance costs (10,570) (319)
Repayments of long-term debt (685,067) (367,023)
Recapitalization costs (27,674) --
Repurchase of common stock and options (654,462) (325)
Proceeds from issuance of common stock 330,098 --
Proceeds from contributed capital 5,806 --
----------------------------
Net cash (used) provided by financing activities (106,558) 47,827
----------------------------
Net change in cash and cash equivalents 17,959 20,654
Cash and cash equivalents at the beginning of period 7,620 --
----------------------------
Cash and cash equivalents at the end of period $25,579 $20,654
============================
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The accompanying notes are an integral part of the condensed
consolidated financial statements.
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WESCO
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WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION
WESCO International, Inc. (formerly CDW Holding Corporation) ("Holdings") and
its subsidiaries (collectively, "WESCO"), headquartered in Pittsburgh,
Pennsylvania, is a full-line distributor of electrical supplies and equipment
and currently operates branch locations in the United States, Canada, Mexico,
Puerto Rico and Guam.
Subsequent to the completion in June 1998 of a leveraged recapitalization (see
Note 3), WESCO was 88.7% owned by an investor group led by affiliates of The
Cypress Group L.L.C. ("Cypress") with the remaining interest held by members of
WESCO's management.
2. ACCOUNTING POLICIES
BASIS OF PRESENTATION The unaudited condensed consolidated financial statements
include the accounts of WESCO and all of its subsidiaries and have been prepared
in accordance with Rule 10-01 of the Securities and Exchange Commission. The
notes included herein should be read in conjunction with the audited
consolidated financial statements included in WESCO's Registration Statement on
Form S-4 (File No. 333-43225) filed with the Securities and Exchange Commission.
The unaudited condensed consolidated balance sheet as of September 30, 1998, the
unaudited condensed consolidated statements of operations for the three months
and nine months ended September 30, 1998 and 1997, and the unaudited condensed
consolidated statements of cash flows for the nine months ended September 30,
1998 and 1997, in the opinion of management, have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments necessary for the fair presentation of the results of the interim
periods. All adjustments reflected in the condensed consolidated financial
statements are of a normal recurring nature. Results for the interim periods
presented are not necessarily indicative of the results to be expected for the
full year.
ASSET SECURITIZATIONS WESCO accounts for the securitization of accounts
receivable in accordance with Statement of Financial Accounting Standards No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). At the time the receivables
are sold, the balances are removed from the balance sheet and the related
financial assets controlled are measured at fair value. SFAS No. 125 also
requires retained interests in the transferred assets be measured by allocating
the previous carrying amount between the assets sold and retained interests, if
any, based on their relative fair values at the date of transfer.
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, The Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
is effective in fiscal years beginning after June 15, 1999, although early
adoption is permitted. This Statement requires the recognition of the fair value
of any derivative financial instrument on the balance sheet. Changes in fair
value of the derivative and, in certain instances, changes in the fair value of
an underlying hedged asset or liability, are recognized through either income or
as a component of other comprehensive income. Management does not expect this
Statement will have a material impact on the results of operation or financial
position of WESCO.
3. RECAPITALIZATION
On June 5, 1998, Holdings repurchased and retired substantially all of its
common stock from the then existing shareholders for an aggregate consideration
of approximately $653.5 million (the "Equity Consideration"), repaid
approximately $379.1 million of then outstanding indebtedness, and sold common
stock to an investor group led by affiliates of Cypress representing
approximately 88.7% of WESCO for an aggregate cash consideration of $318.1
million ("Cash Equity Consideration"). WESCO funded the Equity Consideration and
the repayment of indebtedness from proceeds of the Cash Equity Consideration,
issuance of approximately $351 million of Senior Subordinated and Senior
Discount Notes, a new $170 million credit facility and the sale of approximately
$250 million of accounts receivable. The transaction was treated as a
recapitalization for financial reporting purposes and, accordingly, the
historical bases of Holdings' assets and liabilities were not affected.
In connection with the recapitalization, WESCO recorded a one-time charge of
$51.8 million primarily related to noncapitalized financing expenses,
professional and legal fees and management compensation costs.
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4. ACCOUNTS RECEIVABLE SECURITIZATION
WESCO and certain of its subsidiaries entered into a "Receivables Facility" with
a financial institution and a multi-seller asset-backed commercial paper issuer
whereby it sells on a continuous basis an undivided interest in all eligible
accounts receivable while maintaining a subordinated interest in a portion of
the receivables. Pursuant to the Receivables Facility, WESCO formed WESCO
Receivables Corp., a wholly-owned, special purpose subsidiary ("SPC"). SPC was
formed to purchase, on a revolving basis and not to exceed $300 million, trade
accounts receivables generated by certain subsidiaries of WESCO. WESCO may,
under certain circumstances, increase the size of the Receivables Facility when
the amount of eligible trade accounts receivables exceeds $300 million. The SPC
will transfer to a trust all the receivables and the commercial paper issuer
will provide financing to the SPC, which in turn will use such financing to pay
a portion of the purchase price of the receivables.
As of September 30, 1998, securitized trade accounts receivable totaled
approximately $371 million, of which the subordinated retained interest was
approximately $94 million. Accordingly, approximately $277 million of accounts
receivable balances were removed from the consolidated balance sheet. Net
proceeds from the transaction totaled $274 million. Proceeds from securitized
receivables were used primarily to complete the recapitalization discussed in
Note 3 and for general working capital needs. WESCO incurred costs associated
with the Receivables Facility of $6.2 million, which principally includes the
discount and loss on the sale of such receivables, partially offset by servicing
revenue associated with the transaction. This amount is recorded as "other
expenses" in the Statement of Operations.
5. ACQUISITIONS
During the first nine months of 1998, the following acquisitions ("1998
Acquisitions") were completed:
On January 1, 1998, WESCO acquired the electrical distribution businesses of
Avon Electrical Supplies, Inc., and its affiliates, a leading distributor in
the New York metropolitan area, and Brown Wholesale Electric Company, a
leader in the high-growth Phoenix market.
On May 8, 1998, WESCO acquired certain assets and assumed certain liabilities
of Reily Electric Supply Inc., a distributor headquartered in New Orleans,
Louisiana.
The aggregate purchase price of the Avon, Brown and Reily acquisitions was
$110.3 million resulting in goodwill of $34.0 million.
On September 11, 1998, WESCO acquired substantially all the assets and
assumed substantially all liabilities and obligations relating to the
operations of Bruckner Supply Company, Inc. ("Bruckner"), a privately owned
company headquartered in Port Washington, New York. Bruckner is a provider of
integrated supply procurement and outsourcing activities for large industrial
companies. Net sales totaled approximately $222 million in 1997.
The Bruckner purchase price at closing was $99.1 million, consisting of $72.5
million in cash and a noninterest bearing convertible note discounted to a
value of $26.6 million for financial reporting purposes, resulting in
goodwill of $88.0 million which is being amortized over 35 years. The
purchase price allocation is preliminary and is subject to valuation and
other studies that have not been completed.
The Bruckner purchase agreement also provides for certain post-closing
adjustments, which would be made in the fourth quarter of 1998, and for
additional contingent consideration, not to exceed $130 million, to be paid
based on a multiple of increases in earnings before interest, taxes,
depreciation and amortization of Bruckner with respect to calendar year 1998
and future years through 2004.
The 1998 Acquisitions were accounted for under the purchase method of accounting
and, accordingly, the results of operations of the respective companies are
included in WESCO's consolidated financial statements prospectively from the
date of acquisition.
In accordance with the requirements of the Securities and Exchange Commission,
WESCO has filed pro forma financial information with respect to the Bruckner
acquisition.
6. LONG TERM DEBT
The following table sets forth WESCO's outstanding indebtedness.
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SEPTEMBER 30 DECEMBER 31
In thousands 1998 1997
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Term loans $169,750 --
Revolving facility 42,298 --
Old revolving facility -- $226,145
Senior subordinated notes (1) 288,908 --
Senior discount notes (2) 50,631 --
Mortgage notes (3) -- 65,291
Other (4) 44,058 3,730
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595,645 295,166
Less current portion (16,884) (891)
--------------------------
Total $578,761 $294,275
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(1) Net of original issue and purchase discount of $11,092
(2) Net of original issue and purchase discount of $36,421
(3) Net of original issue discount of $16,601
(4) Net of original issue discount of $3,379
The term loans and revolving facility borrowings were made pursuant to a credit
agreement ("Credit Agreement") entered into by and between WESCO and certain
financial institutions.
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WESCO
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The Credit Agreement provides for three term loan facilities in an aggregate
principal amount of $270 million, consisting of Tranche A, Tranche B and a
Delayed Draw Term Loan Facility, and a $100 million revolving credit facility.
Tranche A provides for aggregate borrowings of $80 million, Tranche B provides
for aggregate borrowings of $90 million and the Delayed Draw Term Loan Facility
provides for up to $100 million aggregate principal. The term loan facilities
mature in various periods from 2004 through 2006. The revolving credit facility
provides for up to $100 million of revolving credit denominated in U.S. dollars
or Canadian dollars. The maximum Canadian sublimit is approximately $46 million.
The revolving credit facility matures in 2004. At September 30, 1998, the
aggregate outstanding term loans and revolving facility borrowings totaled
$212.0 million.
Borrowings under the Credit Agreement are collateralized by substantially all
the assets of WESCO and bear rates of interest equal to various indices, at
WESCO's option, such as LIBOR, prime rate or the Federal Funds rate, plus a
borrowing margin based on WESCO's financial performance. At September 30, 1998,
the interest rate on Tranche A and Tranche B was LIBOR (or 5.625%) plus 2.25%
and LIBOR plus 2.50%, respectively.
The Senior Subordinated Notes in an aggregate principal amount of $300 million
were issued by WESCO Distribution, Inc., a wholly-owned subsidiary of Holdings.
The notes are unsecured obligations and are fully and unconditionally guaranteed
by Holdings. The Senior Subordinated Notes bear interest at 9-1/8%, payable
semiannually on June 1 and December 1 beginning December 1, 1998. The notes are
due June 1, 2008. The Senior Subordinated Notes are redeemable at the option of
WESCO, in whole or in part, at any time after June 1, 2003 at certain specified
prices. Prior to June 1, 2003, the notes may be redeemed in certain specified
instances at certain specified prices.
The Senior Discount Notes, issued by Holdings, have an aggregate principal
amount of $87 million. The notes were issued with an original issue discount
("OID") of $36.5 million that is being accreted over the period ending June 1,
2003. Beginning June 1, 2003, interest accrues at 11-1/8% payable semiannually
on June 1 and December 1. Approximately $30.9 million of the notes must be
redeemed on June 1, 2003. The remaining notes are due June 1, 2008 and are
redeemable at the option of Holdings, in whole or in part, at any time after
June 1, 2003 at certain specified prices. Prior to June 1, 2003, the notes may
be redeemed in certain specified instances at certain specified prices.
Other borrowings primarily consist of notes issued to sellers in connection with
acquisitions.
At September 30, 1998, the weighted-average rate of interest on all indebtedness
was approximately 8.64%. Aggregate principal repayment requirements for all
indebtedness for 1998 and the next five years is as follows:
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In thousands
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For the year ending December 31
1998 $1,298
1999 19,620
2000 38,980
2001 13,071
2002 16,530
2003 51,412
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The credit agreements contain various restrictive covenants that, among other
things, impose limitations on (i) dividend payments or certain other restricted
payments or investments; (ii) the incurrence of additional indebtedness and
guarantees or issuance of additional stock; (iii) creation of liens; (iv)
mergers, consolidation or sales of substantially all of WESCO's assets (v)
certain transactions among affiliates; (vi) payments by certain subsidiaries to
Holdings; (vii) capital expenditures. In addition, the agreements require
WESCO to meet certain leverage, working capital and interest coverage ratios.
