<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996
REGISTRATION NO. 333-11173
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
KEVCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 3429 75-2666013
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
KEVCO INC. JERRY E. KIMMEL
UNIVERSITY CENTRE I 1300 UNIVERSITY CENTRE I
S. UNIVERSITY DRIVE 1300 S. UNIVERSITY DRIVE
SUITE 200 SUITE 200
FORT WORTH, TEXAS 76107 FORT WORTH, TEXAS 76107
(817) 332-2758 (817) 332-2758
(ADDRESS, INCLUDING ZIP CODE, AND (NAME AND ADDRESS, INCLUDING ZIP
TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING
CODE, OF REGISTRANT'S PRINCIPAL AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
----------------
COPIES TO:
RICHARD S. TUCKER PATRICK OWENS
JACKSON & WALKER, L.L.P. STRASBURGER & PRICE, L.L.P.
777 MAIN STREET 901 MAIN STREET
SUITE 1800 SUITE 4300
FORT WORTH, TEXAS 76102 DALLAS, TEXAS 75202
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1996
2,100,000 SHARES
KEVCO, INC.
COMMON STOCK
LOGO
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the public offering price will be between
$11.00 and $13.00 per share. For information relating to the factors considered
in determining the initial public offering price, see "Underwriting." The
Common Stock has been approved for inclusion on the Nasdaq National Market,
under the symbol "KVCO," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
- --------------------------------------------------------------------------------
Total(2)..................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Before deducting estimated expenses of $500,000 payable by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 315,000 shares of Common Stock, solely to cover over-
allotments, if any. See "Underwriting." If the Underwriters exercise this
option in full, the total price to public, underwriting discount and
proceeds to Company will be $ , $ and $ , respectively.
-----------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing the shares will be ready for delivery at the offices of Rauscher
Pierce Refsnes, Inc., Dallas, Texas, on or about , 1996.
RAUSCHER PIERCE REFSNES, INC. OPPENHEIMER & CO., INC.
-----------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements,
including notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option and reflects a 0.47-for-1 reverse stock
split effected on August 29, 1996. Unless the context otherwise requires,
"Kevco" and the "Company" refer to Kevco, Inc. and its subsidiaries.
THE COMPANY
Kevco is a leading wholesale distributor of building products to the
manufactured housing and recreational vehicle (RV) industries. Through its 17
distribution centers, the Company distributes more than 10,000 different
inventory items to approximately 278 manufactured home and 148 RV manufacturing
facilities throughout the United States. Kevco is one of only a few companies
capable of providing national distribution of building products to the
manufactured housing and RV industries. In addition, the Company also
manufactures wood products for the manufactured housing industry in the
southeastern and southwestern United States. From 1991 to 1995, the Company's
net sales increased from $47.8 million to $182.5 million, a compound annual
growth rate of approximately 40%. Since its founding in 1964, the Company's
growth has been fueled by internal growth and acquisitions.
The Company believes that it provides a cost-effective form of distribution
that offers value to both the Company's suppliers and producers of manufactured
homes and RVs. Kevco believes that it provides significant benefits to its
suppliers by placing large orders at regular intervals, thereby enabling its
suppliers to achieve efficient and cost-effective production planning and
economies of scale. In addition, Kevco markets and sells its suppliers'
products directly to the manufactured housing and RV industries. As a result,
the Company believes it reduces its suppliers' inventory carrying, marketing
and distribution costs. The Company also provides significant benefits to its
customers as a result of its ability to respond on a same day shipment basis to
a majority of its customers' orders, thus reducing the amount of inventory they
must maintain. Furthermore, Kevco assists its customers in inventory
management, product support, training and implementing cost saving measures,
all of which are services that the Company believes most building products
manufacturers cannot provide in a cost-effective manner. The Company believes
that the specialized product knowledge and high level of service provided by
Kevco personnel result in strong relationships between Kevco and its suppliers
and customers.
The Company primarily distributes a full line of plumbing fixtures and
supplies as well as a variety of other building products, including insulation,
roof shingles, patio doors, aluminum and wood windows, vinyl siding, fireplaces
and electrical products. The Company distributes products of several nationally
recognized manufacturers, including Eljer, Crane Plumbing, Coastal(R) and
Nibco(R) plumbing products, State Industries water heaters, Owens-Corning
Fiberglas(R) insulation and shingles, Delta(R), Moen(R) and Phoenix(R) faucets,
CertainTeed(R) vinyl siding and Capri bath products. The Company's wood
products subsidiary manufactures roof trusses and lumber cut to customer
specifications. For the six months ended June 30, 1996, approximately 54% of
the Company's net sales were derived from plumbing products, 20% from wood
products and 26% from other building products.
BUSINESS STRATEGY
Kevco's primary objective is to become the leading national distributor of
building products to the manufactured housing and RV industries. The Company
intends to continue to pursue this objective through a combination of internal
growth and selective acquisitions. To achieve its objective, the Company has
adopted a strategy based on the following key elements:
Provide Superior Customer Service. The Company believes its success is
primarily attributable to its emphasis on customer service and that providing a
high level of customer service leads to long-term relationships
3
<PAGE>
with customers. The Company's operating philosophy is based on a commitment to
Total Quality Management, which emphasizes at every level an awareness of, and
accountability for, customer needs and effective communication both internally
and externally. Consistent with this commitment, the Company strives to achieve
maximum responsiveness to customer orders and to assist its customers in
controlling costs, improving their materials resource planning and facilitating
their just-in-time inventory procurement needs. The Company's sales
representatives, who have an average of approximately nine years of experience
with the Company, play an important role in training customers in the proper
installation of products and assisting in their inventory management.
Leverage National Distribution Network. Kevco will continue to use its
national distribution network as a platform for growth and profitability. The
Company believes that its national distribution network has allowed it to
develop close relationships with leading product manufacturers and to become
the exclusive supplier of certain product lines to the manufactured housing and
RV industries. In addition, the Company believes that its national presence
provides it with a significant competitive advantage due to its ability to
service effectively the building products needs of its customers' manufacturing
facilities, several of which are located in remote, rural areas. This
capability has led to several national customer accounts. As one of the leading
national distributors of building products in the United States to the
manufactured housing and RV industries, the Company has substantial purchasing
power and is able to realize economies of scale.
Increase Customer Penetration and Product Offerings. Kevco currently supplies
approximately 92% of all manufactured housing plants in the United States with
one or more product lines. This established customer base provides the Company
with a significant opportunity to supply a greater portion of its customers'
building products needs as the customers seek to reduce the number of their
suppliers. The Company also intends to add new product lines through internal
growth and acquisitions. With its existing national distribution
infrastructure, the Company believes that additional product lines can be
offered to customers without significant additional cost.
Geographically Expand Wood Products Business. The Company intends to expand
its wood products business primarily by increasing the number of its wood
products manufacturing facilities. The Company currently manufactures wood
products, primarily roof trusses, in three locations in the southeastern and
southwestern United States. This segment of the wood products industry is
highly fragmented, and the Company believes there are significant opportunities
to grow this business internally and through acquisitions.
Pursue Vertical Integration Opportunities. The Company intends to selectively
explore the acquisition of manufacturers of building products. By manufacturing
its own products, the Company will seek to achieve greater profitability from
its sales, while obtaining direct control over product availability and
quality.
MANUFACTURED HOUSING AND RECREATIONAL VEHICLE INDUSTRIES
For the six months ended June 30, 1996, approximately 88% of the Company's
net sales were to producers of manufactured homes and 10% were to producers of
RVs. In 1995, reported sales of new manufactured homes totaled approximately
$12.3 billion (at retail). Approximately 340,000 manufactured homes were
reported as shipped in 1995 (which would represent approximately 33.7% of all
new single family homes sold in 1995). Reported shipments of new manufactured
homes experienced compound annual growth of approximately 18.8% for the four
years ended December 31, 1995. The Company believes that recent industry growth
primarily reflects greater consumer acceptance of manufactured housing, greater
availability of financing for manufactured housing consumers and steady
employment growth. RV shipments to retailers reportedly totaled approximately
$12.1 billion (at retail) in 1995. Although reported RV shipments declined
approximately 8.4% in 1995, the RV industry has experienced compound annual
growth in reported shipments of approximately 12.8% since 1991.
4
<PAGE>
The Company distributes products to each of the ten highest volume producers
of manufactured homes in the United States. The ten highest volume producers of
manufactured homes in 1995 reportedly accounted for approximately 66.4% of
total manufactured home shipments in that year. Management believes that only a
few distributors are capable of distributing a broad line of building products
to meet the needs of these producers on a national basis.
ACQUISITION OF SERVICE SUPPLY
In June 1995, the Company acquired Service Supply Systems, Inc. ("Service
Supply"), a leading wholesale distributor of building products to the
manufactured housing industry in the southeastern United States, the only
region of the country not then served by the Company. The acquisition of
Service Supply enabled Kevco to become a national distributor of building
products to the manufactured housing and RV industries and significantly
enhanced the Company's competitive position. The Company benefits from Service
Supply's product mix, which, like Kevco's, is weighted toward plumbing
products, but also includes a variety of other building products. In
particular, through its acquisition of Service Supply's former subsidiary,
Sunbelt Wood Components, Inc., the Company has become a wood products
manufacturer for the manufactured housing industry in the southeastern and
southwestern United States. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisition of Service Supply."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,100,000 shares
Common Stock to be outstanding after the
offering................................ 6,494,500 shares (1)
Use of proceeds.......................... To reduce indebtedness, including
the Prior S Corporation Earnings
Note to be issued in connection with
the S Corporation Distribution. See
"Prior S Corporation Status" and
"Use of Proceeds."
Proposed Nasdaq National Market symbol... KVCO
</TABLE>
- --------
(1) Excludes an aggregate of 418,426 shares of Common Stock issuable upon
exercise of stock options outstanding at August 1, 1996 at a weighted
average exercise price of $10.58 per share under the Company's stock option
plans and 214,194 shares reserved at that date for future issuance under
the Company's 1995 Stock Option Plan. See "Management--Stock Option Plans."
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Certain factors that
might cause such differences include, but are not limited to, the "Risk
Factors" described herein. The safe harbors contained in Section 27A of the
Securities Act and Section 21E of the Exchange Act, which apply to certain
forward-looking statements, are not applicable to this offering.
