EXHIBIT 4.3
STOCK OPTION AGREEMENT
dated as of
March 4, l997
between
DLJ BRAND HOLDINGS, INC.
and
CARLISLE GROUP, L.P.
Stock Option Agreement dated as of March 4, 1997, between DLJ Brand
Holdings, Inc., a Delaware corporation (the "COMPANY"), and Carlisle Group,
L.P., a Delaware limited partnership ("PURCHASER").
In consideration of the agreements set forth below, the Company and
Purchaser agree as follows:
SECTION 1. (a) Definitions. The following terms have the meanings set
forth below:
"AFFILIATE" means, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person provided that no securityholder of the Company or Brand shall
be deemed an Affiliate of any other securityholder solely by reason of any
investment in the Company or Brand. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this agreement, as amended, supplemented or
otherwise modified from time to time in accordance with its terms.
"ANNUALIZED" means (i) with respect to the end of the first fiscal
quarter of Brand to occur after the date of this Agreement, the applicable
amount for such fiscal quarter multiplied by four, (ii) with respect to the
second fiscal quarter of Brand to occur after the date of this Agreement, the
applicable amount for such fiscal quarter and the immediately preceding fiscal
quarter multiplied by two and (iii) with respect to the third fiscal quarter of
Brand to occur after the date of this Agreement, the applicable amount for such
fiscal quarter and the immediately preceding two fiscal quarters multiplied by
one and one-third.
"AS ADJUSTED" means (i) if the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) the Common Stock or
Preferred Shares into a greater number of shares or pays a dividend or makes a
distribution to holders of the Common Stock or Preferred Shares in the form of
shares of Common Stock or Preferred Shares, as the case may be, the number of
Common Stock or Preferred Shares, as the case may be, referred to shall be
proportionately increased; and (ii) if the Company at any time combines (by
reverse stock split or otherwise) the Common Stock or Preferred Shares into a
2
smaller number of shares, the number of Common Stock or Preferred Shares, as
the case may be, referred to shall be proportionately decreased.
"BOARD" means the board of directors of the Company.
"BRAND" means Brand Scaffold Services, Inc., a Delaware corporation
and wholly owned Subsidiary of the Company.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized by law to close.
"CAPITALIZED LEASE LIABILITIES" means, without duplication, all
monetary obligations of Brand or any of its Subsidiaries under any leasing or
similar arrangement which, in accordance with GAAP, would be classified as
capitalized leases, and, for purposes of this Agreement the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last
scheduled payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"CHANGE OF CONTROL" means (i) the sale of all or substantially all of
the assets of the Company; (ii) the Institutional Shareholders shall cease to
own, in the aggregate, at least 50% of the outstanding Common Stock; (iii) the
Company shall cease to own, beneficially and of record, at least 95% of the
common stock of Brand or any successor Subsidiary of the Company; or (iv) the
sale of all or substantially all of the assets of Brand or any successor
Subsidiary of the Company to a Third Party.
"COMMON STOCK" means the common stock, par value $0.01 per share, of
the Company.
"CREDIT AGREEMENT" means the Credit Agreement dated as of September
30, 1996, among Brand, as the Borrower, various financial institutions, as the
Lenders, DLJ Capital Funding, Inc., as the Syndication Agent for the Lenders,
Bank of America Illinois, as the Issuer, and Bank of America National Trust and
Savings Association, as Administrative Agent (in such capacity, the "Agent"),
as amended, supplemented or otherwise modified from time to time. References to
the Credit Agreement shall also include any credit or other agreements entered
into by the Company and/or Brand to replace, extend, increase, renew, refund or
refinance all or a portion of the debt or other obligations under the Finance
Documents.
3
"DLJ ENTITIES" has the meaning set forth in the Shareholders Agreement.
"DLJ IRR" means, as of any date of determination, the internal rate of
return for the Institutional Shareholders on all Original Shares and Original
Preferred Shares, calculated on a combined basis and calculated to be that
interest rate (expressed on a percent per annum basis) which, when applied to
all net cash flows (including gross receipts of the Company from the
Institutional Shareholders and gross receipts of the Institutional Shareholders
from the Company or in respect of any equity interest in the Company, including
in any of the foregoing calculations the market value of any securities
received) with respect to the Original Shares and Original Preferred Shares,
causes the net present value, as of such date of determination, of all such net
cash flows to equal zero.
"EBITDA" means, for any period, the sum (without duplication) for
Brand and its Subsidiaries on a consolidated basis of:
(a) Net Income, plus
(b) the amount deducted, in determining Net Income, representing
depreciation and amortization, plus
(c) the amount deducted, in determining Net Income, representing
income taxes (whether paid or deferred), plus
(d) the amount deducted, in determining Net Income, representing
Interest Expense, plus
(e) an amount equal to the amount of all non-cash charges deducted in
arriving at Net Income, plus
(f) to the extent not included in determining Net Income or in clause
(e) above, in respect of the first three fiscal quarters of Brand after the
date of this Agreement, the Annualized amount of the non-cash portion of
general liability, auto liability, workers' compensation or post-retirement
health, insurance and related expense; minus
(g) an amount equal to the amount of all non-cash credits included in
determining Net Income, minus
(h) to the extent not deducted in determining Net Income, cash
expenditures actually paid in connection with general liability, auto
liability,
4
workers' compensation or post-retirement health, insurance and related benefits,
minus
(i) to the extent included in Net Income, income from any business
other than the Scaffolding Business.