7. STOCK OPTION PLAN
In the third quarter of 1998, the Board of Directors approved the 1998 Stock
Option Plan (the "Plan"). Participation in the Plan is limited to executive and
senior officers and certain other key employees of WESCO. The Plan covers a
maximum of 62,000 shares of Class A common stock. The exercise price per share
is determined by the Board of Directors, but will not be less than the estimated
fair market value, as defined by the Plan, on the grant date. Options granted
will vest and will become exercisable based on the passage of time or based on
WESCO achieving certain financial performance criteria over five years, except
in the event of a change in control. Each option terminates on the tenth
anniversary of its grant date unless terminated sooner under certain conditions.
The Plan requires Holdings to repurchase the exercisable portion of the options
held by an employee if the employee dies, is disabled or terminated without
cause during the term of employment. This repurchase right terminates upon
consummation of an initial public equity offering of Holdings' Class A common
stock. Since the triggering event requiring the repurchase is considered remote,
Holdings accounts for the Plan as a fixed Plan and accordingly no
compensation expense has been recorded.
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8. INCOME TAXES
For the first nine months of 1998, income tax benefits totaled $27.6 million and
for the same period of 1997, income tax expense totaled $17.5 million,
respectively. For the three months ended September 30, 1998 income tax benefits
totaled $14.9 million and for the three months ended September 30, 1997, income
tax expense totaled $7.9 million.
The effective tax rate for the first three months and nine months of 1998 was
129.5% and 256.2%, respectively. In the same periods of 1997, the effective tax
rates were 39.6% and 39.7%, respectively. The effective tax rates for each
interim period reflect management's estimate of the expected rate for the full
year. The higher effective rate in 1998 was attributable to the proportion of
certain nondeductible recapitalization costs and other nondeductible permanent
differences relative to expected levels of operating income.
9. COMPREHENSIVE INCOME
Comprehensive income and its components was as follows:
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In thousands 1998 1997
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For the three months ended September 30
Net income $26,438 $10,989
Foreign currency translation
adjustment (245) (20)
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Comprehensive income $26,193 $10,969
- ----------------------------------------------------------------
For the nine months ended September 30
Net income $16,832 $26,607
Foreign currency translation
adjustment (522) (85)
---------------------
Comprehensive income $16,310 $26,522
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10. CASH FLOW STATEMENT
Supplemental cash flow information with respect to acquisitions was as follows:
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In thousands
Nine Months Ended September 30 1998 1997
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Details of acquisitions
Fair value of assets acquired $265,766 $21,498
Fair value of liabilities assumed (55,564) (5,334)
Notes issued to seller (46,242) (2,250)
------------------------
Cash paid for acquisitions $163,960 $13,914
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</TABLE>
Noncash transactions not reflected in the Statement of Cash Flows for the nine
months ended September 30, 1998, consisted of the effects of the sale of an
equity interest in an operating division and the conversion of $1.6 million of
notes payable to common stock.
11. OTHER FINANCIAL INFORMATION
In June 1998, WESCO Distribution, Inc. issued $300 million of 9-1/8% Senior
Subordinated Notes. The Senior Subordinated Notes are fully and unconditionally
guaranteed by Holdings on a subordinated basis to all existing and future senior
indebtedness of Holdings. Summarized financial information for WESCO
Distribution, Inc. is as follows:
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30
In thousands 1998
- --------------------------------------------------------------
<S> <C>
Current assets $632,672
Noncurrent assets 319,685
Current liabilities 444,574
Long-term debt 528,130
Other noncurrent liabilities 25,033
Total liabilities and stockholder's equity 952,357
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</TABLE>
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
In thousands 1998 1998
- ----------------------------------------------------------------
<S> <C> <C>
Sales, net $777,701 $2,219,456
Gross profit 137,854 397,840
Income from operations 28,306 25,057
Net income 27,874 18,751
- ----------------------------------------------------------------
</TABLE>
Prior to the June 5, 1998 issuance of the Senior Discount Notes, the financial
information of WESCO Distribution, Inc. was identical to that of Holdings
presented herein.
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WESCO
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the information in
the unaudited consolidated financial statements and notes thereto included
herein and WESCO International, Inc.'s audited Consolidated Financial
Statements, notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in its Registration Statement on
Form S-4 (File No. 333-43225) filed with the Securities and Exchange Commission.
Financial information presented herein for interim periods is unaudited.
OVERVIEW
WESCO International, Inc. ("Holdings") and its subsidiaries (collectively,
"WESCO") believes it is the second largest electrical wholesale distributor in
North America, with over 325 branches located in 48 states and nine Canadian
provinces. WESCO sells over 210,000 products, sourced from over 6,000 suppliers,
to more than 130,000 customers. WESCO complements its product offerings with a
range of services and procurement solutions.
RECENT DEVELOPMENTS
During the past nine months, WESCO completed several strategic initiatives that
affected the reported results of operations and financial position of WESCO,
including:
RECAPITALIZATION On June 5, 1998, Holdings repurchased substantially all of
its common stock from the then existing shareholders for an aggregate
consideration of approximately $653.5 million (the "Equity Consideration"),
repaid approximately $379.1 million of then outstanding indebtedness and sold
common stock to an investor group led by affiliates of The Cypress Group
L.L.C. ("Cypress") representing approximately 88.7% of WESCO for an aggregate
cash consideration of $318.1 million ("Cash Equity Consideration"). WESCO
funded the Equity Consideration and the repayment of indebtedness from
proceeds of the Cash Equity Consideration, issuance of approximately $351
million of Senior Subordinated and Senior Discount Notes, a new $170 million
credit facility and the sale of approximately $250 million of accounts
receivable.
ACQUISITIONS During the first nine months of 1998, WESCO completed four
acquisitions for an aggregate purchase price of $209.4 million. Acquisitions
completed in the first nine months of 1998 were:
On January 1, 1998, WESCO acquired the electrical distribution businesses
of Avon Electrical Supplies, Inc., and its affiliates, a leading
distributor in the New York metropolitan area, and Brown Wholesale
Electric Company, a leader in the high-growth Phoenix market.
On May 8, 1998, WESCO acquired certain assets and assumed certain
liabilities of Reily Electric Supply Inc., a distributor headquartered in
New Orleans, Louisiana.
On September 11, 1998, WESCO acquired or assumed substantially all assets
and liabilities relating to the operations of Bruckner Supply Company,
Inc. ("Bruckner"), a provider of integrated supply procurement services
for large industrial companies. Bruckner's annual revenues approximated
$222 million and $145 million in 1997 and 1996, respectively. The purchase
price paid at closing was $99.1 million, consisting of $72.5 million in
cash and a convertible note payable discounted to a value of $26.6
million. The purchase agreement also provides for certain post-closing
adjustments, which would be made in the fourth quarter of 1998, and for
additional contingent consideration, not to exceed a maximum of $130
million, to be paid based on a multiple of increases in Bruckner's annual
earnings before interest, taxes, depreciation and amortization with
respect to calendar year 1998 and future years through 2004.
The acquisitions were accounted for under the purchase method of accounting
and, therefore, the results of operations of the respective companies are
included in WESCO's consolidated financial statements prospectively from the
date of acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
WITH THREE MONTHS ENDED SEPTEMBER 30, 1997
The following table sets forth certain summarized information with respect to
WESCO's results of operations for the periods indicated:
SUMMARY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Dollars in millions
Three Months Ended September 30 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Sales, net $777.7 $680.0
Gross profit 137.9 120.9
Gross profit margin 17.7% 17.8%
Operating income $28.3 $23.4
Net income 26.4 11.0
EBITDA (1) 32.2 26.3
- ----------------------------------------------------------------
</TABLE>
(1) Earnings before interest, taxes, depreciation, amortization,
recapitalization costs and net losses on accounts receivable securitization
For the 1998 third quarter, net income totaled $26.4 million compared with $11.0
million in the year-earlier period. The results for the current period included
income tax benefits of $14.9 million. EBITDA increased 22.4% to $32.2 million
for the third quarter of 1998 compared to $26.3 million in the same period of
1997. EBITDA is an alternative measure of
9
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WESCO
<PAGE> 11
operating performance considered by certain investors and differs from measures
determined in accordance with generally accepted accounting principles. Since
EBITDA is not calculated identically by all companies, the presentation set
forth herein may not be comparable to other companies.
SALES AND PROFIT MARGINS
<TABLE>
<CAPTION>
Dollars in millions
Three Months Ended September 30 1998 1997 CHANGE
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sales, net $777.7 $680.0 14.4%
Cost of sales 639.8 559.1 14.4
-------------------
Gross profit $137.9 $120.9 14.1
Gross profit margin 17.7% 17.8%
- ----------------------------------------------------------------
</TABLE>
NET SALES For the third quarter of 1998, net sales increased 14.4%, or $97.7
million, to $777.7 million compared with $680.0 million in the same period of
1997. The increase was due to sales attributable to companies acquired in the
first nine months of 1998.
GROSS PROFIT Gross profit for the third quarter of 1998 totaled $137.9 million
compared with $120.9 million in the year-earlier period. The increase of $17.0
million, or 14.1%, was primarily due to higher sales volume from both
acquisitions and existing operations. Gross profit as a percentage of net sales
declined slightly to 17.7% in the third quarter 1998 from 17.8% in the same
period of 1997. The slight decline in the gross profit margin was primarily due
to lower margins inherent with the Bruckner division sales and the integrated
supply business.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Dollars in millions
Three Months Ended September 30 1998 1997 CHANGE
- ----------------------------------------------------------------
<S> <C> <C> <C>
SG&A $105.7 $94.7 11.6%
Depreciation and amortization 3.9 2.8 39.3
------------------
Total operating expenses $109.6 $97.5 12.4
- ----------------------------------------------------------------
</TABLE>
Operating expenses for the third quarter of 1998 increased $12.1 million and
SG&A expenses increased $11.0 million. The increases were primarily due to
expenses associated with the companies acquired in 1998. As a percent of net
sales, SG&A expenses declined to 13.6% compared with 13.9% a year ago,
reflecting cost containment initiatives. Depreciation and amortization increased
due to amortization of goodwill on recent acquisitions.
INTEREST AND OTHER EXPENSES Interest expense totaled $13.1 million, an increase
of $7.9 million in the period-to-period comparison. The increase was primarily
due to the higher levels of borrowings associated with acquisitions and the
recapitalization. As a result of the June 1998 recapitalization, management
expects interest expense in subsequent periods to be higher compared to the same
periods in 1997.
Other expense totaled $3.7 million in the third quarter of 1998 reflecting
losses associated with the sale of accounts receivable.
INCOME TAXES For the third quarter of 1998, WESCO recorded income tax benefits
of $14.9 million compared with income tax expense of $7.2 million in the
year-earlier period. The effective tax rate increased to 129.5% compared with
39.6% in the year-earlier period. The higher effective rate in 1998 was
attributable to the proportion of certain nondeductible recapitalization costs
and other nondeductible permanent differences relative to expected levels of
operating income.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
WITH NINE MONTHS ENDED SEPTEMBER 30, 1997
The following table sets forth certain summarized information with respect to
WESCO's results of operations for the periods indicated:
SUMMARY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Dollars in millions
Nine Months Ended September 30 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Sales, net $2,219.5 $1,916.1
Gross profit 397.8 340.0
Gross profit margin 17.9% 17.7%
Recapitalization costs $51.8 --
Operating income 25.1 $59.1
Net income 16.8 26.6
EBITDA (1) 87.0 67.5
- ----------------------------------------------------------------
</TABLE>
(1) Earnings before interest, taxes, depreciation, amortization,
recapitalization costs and net losses on accounts receivable securitization
WESCO's net income totaled $16.8 million for the first nine months of 1998 and
$26.6 million in the year-earlier period. The comparability of results was
affected by a one-time, pre-tax charge of $51.8 million related to costs
associated with the recapitalization and $6.2 million of net losses on the sale
of accounts receivable. Partially offsetting these charges were income tax
benefits of $27.6 million.