----------------
The Company's principal executive offices are located at University Centre I,
1300 S. University Drive, Suite 200, Fort Worth, Texas 76107. The Company's
telephone number is (817) 332-2758.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
PRO FORMA
1991 1992 1993 1994 1995(1) 1995(2) 1995 1996(1)
------- ------- ------- ------- -------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $47,782 $61,169 $80,257 $99,279 $182,519 $241,846 $56,301 $135,598
Gross profit............ 8,350 10,550 13,170 15,654 26,642 33,997 8,652 20,351
Operating income........ 636 2,293 3,902 4,829 8,413 11,039 2,281 8,108
Income before income
taxes.................. 98 1,959 3,560 5,348 7,076 8,938 2,121 7,050
Net income.............. 98 1,959 3,560 5,297 7,031 8,893 2,101 7,025
SUPPLEMENTAL INCOME
STATEMENT DATA(3):
Net income ............. $ 4,316 $ 5,452 $ 4,300
Earnings per share (4).. $ 0.87 $ 1.10 $ 0.90
Weighted average shares
outstanding (4)........ 4,946 4,946 4,778
As adjusted earnings per
share (5).............. $ 0.97 $ 0.73
<CAPTION>
JUNE 30, 1996
-------------------
AS FURTHER
ACTUAL ADJUSTED(6)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......... $16,048 $ 16,048
Total assets............ 61,035 61,035
Total debt.............. 27,827 8,645
Stockholders' equity.... 10,576 29,758
</TABLE>
- --------
(1) The Company acquired Service Supply on June 30, 1995. The acquisition was
accounted for as a purchase and, accordingly, the operating results of
Service Supply have been included in the operating results of the Company
since June 30, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Acquisition of Service Supply."
(2) Pro forma as if the acquisition of Service Supply had occurred on January
1, 1995.
(3) Prior to this offering, the Company had elected to be treated as an S
corporation under the provisions of Subchapter S of the Internal Revenue
Code. As an S corporation, the Company was not subject to federal and
certain state income taxes. The supplemental data give effect to the income
taxes that would have been recorded had the Company been taxed as a C
corporation.
(4) Reflects the assumed issuance of 502,379 and 334,488 shares of Common Stock
at the assumed initial public offering price of $12.00 per share, less
underwriting discount, to generate sufficient funds to pay an S corporation
distribution in an amount equal to undistributed earnings previously taxed
at the shareholder level existing at December 31, 1995 and June 30, 1996,
respectively. See "Prior S Corporation Status."
(5) As adjusted to give effect to the sale of the Common Stock offered hereby
and the application of the estimated net proceeds therefrom at the
beginning of the periods shown, including the elimination of interest
expense as if debt of $17.3 million and $19.2 million had been repaid on
January 1, 1995 and January 1, 1996, respectively. These amounts reflect
the portion of such net proceeds that would have been available to repay
debt after making an S corporation distribution in an amount equal to
undistributed earnings previously taxed at the shareholder level existing
at December 31, 1995 and June 30, 1996, respectively. See "Prior S
Corporation Status."
(6) As adjusted to give effect to (i) an S corporation distribution in an
amount equal to undistributed earnings previously taxed at the shareholder
level existing at June 30, 1996 and (ii) the sale of the Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
No adjustment has been made to give effect to the distribution to the
Company's shareholders of an amount equal to any S corporation earnings for
the period from July 1, 1996 through the date immediately preceding the
date of the consummation of this offering, which will be taxed at the
shareholder level. Such amount will be distributed as part of the S
Corporation Distribution in the form of the Future S Corporation Earnings
Note. See "Prior S Corporation Status."
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider the following factors in evaluating the
Company and its business before purchasing any of the shares of the Common
Stock offered hereby. This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ from those
discussed in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus.
COMPETITION
The wholesale distribution industry relating to producers of manufactured
homes and RVs is highly competitive, and the barriers to entry are relatively
low. Competition exists in terms of price, product quality and features,
service, warranty terms and distribution facility location. The manufactured
roof truss industry is also highly competitive. There are numerous companies,
both public and private, that are in direct competition with the Company, and
many of these competitors have been operating longer and have substantially
greater financial and other resources than the Company. A downturn in the
manufactured housing or RV industries could result in increased competition
adversely affecting the Company's results of operations or financial
condition. In addition, there are certain product manufacturers that sell and
distribute their products directly to manufactured home and RV producers.
There can be no assurance that additional manufacturers of products
distributed by the Company will not elect to sell and distribute directly in
the future. No assurance can be given that the Company will be able to compete
effectively in the future. See "Business--Competition."
CYCLICAL NATURE AND SEASONALITY OF THE MANUFACTURED HOUSING AND RV MARKETS
Approximately 88% of the Company's net sales for the six months ended June
30, 1996 were to producers of manufactured homes. The manufactured housing
market historically has been cyclical and is influenced by many of the same
national and regional economic and demographic factors that affect the broader
housing market, including consumer confidence, interest rates, availability
and terms of financing, regional population and employment trends,
availability and cost of alternative housing and general economic conditions,
including recessions. The RV market has also historically been cyclical and is
also influenced by factors such as interest rates, availability and terms of
financing and general economic conditions, as well as gasoline prices. The
Company may be adversely affected by these factors. The Company's operating
results for the past few years do not reflect the seasonality that
historically has been seen in the manufactured housing and RV industries. See
"Business --Industry."
GROWTH THROUGH ACQUISITIONS
Part of the Company's business strategy is to grow through strategic
acquisitions. There can be no assurance that Kevco will be able to identify
attractive or willing acquisition candidates or that it will be able to
successfully integrate the operations of any companies it acquires. In
addition, there can be no assurance that such acquired companies would perform
in accordance with management's expectations or that the Company would not
encounter unanticipated problems or liabilities. Also, if Kevco does not have
sufficient cash resources for any acquisition, its growth could be limited.
There can be no assurance that Kevco will be able to obtain adequate financing
for any acquisition or that, if available, such financing will be on terms
acceptable to Kevco. The Company's credit facilities require the consent of
the Company's lenders prior to the consummation of any acquisition. There can
be no assurance such consents will be granted any time they are required or
that Kevco will be able to successfully implement its acquisition strategy.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and "Business--Business
Strategy."
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent upon the continued services of the
Company's senior management, particularly its Chairman of the Board, President
and Chief Executive Officer, Jerry E. Kimmel. The loss of the services of Mr.
Kimmel could have a material adverse effect on the Company and its business.
In
7
<PAGE>
addition, the Company's success and continued growth will depend upon its
ability to attract and retain experienced, quality management personnel. See
"Management."
DEPENDENCE ON PRINCIPAL CUSTOMERS
The Company's largest customer, Fleetwood Enterprises, Inc., accounted for
approximately 12% of Kevco's net sales in 1995. Two of the Company's large
customers, Champion Enterprises, Inc. ("Champion") and Redman Industries, Inc.
("Redman"), accounted for approximately 8% and 7%, respectively, of Kevco's
net sales in 1995. In August 1996, Champion and Redman announced that they had
entered into a definitive merger agreement under which Champion would acquire
Redman. As of October 8, 1996, these companies had not presented the merger to
their respective shareholders for approval. Although the Company has ongoing
supply relationships with these three customers, it does not have a formal
supply contract with these customers or most of its other customers. The
Company's business could be adversely affected if these customers, or other
major customers, substantially reduced or discontinued purchases from the
Company. Further, if such merger is consummated, the Company can give no
assurance that its sales to the combined entity would continue at historical
levels. See "Business--Sales and Marketing" and Note 1 to the Consolidated
Financial Statements of the Company.
DEPENDENCE ON KEY SUPPLIERS
There are numerous competing suppliers of most of the products that Kevco
purchases; however, if a particular supplier were to unexpectedly discontinue
sales of a product to the Company, the Company could experience temporary
shortages in that product until it obtains a replacement supplier. Such a
temporary shortage could have a negative impact on Kevco's relationships with
its customers, which could in turn result in the loss of one or more
customers. The loss of one or more major customers could have a material
adverse effect on the Company and its business. See "Business--Purchasing and
Suppliers."
FLUCTUATIONS IN PRICES OF LUMBER
The Company has experienced significant fluctuations in the cost of lumber
products from primary producers. A variety of factors over which the Company
has no control, including environmental regulations, weather conditions and
natural disasters, impact the market price of lumber products. The Company
anticipates that these fluctuations will continue in the future. While the
Company's purchase and resale practices seek to minimize the impact of
fluctuations in lumber prices, sharp increases or decreases in lumber prices
may have a material impact on the Company's inventory value and profitability.
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of this offering, Jerry E. Kimmel, the Chairman of the
Board, President and Chief Executive Officer of the Company, will own
approximately 57.9% of the outstanding Common Stock of the Company. As a
result, Mr. Kimmel will be able to control the management and policies of the
Company through the ability to determine the outcome of elections for the
Company's Board of Directors and other matters requiring the vote or consent
of shareholders of the Company. See "Principal Shareholders" and "Description
of Capital Stock."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Bylaws provide for a classified Board of Directors and require
that notice of shareholder director nominees be given to the Company not less
than 120 days prior to the anniversary date of the immediately preceding
annual meeting of shareholders of the Company (or not later than 10 days
following the mailing of notices of a special meeting at which directors are
to be elected), or, with respect to the first annual meeting of shareholders
following this offering, on or before January 1, 1997. Also, Mr. Kimmel, the
Chairman of the Board, President and Chief Executive Officer of the Company,
has entered into a rolling five year employment agreement with the Company
that can be terminated by the Company only for cause (as defined in such
agreement). These matters may inhibit a change of control of the Company. In
addition, the Company's Articles of Incorporation and Bylaws contain certain
provisions that may have anti-takeover effects and may delay, defer or prevent
a takeover attempt that a shareholder of the Company might consider to be in
the best interest of the Company or its shareholders. See "Management" and
"Description of Capital Stock--Certain Anti-Takeover Provisions."
8
<PAGE>
REGULATION
The Company's suppliers and customers are subject to a variety of federal,
state and local laws and regulations. The National Manufactured Housing
Construction and Safety Standards Act of 1974 and regulations promulgated
thereunder by the U.S. Department of Housing and Urban Development ("HUD")
impose comprehensive national construction standards for manufactured homes
and preempt conflicting state and local regulations. HUD has adopted
regulations that divide the United States into three "Wind Zones" and impose
more stringent construction standards for homes to be sold in areas designated
as Wind Zones II or III. These regulations have resulted in higher
manufacturing and dealer costs. The Company cannot predict if additional
regulations will be adopted or the effect that any such regulations would have
on the Company. To the extent regulations make manufactured housing less
competitive with other housing alternatives, the Company's operations could be
negatively impacted. See "Business--Regulation."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
6,494,500 shares of Common Stock (6,809,500 if the Underwriters' over-
allotment option is exercised in full), of which the 2,100,000 shares sold in
this offering (2,415,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, except for those held by "affiliates"
(as defined in the Securities Act) of the Company, which will be subject to
the resale limitations of Rule 144 under the Securities Act. In addition to
the shares offered hereby, holders of 4,394,500 shares of Common Stock will be
eligible to sell such shares pursuant to Rule 144 (subject to certain
limitations) under the Securities Act upon consummation of this offering;
however, the holders of substantially all of such shares are subject to a 180-
day lockup agreement described below. As of August 1, 1996, options to
purchase 418,426 shares of Common Stock were outstanding under the Company's
stock option plans (all of which will become immediately exercisable upon
consummation of this offering), and options for an additional 214,194 shares
were available for grant under one of such plans. See "Management--Stock
Option Plans." Shares of Common Stock issued upon exercise of options
currently outstanding will generally be eligible for resale pursuant to Rule
701 under the Securities Act commencing 90 days after the date of this
Prospectus. In addition, the Company may elect to file a registration
statement covering the shares issuable upon exercise of stock options granted
in the future under the Company's 1995 Stock Option Plan, in which case such
shares of Common Stock generally will be freely tradeable by non-affiliates in
the public market without restriction under the Securities Act. The Company,
its executive officers and directors and certain other shareholders have
agreed not to sell or otherwise dispose of shares of Common Stock for 180 days
after the date of this Prospectus without the prior approval of the
Underwriters (subject to certain limited exceptions including the Company's
right to issue shares of Common Stock upon the exercise of stock options
granted under its existing stock option plans). Following this offering, sales
of substantial amounts of Common Stock in the public market, pursuant to Rule
144, Rule 701 or otherwise, and the potential of such sales, could adversely
affect the prevailing market price of the Common Stock and impair the
Company's ability to raise additional capital through the sale of equity
securities. See "Shares Eligible for Future Sale" and "Underwriting."