"EQUITY PROCEEDS" means the aggregate cash proceeds (net of the direct
costs of any such sale or other disposition (including, without limitation,
sales and underwriters' commissions and legal, accounting and investment
banking fees)) received by all Institutional Shareholders (including their
Permitted Transferees) from the sale, exchange, conversion or other disposition
of Original Shares and Original Preferred Shares, including such proceeds
received (i) in exchange for the Original Shares and Original Preferred Shares
and (ii) as a dividend or distribution thereon, from September 30, 1996 through
the date of determination; provided that upon the occurrence of a Change of
Control the term Equity Proceeds shall be deemed to include, in addition to the
cash proceeds described above, Non-Cash Equity Proceeds. In no event shall any
proceeds received in a sale, exchange, conversion or other disposition with or
to a Permitted Transferee from an Institutional Shareholder or with or to an
Institutional Shareholder from a Permitted Transferee be included in any
calculation of Equity Proceeds hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXIT OPTIONS" has the meaning set forth in Section 3(c).
"EXIT II OPTIONS" has the meaning set forth in Section 3(d).
"EXIT III OPTIONS" has the meaning set forth in Section 3(e).
"FINANCE DOCUMENTS" means the Credit Agreement together with all
notes, collateral and security documents, guaranties and other documents
delivered at any time in connection therewith, all as amended, supplemented or
otherwise modified from time to time in accordance with their respective terms.
"FINANCING LEASE" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
generally accepted accounting principles to be capitalized on a balance sheet
of the lessee.
"FISCAL YEAR" means a fiscal year of the Company.
5
"INITIAL PUBLIC OFFERING" has the meaning set forth in the Shareholders
Agreement.
"INSTITUTIONAL SHAREHOLDER" has the meaning set forth in the
Shareholders Agreement.
"INSTITUTIONAL SHAREHOLDER VALUATION" means, for any date of
calculation, the sum of
(i) the Equity Proceeds on such date plus, without
duplication, the Non-Cash Equity Proceeds on such date; and
(ii) the product of
(A) the per share cash proceeds (net of the direct
costs of the applicable Public Offering (including, without
limitation, sales and underwriters' commissions and legal,
accounting and investment banking fees)) received by all
Institutional Shareholders in the Public Offering with
respect to which this calculation is made, multiplied by
(B) the number of Original Shares less the number of
any such Original Shares for which Equity Proceeds are
included in (i) above; and
(iii) the aggregate liquidation preference (including
accreted dividends) of all Original Preferred Shares outstanding as of
the date this calculation was made less the aggregate liquidation
preference (including accreted dividends) of all Original Preferred
Shares for which Equity Proceeds are included in (i) above.
"INTEREST EXPENSE" means, for any period, the aggregate consolidated
interest expense of Brand and its Subsidiaries for such period, as determined
in accordance with GAAP, including the portion of any payments made in respect
of Capitalized Lease Liabilities allocable to interest expense, but excluding
(to the extent included in interest expense) up-front fees and expenses
incurred in connection with the transaction contemplated in the Transaction
Agreement (as defined in the Shareholders Agreement).
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any
6
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations or financial condition of the Company and its Subsidiaries
taken as a whole.
"NET INCOME" means, for any period, the net income (loss) of Brand and
its Subsidiaries for such period on a consolidated basis, excluding
extraordinary gains.
"NON-CASH EQUITY PROCEEDS" means the aggregate value (determined as
set forth below) of all non-cash proceeds (net of the direct costs of any such
sale or other disposition (including, without limitation, sales and
underwriters' commissions and legal, accounting and investment banking fees))
received by all Institutional Shareholders from the sale, exchange, conversion
or other disposition of Original Shares and Original Preferred Shares from
September 30, 1996 through the date of determination. For purposes of this
Agreement, the value of such non-cash proceeds shall be the fair value thereof
as reasonably determined by the Board as of the consummation of such sale or
disposition, irrespective of any accounting treatment. In no event shall any
proceeds received in a sale, exchange, conversion or other disposition with or
to a Permitted Transferee from an Institutional Shareholder or with or to an
Institutional Shareholder from a Permitted Transferee or with or to the Company
or Brand, be included in any calculation of Non-Cash Equity Proceeds hereunder.
"OPTION" has the meaning set forth in Section 2(a).
"ORIGINAL PREFERRED SHARES" means all Preferred Shares issued and
outstanding on September 30, 1996, As Adjusted.
"ORIGINAL SHARES" means all Common Stock issued and outstanding on
September 30, 1996, As Adjusted.
"PERFORMANCE BASED OPTIONS" has the meaning set forth in Section 3(b).
"PERMITTED TRANSFEREE" has the meaning set forth in the Shareholders
Agreement.
7
"PERSON" means an individual, corporation, limited liability company,
partnership, association, joint stock company, trust, unincorporated
organization, government or political subdivision thereof or other entity.