Excluding the recapitalization charge and losses on the accounts receivable
securitization, EBITDA increased 28.9% to $87.0 million for the first nine
months of 1998 compared to $67.5 million in the same period of 1997.
10
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WESCO
<PAGE> 12
SALES AND PROFIT MARGINS
<TABLE>
<CAPTION>
Dollars in millions
Nine Months Ended September 30 1998 1997 CHANGE
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sales, net $2,219.5 $1,916.1 15.8%
Cost of sales 1,821.7 1,576.1 15.6
---------------------
Gross profit $397.8 $340.0 17.0
Gross profit margin 17.9% 17.7%
- ----------------------------------------------------------------
</TABLE>
NET SALES For the first nine months of 1998, net sales increased 15.8%, or
$303.4 million, to $2.2 billion. The increase was primarily due to $213.1
million of net sales contributed by companies acquired in the first nine months
of 1998 as well as sales from existing operations.
GROSS PROFIT Gross profit for the first nine months of 1998 totaled $397.8
million compared with $340.0 million in the year-earlier period. The increase of
$57.8 million, or 17.0%, was primarily due to higher sales volume from both
acquisitions and existing operations. Gross profit as a percentage of net sales
increased in the comparison to 17.9% from 17.7%. The increase in gross profit
margin was primarily due to the increase in higher margin stock sales, higher
margin sales associated with acquired companies and other initiatives to improve
gross margins.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Dollars in millions
Nine Months Ended September 30 1998 1997 CHANGE
- -----------------------------------------------------------------
<S> <C> <C> <C>
Selling, general and administrative
(SG&A) $310.7 $272.5 14.0%
Depreciation and amortization 10.2 8.4 21.4
Recapitalization costs 51.8 -- --
-------------------
Total operating expenses $372.7 $280.9 32.7
- -----------------------------------------------------------------
</TABLE>
Operating expenses for the first nine months of 1998 increased $91.8 million
primarily due to $51.8 million in one-time costs associated with the June 1998
recapitalization and operating expenses of purchased businesses. Excluding the
one-time recapitalization costs, operating expenses increased $40.0 million, or
14.2%. This increase was primarily attributable to businesses acquired in 1998
and the remainder was due to increased operating costs associated with revenue
growth.
Selling, general and administrative ("SG&A") expenses for the first nine months
of 1998 totaled $310.7 million compared with $272.5 million a year ago. The
increase was primarily due to expenses associated with companies acquired in
1998. As a percent of net sales, SG&A expenses declined to 14.0% compared with
14.2% a year ago, reflecting cost containment initiatives. Depreciation and
amortization increased $1.8 million primarily due to amortization of goodwill
recorded in connection with the 1998 Acquisitions.
In connection with the recapitalization completed in June 1998, WESCO recorded a
one-time charge of $51.8 million primarily related to various financing
expenses, professional and legal fees and management compensation costs.
INTEREST AND OTHER EXPENSES Interest expense totaled $29.6 million, an increase
of $14.7 million in the period-to-period comparison. The increase was primarily
due to the higher levels of borrowings associated with acquisitions and the
recapitalization. As a result of the June 1998 recapitalization, management
expects interest expense in subsequent periods to be higher compared to the same
periods in 1997.
Other expenses totaled $6.2 million in the first nine months of 1998, reflecting
net losses on the securitization of $277 million of accounts receivable.
INCOME TAXES For the first nine months of 1998, WESCO recorded income tax
benefits of $27.6 million compared with tax expense of $17.5 million in the
year-earlier period. The effective tax rate increased to 256.2% compared with
39.7% in the year-earlier period. The effective tax rate for each interim period
reflects management's estimate of the expected rate for the full year. The
higher effective rate in 1998 was attributable to the proportion of certain
nondeductible recapitalization costs and other nondeductible permanent
differences relative to expected levels of operating income.
11
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WESCO
<PAGE> 13
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES Total assets were $952 million at September 30,
1998 and $871 million at December 31, 1997. Cash and cash equivalents increased
$18 million to $26 million at September 30, 1998, and adjusted working capital
(defined as trade accounts receivable plus inventories less accounts payable)
was $146 million and $339 million at September 30, 1998 and December 31, 1997,
respectively. In addition, stockholders' equity was a deficit of $120 million at
September 30, 1998 compared with total stockholders' equity of $185 million at
December 31, 1997. The changes in these categories, as well as long-term debt
discussed below, reflect the effects of the cash equity contribution, repurchase
of stock, debt refinancing, and sale of accounts receivable completed in
connection with the recapitalization.
As a result of the recapitalization completed in June 1998, WESCO has increased
its debt as set forth below.
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
In thousands 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Term loans $169,750 --
Revolving facility 42,298 --
Old revolving facility -- $226,145
Senior subordinated notes (1) 288,908 --
Senior discount notes (2) 50,631 --
Mortgage notes (3) -- 65,291
Other (4) 44,058 3,730
--------------------------
595,645 295,166
Less current portion (16,884) (891)
--------------------------
Total $578,761 $294,275
- ----------------------------------------------------------------
</TABLE>
(1) Net of original issue and purchase discount of $11,092
(2) Net of original issue and purchase discount of $36,421
(3) Net of original issue discount of $16,601
(4) Net of original issue discount of $3,379
The Term Loans and Revolving Facility borrowings were made pursuant to a credit
agreement ("Credit Agreement") entered into by and between WESCO, certain of its
subsidiaries and certain financial institutions. The Credit Agreement provides
for three term loan facilities consisting of Tranche A, Tranche B and a Delayed
Draw Term Loan Facility, and a $100 million revolving credit facility. Tranche A
provides for aggregate borrowings of $80 million, Tranche B provides for
aggregate borrowings of $90 million and the Delayed Draw Term Loan Facility
provides for up to $100 million aggregate principal. Borrowings under the Credit
Agreement bear rates of interest equal to various indices, at WESCO's option,
such as LIBOR, prime rate or the Federal Funds rate, plus a borrowing margin
based on WESCO's financial performance. At September 30, 1998, the interest rate
on Tranche A and Tranche B was LIBOR (or 5.625%) plus 2.25% and LIBOR plus
2.50%, respectively.
Term Loan principal repayments are $250 thousand in the fourth quarter of 1998,
and $4.5 million, $8.5 million, $12.5 million, $16.5 million and $20.5 million
in each of the next five years beginning in 1999.
The Revolving Facility, which matures in 2004, provides for up to $100 million
of revolving credit denominated in U.S. dollars or Canadian dollars. The maximum
Canadian sublimit is approximately $46 million. At September 30, 1998,
approximately $42.3 million was outstanding under the Revolving Facility.
The Senior Subordinated Notes were issued with an original issue discount
("OID") of $975 thousand that is being accreted over the life of the notes. The
Senior Subordinated Notes bear interest at 9-1/8%, payable semiannually on June
1 and December 1 beginning in 1998. The notes are due June 1, 2008 and are
redeemable at the option of WESCO, in whole or in part, at any time after June
1, 2003 at certain specified prices. Prior to June 1, 2003, the notes may be
redeemed in certain specified instances at certain specified prices.
The Senior Discount Notes, issued by Holdings, have an aggregate principal
amount of $87 million. The notes were issued with an OID of $36.5 million that
is being accreted over the period ending June 1, 2003. Beginning June 1, 2003,
interest accrues at 11-1/8% payable semiannually on June 1 and December 1.
Approximately $30.9 million of the notes must be redeemed on June 1, 2003. The
remaining notes are due June 1, 2008 and are redeemable at the option of WESCO,
in whole or in part, at any time after June 1, 2003 at certain specified prices.
Prior to June 1, 2003, the notes may be redeemed in certain specified instances
at certain specified prices.
At September 30, 1998, the weighted-average rate of interest on all indebtedness
was 8.64%.
An analysis of cash flows for the first nine months of 1998 and 1997 follows:
OPERATING ACTIVITIES For the first nine months of 1998, cash provided by
operating activities totaled $296.7 million compared to cash used by
operating activities of $6.4 million for the year-earlier period. Cash
provided by operations in the first nine months of 1998 included proceeds of
$274.2 million from the sale of accounts receivable. Excluding these
transactions, operating activities provided $22.5 million. On this basis, the
period-to-period variance in operating cash flow was primarily due to higher
operating income before recapitalization costs and changes in working
capital.
INVESTING ACTIVITIES Net cash used in investing activities was $172.2 million
for the first nine months of 1998, compared to $20.8 million for the same
period in 1997, primarily reflecting an increase in investments in businesses
acquired in the current period.
12
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WESCO
<PAGE> 14
FINANCING ACTIVITIES Cash used for financing activities totaled $106.6
million for the first nine months of 1998 compared to $47.8 million provided
by financing activities in the same period a year ago, primarily reflecting
the recapitalization completed in June 1998 and borrowings for acquisitions
and other general business purposes.
WESCO's liquidity needs arise from seasonal working capital requirements,
capital expenditures, debt service obligations and acquisitions. In addition, in
connection with its acquisition of Bruckner, WESCO agreed to pay additional
contingent consideration, not to exceed an aggregate of $130 million, based on a
multiple of increases in Bruckner's EBITDA with respect to calendar year 1998
and future annual periods through 2004.
In addition to operations and the Credit Agreement, liquidity is provided by
WESCO's "Receivables Facility", an agreement between WESCO, a financial
institution and a multi-seller asset-backed commercial paper issuer. Pursuant to
the Receivables Facility, WESCO formed a wholly-owned, special purpose
subsidiary ("SPC") to purchase, on a revolving basis and not to exceed $300
million, trade accounts receivables generated by certain subsidiaries of WESCO.
WESCO may, under certain circumstances, increase the size of the Receivables
Facility when the amount of eligible trade accounts receivables exceeds $300
million. The SPC's purchase of the receivables is financed by the commercial
paper issuer.
Management believes that cash generated from operations, together with amounts
available under the Credit Agreement and the receivables securitization
facility, will be sufficient to meet WESCO's working capital, capital
expenditure and other cash needs, including financing for acquisitions, in the
foreseeable future. There can be no assurance, however, that this will be the
case. Management may consider other options available to them in connection with
future liquidity needs, including the issuance of additional debt and equity
securities.
MARKET RISK
Approximately 90% of WESCO's net sales are generated from operations in the
United States and 9% from Canada. The remainder is conducted in Mexico, Puerto
Rico and Guam. To the extent operations are conducted in currencies other than
the U.S. dollar, WESCO is subject to certain risks associated with foreign
currency valuation fluctuations. WESCO does not believe such valuation risk is
material to its results of operation or financial position.
YEAR 2000
The Year 2000 issue concerns the ability or inability of automated applications
to properly process date-dependent processes, calculations, and information by
misinterpreting the year. With respect to WESCO, the Year 2000 issue may
potentially impact business-critical computerized applications related to, among
others, customer sales, service and invoicing, purchasing, inventory management,
payroll, financing, and financial accounting and reporting. In addition, other
non business-critical systems and services may also be affected.
WESCO has developed and implemented an internal project team composed of
information systems, operations, finance and executive personnel to (i) assess
the readiness of WESCO's systems, vendors and suppliers, third-party service
providers, customers and financial institutions; (ii) develop remediation action
plans for systems that may not be Year 2000 compliant; and (iii) develop
contingency plans in the event systems and services are not compliant.
WESCO has completed the readiness assessment phase of the project which
consisted of a detailed assessment and testing of substantially all internal
computer systems, surveys of significant vendors and suppliers, service
providers and customers. WESCO has received, or is seeking, documentation from
external parties indicating their Year 2000 readiness.