DILUTION TO NEW INVESTORS
Investors purchasing shares of Common Stock in this offering will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the shares of
the Company's Common Stock. Although the Common Stock has been approved for
inclusion on the Nasdaq National Market (subject to official notice of
issuance), there can be no assurance that an active market for the Common
Stock will develop or be sustained following this offering. The initial public
offering price for the shares of Common Stock sold in this offering was
determined through negotiations between the Company and the Underwriters and
does not necessarily reflect the market price for the Common Stock following
this offering. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price of the Common Stock. Market
prices for the Common Stock following this offering will be influenced by a
number of factors, including the
9
<PAGE>
Company's operating results and other factors affecting the Company
specifically and the industries to which the Company sells products and the
stock market generally, as well as the depth and liquidity of the market for
the Common Stock. The market price of the Common Stock could be subject to
significant fluctuations, including in response to variations in financial
results or announcements of material events by the Company or its customers or
competitors. Regulatory changes, developments in the manufactured housing or
RV industries or changes in general conditions in the economy or the financial
markets could also adversely affect the market price of the Common Stock.
PRIOR S CORPORATION STATUS
Prior to this offering, the Company had elected to be treated as an S
corporation under the provisions of Subchapter S of the Internal Revenue Code.
As an S corporation, the Company was not subject to federal and certain state
income taxes. As a result, the Company's earnings have been (and, until the
termination of the Company's S corporation status immediately prior to the
consummation of this offering, will be) taxed directly to the Company's
shareholders, rather than to the Company, for federal and certain state income
tax purposes.
The Company has historically made distributions to its shareholders in
amounts equal to at least the shareholders' tax liabilities attributable to
the Company's earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." As of
June 30, 1996, the amount of the Company's previously taxed but undistributed
S corporation earnings was approximately $3.7 million. The Company intends to
make a distribution equal to this amount, which will be paid in the form of a
promissory note (the "Prior S Corporation Earnings Note"). The Company also
intends to distribute an amount equal to its earnings from July 1, 1996
through the day immediately preceding the consummation of this offering, which
will also be paid in the form of a promissory note (the "Future S Corporation
Earnings Note"). Both notes will bear interest at the applicable federal rate
on the date of the notes. The Company estimates that the aggregate original
principal amount of both notes will be between $7.0 and $10.0 million. The
issuance of the Prior S Corporation Earnings Note and the Future S Corporation
Earnings Note is referred to in this Prospectus as the "S Corporation
Distribution." The Company intends to pay the Prior S Corporation Earnings
Note with a portion of the net proceeds of this offering on the first business
day following consummation of this offering and to pay the Future S
Corporation Earnings Note with cash generated from the Company's earnings. It
is expected that the Future S Corporation Earnings Note will be paid on or
before December 31, 1996. It is expected that the S Corporation Distribution
will be declared by the Board of Directors of the Company prior to
consummation of this offering and be payable to shareholders of record on the
declaration date. Purchasers of Common Stock in this offering will not be
entitled to receive any portion of the S Corporation Distribution.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, based on an assumed initial public offering price of
$12.00 per share and after deducting the underwriting discount and estimated
offering expenses, are estimated to be $22.9 million ($26.5 million if the
Underwriters' over-allotment option is exercised in full).
In connection with the acquisition of Service Supply in June 1995, the
Company entered into a $35.0 million credit facility with a bank. The credit
facility consists of a revolving credit facility in the aggregate amount of
$20.0 million and a term loan of $15.0 million. Approximately $19.2 million of
the net proceeds of this offering will be used to reduce indebtedness under
such credit facility. The Company intends to use this amount first to pay down
the outstanding balance under the Company's revolving credit facility
(approximately $11.3 million outstanding at June 30, 1996) and the balance to
make a permanent reduction in the Company's term loan (approximately $14.5
million outstanding at June 30, 1996). The revolving credit facility currently
bears interest at a blend of the bank's prime rate and LIBOR plus 1.75% (7.49%
at June 30, 1996) and matures on June 30, 1998, subject to extension at the
option of the lenders. The term loan currently bears interest at a blend of
the bank's prime rate and LIBOR plus 1.75% (7.31% at June 30, 1996) and
matures on June 30, 2001. As of June 30, 1996, the Company could borrow an
aggregate of $20.0 million under the revolving credit facility, which is the
maximum amount that can be borrowed thereunder. The unused portion of the
revolving credit facility may be borrowed for general corporate purposes,
including, subject to prior consent by the Company's lenders, acquisitions.
The Company has no current commitments for any acquisitions, but will continue
to seek suitable acquisition candidates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Company will use approximately $3.7 million of the net proceeds to repay
the Prior S Corporation Earnings Note. The Prior S Corporation Earnings Note
will bear interest at the applicable federal rate and be payable on the first
business day following consummation of this offering. See "Prior S Corporation
Status."
DIVIDEND POLICY
Except for the S Corporation Distribution and a previously declared $0.3
million distribution (representing the balance of distributions necessary to
satisfy the existing shareholders' income tax liabilities attributable to the
Company's earnings through June 30, 1996), none of which will be paid to
purchasers of Common Stock in this offering, the Company does not anticipate
paying cash dividends on the Common Stock in the foreseeable future and
intends to retain its earnings to support operations and finance expansion.
Furthermore, the terms of the Company's bank credit facilities restrict the
Company's ability to pay dividends. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's earnings, operations, capital requirements,
financial condition and restrictions in financing arrangements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 6 to the Consolidated
Financial Statements of the Company.
11
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1996, was $0.14
per share of Common Stock. Net tangible book value per share is determined by
dividing the tangible net worth of the Company (tangible assets less total
liabilities) by the number of outstanding shares of Common Stock. After giving
effect to (i) the distribution of the Prior S Corporation Earnings Note and
(ii) the sale by the Company of the 2,100,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom as set
forth under "Use of Proceeds," the net tangible book value of the Company as
of June 30, 1996, would have been $3.05 per share. This represents an
immediate increase in the net tangible book value of $3.05 per share to
existing shareholders and an immediate dilution to new investors purchasing
Common Stock in this offering of $8.95 per share. The following table
illustrates the per share dilution to new investors purchasing Common Stock in
this offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1)........ $12.00
Net tangible book value per share as of June 30, 1996...... $0.14
Decrease attributable to the Prior S Corporation Earnings
Note...................................................... 0.85
-----
Net tangible book value per share before this offering..... (.71)
Increase per share attributable to new investors........... 3.76
-----
Net tangible book value per share after this offering...... 3.05
------
Dilution per share to new investors........................ $ 8.95
======
</TABLE>
- --------
(1) Before deducting estimated underwriting discount and estimated expenses of
the offering payable by the Company.
The following table summarizes the differences between the existing
shareholders and the new shareholders with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share (without giving effect to the
underwriting discount and offering expenses):
<TABLE>
<CAPTION>
AVERAGE
PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
-------------------- ---------------------- ---------
NUMBER PERCENTAGE AMOUNT PERCENTAGE
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders.... 4,394,500 67.7% $ 2,419,000 8.8% $ 0.55
New shareholders......... 2,100,000 32.3 25,200,000 91.2 $12.00
--------- ----- ----------- -----
Total................ 6,494,500 100.0% $27,619,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
All of the calculations above exclude shares of Common Stock issuable upon
exercise of stock options under the Company's stock option plans. See
"Management--Stock Option Plans."
12
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at June 30, 1996, (i) on an actual basis, (ii) as adjusted to give
effect to the distribution of the Prior S Corporation Earnings Note and (iii)
as further adjusted to reflect the sale of the 2,100,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom as set forth under "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(1) ADJUSTED
------- -------------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt......... $ 2,288 $ 2,288 $ 2,288
Prior S Corporation Earnings Note......... -- 3,733 --
------- ------- -------
Total short-term debt................... $ 2,288 $ 6,021 $ 2,288
======= ======= =======
Long-term debt:
Long-term debt, net of current portion.... $25,539 $25,539 $ 6,357
Stockholders' equity:
Common Stock, $.01 par value, 100,000,000
shares authorized; 4,700,000 shares
issued (including 305,500 shares held in
treasury); 4,394,500 shares issued and
outstanding as adjusted; 6,494,500 shares
issued and outstanding as further
adjusted(2).............................. 47 44 65
Additional paid-in capital................ 3,120 6,799 29,693
Retained earnings(3)...................... 8,157 -- --
Treasury stock............................ (748) -- --
------- ------- -------
Total stockholders' equity.............. 10,576 6,843 29,758
------- ------- -------
Total capitalization.................... $36,115 $32,382 $36,115
======= ======= =======
</TABLE>
- --------
(1) Reflects the issuance of the $3.7 million Prior S Corporation Earnings
Note, which represents the amount of undistributed earnings of the Company
previously taxed at the shareholder level existing at June 30, 1996. See
"Prior S Corporation Status." Additionally, the amounts have been adjusted
for (i) the reclassification as additional paid-in capital of the portion
of the Company's retained earnings that will not be distributed to
shareholders through the S Corporation Distribution and (ii) the
retirement of the Company's treasury stock.
(2) Excludes shares of Common Stock issuable upon exercise of stock options
under the Company's stock option plans. See "Management--Stock Option
Plans."