"PREFERRED SHARES" means shares of 14.5% Senior Exchangeable
Preferred Stock of Brand.
"PUBLIC OFFERING" has the meaning set forth in the Shareholders
Agreement.
"SCAFFOLDING BUSINESS" means any business the principal purpose of
which is to provide scaffolding rental and erection to third parties within the
United States.
"SECURITIES" means the Options and the shares of Common Stock for
which the Options are exercisable.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated as of
September 30, 1996 among the Company, Brand and the shareholders signatory
thereto, as amended or modified pursuant to the terms thereof.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"TARGET EBITDA" has the meaning set forth in Section 3(b).
"TARGET EQUITY PROCEEDS" has the meaning set forth in Section 3(c).
"TARGET II EQUITY PROCEEDS" has the meaning set forth in Section 3(d).
"TARGET III EQUITY PROCEEDS" has the meaning set forth in Section 3(e).
"TARGET OPTIONS" has the meaning set forth in Section 3(b).
"THIRD PARTY" has the meaning set forth in the Shareholders Agreement.
"TIME BASED OPTIONS" has the meaning set forth in Section 3(a).
8
"TRANSFER" means any disposition of Common Stock that would constitute
a sale thereof under the Securities Act.
"VESTING PERCENTAGE" means, for any date of calculation, the ratio of
(i) the aggregate number of Original Shares that were held by
the Institutional Shareholders other than the Purchaser on September
30, 1996 (As Adjusted) which were sold in the Public Offering with
respect to which this calculation is made, divided by
(ii) the number of Original Shares that were held by the
Institutional Shareholders other than the Purchaser on September 30,
1996.
(b) Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared in accordance with generally
accepted accounting principles as in effect from time to time, applied on a
consistent basis (except for changes concurred in by the Company's independent
public accountants). For purposes of this Agreement, references to assets,
liabilities, revenues, costs or other similar items relating to the Company,
Brand or any of their Subsidiaries shall be deemed to include, with respect to
any joint operating agreement or partnership agreement to which the Company,
Brand or such Subsidiary is a party, such portion, but only such portion, of
the assets, liabilities, revenues, costs or other similar items covered by such
joint operating agreement or partnership agreement as shall equal the then
proportional interest of the Company, Brand or such Subsidiary under such joint
operating agreement or partnership agreement, determined, where applicable, in
accordance with the rules for proportionate consolidation in accordance with
generally accepted accounting principles.
SECTION 2. (a) Grant of Options. The Company hereby grants to
Purchaser options (the "OPTIONS") to purchase 918,750 shares of Common Stock at
an exercise price of $1.00 per share (the "EXERCISE PRICE"). The Options are
exercisable only on and after the date of vesting, as set forth in Section 3
and prior to the date of their expiration. All Options that have not expired
prior to such time will expire on October 1, 2006.
The Options are granted to Purchaser in recognition of Purchaser's
role with respect to the following:
9
(i) Identifying and evaluating Brand as an acquisition candidate
and assisting, on behalf of the Company and the DLJ Entities,
in the consummation of the Company's acquisition of Brand.
(ii) Providing transitional services to the Company and Brand to
establish Brand as a separate, stand-alone company and to
assure the effective implementation of the Transitional
Services Agreement dated as of September 30, 1996 among
Brand, WMX Technologies Inc., Rust International Inc. and
Rust Industrial
Services Inc.
(iii) Providing limited continuing services on an as needed basis
to supplement management, as described in Section 7.05 of the
Shareholders' Agreement.
The Company and Purchaser agree that approximately 85% of the fair
market value of the Options as of the date of this Agreement relates to the
services described in Section 2(a)(i), the scope of which are substantially
beyond that for which the annual management fee is intended to compensate, and
that such services and the grant of the Options were contemplated as of the
date of the consummation of the acquisition (September 30, 1996). The Company
and Purchaser further agree that 15% of the fair market value of the Options
relates to the services described in Sections 2(a)(ii) -(iii) and that,
although the annual management fee to be paid to Purchaser is the primary means
of compensating Purchaser for these continuing services, the Options are
necessary to provide additional incentives to Purchaser.
(b) Exercise of Option. (i) Purchaser may exercise the Option only by
delivering a written notice of exercise in form and substance identical to
Annex A attached hereto, together with the Exercise Price, to the Company.
(ii) Payment of the per share Exercise Price for the shares of Common
Stock with respect to which Options are being exercised (the "OPTION SHARES")
shall be due in full upon exercise, and may be made by delivery to the Company
of cash, check, or by transfer to the Company of issued and outstanding shares
of Common Stock, or by any combination of the above methods of payment;
provided that, in lieu of such payment, the Purchaser may elect to receive that
number of shares of Common Stock equal to the number of Options being exercised
multiplied by a fraction, the numerator of which is the Fair Market Value per
share less the Exercise Price and the denominator of which is the Fair Market
Value per share. If payment is made, in whole or in part, by transfer to the
10
Company of issued and outstanding shares of Common Stock or pursuant to the
proviso above, the value of such shares (the "FAIR MARKET VALUE") shall be
determined as follows: (A) if, at the time of payment, the Common Stock is
traded on the NASDAQ National Market System or any national or regional stock
exchange, the value of each share shall be the closing sale price of a share of
Common Stock on the business day immediately preceding the payment or, if no
sale was made on that date, on the most recent date when such a sale was made,
as reported on the composite tape for securities transactions or similar source
for reporting sales of the Common Stock; (B) if, at the time of payment,
quotations with respect to the Common Stock are made on the NASDAQ System, the
value of each share shall be the average of the closing bid and asked
quotations of a share of Common Stock on the business day immediately preceding
the payment or, if no quotations were made on that date, on the most recent
payment, neither (A) nor (B) above is applicable, the value of each share shall
be the fair market value of each share, as determined in good faith by the
Board of the Company or a committee thereof.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Purchaser a stock certificate or stock
certificates evidencing the Option Shares.