Over the past three years, WESCO has invested approximately $5 million in new
information systems to support the growth and diversity of its business. In
addition to meeting this objective, Year 2000 compliance was also achieved in
certain systems. Non-Year 2000 compliant systems and processes critical to
WESCO's business are either being replaced or corrected through program changes,
application upgrades or replacement. WESCO expects to have substantially
completed required the remediation efforts by July 1999.
The project team is also developing or enhancing contingency plans to minimize
the potential adverse effect the Year 2000 issue could have on WESCO in the
event business-critical systems and processes fail to be compliant.
Costs specifically associated with modifying systems for Year 2000 compliance
are expensed as incurred. Through September 30, 1998, such costs totaled
approximately $1.0 million. Costs to be incurred in the remainder of 1998 and
1999 to address Year 2000 problems are estimated to be $2.2 million. Such costs
do not include normal system upgrades and replacements.
WESCO's expectations of the Year 2000 issue are subject to numerous risks and
uncertainties including, among others, its ability to identify timely all
affected business-critical systems, and the readiness of service providers,
vendors and suppliers, its financial institutions, and significant customers. If
WESCO is unsuccessful in identifying or correcting business-critical systems and
processes affected by the Year 2000 issue, or if
13
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WESCO
<PAGE> 15
service providers, vendors and suppliers, its financial institutions, and
significant customers are adversely affected by the Year 2000 issue, WESCO's
results of operations or financial condition could be materially impacted.
FORWARD-LOOKING STATEMENTS
From time to time in this report and in other written reports and oral
statements, references are made to expectations regarding future performance of
WESCO. When used in this context, the words "anticipates," "plans," "believes,"
"estimates," "intends," "expects," "projects" and similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain such words. Such statements including, but
not limited to, WESCO's statements regarding its business strategy, growth
strategy, growth trends in the industry and various markets, acquisitions,
international expansion, productivity and profitability enhancement, new product
and service introductions, the Year 2000 issue, liquidity and capital resources
are based on management's beliefs, as well as on assumptions made by, and
information currently available to, management, and involve various risks and
uncertainties, certain of which are beyond WESCO's control. WESCO's actual
results could differ materially from those expressed in any forward-looking
statement made by or on behalf of WESCO. These and other risks are set forth in
WESCO's Registration Statement on Form S-4 (File No. 333-43225). In light of
these risks and uncertainties there can be no assurance that the forward-looking
information will in fact prove to be accurate. Factors that might cause actual
results to differ from such forward-looking statements include, but are not
limited to, general domestic and global economic conditions, competition, and
customer demands. WESCO has undertaken no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
14
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WESCO
<PAGE> 16
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
EXHIBITS The following exhibits are filed herewith.
10.01 WESCO International, Inc. 1998 Stock Option Plan
10.02 Form of Management Stock Option Agreement
27 Financial Data Schedule
Copies of this Exhibit may be retrieved electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Exhibits will also be furnished
without charge by writing to Steven A. Burleson, Vice President, Chief Financial
Officer and Treasurer, Commerce Court, Four Station Square, Suite 700,
Pittsburgh, Pennsylvania 15219. Requests may also be directed to (412) 454-2500.
REPORTS ON FORM 8-K
On September 24, 1998, WESCO filed a Current Report on Form 8-K, dated September
11, 1998, pursuant to Item 2 to report it acquired substantially all of the
assets and assumed substantially all the liabilities and obligations relating to
the operations of Bruckner Supply Company, Inc.
On November 13, 1998, WESCO filed a Form 8-K/A amending the Form 8-K dated
September 11, 1998 to provide financial statement and pro forma financial
information with respect to the Bruckner acquisition.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on November 13, 1998, on its
behalf by the undersigned thereunto duly authorized.
WESCO International, Inc. and Subsidiaries
By: /s/ Steven A. Burleson
----------------------------------------
Steven A. Burleson
Vice President, Chief Financial
Officer and Treasurer
15
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WESCO
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
<C> <S>
10.01 WESCO International, Inc. 1998 Stock Option Plan
10.02 Form of Management Stock Option Agreement
27 Financial Data Schedule
</TABLE>
16
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WESCO
<PAGE> 1
Exhibit 10.01
WESCO INTERNATIONAL, INC.
1998 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of this WESCO International, Inc. 1998 Stock Option Plan is
to foster and promote the long-term financial success of International and the
Company and to increase materially stockholder value by (a) motivating superior
performance by participants in the Plan, (b) providing participants in the Plan
with an ownership interest in International and (c) enabling the Company to
attract and retain the services of an outstanding management team upon whose
judgment, interest and special effort the successful conduct of its operations
is largely dependent.
SECTION 2. DEFINITIONS
2.1. Definitions. Whenever used herein, the following terms shall have
the respective meanings set forth below:
(a) "Alternative Option" has the meaning given in Section 8.2.
(b) "Board" means the Board of Directors of International.
(c) "Cypress Fund" means Cypress Merchant Banking Partners
LP., and any successor investment vehicle.
(d) "Cause" means (i) the willful failure by the Participant
to perform substantially his employment-related duties (other than any
such failure due to physical or mental illness) after a demand for
substantial performance is delivered to the Participant by the Board,
which notice identifies the manner in which the Participant has not
substantially performed his employment-related duties, (ii) the
Participant's engaging in serious misconduct that is injurious to
International, the Company or any Subsidiary, (iii) the Participant's
having been convicted of, or entered a plea of guilty or nolo
contendere to, a crime that constitutes a felony, (iv) the breach by
the Participant of any written covenant or agreement with
International, the Company or any Subsidiary not to disclose any
information pertaining to International, the Company or any Subsidiary
or not to compete or interfere with International, the Company or any
Subsidiary or (v) the breach by the Participant of his obligation
pursuant to Section 8 of his Management Stock Subscription Agreement.
(e) "Change in Control" means the first to occur of the
following events after the Effective Date:
<PAGE> 2
(i) the acquisition by any person, entity or "group"
(as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended), other than International, the Company, the
Subsidiaries, any employee benefit plan of International, the
Company or the Subsidiaries, or the Cypress Fund, of 50% or
more of the combined voting power of International's or the
Company's then outstanding voting securities;
(ii) the merger or consolidation of International or
the Company, as a result of which persons who were
stockholders of International or the Company, as the case may
be, immediately prior to such merger or consolidation, do not,
immediately thereafter, own, directly or indirectly, more than
50% of the combined voting power entitled to vote generally in
the election of directors of the merged or consolidated
company;
(iii) the liquidation or dissolution of International
or the Company; and
(iv) the sale, transfer or other disposition of all
or substantially all of the assets of International or the
Company to one or more persons or entities that are not,
immediately prior to such sale, transfer or other disposition,
affiliates of International or the Company.
(f) "Change in Control Price" means the price per share of
Common Stock offered in conjunction with any transaction resulting in a
Change in Control (as determined in good faith by the Board if any part
of the offered price is payable other than in cash).
(g) "Committee" means the Compensation Committee of the Board
(or such other committee of the Board which shall have jurisdiction
over the compensation of officers). If at any time no Committee shall
be in office, the Board shall perform the functions of the Committee.
(h) "Common Stock" means the Class A Common Stock, par value
$.01 per share, of International.
(i) "Company" means WESCO Distribution, Inc., a Delaware
corporation formerly named CDW Acquisition Corporation, and any
successor thereto.
(j) "Effective Date" means August 6, 1998.
(k) "Employee" means any executive or senior officer or other
executive or key employee of International, the Company or any
Subsidiary.
(l) "Fair Market Value" means, as of any date, the fair market
value on such date per share of Common Stock as determined in good
faith by the Board. In making a determination of Fair Market Value, the
Board; shall give due consideration for such
- 2 -
<PAGE> 3
factors as it deems appropriate, including, without limitation, the
earnings and certain other financial and operating information of the
Company in recent periods, the potential value of the Company as a
whole, the future prospects of the Company and the industries in which
it competes, the history and management of the Company, the general
condition of the securities markets the fair market value of securities
of companies engaged in businesses similar to those of the Company and
a valuation of the Shares which shall be performed as promptly as
practicable following each fiscal year by an independent valuation firm
chosen by the Board. The determination of Fair Market Value will not
give effect to any restrictions on transfer of the shares of Common
Stock or the fact that such shares of Common Stock would represent a
minority interest in International.
(m) "Grant Date" means, with respect to any Option, the date
on which such Option is granted pursuant to the Plan.
(n) "International" means WESCO International, Inc., a
Delaware corporation, and any successor thereto.
(o) "Involuntary Termination" means a termination by the New
Employer for any reason.
(p) "New Employer" means the Participant's employer, or the
parent or a subsidiary of such employer, immediately following a Change
in Control.
(q) "Option" means the right granted pursuant to the Plan to
purchase one share of Common Stock at a price determined in accordance
with Section 6.2. All Options granted under the Plan shall not be
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
(r) "Option Agreement" means an agreement between
International and the Participant embodying the terms of any Options
granted hereunder, which agreement shall, unless the Committee
otherwise determines, be substantially in the form attached hereto as
Exhibit A.
(s) "Participant" means any Employee designated by the
Committee to participate in the Plan.
(t) "Permanent Disability" means a physical or mental
disability or infirmity that prevents the performance of a
Participant's employment-related duties lasting (or likely to last,
based on competent medical evidence presented to the Board) for a
period of six months or longer. The Board's reasoned and good faith
judgment of Permanent Disability shall be final and shall be based on
such competent medical evidence as shall be presented to it by such
Participant or by any physician or group of physicians or other
competent medical expert employed by the Participant or the Company to
advise the Board.
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<PAGE> 4
(u) "Plan" means this WESCO International, Inc. 1998 Stock
Option Plan, as it may be amended from time to time.
(v) "Public Offering" means the first day as of which sales of
Common Stock are made to the public in the United States pursuant to an
underwritten public offering of the Common Stock.
(w) "Retirement" means a Participants retirement at or after
age 65.
(x) "Extraordinary Termination" has the meaning given in
Section 7.1.
(y) "Subsidiary" means any corporation a majority of whose
outstanding voting securities is owned, directly or indirectly, by the
Company or International.
2.2. Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3. ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those Employees selected by the
Committee to participate in the Plan. The selection of an Employee as a
Participant shall neither entitle such Employee to nor disqualify such Employee
from participation in any other award or incentive plan.
SECTION 4. POWERS OF THE COMMITTEE
4.1. Power to Grant. The Committee shall determine the Participants to
whom Options shall be granted and the terms and conditions of any and all
Options granted to Participants, provided, however, that nothing in the Plan
shall limit the right of members of the Committee who are Employees to receive
awards hereunder.
4.2. Administration. The Committee shall be responsible for the
administration of the Plan. Any authority exercised by the Committee under the
Plan shall be exercised by the Committee in its sole discretion. Subject to the
terms of the Plan, the Committee, by majority action thereof, is authorized to
prescribe, amend and rescind rules and regulations relating to the
administration of the Plan, to provide for conditions and assurances deemed
necessary or advisable to protect the interests of International and the
Company, to make all determinations with respect to the vesting and
exercisability of Options granted to Participants, and to make all other
determinations necessary or advisable for the administration and interpretation
of the Plan in order to carry out its provisions and purposes. Determinations,
interpretations or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final, binding and conclusive for all purposes
and upon all persons.
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<PAGE> 5
SECTION 5. OPTIONS SUBJECT TO PLAN
5.1. Number. Subject to the provisions of Sections 5.2 and 5.3, the
maximum number of Options (and the maximum number of shares of Common Stock
subject to Options) granted under the Plan may not exceed 62,500. The shares of
Common Stock to be delivered upon the exercise of Options granted under the Plan
may consist, in whole or in part, of treasury Common Stock or authorized but
unissued Common Stock, not reserved for any other purpose.