(3) No adjustment has been made to give effect to the distribution to the
Company's shareholders of the Future S Corporation Earnings Note in the
amount of any S corporation earnings of the Company for the period from
July 1, 1996 through the date immediately preceding the date of the
consummation of this offering, which will be taxed at the shareholder
level. Such amount will be distributed as part of the S Corporation
Distribution in the form of the Future S Corporation Earnings Note. See
"Prior S Corporation Status."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the five years ended December
31, 1995 are derived from the Company's audited consolidated financial
statements. The pro forma financial data presents the results of the Company
as if the acquisition of Service Supply had occurred on January 1, 1995 and
are derived from the unaudited pro forma consolidated statement of income
included elsewhere herein. The financial data for the six months ended
June 30, 1995 and 1996 are derived from the Company's unaudited consolidated
financial statements, which in the opinion of management reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of results for such periods. Results for the six months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the full year. The selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -----------------
PRO FORMA
1991 1992 1993 1994 1995(1) 1995(2) 1995 1996(1)
------- ------- ------- ------- -------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $47,782 $61,169 $80,257 $99,279 $182,519 $241,846 $56,301 $135,598
Cost of sales........... 39,432 50,619 67,087 83,625 155,877 207,849 47,649 115,247
------- ------- ------- ------- -------- -------- ------- --------
Gross profit............ 8,350 10,550 13,170 15,654 26,642 33,997 8,652 20,351
Commission income....... 993 1,234 1,274 1,066 2,610 3,993 512 2,700
------- ------- ------- ------- -------- -------- ------- --------
9,343 11,784 14,444 16,720 29,252 37,990 9,164 23,051
Selling, general and
administrative
expenses............... 8,707 9,491 10,542 11,891 20,839 26,951 6,883 14,943
------- ------- ------- ------- -------- -------- ------- --------
Operating income........ 636 2,293 3,902 4,829 8,413 11,039 2,281 8,108
Other income............ -- -- -- 800 -- -- -- --
Interest income......... -- -- 83 346 355 356 186 141
Interest expense........ (313) (334) (425) (627) (1,692) (2,457) (346) (1,199)
------- ------- ------- ------- -------- -------- ------- --------
Income before income
taxes and accounting
change................. 323 1,959 3,560 5,348 7,076 8,938 2,121 7,050
Accounting change....... 225 -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- ------- --------
Income before income
taxes.................. 98 1,959 3,560 5,348 7,076 8,938 2,121 7,050
State income taxes...... -- -- -- 51 45 45 20 25
------- ------- ------- ------- -------- -------- ------- --------
Net income.............. $ 98 $ 1,959 $ 3,560 $ 5,297 $ 7,031 $ 8,893 $ 2,101 $ 7,025
======= ======= ======= ======= ======== ======== ======= ========
SUPPLEMENTAL INCOME
STATEMENT DATA (3):
Net income.............. $ 4,316 $ 5,452 $ 4,300
Earnings per share (4).. $ 0.87 $ 1.10 $ 0.90
Weighted average shares
outstanding (4)........ 4,946 4,946 4,778
As adjusted earnings per
share (5).............. $ 0.97 $ 0.73
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------------------- -------------------
AS FURTHER
1991 1992 1993(6) 1994 1995(1) ACTUAL ADJUSTED(7)
------ ------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $4,077 $ 4,531 $ 4,050 $ 4,496 $18,926 $16,048 $16,048
Total assets............ 9,197 10,898 15,060 17,543 54,959 61,035 61,035
Total debt.............. 1,868 1,815 5,547 6,385 31,263 27,827 8,645
Stockholders' equity.... 4,483 5,060 3,545 5,570 8,846 10,576 29,758
</TABLE>
- -------
(1) The Company acquired Service Supply on June 30, 1995. The acquisition was
accounted for as a purchase and, accordingly, the operating results of
Service Supply have been included in the operating results of the Company
since June 30, 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisition of Service
Supply."
(2) Pro forma as if the acquisition of Service Supply had occurred on January
1, 1995.
(3) Prior to this offering, the Company had elected to be treated as an S
corporation under the provisions of Subchapter S of the Internal Revenue
Code. As an S corporation, the Company was not subject to federal and
certain state income taxes. The supplemental data give effect to the
income taxes that would have been recorded had the Company been taxed as a
C corporation.
(4) Reflects the assumed issuance of 502,379 and 334,488 shares of Common
Stock at the assumed initial public offering price of $12.00 per share,
less underwriting discount, to generate sufficient funds to pay an
S corporation distribution in an amount equal to undistributed earnings
previously taxed at the shareholder level existing at December 31, 1995
and June 30, 1996, respectively. See "Prior S Corporation Status."
(5) As adjusted to give effect to the sale of the Common Stock offered hereby
and the application of the estimated net proceeds therefrom at the
beginning of the periods shown, including the elimination of interest
expense as if debt of $17.3 million and $19.2 million had been repaid on
January 1, 1995 and January 1, 1996, respectively. These amounts reflect
the portion of such net proceeds that would have been available to repay
debt after making an S corporation distribution in an amount equal to
undistributed earnings previously taxed at the shareholder level existing
at December 31, 1995 and June 30, 1996, respectively. See "Prior S
Corporation Status."
(6) During October 1993, the Company became wholly owned by the current
majority shareholder. This acquisition was accounted for as a purchase
transaction and resulted in a partial change in basis.
(7) As adjusted to give effect to (i) an S corporation distribution in an
amount equal to undistributed earnings previously taxed at the shareholder
level existing at June 30, 1996 and (ii) the sale of the Common Stock
offered hereby and the application of the estimated net proceeds
therefrom. No adjustment has been made to give effect to the distribution
to the Company's shareholders of an amount equal to any S corporation
earnings for the period from July 1, 1996 through the date immediately
preceding the date of the consummation of this offering, which will be
taxed at the shareholder level. Such amount will be distributed as part of
the S Corporation Distribution in the form of the Future S Corporation
Earnings Note. See "Prior S Corporation Status."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
From 1991 through 1995, the Company experienced significant growth in sales
and earnings. This growth was the result of internal expansion, including the
opening of new distribution centers, as well as the acquisition of
distribution and manufacturing facilities from Service Supply in June 1995.
From 1991 to June 30, 1996, the Company opened seven new distribution centers.
Through the acquisition of Service Supply, the Company acquired five
distribution and three manufacturing facilities, bringing the number of its
distribution and manufacturing facilities to 17 and three, respectively. The
Company will seek to continue to grow through the acquisition and opening of
distribution and manufacturing facilities and through the expansion of the
product lines offered by the Company.
The Company recognizes revenues from product sales at the time of shipment
(or the time of product receipt, in the case of direct shipments from
suppliers to customers). In some cases the Company sells on a commission
basis. Commissions are recognized when earned and represent amounts earned in
selling, warehousing and delivering products for certain manufacturers of
building products with which the Company has distribution agreements.
Commission arrangements do not require inventory investments or receivable
financing, and therefore are significantly less expensive to the Company than
traditional sales. To the extent the volume of items warehoused and shipped
under commission arrangements increases faster or slower than the volume of
items related to traditional sales, changes in net sales may not be
representative of actual shipment volume increases or decreases.
ACQUISITION OF SERVICE SUPPLY
In June 1995, the Company acquired Service Supply for a purchase price of
approximately $17.7 million. The entire purchase price was paid in cash. The
fair value of assets acquired was approximately $32.4 million and the amount
of liabilities assumed was approximately $14.7 million. There was no material
affiliation between Service Supply and Kevco prior to such acquisition. The
acquisition of Service Supply enabled Kevco to achieve its primary strategic
objective at that time of becoming a national distributor of building products
to the manufactured housing and RV industries and significantly enhanced the
Company's competitive position. Service Supply's operations are located
primarily in the southeastern United States, the only region of the country
not served by the Company at the time of the acquisition. The Company benefits
from Service Supply's product mix, which is weighted toward plumbing products,
but also includes a variety of other building products. In particular, through
its acquisition of Service Supply's wood products subsidiary, the Company has
become a wood products manufacturer for the manufactured housing industry in
the southeastern and southwestern United States. The Company's wood products
business is conducted through its subsidiary, Sunbelt Wood Components, Inc.
("Sunbelt").
Since completing the Service Supply acquisition, the Company has primarily
focused on integrating and enhancing the performance of the acquired
operations and has achieved net sales growth of 17.3% from $115.6 million for
the six months ended June 30, 1995 (on a combined basis as if the acquisition
had occurred on January 1, 1995) to $135.6 million for the six months ended
June 30, 1996. Gross profit, as a percent of sales, on such a combined basis,
increased from 13.8% to 15.0% during the same time periods primarily as a
result of purchasing opportunities available to the Company following the
completion of the acquisition of Service Supply.
15
<PAGE>
The summary financial data for Service Supply for the four years ended
December 31, 1994 are derived from Service Supply's audited consolidated
financial statements. The financial data for Service Supply for the six months
ended June 30, 1995 are derived from Service Supply's unaudited consolidated
financial statements, which in the opinion of management reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of results for such period. Such summary financial data
should be read in conjunction with the Consolidated Financial Statements of
Service Supply Systems, Inc. and Subsidiary and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
--------------------------------- ENDED JUNE
1991 1992 1993 1994 30, 1995
------- ------- ------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SERVICE SUPPLY INCOME STATEMENT
DATA:
Net sales...................... $50,465 $59,804 $73,625 $100,910 $59,327
Gross profit................... 7,173 8,311 10,391 12,881 7,355
Operating income............... 119 1,246 2,265 2,935 2,834
Income (loss) before income
taxes......................... (371) 893 1,978 2,386 2,428
Net income (loss).............. (252) 563 1,246 1,515 1,585
</TABLE>
Because of the Service Supply acquisition, the Company's historical results
of operations and period-to-period comparisons of such results and certain
financial data may not be meaningful or indicative of future results.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Statements of Income data as a percentage of Kevco's net sales.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE
DECEMBER 31, 30,
------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 83.6 84.2 85.4 84.6 85.0
----- ----- ----- ----- -----
Gross profit................................. 16.4 15.8 14.6 15.4 15.0
Commission income............................ 1.6 1.1 1.4 0.9 2.0
----- ----- ----- ----- -----
18.0 16.9 16.0 16.3 17.0
Selling, general and administrative.......... 13.1 12.0 11.4 12.2 11.0
----- ----- ----- ----- -----
Operating income............................. 4.9 4.9 4.6 4.1 6.0
Other income................................. 0.0 0.8 0.0 0.0 0.0
Interest income.............................. 0.1 0.3 0.2 0.3 0.1
Interest expense............................. (0.5) (0.6) (0.9) (0.6) (0.9)
----- ----- ----- ----- -----
Income before income taxes................. 4.5% 5.4% 3.9% 3.8% 5.2%
===== ===== ===== ===== =====
</TABLE>
16
<PAGE>
Comparison of Six Months Ended June 30, 1996 and 1995
Net sales increased by $79.3 million, or 140.9%, to $135.6 million for the
first six months of 1996 from $56.3 million for the comparable 1995 period.