SECTION 3. Vesting and Forfeiture. No Option shall vest until the
vesting criteria set forth in this Section 3 with respect to such Option shall
have occurred.
(a) Time Based Vesting. The number of Options listed on Schedule A as
Time Based Options ("TIME BASED OPTIONS") shall vest only as follows:
11
Vesting Amount (percentage
of Time Based Options
Vesting Date Vesting on such date)
------------ --------------------------
September 30, 1997 20%
September 30, 1998 20%
September 30, 1999 20%
September 30, 2000 20%
September 30, 2001 20%
If a Change of Control shall occur, then any Time Based Options that have not
vested as of the date of such Change of Control shall be deemed to vest
immediately prior to such Change of Control.
(b) Performance Based Vesting. (i) The number of Options listed on
Schedule A as Performance Based Options ("PERFORMANCE BASED OPTIONS") shall
vest only in accordance with this Section 3(b). For each period listed below,
if EBITDA is equal to or above the amount listed beside such period on the
chart below (each such amount, a "TARGET EBITDA") then 20% of the Performance
Based Options (for each such period, "TARGET OPTIONS") shall vest on the last
day of such period:
Fiscal Year ending Target EBITDA
------------------ -------------
December 31, 1997 $41,000,000
December 31, 1998 $43,000,000
December 31, 1999 $45,000,000
December 31, 2000 $47,000,000
December 31, 2001 $50,000,000
provided, that if EBITDA for any such period is less than the Target EBITDA for
such period, but is greater than 85% of the Target EBITDA for such period, then
the number of Performance Based Options that shall vest on the last day of such
period shall be calculated as follows:
EBITDA - (.85) (Target EBITDA)
Target Shares x ----------------------------------------------
Target EBITDA - (.85) (Target EBITDA)
provided, further, that the amount of EBITDA for any Fiscal Year ending on or
before December 31, 2001 in excess of the Target EBITDA for such Fiscal Year
may (without duplication) be carried back to EBITDA for the two immediately
12
preceding Fiscal Years, and additional Performance Based Options based thereon
may vest in accordance with this Section 3(b). Any Performance Based Options
that have not vested on or before September 30, 2006 shall expire on such date.
(ii) If the number of Exit Options (as defined below) that
vest pursuant to Section 3(c)(i) is greater than the number of
Performance Based Options that have vested prior to any such vesting
of Exit Options, then simultaneously with the vesting of the Exit
Options hereunder additional Performance Based Options shall vest in a
number sufficient to make the number of vested Performance Based
Options equal to the number of such Exit Options.
(iii) Upon the occurrence of the transfer to Third Parties of
all or substantially all of (A) the Common Stock owned by the
Institutional Shareholders on the date hereof or (B) the assets of the
Company and its subsidiaries, the Performance Based Options that do
not vest pursuant to 3(b)(ii) above shall expire and be cancelled.
(c) Exit Options. (i) The number of Options listed on Schedule A as
Exit Options ("EXIT OPTIONS") shall vest only in accordance with this Section
3(c). If, during any 12-month period ending on the dates indicated below, the
cumulative amount (reflecting Equity Proceeds received in all prior periods) of
Equity Proceeds equals or exceeds the corresponding amount listed below (each
such amount, the "TARGET EQUITY PROCEEDS") in respect of such period, then all
of the Exit Options that have not vested or expired prior to such date shall
vest immediately prior to the consummation of the sale or disposition whereby
Equity Proceeds will exceed such amount; provided that no Exit Options shall
vest at anytime after September 30, 2001 unless the DLJ IRR at such time is
greater than 30%:
Period Ending On Target Equity Proceeds
---------------- ----------------------
September 30, 1997 $75,000,000
September 30, 1998 $103,125,000
September 30, 1999 $121,875,000
September 30, 2000 $150,000,000
September 30, 2001 $150,000,000
September 30, 2002 $165,000,000
September 30, 2003 $180,000,000
September 30, 2004 $198,750,000
September 30, 2005 $221,250,000
September 30, 2006 $240,000,000
13
provided, for each day of a period (the "Current Period"), the Target Equity
Proceeds shall be increased by an amount equal to a fraction, the numerator of
which is the Target Equity Proceeds for the last day of the Current Period
minus the Target Equity Proceeds for the last day of the preceding period and
the denominator of which is the number of days in the Current Period.