5.2. Cancelled, Terminated or Forfeited Options. Any Option which for
any reason is cancelled, terminated or otherwise forfeited, in whole or in part,
without having been exercised, shall again be available for grant under the
Plan.
5.3. Adjustment in Capitalization. The number and class of Options (and
the number of shares of Common Stock available for issuance upon exercise of
such Options) granted under the Plan, and the number, class and exercise price
of any outstanding Options (and the number of shares of Common Stock subject to
outstanding Options), may be adjusted by the Board, in its sole discretion, if
it shall deem such an adjustment to be necessary or appropriate to reflect any
Common Stock dividend, stock split or share combination or any recapitalization,
merger, consolidation, exchange of shares, liquidation or dissolution of
International.
SECTION 6. TERMS OF OPTIONS
6.1. Grant of Options. Options may be granted to Participants at such
time or times as shall be determined by the Committee. Each Option granted to a
Participant shall be evidenced by an Option Agreement that shall specify the
exercise price at which a share of Common Stock may be purchased pursuant to
such Option, the duration of such Option and such other terms consistent with
the Plan as the Committee shall determine, including customary representations,
warranties and covenants with respect to securities law matters. Unless
otherwise determined by the Committee at the Grant Date, such Option Agreement
shall also state that the holder thereof is entitled to the benefits of and
bound by the obligations set forth in the Amended and Restated Registration and
Participation Agreement, as the same may be amended from time to time, among
International and certain stockholders of International, to the extent set forth
therein. Such Option Agreement shall, unless the Committee otherwise determines,
be substantially in the form attached hereto as Exhibit A
6.2. Exercise Price. The exercise price per share of Common Stock to be
purchased upon exercise of an Option shall be determined by the Committee but
shall not be less than the Fair Market Value on the Grant Date.
6.3. Exercise of Options. Options shall become vested and exercisable
pursuant to such terms as the Committee shall determine and as shall be
reflected in the applicable Option Agreement or an amendment thereto, provided,
however, that 100% of such Options shall become exercisable to the extent
provided in Section 8.1 and that the Committee may accelerate the exercisability
of any Option, all Options or any class of Options, at any time and from time to
time. On or before the date upon which any Employee will exercise any Option,
International and such Employee shall enter into a Management Stock Subscription
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<PAGE> 6
Agreement substantially in the form attached hereto as Exhibit B.
Notwithstanding any other provision of the Plan, each Option shall terminate and
shall not be exercisable on or after the tenth anniversary of the Grant Date of
such option.
6.4. Payment. The Committee shall establish procedures governing the
exercise of Options, which procedures shall generally require that written
notice of the exercise thereof be given and that the exercise price thereof be
paid in full in cash or cash equivalents, including by personal check, at the
time of exercise. If so determined by the Committee in its sole discretion at or
after the Grant Date, the exercise price of any Options exercised after there
has been a Public Offering may be paid in full or in part in the form of shares
of Common Stock already owned and held for at least six months by the
Participant, based on the Fair Market Value of such Common Stock on the date of
exercise. As soon as practicable after receipt of a written exercise notice and
payment in full of the exercise price of any exercisable Options, International
shall deliver to the Participant a certificate or certificates representing the
shares of Common Stock acquired upon the exercise thereof.
SECTION 7. TERMINATION OF EMPLOYMENT
7.1. Extraordinary Termination. Unless otherwise provided in the Option
Agreement or otherwise determined by the Committee at the Grant Date, in the
event that a Participant's employment with International, the Company and the
Subsidiaries terminates by reason of the Participant's death, Permanent
Disability or Retirement (each an "Extraordinary Termination") then any Options
held by the Participant and then exercisable shall remain exercisable solely
until the first to occur of (i) the first anniversary of the Participant's
termination of employment or (ii) the expiration of the term of the Option. Any
Options held by the Participant that are not exercisable at the date of the
Extraordinary Termination shall terminate and be cancelled immediately upon such
Extraordinary Termination, and any Options described in the preceding sentence
that are not exercised within the period described in such sentence shall
terminate and be cancelled upon the expiration of such period.
7.2. Other Termination of Employment. Unless otherwise provided in the
Option Agreement or otherwise determined by the Committee at or after the Grant
Date, in the event that a Participant's employment with International, the
Company and the Subsidiaries terminates for any reason other than an
Extraordinary Termination, any Options held by such Participant that are
exercisable as of the date of such termination shall remain exercisable for a
period of 60 days (or, if shorter, during the remaining term of the Options).
Any Options held by the Participant that are not exercisable at the date of the
Participant's termination of employment shall terminate and be cancelled
immediately upon such termination, and any Options described in the preceding
sentence that are not exercised within the period described in such sentence
shall terminate and be cancelled upon the expiration of such period.
7.3. Certain Rights upon Termination of Employment Prior to Public
Offering. Unless otherwise determined by the Committee at the Grant Date, the
Committee shall provide in each Option Agreement governing Options granted
hereunder that the Participant may require International to repurchase his then
exercisable Options upon the termination of the Participant's
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<PAGE> 7
employment (i) due to death or Permanent Disability prior to a Public Offering
or (ii) by International, the Company or any Subsidiary other than for Cause
prior to a Public Offering, in each case for a purchase price per Option equal
to the excess, if any, of (x) the Fair Market Value on the date of termination
over (y) the exercise price per share of Common Stock pursuant to such Options,
and upon such additional terms and conditions as are set forth in Section 4 of
the Option Agreement attached hereto as Exhibit A. The foregoing right of a
Participant to require International to repurchase any exercisable Options shall
be subject to the Company having the ability to do so under the terms of its
financing arrangements and under Delaware law.
SECTION 8. CHANGE IN CONTROL
8.1. Accelerated Vesting and Payment. Unless the Committee shall
otherwise determine in the manner set forth in Section 8.2, in the event of a
Change in Control, each Option shall be cancelled in exchange for a payment in
cash of an amount equal to the excess, if any, of the Change in Control Price
over the exercise price for such Option.
8.2. Alternative Options. Notwithstanding Section 8.1, no cancellation,
acceleration of exercisability, vesting or cash settlement or other payment
shall occur with respect to any Option if the Committee reasonably determines in
good faith, prior to the occurrence of a Change in Control, that such Option
shall be honored or assumed, or new rights substituted therefor (such honored,
assumed or substituted Option being hereinafter referred to as an "Alternative
Option") by the New Employer, provided that any such Alternative Option must:
(a) provide the Participant that held such Option with rights
and entitlements substantially equivalent to or better than the rights,
terms and conditions applicable under such Option, including, but not
limited to, an identical or better exercise and vesting schedule,
identical or better timing and methods of payment and, if the
Alternative Options or the securities underlying them are not publicly
traded, identical or better rights to require International or the New
Employer to repurchase the Alternative Options;
(b) have substantially equivalent economic value to such
Option (determined at the time of the Change in Control); and
(c) have terms and conditions which provide that in the event
that such Participant suffers an Involuntary Termination within two
years following a Change in Control:
(i) any conditions on such Participant's rights
under, or any restrictions on transfer or exercisability
applicable to, each such Alternative Option shall be waived or
shall lapse, as the case may be; or
(ii) such Participant shall have the right to
surrender such Alternative Option within 30 days following
such termination in exchange for a payment in cash equal to
the excess of the Fair Market Value of the equity security
subject to the Alternative Option over the price, if any, that
such Participant would be required to pay to exercise such
Alternative Option.
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<PAGE> 8
SECTION 9. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN
The Board at any time may terminate or suspend the Plan, and from time
to time may amend or modify the Plan. No amendment, modification, termination or
suspension of the Plan shall in any manner adversely affect any Option
theretofore granted under the Plan, without the consent of the Participant
holding such Option. Shareholder approval of any such amendment, modification,
termination or suspension shall be obtained to the extent mandated by applicable
law, or if otherwise deemed appropriate by the Committee.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1. Nontransferability of Awards. No Options granted under the Plan
may be sold, transferred, pledged, assigned, encumbered or otherwise alienated
or hypothecated, other than by will or by the law of descent and distribution
and provided that the deceased Participant's beneficiary or the representative
of his estate acknowledges and agrees in writing, in a form reasonably
acceptable to International, to be bound by the provisions of the Plan and the
Option Agreement covering such Options as if such beneficiary or estate were the
Participant. All rights with respect to Options granted to a Participant under
the Plan shall be exercisable during his lifetime by such Participant only.
Following a Participant's death, all rights with respect to Options that were
exercisable at the time of such Participant's death and have not terminated
shall be exercised by his designated beneficiary or by his estate.
Notwithstanding the foregoing, the Committee may grant Options that are
transferable, without payment of consideration, to immediate family members of
the Participant or to trusts or partnerships for such family members or such
other parties as the Committee may approve (as evidenced by the applicable
Option Agreement or an amendment thereto), and the Committee may also amend
outstanding Options to provide for such transferability.
10.2. Beneficiary Designation. Each Participant under the Plan may from
time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) by whom any right under the Plan is to be
exercised in case of his death. Each designation will revoke all prior
designations by the same Participant, shall be in a form reasonably prescribed
by the Committee, and will be effective only when filed by the Participant in
writing with the Committee during his lifetime.
10.3. No Guarantee of Employment or Participation. Nothing in the Plan
or in any Option Agreement shall interfere with or limit in any way the right of
International, the Company or any Subsidiary to terminate any Participant's
employment at any time, or confer upon any Participant any right to continue in
the employ of International, the Company or any Subsidiary. No Employee shall
have a right to be selected as a Participant or, having been so selected, to
receive any Options.
10.4. Tax Withholding. The Company or the Subsidiary employing a
Participant shall have the power to withhold, or to require such Participant to
remit to the Company or such Subsidiary, subject to such other arrangements as
the Committee may set forth in the Option Agreement to which such Participant is
a party, an amount sufficient to satisfy all
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<PAGE> 9
federal, state, local and foreign withholding tax requirements in respect of any
Option granted under the Plan.
10.5. Indemnification. Each person who is or shall have been a member
of the Committee, the Board or any other committee of the Board shall be
indemnified and held harmless by the Company and International to the fullest
extent permitted by law from and against any and all losses, costs, liabilities
and expenses (including any related attorneys' fees and advances thereof) in
connection with, based upon or arising or resulting from any claim, action, suit
or proceeding to which he may be made a party or in which he may be involved by
reason of any action taken or failure to act under or in connection with the
Plan and from and against any and all amounts paid by him in settlement thereof,
with the Company's approval, or paid by him in satisfaction of any judgment in
any such action, suit or proceeding against him, provided that he shall give the
Company an opportunity, at its own expense, to defend the same before he
undertakes to defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive and shall be independent of any other
rights of indemnification to which such persons may be entitled under
International's or the Company's Certificate of Incorporation or By-laws, by
contract, as a matter of law, or otherwise.
10.6. No Limitation on Compensation. Nothing in the Plan shall be
construed to limit the right of International, the Company or any Subsidiary to
establish other plans or to pay compensation to its employees, in cash or
property, in a manner that is not expressly authorized under the Plan.
10.7. Requirements of Law. The granting of Options and the issuance of
shares of Common Stock pursuant to such Options shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required. No
Options shall be granted under the Plan, and no shares of Common Stock shall be
issued upon exercise of any Options granted under the Plan, if such grant or
exercise would result in a violation of applicable law, including the federal
securities laws and any applicable state securities laws.
10.8. Freedom of Action. Subject to Section 9, nothing in the Plan or
any Option Agreement shall be construed as limiting or preventing International,
the Company or any Subsidiary from taking any action that it deems appropriate
or in its best interest.
10.9. Term of Plan. The Plan shall be effective as of the Effective
Date. The Plan shall continue in effect, unless sooner terminated pursuant to
Section 9, until the tenth anniversary of the Effective Date. The provisions of
the Plan, however, shall continue thereafter to govern all outstanding Options
theretofore granted.