The increase in net sales resulted primarily from the acquisition of Service
Supply. However, net sales, on a combined basis as if the acquisition of
Service Supply had occurred on January 1, 1995, also increased for the first
six months of 1996 to $135.6 million from $115.6 million for the comparable
1995 period, an increase of 17.3%. This increase in net sales on such a
combined basis primarily resulted from an increase in the volume and variety
of products sold. Management believes the increase in the volume and variety
of products sold was primarily the result of the establishment of national
plumbing products accounts with several customers, sales of Kevco product
lines to existing Service Supply customers (as well as sales of Service Supply
products to existing Kevco customers) and improved customer demand. The
increase in net sales compared favorably to the 9.6% increase in reported
manufactured home shipments for the first six months of 1996 compared to the
comparable 1995 period (approximately 182,000 homes reported shipped for the
first six months of 1996 compared to approximately 166,000 homes reported
shipped for the comparable 1995 period). Sales to the manufactured housing
industry represented approximately 88% of the Company's net sales for the six
months ended June 30, 1996.
Gross profit increased by $11.7 million, or 134.5%, to $20.4 million for the
first six months of 1996 from $8.7 million for the comparable 1995 period. The
increase in gross profit resulted primarily from the acquisition of Service
Supply. However, gross profit, on a combined basis as if the acquisition of
Service Supply had occurred on January 1, 1995, also increased for the first
six months of 1996 to $20.4 million from $16.0 million for the comparable 1995
period, an increase of 27.5%. This increase in gross profit on such a combined
basis resulted primarily from an overall increase in net sales. Actual gross
profit, as a percent of actual sales, decreased to 15.0% for the first six
months of 1996 from 15.4% for the comparable 1995 period. This decrease was
primarily the result of lower margins associated with Service Supply's sales.
Gross profit, as a percent of sales, on a combined basis as if the acquisition
of Service Supply had occurred on January 1, 1995, increased to 15.0% for the
first six months of 1996 from 13.8% for the comparable 1995 periods, an
increase which management believes was a result of the Company's ability to
take advantage of purchasing opportunities following the acquisition of
Service Supply.
Commission income increased by $2.2 million, or 440.0%, to $2.7 million for
the first six months of 1996 from $0.5 million for the comparable 1995 period.
Although a portion of the increase was attributable to the acquisition of
Service Supply, the most significant factor in the increase was that the
Company entered into commission-based distribution arrangements with two
manufacturers of component products.
Selling, general and administrative expenses increased by $8.0 million, or
115.9%, to $14.9 million for the first six months of 1996 from $6.9 million
for the comparable 1995 period. The increase was primarily attributable to the
acquisition of Service Supply and, to a lesser extent, increased sales volume.
Selling, general and administrative expenses, as a percent of sales, decreased
to 11.0% for the first six months of 1996 from 12.2% for the comparable 1995
period. The decrease was primarily a result of reducing redundant overhead and
warehousing costs associated with Service Supply and, generally, management's
ability to increase sales without a proportionate increase in related
operating expenses.
Net income increased by $4.9 million, or 233.3%, to $7.0 million for the
first six months of 1996 from $2.1 million for the comparable 1995 period. The
increase was primarily attributable to the acquisition of Service Supply,
along with the reduction in operating expenses as a percent of sales. Also,
the increase was net of additional interest expense incurred of $0.5 million
for the six months ended June 30, 1996 related to the term loan associated
with the acquisition of Service Supply.
Comparison of Years Ended December 31, 1995 and 1994
Net sales increased by $83.2 million, or 83.8%, to $182.5 million in 1995
from $99.3 million in 1994. The increase in net sales was primarily
attributable to the inclusion of six months of sales from the Service Supply
facilities in 1995. However, net sales, on a combined basis as if the
acquisition of Service Supply had occurred
17
<PAGE>
on January 1, 1994, also increased in 1995 to $241.8 million from $200.2
million in 1994, an increase of 20.8%. The increase in net sales on such a
combined basis primarily resulted from an increase in the volume and variety
of products sold. Management believes the increase in the volume and variety
of products sold was primarily the result of successful negotiation of
national plumbing commitments from customers, sales of Kevco product lines to
existing Service Supply customers (as well as sales of Service Supply product
lines to existing Kevco customers) and improved customer demand. The increase
in net sales, on such a combined basis, was in excess of the 11.8% increase in
reported manufactured home shipments in 1995 compared to 1994 (approximately
340,000 homes reported shipped in 1995 compared to approximately 304,000 homes
reported shipped in 1994). Sales to the manufactured housing industry
represented approximately 85% of the Company's net sales in 1995.
Gross profit increased by $10.9 million, or 69.4%, to $26.6 million in 1995
from $15.7 million in 1994. This increase in gross profit was primarily
attributable to the inclusion of six months of gross profit from the Service
Supply facilities in 1995. Gross profit, on a combined basis as if the
acquisition of Service Supply had occurred on January 1, 1994, increased in
1995 to $34.0 million from $28.5 million in 1994, an increase of 19.3%. This
increase in gross profit on such a combined basis resulted primarily from an
overall increase in the volume of net sales. Actual gross profit, as a percent
of actual sales, decreased to 14.6% in 1995 from 15.8% in 1994. This decrease
was primarily the result of lower margins associated with Service Supply's
sales. Gross profit, as a percent of sales, on a combined basis as if the
acquisition of Service Supply had occurred on January 1, 1994, decreased to
14.1% in 1995 from 14.3% in 1994, a decrease which management believes was
primarily the result of competition from other suppliers attempting to
increase their market shares.
Commission income increased by $1.5 million, or 136.4%, to $2.6 million in
1995 from $1.1 million in 1994. A significant amount of the increase resulted
from the inclusion of six months of commission income from the Service Supply
facilities in 1995. An additional significant factor in this increase was the
increase in sales volume for which the Company is compensated on a commission
basis.
Selling, general and administrative expenses increased by $8.9 million, or
74.8%, to $20.8 million in 1995 from $11.9 million in 1994. The increase was
primarily related to the inclusion of six months of selling, general and
administrative expenses from the Service Supply facilities in 1995 and, to a
lesser extent, the increased expenses related to the overall net sales
increase. Selling, general and administrative expenses, as a percent of sales,
decreased to 11.4% in 1995 from 12.0% in 1994, reflecting the reduction of
redundant overhead and warehousing costs associated with Service Supply and,
generally, the Company's ability to increase sales without a proportionate
increase in related operating expenses.
Net income increased by $1.7 million, or 32.1%, to $7.0 million in 1995 from
$5.3 million in 1994. Excluding insurance proceeds of $0.8 million recognized
as income in 1994 related to a former officer's disability, the increase in
net income from 1994 to 1995 would have been 55.6%. The increase was primarily
a result of the inclusion of six months of gross profit from the Service
Supply facilities in 1995, and the remainder of the increase was attributable
to the increase in net sales without a proportionate increase in operating
expenses. Also, the increase in net income was net of additional interest
expense incurred of $0.6 million in 1995 related to the term loan associated
with the acquisition of Service Supply.
Comparison of Years Ended December 31, 1994 and 1993
Net sales increased by $19.0 million, or 23.7%, to $99.3 million in 1994
from $80.3 million in 1993. The increase in net sales was primarily
attributable to an increase in the volume and variety of products sold, which
management believes resulted primarily from effective marketing and improved
customer demand. The increase in net sales of 23.7% was in excess of the 19.7%
increase in reported manufactured home shipments in 1994 compared to 1993
(approximately 304,000 homes reported shipped in 1994 compared to
approximately 254,000 homes reported shipped in 1993). Sales to the
manufactured housing industry represented approximately 73% of the Company's
net sales in 1994.
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<PAGE>
Gross profit increased by $2.5 million, or 18.9%, to $15.7 million in 1994
from $13.2 million in 1994. The increase in gross profit was primarily
attributable to the increased sales volume. Gross profit, as a percent of
sales, decreased to 15.8% in 1994 from 16.4% in 1993. Management believes the
decrease in gross profit, as a percent of sales, was primarily the result of
competition from other suppliers attempting to increase their market shares.
Commission income decreased by $0.2 million, or 15.4%, to $1.1 million in
1994 from $1.3 million in 1993. The decrease in commission income was
primarily a result of the loss of commissions in 1994 related to one supplier.
Selling, general and administrative expenses increased by $1.4 million, or
13.3%, to $11.9 million in 1994 from $10.5 million in 1993. The increase was
primarily attributable to increased sales volume. Selling, general and
administrative expenses, as a percent of sales, decreased to 12.0% in 1994
from 13.1% in 1993. The decrease was primarily a result of the Company's
ability to increase sales without a proportionate increase in related
operating expenses.
Net income increased by $1.7 million, or 47.2%, to $5.3 million in 1994 from
$3.6 million in 1993. Excluding insurance proceeds of $0.8 million recognized
as income in 1994 related to a former officer's disability, the increase in
net income from 1993 to 1994 would have been 25.0%. The increase was primarily
attributable to the increase in net sales without a proportionate increase in
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's growth has been financed through cash flow from
operations, borrowings under its bank credit facilities and the expansion of
trade credit. Net cash provided by operating activities was $8.4 million for
the six months ended June 30, 1996, and increased to $8.4 million in 1995 from
$3.1 million in 1994. The Company's capital expenditures were $0.9 million for
the six months ended June 30, 1996 and $2.8 million and $0.4 million in 1995
and 1994, respectively. The Company anticipates that it will spend $0.1
million on the implementation of a new management information system in 1996.
None of the capital expenditures incurred in 1995 were attributable to the new
management information system. The Company is obligated to make payments on
various capital leases in varying amounts, maturing through 2007.
Additionally, the Company is obligated to make payments under noncompete and
consulting agreements, related to the Service Supply acquisition on June 30,
1995, in varying amounts, maturing through 1999. See Notes 4 and 6 to the
Company's Consolidated Financial Statements.
In connection with the Service Supply acquisition at June 30, 1995, the
Company arranged for a term loan and a revolving credit facility with a bank
in the aggregate amount of $35.0 million; the term loan comprising $15.0
million. The purchase price of Service Supply was $17.7 million, of which
$15.0 million was paid with proceeds from such term loan and the remaining
$2.7 million was paid with a combination of cash on hand and proceeds from the
revolving credit facility. The fair value of assets acquired was $32.4 million
and liabilities assumed were $14.7 million. Of the $14.7 million of
liabilities assumed, $8.1 million was paid with funds borrowed under the
Company's revolving credit facility. At June 30, 1996, the outstanding
principal balance under the term loan was $14.5 million and the outstanding
principal balance under the revolving credit facility was $11.3 million. A
portion of the net proceeds of this offering will be used to repay a
significant amount of the outstanding bank indebtedness. Borrowings under the
term loan require monthly, bi-monthly or quarterly interest payments
(depending on whether interest accrues based on the prime rate or LIBOR) and
quarterly principal payments of $0.6 million commencing on October 1, 1996
until maturity at June 30, 2001. Interest is currently paid on the term loan
at a blend of the bank's prime rate and LIBOR based on pricing options
selected by the Company plus a margin based on operating statistics of the
Company (7.31% at June 30, 1996). Borrowings under the revolving credit
facility are due June 30, 1998 (subject to the option of the lenders to grant
one or more twelve month extensions at Kevco's request), and require monthly,
bi-monthly or quarterly interest payments currently based on a blend of the
bank's prime rate and LIBOR based on pricing options selected by the Company
plus a margin determined by operating statistics of the Company (7.49% at June
30, 1996). The
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<PAGE>
borrower under the term loan and revolving credit facility is one of the
Company's operating subsidiaries, and the obligations thereunder are
guaranteed by the Company. The term loan and revolving credit facility are
secured by substantially all of the assets of the Company's subsidiaries as
well as the capital stock of such subsidiaries. The related credit agreement
contains certain restrictions and conditions that include cash flow and
various financial ratio requirements, and limitations on incurrence on debt or
liens, acquisitions of property and equipment, distributions to shareholders
and certain events constituting a Change of Control (as defined in such
agreement).