After September 30, 1997, if on any day of a period, the Equity Proceeds are
equal to or greater than the Target Equity Proceeds for the last day of the
preceding period, but less than the Target Equity Proceeds for such date, then
on such date a number of Exit Options shall vest equal to (i) the total number
of Exit Options that have not expired prior to such date multiplied by a
fraction, the numerator of which is the Equity Proceeds as of such date minus
the Target Equity Proceeds for the last day of the preceding period and the
denominator of which is the Target Equity Proceeds as of such date minus the
Target Equity Proceeds for the last day of the preceding period less (ii) the
total number of Exit Options which have previously vested pursuant to this
paragraph.
(ii) In the event of any Public Offering (other than a
registration or offering (A) on Form S-8 or S-4 or any successor or
similar forms, (B) relating to Common Stock or Preferred Shares
issuable upon exercise of employee stock options or in connection with
any employee benefit or similar plan of the Company, (C) in connection
with a direct or indirect acquisition by the Company of another
company or business, (D) in connection with sales of Common Stock or
Preferred Shares or options to employees of the Company or any direct
or indirect subsidiary of the Company or (E) where the primary purpose
of such registration relates to a debt financing by the Company or any
direct or indirect subsidiary of the Company), if the Institutional
Shareholder Valuation on the date of such Public Offering equals or
exceeds the Target Equity Proceeds in effect on the date of such
Public Offering, the number of Exit Options equal to the product of
the Vesting Percentage for such Public Offering multiplied by the
number of Exit Options listed on Schedule A shall vest on the date of
such Public Offering. If the Institutional Shareholder Valuation on
the date of such Public Offering is less than the Target Equity
Proceeds in effect on the date of such Public Offering, the number of
Exit Options equal to the product of the Vesting Percentage multiplied
by the number of Exit Options listed on Schedule A shall expire and be
cancelled.
(iii) Upon the occurrence of the transfer to Third Parties of
all or substantially all of (A) the Common Stock owned by the
Institutional
14
Shareholders on the date hereof or (B) the assets of the Company and
its subsidiaries, the Exit Options that do not vest shall expire and
be cancelled (it being understood that all Exit Options which have
vested prior to or as a result of such transfer shall not expire).
(iv) All Exit Options that have not vested on or prior to
September 30, 2006 shall expire on such date.
(d) Exit II Options. (i) The number of Options listed on Schedule A as
Exit II Options ("EXIT II OPTIONS") shall vest only in accordance with this
Section 3(d). If, during any 12-month period ending on the dates indicated
below, the cumulative amount (reflecting Equity Proceeds received in all prior
periods) of Equity Proceeds equals or exceeds the corresponding amount listed
below (each such amount, the "TARGET II EQUITY PROCEEDS") in respect of such
period, indicated below, then all of the Exit II Options that have not vested
or expired prior to such date shall vest immediately prior to the consummation
of the sale or disposition whereby Equity Proceeds will exceed such amount;
provided that no Exit II Options shall vest at any time after September 30,
2001 unless the DLJ IRR at such time is greater than 34%:
Target II
Period Ending On Equity Proceeds
---------------- ---------------
September 30, 1997 $93,750,000
September 30, 1998 $112,500,000
September 30, 1999 $140,625,000
September 30, 2000 $178,125,000
September 30, 2001 $178,125,000
September 30, 2002 $196,125,000
September 30, 2003 $215,625,000
September 30, 2004 $237,000,000
September 30, 2005 $260,625,000
September 30, 2006 $286,875,000
(ii) In the event of any Public Offering (other than a
registration or offer (A) on Form S-8 or S-4 or any successor or
similar forms, (B) relating to Common Stock or Preferred Shares
issuable upon exercise of employee stock options or in connection with
any employee benefit or similar plan of the Company, (C) in connection
with a direct or indirect acquisition by the Company of another
company or business, (D) in connection with sales of Common Stock or
Preferred Shares or options to employees of the Company or any direct
or indirect subsidiary of the Company or (E) where the primary purpose
of such registration relates to a
15
debt financing by the Company or any direct or indirect subsidiary of
the Company), if the Institutional Shareholder Valuation on the date
of such Public Offering equals or exceeds the Target II Equity
Proceeds in effect on the date of such Public Offering, the number of
Exit II Options equal to the product of the Vesting Percentage for
such Public Offering multiplied by the number of Exit II Options
listed on Schedule A shall vest on the date of such Public Offering.
If the Institutional Shareholder Valuation on the date of such Public
Offering is less than the Target II Equity Proceeds in effect on the
date of such Public Offering, the number of Exit II Options equal to
the product of the Vesting Percentage multiplied by the number of Exit
II Options listed on Schedule A shall expire and be cancelled.
(iii) Upon the occurrence of the transfer to Third Parties of
all or substantially all of (A) the Common Stock owned by the
Institutional Shareholders on the date hereof or (B) the assets of the
Company and its subsidiaries, the Exit II Options that do not vest
shall expire and be cancelled (it being understood that all Exit II
Options which have vested prior to or as a result of such transfer
shall not expire).
(iv) All Exit II Options that have not vested on or prior to
September 30, 2006 shall expire on such date.