10.10. Rights as Stockholders. A Participant or a transferee of an
Option shall have no rights as a stockholder with respect to the shares of
Common Stock covered by an Option until that Participant or transferee shall
have become the holder of record of any such shares, and no adjustment shall be
made with respect to any such shares of Common Stock for dividends in cash or
other property or distributions of other rights on the Common Stock for which
the record date is prior to the date on which that Participant or transferee
shall have
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<PAGE> 10
become the holder of record of any shares covered by such Option; provided,
however, that Participants are entitled to share adjustments to reflect capital
changes under Section 5.3.
10.11. Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of New York,
except to the extent that the corporate law of the State of Delaware
specifically and mandatorily applies.
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<PAGE> 1
Exhibit 10.2
MANAGEMENT STOCK OPTION AGREEMENT
---------------------------------
MANAGEMENT STOCK OPTION AGREEMENT, dated as of August 6, 1998,
between WESCO International, Inc., a Delaware corporation ("International"), and
the Grantee whose name appears on the signature page hereof (the "Grantee").
W I T N E S S E T H :
WHEREAS, the Board of Directors of International (the "Board")
has adopted and approved the WESCO International, Inc. 1998 Stock Option Plan
(the "Plan") and designated the Compensation Committee of the Board (the
"Committee") to administer the Plan; and
WHEREAS, the Committee has determined to grant under the Plan
to the Grantee, an employee of WESCO Distribution, Inc. (the "Company"), a
non-qualified stock option to purchase an aggregate of ___________ shares (the
"Shares") of International's Class A Common Stock, par value $.01 per share (the
"Common Stock") at an exercise price of $621.08 per Share;
NOW, THEREFORE, to evidence the stock option so granted, and
to set forth its terms and conditions under the Plan, International and the
Grantee, intending to be legally bound, hereby agree as follows:
1. Confirmation of Grant; Option Price. International hereby
grants to the Grantee, effective as of the date hereof, an option (the "Option")
to purchase the Shares at an option price of $621.08 per share (the "Option
Price"). The Option shall consist of two parts, a part relating to ________ of
the Shares which is subject to time-based vesting (the "Time-Based Option") and
a part relating to _________ of the Shares which is subject to performance-based
vesting (the Performance-Based Option"). The Option is not intended to be an
incentive stock option under the U.S. Internal Revenue Code of 1986, as amended.
This Agreement is subordinate to, and the terms and conditions of the Option
granted hereunder are subject to, the terms and conditions of the Plan.
2. Exercisability. Except as otherwise provided in this
Agreement, the Time-Based Options shall become available for exercise as
follows:
VESTING DATE PERCENTAGE OF TIME-BASED OPTIONS EXERCISABLE
------------ --------------------------------------------
June 5, 1999 25%
June 5, 2000 25%
June 5, 2001 25%
June 5, 2002 25%
<PAGE> 2
Except as otherwise provided in this Agreement, if the Grantee
remains in the employment of the Company until the earlier of (a) January 1,
2008 and the Grantee's sixty-fifth (65th) birthday, the Performance-Based
Options shall become fully vested and exercisable as of such date; provided,
however, that the vesting and exercisability of the Performance-Based Options
shall be accelerated, and the Performance-Based Options shall become available
for exercise, upon achievement by International of the following annual
financial performance targets:
PERCENTAGE OF
PERFORMANCE-BASED
FISCAL YEAR EBITDA EBITDA PERCENTAGE VESTING DATE OPTIONS EXERCISABLE
- ----------- ------ ----------------- ------------ -------------------
1998 $122.6M 4.0% June 5, 1999 25%
1999 $149.6M 4.3% June 5, 2000 25%
2000 $176.7M 4.6% June 5, 2001 25%
2001 $206.9M 4.8% June 5, 2002 25%
2002 $240.2M 5.0% June 5, 2003 Catch-up year
The accelerated vesting date for Performance-Based Options
will be June 5 in the year following achievement of the specified financial
targets. Both the EBITDA dollar target and the EDITDA Percentage target for a
particular fiscal year must be attained for the Performance-Based Options
allocated to that year to become available for exercise on an accelerated basis.
If International attains 100% of the EBITDA and EBITDA Percentage target for a
fiscal year, then all Performance-Based Options allocated to such year (as
reflected in the above table), as well as any Performance-Based Options
allocated to prior years which had not previously vested, shall become vested
and exercisable on an accelerated basis. No specific number of Performance-Based
Options is allocated to fiscal year 2002; if the EBITDA and EBITDA Percentage
targets are met for fiscal year 2002, any Performance-Based Options allocated to
prior years which had not previously vested shall become vested and exercisable
on an accelerated basis. Performance of International during years after 2002
shall have no effect on the vesting of Performance-Based Options. Once a
Performance-Based Option vests, it will not "unvest" due to future performance
below targeted EBITDA.
For purposes of this Agreement, "EBITDA" shall mean earnings
before interest, taxes, depreciation and amortization. For purposes of this
Agreement, "EBITDA Percentage" shall mean EBITDA for a fiscal year as a
percentage of International's net sales for that year. All determinations of
EBITDA and EBITDA Percentage shall be made by the Committee based upon
International's audited, consolidated financial statements and on a basis
consistent with International's historic accounting practices, provided,
however, that the effects (as determined by the Committee in its sole
discretion) of any extraordinary items and one-time events shall be excluded.
Notwithstanding the foregoing, the Committee may accelerate
the exercisability of any Option, all Options or any class of Options, at any
time and from time to time. Shares eligible for purchase may thereafter be
purchased, subject to the provisions hereof, and pursuant to
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<PAGE> 3
and subject to the provisions contained in the Management Stock Subscription
Agreement (as defined in Section 5) related to such Shares, at any time and from
time to time on or after such anniversary until the date one day prior to the
date on which the Option terminates.
3. Termination of Option.
(a) Normal Termination Date. Unless an earlier termination
date is specified in Section 3(b), the Option shall terminate at 5:00 P.M.
Eastern Standard Time on June 5, 2008 (the "Normal Termination Date").
(b) Early Termination. If the Grantee's Active Employment (as
defined below) is voluntarily or involuntarily terminated for any reason
whatsoever prior to the Normal Termination Date, any portion of the Option that
has not become exercisable on or before the effective date of such termination
of employment shall terminate on such effective date. Any portion of the Option
that has become exercisable on or before the date of the Grantee's termination
of Active Employment shall, subject to the provisions of Section 4(c), remain
exercisable for whichever of the following periods is applicable, and if not
exercised within such period, shall terminate upon the expiration of such
period: (i) if the Grantee's Active Employment is terminated by reason of the
Grantee's death, Permanent Disability or Retirement at Normal Retirement Age
(each an "Extraordinary Termination"), then any Options held by the Grantee and
then exercisable shall remain exercisable solely until the first to occur of (A)
the first anniversary of the Grantee's termination of employment or (B) the
expiration of the term of the Option, and (ii) if the Grantee's Active
Employment is terminated for any reason other than an Extraordinary Termination,
then any then exercisable Options held by such Grantee shall remain exercisable
solely until the first to occur of (A) the expiration of sixty days after the
Grantee's termination of employment or (B) the expiration of the term of the
Option. Nothing in this Agreement shall be deemed to confer on the Grantee any
right to continue in the employ of International or any of its direct or
indirect subsidiaries, or to interfere with or limit in any way the right of
International or any of its direct or indirect subsidiaries to terminate such
employment at any time.
4. Restrictions on Exercise; Non-Transferability of Option;
Repurchase of Option.
(a) Restrictions on Exercise. The Option may be exercised only
with respect to full shares of Common Stock. No fractional shares of Common
Stock shall be issued. Notwithstanding any other provision of this Agreement,
the Option may not be exercised in whole or in part, and no certificates
representing Shares shall be delivered, (i) unless all requisite approvals and
consents of any governmental authority of any kind having jurisdiction over the
exercise of options shall have been secured, (ii) unless the purchase of the
Shares upon the exercise of the Option shall be exempt from registration under
applicable U.S. federal and state securities laws, and applicable non-U.S.
securities laws, or the Shares shall have been registered under such laws, (iii)
unless all applicable U.S. federal, state and local and non-U.S. tax withholding
requirements shall have been satisfied and (iv) if such exercise would result in
a violation of the terms or provisions of or a default or an event of default
under any Financing
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<PAGE> 4
Agreements (as such term is defined in Section 9). The Company shall use
commercially reasonable efforts to obtain the consents and approvals referred to
in clause (i) of the preceding sentence, to satisfy the withholding requirements
referred to in clause (iii) of the preceding sentence and to obtain the consent
of the parties to the Financing Agreements referred to in clause (iv) of the
preceding sentence so as to permit the Option to be exercised.
(b) Non-Transferability of Option. Except as contemplated by
Section 4(c) or as the Committee may otherwise determine in its sole discretion,
the Option may be exercised only be the Grantee or by his estate. Except as
contemplated by Section 4(c), the Option is not assignable or transferable, in
whole or in part, and it may not, directly or indirectly, be offered,
transferred, sold, pledged, assigned, alienated, hypothecated or otherwise
disposed of or encumbered (including without limitation by gift, operation of
law or otherwise) other than by will or by the laws of descent and distribution
to the estate of the Grantee upon his death, provided that the deceased
Grantee's beneficiary or the representative of his estate shall acknowledge and
agree in writing, in a form reasonably acceptable to International, to be bound
by the provisions of this Agreement and the Plan as if such beneficiary or the
estate were the Grantee.
(c) Repurchase of Option on Termination of Employment.
(i) Termination of Employment. If the Grantee's Active
Employment is terminated (x) without Cause, or (y) by reason of the
Grantee's death or Permanent Disability, on notice from the Grantee (or
his estate) in writing and delivered to the Company within 30 days
following the termination of employment, the Company shall purchase all
(but not less than all) of the portion of the Option that is
exercisable on the effective date of termination of Active Employment
(the "Covered Option").)
(ii) Purchase Price, etc. All purchases pursuant to this
Section 4(c) by the Company shall be for a purchase price and in the
manner prescribed by Sections 4(e), (f) and (g).
(d) Certain Definitions. As used in this Agreement the
following terms shall have the following meanings:
(i) "Active Employment" shall mean active employment with
International or any direct or indirect subsidiary of International.
(ii) "Cause" shall mean (A) the willful failure by the Grantee
substantially to perform his employment-related duties (other than any
such failure due to physical or mental illness) after a demand for
substantial performance is delivered to the Grantee by the Board, which
notice identifies the manner in which the Board believes that the
Grantee has not substantially performed his employment-related duties,
(B) the engaging by the Grantee in willful and serious misconduct that
is injurious to International or any of its affiliates, (C) the
conviction of the Grantee of, or the entering by the Grantee of a plea
of nolo contendere to, a crime that constitutes a felony, (D) the
breach by the
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<PAGE> 5
Grantee of any written covenant or agreement with International or any
of its affiliates not to disclose any information pertaining to
International or any of its affiliates or not to compete or interfere
with International or any of its affiliates or (E) the breach by the
Grantee of his obligation pursuant to Section 8 of his Management Stock
Subscription Agreement.
(iii) "Retirement at Normal Retirement Age" shall mean
retirement at age 65 or later.
(iv) "Permanent Disability" shall mean a physical or mental
disability or infirmity that prevents the performance of such Grantee's
employment-related duties lasting (or likely to last, based on
competent medical evidence presented to the Board) for a continuous
period of six months or longer. The Board's reasoned and good faith
judgment of Permanent Disability shall be final, binding and conclusive
on all parties hereto and shall be based on such competent medical
evidence as shall be presented to it by the Grantee or by any physician
or group of physicians or other competent medical expert employed by
the Grantee or International to advise the Board.