Effective October 26, 1993, the Company repurchased 305,500 shares of Common
Stock from one of its then 50% shareholders for a purchase price of $747,500.
On the same date, Mr. Jerry E. Kimmel, who owned the remaining 50% of the
Common Stock then outstanding, purchased the remainder of such other
shareholder's 2,044,500 shares of Common Stock with $5.0 million in cash
borrowed from the Company. The balance of this note receivable of
approximately $3.1 million was eliminated in a non-cash transaction effective
June 30, 1996. As a result of these stock purchase transactions, the Company
became wholly owned by Mr. Kimmel at the time of the transactions, resulting
in a partial change in basis. Accordingly, the previously issued financial
statements of the Company have been restated to apply push down accounting as
required by Staff Accounting Bulletin Topic 5-J. The acquisition cost in
excess of the fair value of the net assets acquired has been accounted for as
goodwill and is being amortized over an estimated useful life of 40 years. The
results of operations of the Company would not have been significantly
different had these transactions occurred as of January 1, 1993. See
"Management--Compensation Committee Interlocks and Insider Participation--
Certain Business Relationships."
Since its election to be treated as an S corporation, the Company has made
distributions to its shareholders, including amounts equal to at least their
federal and state income tax liabilities attributable to the Company's
earnings. Distributions have generally been made on a quarterly basis as
needed to satisfy such tax liabilities. The Company made aggregate cash
distributions to its shareholders of approximately $4.0 million and $4.7
million in 1994 and 1995, respectively. The Company has made or declared
aggregate cash distributions to its shareholders of approximately $5.8 million
with respect to the six months ended June 30, 1996. See "Management--
Compensation Committee Interlocks and Insider Participation--Prior S
Corporation Status and Distributions to Shareholders."
Immediately prior to the consummation of this offering, the Company will
declare and make the S Corporation Distribution, consisting of the Prior S
Corporation Earnings Note in the principal amount of approximately $3.7
million and the Future S Corporation Earnings Note. See "Prior S Corporation
Status."
The Company intends to increase the number of its manufacturing, and to a
lesser extent, distribution facilities, primarily through acquisitions.
Management believes there are currently a number of acquisition opportunities
in the manufactured housing and RV industries, and from time to time
additional opportunities will arise. Possible acquisitions will vary in size
and the Company will consider larger acquisitions that could be material to
the Company. In order to finance any such possible acquisitions, the Company
may use cash flow from operations, may attempt to borrow additional amounts
under its credit arrangements, may seek to obtain additional debt or equity
financing or may use its equity securities as consideration. The availability
and attractiveness of any outside sources of financing will depend on a number
of factors, some of which will relate to the financial condition and
performance of the Company, and some of which will be beyond the Company's
control, such as prevailing interest rates and general economic conditions.
The Company's existing credit facilities require the Company to obtain the
prior consent of the lenders for any acquisition. There can be no assurance
that the Company will be able to acquire any manufacturing or distribution
facilities, or that any such facilities acquired will be or become profitable.
Management believes the net proceeds from this offering, together with cash
flow from operations and additional borrowings under its revolving credit
facility, will be adequate to fund the operations and expansion plans of the
Company during the remainder of 1996 and 1997. However, in order to provide
any additional funds necessary for the continued pursuit of the Company's
growth strategies, the Company may incur, from time to time, additional short-
and long-term bank indebtedness and may issue, in public or private
transactions, its
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<PAGE>
equity and debt securities, the availability and terms of which will depend
upon market and other conditions. There can be no assurance that such
additional financing will be available or, if available, will be on terms
acceptable to the Company.
ASSET MANAGEMENT
The Company actively manages its assets and liabilities. All corporate and
profit center managers participate in an incentive-based compensation plan that
measures the individual's effectiveness in net asset control and return on net
assets employed. Managers are rewarded for receivables collection, inventory
control and profits in relation to these and other net assets employed.
For the six months ended June 30, 1996, days sales in average receivables was
approximately 21 days, days sales in average inventory was approximately 33
days and days sales in average payables was approximately 21 days.
INFLATION
Generally, inflation and changing prices have had a minimal impact on Kevco's
operating results, as increases in the sales prices of products have closely
followed increases in materials costs.
QUARTERLY RESULTS
The following table represents certain unaudited financial information for
the quarters indicated.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30,
1996(1):
Net sales.................... $64,234 $71,364
Operating income............. 3,569 4,539
Income before income taxes... 3,022 4,028
Supplemental net income(2)... 1,843 2,457
Supplemental earnings per
share(2)(3)................. 0.39 0.51
YEAR ENDED DECEMBER 31,
1995(1):
Net sales.................... $27,567 $28,734 $62,714 $63,504
Operating income............. 1,210 1,069 2,838 3,296
Income before income taxes... 1,163 956 2,185 2,772
Supplemental net income(2)... 709 583 1,333 1,691
Supplemental earnings per
share(2)(3)................. 0.14 0.12 0.27 0.34
YEAR ENDED DECEMBER 31, 1994:
Net sales.................... $22,311 $24,837 $26,399 $25,732
Operating income............. 1,262 1,202 1,493 872
Income before income taxes... 1,194 1,135 2,221 798
</TABLE>
- --------
(1) The Company acquired Service Supply on June 30, 1995. The acquisition was
accounted for as a purchase and, accordingly, the operating results of
Service Supply have been included in the operating results of the Company
since June 30, 1995. See "--Acquisition of Service Supply".
(2) Prior to this offering, the Company had elected to be treated as an S
corporation under the provisions of Subchapter S of the Internal Revenue
Code. As an S corporation, the Company was not subject to federal and
certain state income taxes. The supplemental data give effect to the income
taxes that would have been recorded had the Company been taxed as a C
corporation.
(3) Reflects the assumed issuance of 502,379 and 334,488 shares of Common Stock
at the assumed initial public offering price of $12.00 per share, less
underwriting discount, to generate sufficient funds to pay an S corporation
distribution in an amount equal to undistributed earnings previously taxed
at the shareholder level existing at December 31, 1995 and June 30, 1996,
respectively. See "Prior S Corporation Status."
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<PAGE>
BUSINESS
GENERAL
Kevco is a leading wholesale distributor of building products to the
manufactured housing and recreational vehicle (RV) industries. Through its 17
distribution centers, the Company distributes more than 10,000 different
inventory items to approximately 278 manufactured home and 148 RV
manufacturing facilities throughout the United States. Kevco is one of only a
few companies capable of providing national distribution of building products
to the manufactured housing and RV industries. In addition, the Company also
manufactures wood products for the manufactured housing industry in the
southeastern and southwestern United States. From 1991 to 1995, the Company's
net sales increased from $47.8 million to $182.5 million, a compound annual
growth rate of approximately 40%. Since its founding in 1964, the Company's
growth has been fueled by internal growth and acquisitions.
The Company believes that it provides a cost-effective form of distribution
that offers value to both the Company's suppliers and producers of
manufactured homes and RVs. Kevco believes that it provides significant
benefits to its suppliers by placing large orders at regular intervals,
thereby enabling its suppliers to achieve efficient and cost-effective
production planning and economies of scale. In addition, Kevco markets and
sells its suppliers' products directly to the manufactured housing and RV
industries. As a result, the Company believes it reduces its suppliers'
inventory carrying, marketing and distribution costs. The Company also
provides significant benefits to its customers as a result of its ability to
respond on a same day shipment basis to a majority of its customers' orders,
thus reducing the amount of inventory they must maintain. Furthermore, Kevco
assists its customers in inventory management, product support, training and
implementing cost saving measures, all of which are services that the Company
believes most building products manufacturers cannot provide in a cost-
effective manner. The Company believes that the specialized product knowledge
and high level of service provided by Kevco personnel result in strong
relationships between Kevco and its suppliers and customers.
The Company primarily distributes a full line of plumbing fixtures and
supplies as well as a variety of other building products, including
insulation, roof shingles, patio doors, aluminum and wood windows, vinyl
siding, fireplaces and electrical products. The Company distributes products
of several nationally recognized manufacturers, including Eljer, Crane
Plumbing, Coastal(R) and Nibco(R) plumbing products, State Industries water
heaters, Owens-Corning Fiberglas(R) insulation and shingles, Delta(R), Moen(R)
and Phoenix(R) faucets, CertainTeed(R) vinyl siding and Capri bath products.
The Company's wood products subsidiary manufactures roof trusses and lumber
cut to customer specifications. For the six months ended June 30, 1996,
approximately 54% of the Company's net sales were derived from plumbing
products, 20% from wood products and 26% from other building products.
Jerry E. Kimmel, the Company's Chairman of the Board, President and Chief
Executive Officer, has over 35 years of experience in the industry. The other
members of Kevco's senior management have an average of more than 10 years of
experience in the industry.
INDUSTRY
For the six months ended June 30, 1996, approximately 88% of the Company's
net sales were to producers of manufactured homes. A manufactured home is a
complete single-family residence that is built in a factory and transported to
a site. Manufactured homes offer most of the amenities of, and are generally
built with the same materials as, site-built homes.
Manufactured housing has historically served as one of the most affordable
alternatives for the home buyer. According to the U.S. Department of Commerce,
in 1995 the average cost per square foot was $23.95 for a single-section
manufactured home and $28.96 for a multi-section manufactured home, as
compared to an average cost of $60.55 per square foot for a site-built home,
each excluding land costs. In 1995, reported sales of new manufactured homes
totaled approximately $12.3 billion (at retail). Approximately 340,000
manufactured homes were reported as shipped in 1995 (which would represent
approximately 33.7% of all new single family homes
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<PAGE>
sold in 1995). Reported shipments of new manufactured homes experienced
compound annual growth of approximately 18.8% for the four years ended
December 31, 1995.
The Company believes steady employment growth, reduced inventories of
repossessed homes, greater availability of retail financing for the home buyer
and enhanced quality of manufactured homes have contributed to improved
industry conditions. Although the manufactured housing industry has experienced
significant growth over the past four years, the industry is cyclical and is
affected by many of the same factors that influence the housing industry
generally, including inflation, interest rates, availability of financing,
regional economic and demographic conditions and consumer confidence levels, as
well as the affordability and availability of alternative housing, such as
apartments, condominiums and conventional, site-built homes.