(e) Exit III Options. (i) The number of Options listed on Schedule A
as Exit III Options ("EXIT III OPTIONS") shall vest only in accordance with
this Section 3(e). If, during any 12-month period ending on the dates indicated
below, the cumulative amount (reflecting Equity Proceeds received in all prior
periods) of Equity Proceeds equals or exceeds the corresponding amount listed
below (each such amount, the "TARGET III EQUITY PROCEEDS") in respect of such
period, then all of the Exit III Options that have not vested or expired prior
to such date shall vest immediately prior to the consummation of the sale or
disposition whereby Equity Proceeds will exceed such amount; provided that no
Exit III Options shall vest at any time after September 30, 2001 unless the DLJ
IRR at such time is greater than 48%:
16
Target III
Period Equity Proceeds
------ ---------------
September 30, 1997 $150,000,000
September 30, 1998 $187,500,000
September 30, 1999 $225,000,000
September 30, 2000 $262,500,000
September 30, 2001 $300,000,000
September 30, 2002 $330,000,000
September 30, 2003 $355,125,000
September 30, 2004 $375,000,000
September 30, 2005 $390,000,000
September 30, 2006 $409,875,000
(ii) In the event of any Public Offering (other than a
registration or offer (A) on Form S-8 or S-4 or any successor or
similar forms, (B) relating to Common Stock or Preferred Shares
issuable upon exercise of employee stock options or in connection with
any employee benefit or similar plan of the Company, (C) in connection
with a direct or indirect acquisition by the Company of another
company or business, (D) in connection with sales of Common Stock or
Preferred Shares or options to employees of the Company or any direct
or indirect subsidiary of the Company or (E) where the primary purpose
of such registration relates to a debt financing by the Company or any
direct or indirect subsidiary of the Company), if the Institutional
Shareholder Valuation on the date of such Public Offering equals or
exceeds the Target III Equity Proceeds in effect on the date of such
Public Offering, the number of Exit III Options equal to the product
of the Vesting Percentage for such Public Offering multiplied by the
number of Exit III Options listed on Schedule A shall vest on the date
of such Public Offering. If the Institutional Shareholder Valuation on
the date of such Public Offering is less than the Target III Equity
Proceeds in effect on the date of such Public Offering, the number of
Exit III Options equal to the product of the Vesting Percentage
multiplied by the number of Exit III Options listed on Schedule A
shall expire and be cancelled.
(iii) Upon the occurrence of the transfer to Third Parties of
all or substantially all of (A) the Common Stock owned by the
Institutional Shareholders on the date hereof or (B) the assets of the
Company and its subsidiaries, the Exit III Options that do not vest
shall expire and be
17
cancelled (it being understood that all Exit III Options which have
vested prior to or as a result of such transfer shall not expire).
(iv) All Exit III Options that have not vested on or prior to
September 30, 2006 shall expire on such date.
(f) Certificates. Each certificate issued in respect of Common Stock
issued upon exercise of any Options shall bear a legend disclosing the
restrictions on transferability imposed on such Common Stock by the
Shareholders Agreement.
(g) Adjustment of Targets. Each party to this Agreement agrees and
acknowledges that each of the Target EBITDA, Target Equity Proceeds, Target II
Equity Proceeds and Target III Equity Proceeds set forth herein shall be
adjusted by the Company after negotiations between Purchaser and the Company
made in good faith to reflect any acquisitions, mergers, consolidations or
other significant corporate transactions affecting the Company.
(h) Pre-emptive Rights. If at any time the Company or Brand shall
issue any Common Stock, Preferred Shares, securities convertible into or
exchangeable for Common Stock or Preferred Shares and options, warrants or
other rights to acquire Common Stock or Preferred Shares, then any pre-emptive
rights to which Purchaser or its Affiliates would be entitled pursuant to
Section 2.08 of the Shareholders Agreement, notwithstanding anything to the
contrary in such Section, shall be calculated as though all vested, unexpired
Options (and no shares issuable under unvested Options) were issued and
outstanding shares of Common Stock held by Purchaser.
SECTION 4. Representations and Warranties of the Company.
The Company represents and warrants to Purchaser, as of the date of
this Agreement, as set forth below:
(a) Corporate Existence and Power. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the state
of Delaware and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
businesses as now conducted and as proposed to be conducted and is fully
qualified and in good standing as a foreign corporation registered to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification except where the
failure to be so qualified or
18
to be in good standing would not reasonably be expected to have a Material
Adverse Effect.
(b) Authorization and Execution. The execution, delivery and
performance by the Company of this Agreement, the grant by the Company of the
Options and the issuance by the Company of shares of Common Stock pursuant to
valid exercise of the Options have been duly and validly authorized and are
within the corporate powers of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes its valid and binding
agreement.
(c) Capitalization. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock (of which 12,500,000 shares are
issued and outstanding and 2,043,300 shares are reserved for issuance under
certain employee benefit plans of the Company). All of the issued and
outstanding capital stock of the Company has been duly authorized and validly
issued, is fully paid and nonassessable, and free of preemptive rights. The
authorized capital stock of Brand consists of 100 shares of common stock, par
value $0.01 per share (all of which are issued and outstanding) and 1,250,000
Preferred Shares (of which 1,000,000 shares are issued and outstanding and
46,170 shares are reserved for issuance under certain employee benefit plans of
the Company).