(d) Public Offering. In the event that an underwritten public
offering in the United States of the Common Stock led by one or more
underwriters at least one of which is an underwriter of nationally recognized
standing (a "Public Offering") has been consummated, the Grantee shall have no
rights to sell the Covered Option pursuant to this Section 4.
(e) Purchase Price. Subject to Section 9(c), the purchase
price to be paid to the Grantee (or his estate) for the Covered Option (the
"Purchase Price") shall be equal to the difference between (A) the fair market
value (the "Fair Market Value") of the Shares which may be purchased upon
exercise of the Covered Option as of the effective date of the termination of
employment that gives rise to the right or obligation to repurchase and (B) the
aggregate exercise price of the Covered Option. Whenever determination of the
Fair Market Value of the Shares is required by this Agreement, such Fair Market
Value shall be such amount as is determined in good faith by the Board. In
making a determination of Fair Market Value, the Board shall give due
consideration to such factors as it deems appropriate, including, without
limitation, the earnings and certain other financial and operating information
of the Company in recent periods, the potential value of the Company as a whole,
the future prospects of the Company and the industries in which it competes, the
history and management of the Company, the general condition of the securities
markets, the fair market value of securities of companies engaged in businesses
similar to those of the Company and a valuation of the Shares, which shall be
performed as promptly as practicable following each fiscal year by an
independent valuation firm chosen by the Board. The determination of Fair Market
Value will not give effect to any restrictions on transfer of the Shares or the
fact that such Shares would represent a minority interest in the Company. The
Fair Market Value as determined in good faith by the Board in the absence of
fraud shall be binding and conclusive upon all parties hereto. If the Company
subdivides (by any stock split, stock dividend or otherwise) the Common Stock
into a greater number of shares, or combines (by reverse stock split or
otherwise) the Common Stock into a smaller number of shares after the Board
shall have determined the Purchase Price for the Shares
- 5 -
<PAGE> 6
(without taking into consideration such subdivision or combination) and prior to
the consummation of the purchase, the Purchase Price shall be appropriately
adjusted to reflect such subdivision or combination, and the Board's
determination as to any such adjustment in good faith shall be binding and
conclusive on all parties hereto.
(f) Payment. Subject to Section 9, the completion of a
purchase pursuant to this Section 4 shall take place at the principal office of
the Company on the tenth business day following the Company's receipt of notice
by the Grantee of the election to sell the Covered Option pursuant to Section
4(c). The Purchase Price shall be paid by delivery to the Grantee of a certified
or bank check for the Purchase Price payable to the order of the Grantee,
against delivery of such instruments as the Company may reasonably request
signed by the Grantee, free and clear of all security interests, liens, claims,
encumbrances, charges, options, restrictions on transfer, proxies and voting and
other agreements of whatever nature.
(g) Application of the Purchase Price to Certain Loans. The
Grantee agrees that the Company shall be entitled to apply any amounts to be
paid by the Company to repurchase the Covered Option pursuant to this Section 4
to discharge any indebtedness of the Grantee to the Company or any of its direct
or indirect subsidiaries, or indebtedness that is guaranteed by the Company or
any of its direct or indirect subsidiaries, including, but not limited to, any
indebtedness of the grantee incurred to purchase any shares of Common Stock.
(h) Withholding. Whenever Shares are to be issued pursuant to
the Option, International may require the recipient of the Shares to remit to
International an amount sufficient to satisfy any applicable U.S. federal, state
and local and non-U.S. tax withholding requirements. In the event any cash is
paid to the Grantee pursuant to this Section 4, International shall have the
right to withhold from such payment an amount sufficient to satisfy any
applicable U.S. federal, state and local and non-U.S. tax withholding
requirements. If shares of Common Stock are traded on a U.S. national securities
exchange or bid and ask prices for shares of Common Stock are quoted on the
Nasdaq National Market ("NASDAQ") operated by the National Association of
Securities Dealers, Inc., International may, if requested by the Grantee,
withhold shares to satisfy applicable withholding requirements, subject to the
provisions of the Plan and any rules adopted by the Board or the Committee
regarding compliance with applicable law, including, but not limited to, Section
16(b) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange
Act").
5. Manner of Exercise. To the extent that the Option shall
have become and remains exercisable as provided in Section 2 and subject to such
reasonable administrative regulations as the Board or the Committee may have
adopted, the Option may be exercised, in whole or in part, by notice to the
Secretary of International in writing given 15 business days prior to the date
on which the Grantee will so exercise the Option (the "Exercise Date"),
specifying the number of Shares with respect to which the Option is being
exercised (the "Exercise Shares") and the Exercise Date, provided that if shares
of Common Stock are traded on a U.S. national securities exchange or bid and ask
prices for shares of Common Stock are quoted over NASDAQ, notice may be given
five business days before the Exercise Date. On or before the Exercise Date,
International and the Grantee shall enter into a Management Stock
- 6 -
<PAGE> 7
Subscription Agreement (the "Management Stock Subscription Agreement")
substantially in the form attached hereto as Annex 1, or in such other form as
may be agreed upon by International and the Grantee, such Management Stock
Subscription Agreement to contain (unless a Public Offering shall have occurred
prior to the Exercise Date) provisions corresponding to Section 4(c) hereof. In
accordance with the Management Stock Subscription Agreement, (a) on or before
the Exercise Date, the Grantee shall deliver to International full payment for
the Exercise Shares in United States dollars in cash, or cash equivalent
satisfactory to International, and in an amount equal to the product of the
number of Exercise Shares and $621.08 (the "Exercise Price") and (b) on the
Exercise Date, International shall deliver to the Grantee a certificate or
certificates representing the Exercise Shares, registered in the name of the
Grantee. If shares of Common Stock are traded on a U.S. national securities
exchange or bid and ask prices for shares of Common Stock are quoted over
NASDAQ, the Grantee, in lieu of cash, may tender shares of Common Stock having a
market price on the Exercise Date equal to the Exercise Price or may deliver a
combination of cash and shares of Common Stock having a market price equal to
the difference between the Exercise Price and the amount of such cash as payment
of the Exercise Price, subject to such rules and regulations as may be adopted
by the Board or the Committee to provide for the compliance of such payment
procedure with applicable law, including Section 16(b) of the Exchange Act.
International may require the Grantee to furnish or execute such other documents
as International shall reasonably deem necessary (i) to evidence such exercise,
(ii) to determine whether registration is then required under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and (iii) to comply
with or satisfy the requirements of the Securities Act, applicable state or
non-U.S. securities laws or any other law.
6. Grantee's Representations, Warranties and Covenants.
(a) Investment Intention. The Grantee represents and warrants
that the Option has been, and any Exercise Shares will be, acquired by him
solely for his own account for investment and not with a view to or for sale in
connection with any distribution thereof. The Grantee agrees that he will not,
directly or indirectly, offer, transfer, sell, pledge, hypothecate or otherwise
dispose of all or any portion of the Option or any of the Exercise Shares (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge of all
or any portion of the Option or any of the Exercise Shares), except in
compliance with the Securities Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder, and in
compliance with applicable state securities or "blue sky" laws. The Grantee
further understands, acknowledges and agrees that none of the Shares may be
transferred, sold, pledged, hypothecated or otherwise disposed of unless the
provisions of the related Management Stock Subscription Agreement shall have
been complied with or have expired.
(b) Legend. The Grantee acknowledges that any certificate
representing the Exercise Shares shall bear an appropriate legend, which will
include, without limitation, the following language:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, DATED AS OF
AUGUST 6, 1998, AND NEITHER THIS CERTIFICATE NOR THE
- 7 -
<PAGE> 8
SHARES REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT STOCK
SUBSCRIPTION AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED
TO THE BENEFITS OF AND ARE BOUND BY THE OBLIGATIONS SET FORTH IN AN
AMENDED AND RESTATED REGISTRATION AND PARTICIPATION AGREEMENT AMONG THE
COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (i) (A) SUCH DISPOSITION IS PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE COMPANY AN OPINION OF
COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO
THE COMPANY, TO THE EFFECT THAT SUCH DISPOSITION IS EXEMPT FROM THE
PROVISIONS OF SECTION 5 OF SUCH ACT OR (C) A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, REASONABLY SATISFACTORY TO COUNSEL
FOR THE COMPANY, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH
DISPOSITION AND (ii) SUCH DISPOSITION IS PURSUANT TO REGISTRATION UNDER
ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM."
(c) Securities Law Matters. The Grantee acknowledges receipt
of advice from International that (i) the Exercise Shares have not been
registered under the Securities Act or qualified under any state securities or
"blue sky" laws, (ii) it is not anticipated that there will be any public market
for the Exercise Shares, (iii) the Exercise Shares must be held indefinitely and
the Grantee must continue to bear the economic risk of the investment in the
Exercise Shares unless the Exercise Shares are subsequently registered under the
Securities Act and such state laws or an exemption from registration is
available, (iv) Rule 144 under the Securities Act ("Rule 144") is not presently
available with respect to the sales of any securities of International and
International has made no covenant to make Rule 144 available, (v) when and if
the Exercise Shares may be disposed of without registration in reliance upon
Rule 144, such disposition can be made only in limited amounts in accordance
with the terms and conditions of such Rule, (vi) International does not plan to
file reports with the Commission or make public information concerning
International available unless required to do so by law or by the terms of any
Financing Agreements (as hereinafter defined), (vii) if the exception afforded
by Rule 144 is not available, sales of the Exercise Shares may be difficult to
effect because of the absence of public information concerning International,
(viii) a restrictive legend in the form heretofore set forth shall be placed on
the certificates representing the Exercise Shares and (ix) a notation shall be
- 8 -
<PAGE> 9
made in the appropriate records of International indicating that the Exercise
Shares are subject to restrictions on transfer set forth in this Agreement and,
if International should in the future engage the services of a stock transfer
agent, appropriate stop-transfer restrictions will be issued to such transfer
agent with respect to the Exercise Shares.
(d) Compliance with Rule 144. If any of the Exercise Shares
are to be disposed of in accordance with Rule 144 under the Securities Act, the
Grantee shall transmit to International an executed copy of Form 144 (if
required by Rule 144) no later than the time such form is required to be
transmitted to the Commission for filing and such other documentation as
International may reasonably require to assure compliance with Rule 144 in
connection with such disposition.
(e) Ability to Bear Risk. The Grantee covenants that he will
not exercise all or any portion of the Option unless (i) the financial situation
of the Grantee is such that he can afford to bear the economic risk of holding
the Exercise Shares for an indefinite period and (ii) he can afford to suffer
the complete loss of his investment in the Exercise Shares.
(f) Registration; Restrictions on Sale upon Public Offering.
In respect of any Shares purchased upon exercise of all or any portion of the
Option, the Grantee shall be entitled to the rights and subject to the
obligations created under the Amended and Restated Registration and
Participation Agreement, as the same may be amended, modified or supplemented
from time to time (the "Registration Agreement"), among International and
certain stockholders of International, to the extent set forth therein. Such
Shares shall be entitled to the benefits of the Registration Agreement
applicable to Registrable Securities (as defined therein). The Grantee agrees
that, in the event that International files a registration statement under the
Securities Act with respect to an underwritten public offering of any shares of
its capital stock, the Grantee will not effect any public sale or distribution
of any shares of the Common Stock (other than as part of such underwritten
public offering) during the 20 days prior to and the 180 days after the
effective date of such registration statement.
7. Representations and Warranties of International. The
Company represents and warrants to the Grantee that (a) International has been
duly incorporated and is an existing corporation in good standing under the laws
of the State of Delaware, (b) this Agreement has been duly authorized, executed
and delivered by International and constitutes a valid and legally binding
obligation of International enforceable against International in accordance with
its terms, and (c) the Shares, when issued, delivered and paid for, upon
exercise of the Option in accordance with the terms hereof and the Management
Stock Subscription Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and free and clear of any liens or encumbrances other
than those created pursuant to this Agreement, the Management Stock Subscription
Agreement or otherwise in connection with the transactions contemplated hereby.