The ten highest volume producers of manufactured homes in 1995 reportedly
accounted for approximately 66.4% of total manufactured home shipments in that
year. Management believes that only a few distributors are capable of
distributing a broad line of building products to meet the needs of these
manufacturers on a national basis.
For the six months ended June 30, 1996, approximately 10% of the Company's
net sales were to producers of RVs. RVs are motorized and non-motorized
vehicles that provide comfortable, self-contained living facilities for short
periods of time, but are not generally designed for permanent living. RV
shipments to retailers reportedly totaled approximately $12.1 billion (at
retail) in 1995. Although reported RV shipments declined approximately 8.4% in
1995, the RV industry has experienced compound annual growth in reported
shipments of approximately 12.8% since 1991. Historically, demand for RVs has
been influenced by a number of factors, including the availability and terms of
financing to dealers and retail purchasers, the abundance of motor vehicle
fuels and fuel prices, as well as general economic conditions.
BUSINESS STRATEGY
Kevco's primary objective is to become the leading national distributor of
building products to the manufactured housing and RV industries. The Company
intends to continue to pursue this objective through a combination of internal
growth and selective acquisitions. To achieve its objective, the Company has
adopted a strategy based on the following key elements:
Provide Superior Customer Service. The Company believes its success is
primarily attributable to its emphasis on customer service and that providing a
high level of customer service leads to long-term relationships with customers.
The Company's operating philosophy is based on a commitment to Total Quality
Management, which emphasizes at every level an awareness of, and accountability
for, customer needs and effective communication both internally and externally.
Consistent with this commitment, the Company strives to achieve maximum
responsiveness to customer orders and to assist its customers in controlling
costs, improving their materials resource planning and facilitating their just-
in-time inventory procurement needs. The Company's sales representatives, who
have an average of approximately nine years of experience with the Company,
play an important role in training customers in the proper installation of
products and assisting in their inventory management.
Leverage National Distribution Network. Kevco will continue to use its
national distribution network as a platform for growth and profitability. The
Company believes that its national distribution network has allowed it to
develop close relationships with leading product manufacturers and to become
the exclusive supplier of certain product lines to the manufactured housing and
RV industries. The following manufacturers have represented to the Company that
the Company is the exclusive supplier of certain products to the manufactured
housing industry on a nationwide basis, including the indicated products: (i)
State Industries water heaters (except in the state of Wisconsin), (ii) Phoenix
Products, Inc. faucets and (iii) Elkay Manufacturing Company stainless steel
sinks. In addition, the Company believes that its national presence provides it
with a significant competitive advantage due to its ability to service
effectively the building products needs of its customers' manufacturing
facilities, several of which are located in remote, rural areas. This
capability has led to several national customer accounts.
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<PAGE>
As one of the leading national distributors of building products in the United
States to the manufactured housing and RV industries, the Company has
substantial purchasing power and is able to realize economies of scale.
Increase Customer Penetration and Product Offerings. Kevco currently
supplies approximately 92% of all manufactured housing plants in the United
States with one or more product lines. This established customer base provides
the Company with a significant opportunity to supply a greater portion of its
customers' building products needs as the customers seek to reduce the number
of their suppliers. The Company also intends to add new product lines through
internal growth and acquisitions. With its existing national distribution
infrastructure, the Company believes that additional product lines can be
offered to customers without significant additional cost.
Geographically Expand Wood Products Business. The Company intends to expand
its wood products business primarily by increasing the number of its wood
products manufacturing facilities. The Company currently manufactures wood
products, primarily roof trusses, in three locations in the southeastern and
southwestern United States. This segment of the wood products industry is
highly fragmented, and the Company believes there are significant
opportunities to grow this business internally and through acquisitions.
Pursue Vertical Integration Opportunities. The Company intends to
selectively explore the acquisition of manufacturers of building products. By
manufacturing its own products, the Company will seek to achieve greater
profitability from its sales, while obtaining direct control over product
availability and quality.
SUPPLIER/CUSTOMER RELATIONSHIPS
Kevco acts with its suppliers and customers to provide value-added services
in the distribution of manufactured home and RV building products by managing
inventories, providing product support and training, introducing cost saving
measures and providing a marketing and distribution network with warehousing
capabilities. The Company believes that the specialized product knowledge and
high level of service provided by Kevco personnel results in strong ties
between Kevco and its customers and suppliers.
Inventory Management. Kevco's customers generally attempt to minimize
inventories and to maximize the use of their facilities for the assembly of
manufactured homes and RVs. For this reason, Kevco actively manages customers'
inventories of products supplied by Kevco. Kevco sales representatives
generally visit customers' plants weekly to count inventories, review
production schedules, prepare purchase orders and schedule deliveries in order
to achieve the Company's goal of being a just-in-time supplier. In addition,
because of their detailed awareness of existing building codes for
manufactured homes and RVs, Kevco's sales representatives are able to assist
customers in planning for, and maintaining product inventories in accordance
with, building code changes.
Product Support and Training. At their weekly visits, sales representatives
also take the opportunity to resolve product problems and train customer
employees in the proper installation of products. Kevco has found that its
willingness and availability to solve product problems has resulted in its
customers first turning to Company representatives, rather than Kevco's
suppliers, when they have problems with or questions about products. This
benefits both Kevco's customers and suppliers in that Kevco provides customer
support that the supplier might otherwise have to provide in order to achieve
the same level of customer satisfaction, and Kevco's customers receive support
from individuals with expertise in serving the manufactured housing and RV
industries. Kevco has also found that its customers benefit from the training
given by sales representatives in the proper installation of products, since
Kevco's sales representatives generally have significant expertise in the
installation and service of the products they sell. Sales representatives also
take the opportunity during their weekly visits to promote other Kevco
products, thus educating customers as to additional products the customers can
purchase from Kevco and receive similar product support.
Cost Saving Measures. Kevco's sales force also works with the Company's
customers and suppliers in suggesting and implementing cost saving measures.
Kevco actively works to find ways for producers of manufactured homes or RVs
to reduce the number of stock-keeping units ("SKUs") they use in production in
24
<PAGE>
order to further reduce their inventories. In its wood products operations,
Kevco also builds steel forms to its customers' specifications to ensure the
dimensional tolerances of the roof trusses it manufactures, as strict
adherence to design specifications translates into reduced manufacturing costs
for Kevco's customers.
Marketing/Distribution Network. Kevco believes that its suppliers also
benefit by utilizing Kevco's extensive marketing and distribution network. The
Company also believes that it is generally not cost effective for its
suppliers to provide the same level of service and delivery responsiveness as
Kevco to producers of manufactured homes and RVs.
TOTAL QUALITY MANAGEMENT
Kevco is committed to maintaining Total Quality Management throughout its
operations. The key elements of this operating philosophy are (i) to increase
customer satisfaction by seeking to meet or exceed all customer requirements
and ensuring that all associates are "customer focused," which the Company
believes results in Kevco becoming the supplier of choice, (ii) to create the
mindset and awareness within all of its associates that each is responsible
and accountable for the results of Kevco's operations and (iii) to work with
Kevco's suppliers and customers to create an environment where all are working
together to improve the value of the product supplied to the manufactured home
or RV consumer. The Company's executive office and profit centers hold weekly
Total Quality Management meetings attended by all employees. The meetings
focus on training and on reaffirming Kevco's mission, quality and value
statements in order to achieve the goal of being the distributor, customer and
employer of choice. An integral part of the entire quality process is creating
a culture where communication can flourish among all internal and external
parties, including associates, customers and suppliers.
PRODUCTS
Kevco distributes more than 10,000 SKUs manufactured by more than 490
companies. The following is brief description of the products the Company
distributes:
Plumbing Products. Kevco distributes a wide variety of plumbing fixtures and
supplies including tubs, toilets, faucets, ABS pipe, connectors and fittings.
Kevco supplies substantially everything necessary to carry water into and out
of a manufactured home or RV. Principal brands of plumbing products include
Eljer, Crane Plumbing, Coastal(R) and Nibco(R) plumbing products, Delta(R),
Moen(R) and Phoenix(R) faucets and Capri bath products.
Wood Products. At its three manufacturing facilities, Kevco manufactures
roof trusses and lumber cut to customer specifications for use in manufactured
homes. Roof trusses are rectangular or triangular structures that form the
principal roof support for a manufactured home. Kevco also distributes plywood
and mill direct lumber.
Other Building Products. Kevco distributes other building products,
including insulation, roof shingles, patio doors, aluminum and wood windows,
vinyl siding, fireplaces, kitchen cabinetry, aluminum siding, water heaters
(under an exclusive arrangement with State Industries) and electrical products
(including load-centers, circuit breakers and copper wire). Principal brands
of building products include Owens-Corning Fiberglas(R) insulation and
shingles, CertainTeed(R) vinyl siding, Alcoa vinyl and aluminum siding, and
Merillat kitchen cabinets.
SALES AND MARKETING
Kevco's marketing programs center on fostering strong customer relationships
and providing superior customer service. Kevco believes its competitive
advantage lies in its breadth of product offerings and the knowledge and
expertise of its sales representatives, and its just-in-time delivery
capabilities, regular calling program, dedication to Total Quality Management
and competitive pricing.
25
<PAGE>
As of June 30, 1996, Kevco marketed its products through 66 direct sales
representatives consisting of 56 Kevco sales representatives and 10 Sunbelt
sales representatives. Because of the specific nature of the wood products
business, these sales forces generally work independently. Each sales
representative works within an assigned sales territory associated with one of
the Company's 17 distribution centers or three manufacturing facilities and is
actively supported by a manager at such distribution center or facility. To
certain producers of manufactured homes and RVs, Kevco is the sole provider of
certain core product lines on a national basis. National accounts are supported
by a profit center manager and by the Company's management. Each potential
customer within a distribution center's geographic reach is regularly contacted
by a sales representative, usually at the purchasing manager level.
Sales representatives, consisting of salespersons and sales managers, are all
Kevco employees and are generally compensated on a salary and incentive based
compensation arrangement. The incentive portion of the salespersons's
compensation is based on a percentage of the profits of the sales region
"profit center" in which that salesperson operates. The incentive portion of
the sales manager's compensation is determined by a variety of factors, which
include the profit center's sales and return on assets and investments as well
as a discretionary element.
Kevco maintains active customer relationships with approximately 278
manufactured home production plants and approximately 148 RV production plants
in the 33 states that have manufactured home or RV production plants. The
Company's largest customer, Fleetwood Enterprises, Inc., accounted for
approximately 12% of Kevco's net sales in 1995. Two of the Company's large
customers, Champion and Redman, accounted for approximately 8% and 7%,
respectively, of Kevco's net sales in 1995. In August 1996, Champion and Redman
announced that they had entered into a definitive merger agreement under which
Champion would acquire Redman. As of October 8, 1996, these companies had not
presented the merger to their respective shareholders for approval. Although
the Company has ongoing supply relationships with these three customers, it
does not have a formal supply contract with these customers or most of its
other customers. The Company's business could be adversely affected if these
customers, or other major customers, substantially reduced or discontinued
purchases from the Company. Further, if such merger is consummated, the Company
can give no assurance that its sales to the combined entity would continue at
historical levels. The Company believes that it has good relationships with
each of its manufactured home and RV customers.