(d) Governmental Authorization. The execution and delivery by the
Company of this Agreement, the grant by the Company of the Options and the
issuance by the Company of shares of Common Stock pursuant to valid exercise of
the Options will not require any action by or in respect of, or filing with,
any governmental body, agency or governmental official except such actions or
filings as have been undertaken or made prior to the date hereof.
(e) Non-Contravention. The execution and delivery by the Company of
this Agreement does not, the grant and sale by the Company of the Options and
the issuance by the Company of shares of Common Stock pursuant to valid
exercise of the Options will not, contravene or constitute a default under or
violation of (i) assuming the filings referred to in Section 4(d) have been
undertaken or made, any provision of applicable law or regulation the violation
of which would have a Material Adverse Effect, (ii) its certificate of
incorporation or by-laws, or (iii) any agreement, judgment, injunction, order,
decree or other instrument binding upon it or any of its assets, the violation
of which would have a Material Adverse Effect or result in the creation or
imposition of any Lien on any asset of the Company or any of its subsidiaries,
except pursuant to or as permitted or contemplated by the terms hereof or of
the Finance Documents.
19
(f) Litigation. There is no action, suit or proceeding pending to
which the Company or Brand is a party, or to the knowledge of the Company,
which is threatened against the Company or Brand before any court or arbitrator
or any governmental body, agency or official that would reasonably be expected
to result in a Material Adverse Effect.
(g) Not an Investment Company; Not a Real Property Holding Company.
The Company is not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. The Company is not a United States real
property holding company (as that term is defined in Section 897(c)(2) of the
United States Internal Revenue Code of 1986, as amended).
(h) Solicitation; Access to Information. No form of general
solicitation or general advertising was used by the Company or, to the best of
its knowledge, any other Person acting on behalf of the Company, in connection
with the offer and grant of the Securities. Neither the Company nor any Person
acting on behalf of the Company has, either directly or indirectly, sold or
offered for sale to any Person any of the Securities or any other similar
securities of the Company except as contemplated by this Agreement (other than
those sold or to be sold to employees of the Company as approved by the Board),
and the Company represents that neither the Company nor any Person acting on
its behalf will sell or offer for sale to any Person any such security to, or
solicit any offers to buy any such security from, or otherwise approach or
negotiate in respect thereof with, any Person or Persons, in each case so as
thereby to bring the issuance or sale of any of the Securities within the
provisions of Section 5 of the Securities Act.
SECTION 5. Representations and Warranties of Purchaser.
(a) Purchase for Investment; Authority; Binding Agreement.
Purchaser represents and warrants to the Company that:
(i) Purchaser is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act and the Securities to be
acquired by Purchaser pursuant to this Agreement are being acquired
for its own account and Purchaser will not offer, sell, transfer,
pledge, hypothecate or otherwise dispose of the Common Stock unless
pursuant to a transaction either registered under, or exempt from
registration under, the Securities Act; and
(ii) Purchaser has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and
risks of
20
its investment in the Securities and is capable of bearing the
economic risks of such investment or Purchaser has been advised by a
representative possessing such knowledge and experience.
(b) Private Placement. Purchaser represents and warrants to the
Company that:
(i) Purchaser understands that (i) the offering and sale of
the Securities is intended to be exempt from registration under the
Securities Act and (ii) there is no existing public or other market
for any of the Securities and there can be no assurance that Purchaser
will be able to sell or dispose of the Securities to be purchased by
Purchaser;
(ii) Purchaser's financial situation is such that Purchaser
can afford to bear the economic risk of holding the Securities
acquired hereunder for an indefinite period of time, Purchaser has
adequate means for providing for Purchaser's needs and contingencies
and can afford to suffer the complete loss of the investment in the
Securities;
(iii) Purchaser understands that the Securities acquired
hereunder are a speculative investment which involves a high degree of
risk of loss of the entire investment therein, that there are
substantial restrictions on the transferability of the Securities as
set forth herein, in the Securities and in the Shareholders Agreement,
and that for an indefinite period following the date hereof there will
be no public market for any of the Securities and that, accordingly,
it may not be possible for Purchaser to sell the Securities in case of
emergency or otherwise;
(iv) Purchaser and his, her or its representatives, including
his, her or its professional, financial, tax and other advisors, have
carefully reviewed all documents available to them in connection with
the investment in the Securities, and Purchaser understands and has
taken cognizance of all the risks related to such investment;
(v) Purchaser and his, her or its representatives have been
given the opportunity to examine all documents and to ask questions
of, and to receive answers from, the Company and its representatives
concerning the Company and each of its subsidiaries and concerning the
terms and conditions of the acquisition of the Securities, and related
matters and to obtain all additional information which Purchaser or
his, her or its representatives deem necessary; and
21
(vi) all information which Purchaser has provided to the
Company and its representatives concerning Purchaser and Purchaser's
financial position is true, complete and correct.