8. Change in Control
(a) Accelerated Vesting and Payment. Unless the Committee
shall otherwise determine in the manner set forth in Section 8(b), in the event
of a Change in Control, the Option shall be cancelled in exchange for a payment
in cash of an amount equal to the excess, if any, of the Change in Control Price
over the exercise price for the Option.
- 9 -
<PAGE> 10
(b) Alternative Options. Notwithstanding Section 8(a), no
cancellation, acceleration of exercisability, vesting or cash settlement or
other payment shall occur with respect to the Option if the Committee reasonably
determines in good faith, prior to the occurrence of a Change in Control, that
the Option shall be honored or assumed, or new rights substituted therefor (such
honored, assumed, or substituted Option being hereinafter referred to as an
"Alternative Option") by the New Employer, provided that any such Alternative
Option must:
(i) provide the Grantee with rights and entitlements
substantially equivalent to or better than the rights, terms and
conditions applicable under the Option, including, but not limited to,
an identical or better exercise and vesting schedule, identical or
better timing and methods of payment and, if the Alternative Options or
the securities underlying them are not publicly traded, identical or
better rights to require International or the New Employer to
repurchase the Alternative Options;
(ii) have substantially equivalent economic value to the
Option (determined at the time of the Change in Control); and
(iii) have terms and conditions which provide that in the
event that the Grantee suffers an Involuntary Termination within two
years following a Change in Control:
(A) any conditions on the Grantee's rights under, or
any restrictions on transfer or exercisability applicable to,
each such Alternative Option shall be waived or shall lapse,
as the case may be; or
(B) the Grantee shall have the right to surrender
such Alternative Option within 30 days following such
termination in exchange for a payment in cash equal to the
excess of the Fair Market Value of the equity security subject
to the Alternative Option over the price, if any, that the
Grantee would be required to pay to exercise such Alternative
Option.
(c) Certain Definitions.
(i) "Change in Control" means the first to occur of the
following events after June 5, 1998:
(A) the acquisition by any person, entity or "group"
(as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended), other than International, the Company, the
Subsidiaries, any employee benefit plan of International, the
Company or the Subsidiaries, or the Cypress Fund, of 50% or
more of the combined voting power of International's or the
Company's then outstanding voting securities;
- 10 -
<PAGE> 11
(B) the merger of consolidation of International or
the Company as a result of which persons who were stockholders
of International or the Company, as the case may be,
immediately prior to such merger or consolidation, do not,
immediately thereafter, own, directly or indirectly, more than
50% of the combined voting power entitled to vote generally in
the election of directors of the merged or consolidated
company;
(C) the liquidation or dissolution of International
or the Company; and
(D) the sale, transfer or other disposition of all or
substantially all of the assets of International or the
Company to one or more persons or entities that are not,
immediately prior to such sale, transfer or other disposition,
affiliates of International or the Company.
(ii) "Change in Control Price" means the price per share of
Common Stock offered in conjunction with any transaction resulting in a
Change in Control (as determined in good faith by the Board of
Directors if any part of the offered price is payable other than in
cash).
(iii) "Involuntary Termination" means a termination by the New
Employer for any reason.
(iv) "New Employer" means the Grantee's employer, or the
parent or a subsidiary of such employer, immediately following a Change
in Control.
(v) "Subsidiary" means any corporation a majority of whose
outstanding voting securities is owned, directly or indirectly, by the
Company or International.
9. Certain Restrictions on Repurchases.
(a) Financing Agreements, etc. Notwithstanding any other
provision of this Agreement, the Company shall not be permitted or obligated to
repurchase the Option from the Grantee if (i) such repurchase would result in a
violation of the terms or provisions of, or result in a default or an event of
default under, (A) the Credit Facility (the "Credit Facility") among
International, the Company, WESCO Distribution - Canada, the lenders party
thereto, The Chase Manhattan Bank, as U.S. administrative agent, syndication
agent and Canadian collateral agent and Lehman Commercial Paper Inc., as
documentation agent and (B) any indenture to be entered into with respect to
debt securities issued by International as the same may be amended, modified or
supplemented from time to time (an "Indenture") or (C) any other financing or
security agreement or document entered into in connection with the operations of
the Company or its subsidiaries from time to time, as each may be amended,
modified or supplemented from time to time (the Credit Facility, any Indenture
and such other agreements and documents, are hereinafter referred to as the
"Financing Agreements"), or (ii) such repurchase would violate any of the terms
or provisions of the Certificate of Incorporation of the Company, or (iii) the
Company has no funds legally available therefor under the General Corporation
Law of the State of Delaware.
- 11 -
<PAGE> 12
(b) Delay of Repurchase. In the event that a repurchase by the
Company otherwise permitted or required under Section 4(c) is prevented solely
by the terms of Section 9(a), (i) such repurchase will be postponed and will
take place without the application of further conditions or impediments (other
than as set forth in Section 4 hereof or in this Section 9) at the first
opportunity thereafter when the Company has funds legally available therefor and
when such repurchase will not result in any default, event of default or
violation under any of the Financing Agreements or in a violation of any term or
provision of the Certificate of Incorporation of the Company and (ii) such
repurchase obligation shall rank against other similar repurchase obligations
with respect to shares of Common Stock or options in respect thereof according
to priority in time of the date upon which the Company receives written notice
of such exercise, provided that any such repurchase obligations as to which a
common date determines priority shall be of equal priority and shall share pro
rata in any repurchase payments made pursuant to clause (i) above and provided,
further, that (x) any repurchase commitment arising from Permanent Disability or
death or, in the case of shares of Common Stock, any repurchase commitment made
by the Board pursuant to Section 6(b) of the Management Stock Subscription
Agreement shall have priority over any other repurchase obligation and (y) all
Section references in this clause (ii) shall be deemed to refer to the
corresponding Section of this Agreement or the Management Stock Subscription
Agreement, as the case may be, and to any similar provision of any other
management stock option or stock subscription agreement to which the Company is
or becomes a party.
(c) Purchase Price Adjustment. In the event that a repurchase
of the Covered Option from the Grantee is delayed pursuant to this Section 9,
the purchase price for such Option when the repurchase of such Option eventually
takes place as contemplated by Section 9(b) shall be the sum of (i) the Purchase
Price of such Covered Option determined in accordance with Section 4(g) at the
time that the repurchase of such Option would have occurred but for the
operation of this Section 9, plus (ii) an amount equal to interest on such
Purchase Price for the period from the date on which the completion of the
repurchase would have taken place but for the operation of this Section 9 to the
date on which such repurchase actually takes place (the "Delay Period") at a
rate equal to the weighted average cost of the Company's bank indebtedness
obligations outstanding during the Delay Period.
10. No Rights as Stockholder. The Grantee shall have no voting
or other rights as a stockholder of International with respect to any Shares
covered by the Option until the exercise of the Option and the issuance of a
certificate or certificates to him for such Shares. No adjustment shall be made
for dividends or other rights for which the record date is prior to the issuance
of such certificate or certificates.
11. Capital Adjustments. The number and price of the Shares
covered by the Option shall be proportionately adjusted to reflect any stock
dividend, stock split or share combination of the Common Stock or any
recapitalization of International. Subject to any required action by the
stockholders of International and Section 8 hereof, in any merger,
- 12 -
<PAGE> 13
consolidation, reorganization, exchange of shares, liquidation or dissolution,
the Option shall pertain to the securities and other property, if any, that a
holder of the number of shares of Common Stock covered by the Option would have
been entitled to receive in connection with such event.
- 13 -
<PAGE> 14
12. Miscellaneous.
(a) Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified or
express mail, return receipt requested, postage prepaid, or by any recognized
international equivalent of such delivery, to International, the Cypress Fund or
the Grantee, as the case may be, at the following addresses or to such other
address as International, the Cypress Fund or the Grantee, as the case may be,
shall specify by notice to the others:
(i) if to International, to it at:
WESCO International, Inc.
Commerce Court, Suite 700
Four Station Square
Pittsburgh, PA 15219
Attention: Chairman
(ii) if to the Grantee, to the Grantee at the address set
forth on the signature page hereof.
All such notices and communications shall be deemed to have been
received on the date of delivery or on the third business day after the
mailing thereof.
(b) Binding Effect; Benefits. This Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement
and their respective successors and assigns. Except as provided in
Section 4, nothing in this Agreement, express or implied, is intended
or shall be construed to give any person other than the parties to this
Agreement or their respective successors or assigns any legal or
equitable right, remedy or claim under or in respect of any agreement
or any provision contained herein.
(c) Waiver; Amendment.
(i) Waiver. Any party hereto or beneficiary hereof
may by written notice to the other parties (A) extend the time
for the performance of any of the obligations or other actions
of the other parties under this Agreement, (B) waive
compliance with any of the conditions or covenants of the
other parties contained in this Agreement and (C) waive or
modify performance of any of the obligations of the other
parties under this Agreement, provided that any waiver of the
provisions of Section 4 must be consented to in writing by the
C&D Fund. Except as provided in the preceding sentence, no
action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party or
beneficiary, shall be deemed to constitute a waiver by the
party or beneficiary taking such action of compliance with any
representations, warranties,
- 14 -
<PAGE> 15
covenants or agreements contained herein. The waiver by any
party hereto or beneficiary hereof of a breach of any
provision of this Agreement shall not operate or be construed
as a waiver of any preceding or succeeding breach and no
failure by a party or beneficiary to exercise any right or
privilege hereunder shall be deemed a waiver of such party's
or beneficiary's rights or privileges hereunder or shall be
deemed a waiver of such party's or beneficiary's rights to
exercise the same at any subsequent time or times hereunder.
(ii) Amendment. This Agreement may not be amended,
modified or supplemented orally, but only by a written
instrument executed by the Grantee and International.
(d) Assignability. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by International or the Grantee without the prior written consent of
the other parties.
(e) Applicable Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, regardless of the
law that might be applied under principles of conflict of laws, except to the
extent that the corporate law of the State of Delaware specifically and
mandatorily applies.
(f) Section and Other Headings, etc. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement. In this Agreement
all references to "dollars" or "$" are to United States dollars.
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
(h) Delegation by the Board. All of the powers, duties and
responsibilities of the Board specified in this Agreement may, to the full
extent permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to exercise
and perform such powers, duties and responsibilities.
- 15 -
<PAGE> 16
IN WITNESS WHEREOF, International and the Grantee have
executed this Agreement as of the date first above written.
WESCO INTERNATIONAL, INC.
By:____________________________
Name:
Title:
THE GRANTEE:
By:____________________________
Name:
Address of the Grantee:
Total Number of Shares
of Common Stock for the
Purchase of Which an
Option Has Been Granted: _________________________________
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESCO
INTERNATIONAL, INC. AND SUBSIDIARIES' UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 25,579
<SECURITIES> 0
<RECEIVABLES> 202,281
<ALLOWANCES> 7,798
<INVENTORY> 334,449
<CURRENT-ASSETS> 632,672
<PP&E> 101,483
<DEPRECIATION> 0
<TOTAL-ASSETS> 952,357
<CURRENT-LIABILITIES> 444,574
<BONDS> 578,761
0
0
<COMMON> 6
<OTHER-SE> (120,420)
<TOTAL-LIABILITY-AND-EQUITY> 952,357
<SALES> 2,219,456
<TOTAL-REVENUES> 2,219,456
<CGS> 1,821,616
<TOTAL-COSTS> 2,194,399
<OTHER-EXPENSES> 6,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,599
<INCOME-PRETAX> (10,786)
<INCOME-TAX> (27,618)
<INCOME-CONTINUING> 16,832
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,832
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