(c) Solicitation by Purchaser. Purchaser represents and warrants to
the Company that no form of general solicitation or general advertising was
used by Purchaser or, to the best of its knowledge, any other Person acting on
behalf of Purchaser, in respect of the Securities or in connection with the
purchase of the Securities. Neither Purchaser nor any Person acting on its
behalf has, either directly or indirectly, sold or offered for sale to any
Person any of the Securities or any other similar security of the Company
except as contemplated by this Agreement.
(d) Corporate Existence and Power. Purchaser is a limited partnership,
duly registered, validly existing and in good standing under the laws of the
state of Delaware.
(e) Authorization and Execution. The execution, delivery and
performance by Purchaser of this Agreement have been duly and validly
authorized and are within the corporate powers of Purchaser. This Agreement has
been duly executed and delivered by Purchaser and constitutes its valid and
binding agreement.
(f) Governmental Authorization. The execution and delivery by
Purchaser of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, require any action by or in respect of, or filing
with, any governmental body, agency or governmental official except such
actions or filings as have been undertaken or made prior to the date hereof.
(g) Non-Contravention. The execution and delivery by Purchaser of this
Agreement does not, and the consummation of the transactions contemplated
hereby will not, contravene or constitute a default under or violation of its
organizational documents.
SECTION 6. General.
(a) Legends. The certificates representing all of the shares of Common
Stock issued upon exercise of any Options will bear such legends as are
required pursuant to the Shareholders Agreement.
22
(b) Notices. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party as set forth in the Shareholders Agreement
(for purposes of this Agreement, the Purchaser's information shall be the
information in the Shareholders Agreement for Carlisle-Brand Investors, L.P., a
Delaware limited partnership).
(c) No Waivers; Amendments. (i) No failure or delay on the part of any
party in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy. The remedies provided for herein are cumulative and are not
exclusive of any remedies that may be available to any party at law or in
equity or otherwise.
(ii) Any provision of this Agreement may be amended,
supplemented or waived if, but only if, such amendment, supplement or
waiver is in writing and is signed by the Company and, other than with
respect to amendments pursuant to Section 3(g), Purchaser.
(d) Expenses; Documentary Taxes. The Company and Purchaser each agree
to bear its own costs, expenses and other payments in connection with the
purchase and sale of the Securities as contemplated by this Agreement including
without limitation (i) fees and disbursements of special counsel for the
Company incurred in connection with the preparation of this Agreement and (ii)
all out-of-pocket expenses of the Company, including fees and disbursements of
counsel, in connection with any waiver or consent hereunder or any amendment
hereof. The Company and Purchaser each agree to share equally any and all
stamp, transfer and other similar taxes, assessments or charges payable in
connection with the execution and delivery of this Agreement or the issuance of
the Securities.
(e) Successors and Assigns; Transferability. This Agreement shall be
binding upon the Company and Purchaser and its successors and assigns.
Purchaser may not assign or otherwise transfer its rights or obligations under
this Agreement to any other Person without the prior written consent of the
Company. The shares of Common Stock issued upon exercise of the Options are
subject to the transfer restrictions in the Shareholders Agreement.
(f) Brokers. Each of the Company and Purchaser represents and warrants
that it has not employed any broker, finder, financial advisor or
23
investment banker who might be entitled to any brokerage, finder's or other fee
or commission in connection with the sale of Securities.
(g) New York Law; Submission to Jurisdiction; Waiver of Jury Trial.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW
PRINCIPLES THEREOF. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
COMMON STOCK OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
(h) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(i) Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(j) Elimination of Fractional Options. If under any provision of the
Agreement which requires a computation of the number of Options, the number so
computed is not a whole number, such number shall be rounded down to the next
whole number.
24
(k) Entire Agreement. The Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements, arrangements
and communications, whether oral or written, pertaining to the Options.
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers or representatives, as
of the date first above written.
CARLISLE GROUP, L.P.
A Delaware Limited Partnership
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Managing Partner
DLJ BRAND HOLDINGS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Managing Director
26
SCHEDULE A
OPTIONS
Number of
Type Options
---- ---------
Time Based Options 237,500
Performance Based Options 160,000
Exit Options 160,000
Exit II Options 237,500
Exit III Options 123,750
27
ANNEX A
OPTION EXERCISE NOTICE
(To be delivered prior to exercise of the Options)
To: DLJ Brand Holdings, Inc.
The undersigned hereby notifies you of its intention to exercise the
Option to purchase shares of Common Stock, par value $.01 per share, of DLJ
Brand Holdings, Inc.
The undersigned intends to exercise ______ of its [Time Based]
[Performance Based] [Exit] [Exit II] [Exit III] Options to purchase ______
shares (the "Shares") at $______ per Share (the Exercise Price currently in
effect pursuant to the Stock Option Agreement (the "Agreement")).
[The undersigned intends to pay the aggregate Exercise Price for the
Shares in cash, certified or official bank, bank cashier's check or transfer of
shares of Common Stock (or a combination of cash, check or Common Stock) as
indicated below.]
[The undersigned elects to receive shares of Common Stock in lieu of
payment of the Exercise Price in accordance with Section 2(b)(ii) of the
Agreement.]
Date: ________________ __, ____.
------------------------------
(Signature of Owner)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
[Payment: $__________ cash
$__________ check
__________ shares of Common Stock]
28