DISTRIBUTION
Kevco distributes products through 17 distribution centers. Currently, 16 of
the Company's distribution centers distribute primarily plumbing products and,
to varying extents, other building products. One distribution center, the
Company's IDC Limited division in Elkhart, Indiana, distributes only non-
plumbing building products. Kevco intends to use the supplier relationships and
product knowledge developed by its IDC Limited division to broaden the product
lines carried by its other distribution centers. The Company's facilities are
strategically located near its customers' manufacturing plants in order to
provide prompt delivery and responsive customer service. In most cases, the
Company's desired service area is within a 250-mile radius of each distribution
center. The Company generally uses a decentralized management structure that
emphasizes individual distribution center profit-and-loss responsibility. A
distribution center is typically comprised of warehouse and receiving space,
secure outdoor holding space and office space. Local sales efforts are
coordinated and supported at the distribution centers. The remaining
distribution center activities relate to receiving, storing and delivering
products.
All distribution centers are equipped with real-time management information
systems that allow the distribution centers to control and monitor inventory
levels, perform invoicing and order entry, and establish delivery schedules and
routes. Corporate management also uses the Company's information system to
monitor sales, inventory and profitability by distribution center. By utilizing
its computerized inventory management system, the Company is able to accurately
predict inventory turns and minimize inventory levels. Each morning, management
is supplied with detailed accounts receivable aging and inventory status
reports from each distribution center. The Company is currently implementing an
improved management information system with
26
<PAGE>
a particular focus on inventory management, which will allow managers to
create customized, Windows-based reports and to obtain faster access to
detailed inventory data. The Company anticipates that the upgrade will be
completed within the next two years.
Inventories are kept on the perpetual method, with daily physical counts of
at least five items in each warehouse. A complete physical inventory count is
performed twice a year. For book and tax purposes, the Company records
purchased inventories under the LIFO method.
In most cases, the Company warehouses products before distributing them to
customers. Kevco delivers the products it sells either by Company truck or
common carrier. Delivery is a key component of Kevco's dedication to customer
service and is a competitive requirement. In some instances, suppliers will
"drop ship" products directly to Kevco's customers, with Kevco retaining
responsibility for selling, billing and collection. Also, under certain
arrangements, the Company receives fees for warehousing, delivering, selling
or other services without taking title to the products. Kevco records such
fees as commission income.
PURCHASING AND SUPPLIERS
Kevco obtains its products from more than 490 different manufacturers. As a
distributor, Kevco plays a valued role in linking product manufacturers with
customers and provides the level of customer service and just-in-time delivery
its customers require. Kevco's position in the marketplace and financial
condition have enabled it to take advantage of volume discounts, product
promotions and other buying opportunities from suppliers, which allow the
Company to market a wide variety of products to its customers at attractive
prices.
The Company generally sells products from manufacturers on a non-exclusive
basis without geographical restrictions. In certain limited instances, a
supplier will grant Kevco the exclusive right to market its products in the
manufactured housing or RV industries. Management believes that its national
distribution capability will allow the Company to increase the number of
products it distributes on a national and/or exclusive basis.
The Company generally negotiates the price and other purchase terms with its
vendors on a company-wide or regional basis. Payment, discount and volume
purchase programs are negotiated directly by the Company with its major
suppliers, with a significant portion of the Company's purchases made from
suppliers offering these programs. Distribution center managers are
responsible for inventory selection and ordering on terms negotiated
centrally, so that the Company remains responsive to local market demand.
Distribution center managers are also responsible for inventory management.
Kevco continuously seeks to expand the variety of products it sells. While
the loss of a major supplier could have a material adverse effect on the
Company's business, the Company believes alternative suppliers for similar
products in each of its product lines are available. The Company believes its
relations with all of its suppliers are good.
The Company has established a Supplier Certification Program, in which the
Company identifies the performance level of a supplier to Kevco and benchmarks
such performance on a regular basis. Such benchmarking criteria include
minimum order fill rates and other factors.
MANUFACTURING
Kevco also, through its Sunbelt subsidiary, manufactures wood products for
distribution principally to producers of manufactured homes. Kevco's wood
products include roof trusses and lumber cut to customer specifications for
structural support within the manufactured home unit. Each of the Company's
roof trusses are built to meet the customer's specific requirements.
Kevco utilizes automated saws to reduce the cutting time needed to process
raw wood, and fabricates steel forms based on customer specifications in order
to ensure the dimensional tolerances of its roof trusses. The quality and
structural strength of roof trusses are monitored closely by manufactured home
producers. Wind zone
27
<PAGE>
construction standards require that roof trusses sold for use in certain
regions meet increased strength benchmarks. Roof trusses that meet exacting
specifications can reduce customer installation costs. The Company believes
that its ability to produce roof trusses of consistent quality that adhere to
customer specifications provides a competitive advantage.
The Company's wood products customers include producers of manufactured
homes as well as contract, "cut-to-order" customers outside of the
manufactured housing industry. Substantially all of Kevco's wood product sales
are to manufactured home producers. Kevco's wood products are sold through 10
sales representatives who are technically trained in lumber and roof truss
applications. Kevco has roof truss manufacturing facilities in Spruce Pine,
Alabama, Ashburn, Georgia, and Waco, Texas.
WARRANTY AND RETURNS
Kevco's customers generally rely on the warranties issued by the
manufacturer of the products sold by the Company. Kevco generally provides a
one year limited warranty on the products it sells, which warranty covers the
product and service calls. The Company's warranty on the product itself is
generally not utilized because the product manufacturer provides a more
comprehensive warranty. The Company's warranty expense in 1995 was negligible.
Kevco also has an informal, unwritten return policy under which, for one year
following sale, Kevco will generally accept the nonwarranty return of unused
products, after inspection by Kevco personnel, for a 20% restocking charge.
In the event a manufactured home experiences a failure of a roof truss
manufactured by the Company, the Company will inspect the home to determine
whether there is a covered defect in the roof truss. If a covered defect is
discovered, the Company generally pays to replace the roof truss and the roof.
The Company has only had one such claim in the past three years.
FACILITIES
The following table sets forth certain information with respect to the
Company's 17 distribution facilities and three roof truss manufacturing
facilities, all but four of which are leased. The Company also leases its
executive offices of approximately 9,200 square feet in Fort Worth, Texas.
Substantially all of the Company's assets, including its owned facilities and
its leasehold interests, are encumbered by liens granted under security
agreements in favor of the Company's lenders under the Company's term loan and
revolving credit facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET FUNCTION
-------- ----------- -------------
<S> <C> <C>
Alabama
Haleyville.......................... 86,000 Distribution
Spruce Pine*(1)..................... 54,000 Manufacturing
Arizona
Phoenix............................. 70,000 Distribution
California
San Bernardino...................... 42,000 Distribution
Woodland............................ 18,000 Distribution
Colorado
Fort Morgan......................... 13,000 Distribution
Florida
Ocala*.............................. 50,000 Distribution
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET FUNCTION
-------- ----------- -------------
<S> <C> <C>
Georgia
Ashburn*(1)......................... 100,000 Manufacturing
Cordele*............................ 60,000 Distribution
Idaho
Caldwell............................ 15,000 Distribution
Indiana
Elkhart............................. 61,000 Distribution
Elkhart............................. 90,000 Distribution
Kansas
Newton.............................. 38,000 Distribution
Minnesota
Round Lake.......................... 11,000 Distribution
North Carolina
Albemarle........................... 63,000 Distribution
Oregon
Tigard.............................. 23,000 Distribution
Pennsylvania
Leola............................... 26,000 Distribution
Tennessee
Cooksville.......................... 30,000 Distribution
Texas
Waco................................ 90,000 Distribution
Waco(1)............................. 135,000 Manufacturing
</TABLE>
- --------
* Company owned facility.
(1) Sunbelt facility.
HISTORY
The Company's operations have historically been conducted through a Texas
corporation that was incorporated in 1975 (the "Operating Company") as the
successor to a business founded in 1964. The Operating Company, which is
currently named Kevco Texas, Inc., will be renamed Kevco Delaware, Inc. and
reincorporated by merger in Delaware prior to the consummation of this
offering. Also, prior to the consummation of this offering (i) the
shareholders of the Operating Company will exchange each of their outstanding
shares of the common stock of the Operating Company for one share of the
Common Stock of a new Texas corporation (the "Holding Company"), which was
incorporated in August 1996 (the registrant in this offering) and which will
be the parent holding company of the Operating Company and the Operating
Company's wholly-owned Delaware subsidiary, Sunbelt Wood Components, Inc.,
(ii) the Holding Company will adopt and assume the Operating Company's stock
option plans and assume the obligations under the outstanding options
thereunder and (iii) the Holding Company will guarantee the Operating
Company's obligations under the Operating Company's term loan and revolving
credit facility. In June 1995, the Operating Company acquired Service Supply
and its subsidiaries in a merger transaction. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisition of
Service Supply." Sunbelt will engage primarily in the wood products
manufacturing business previously conducted by Service Supply. Unless the
context otherwise requires, "Kevco" and the "Company" refer to the Holding
Company, its subsidiaries, Kevco Delaware, Inc. (as successor to the Operating
Company) and Sunbelt, and such references and this Prospectus as a whole
assume the consummation of the restructuring transactions described above.
29
<PAGE>
COMPETITION
The building products wholesale distribution industry is highly competitive.
Numerous companies, both public and private, are in direct competition with
the Company and many of those competitors have longer operating histories and
greater financial and other resources than the Company. The Company believes
its prices, wide array of products and ability to deliver on short notice are
competitive.
The Company believes that its business strategy has permitted it to compete
effectively in its marketing areas. While price is an important competitive
factor in the Company's business, the Company believes that its sales are
principally dependent upon its service, technical expertise, reputation and
experience. The Company's principal competitive strengths include (i) quality
assurance, service and installation support, (ii) a wide array of products and
product availability due to the Company's ability to attract major product
manufacturers and (iii) the prompt and reliable delivery of products to
customers.
Certain product manufacturers sell and distribute their products directly to
producers of manufactured homes and RVs. However, the Company believes that,
for most product manufacturers, providing the same level of service and
offering the same delivery responsiveness as Kevco is not cost-effective.
EMPLOYEES
As of June 30, 1996, the Company employed 605 persons. The Company is a
party to one collective bargaining agreement, which covered, as of June 30,
1996, 12 employees at one of the Company's facilities in Elkhart, Indiana. The
Company has not experienced any work stoppages as a result of labor disputes
and the Company considers its employee relations to be good.
LITIGATION
The Company is, and may be in the future, party to litigation arising in the
course of its business. While the Company has no reason to believe that any
pending claims are material, there can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities arising out of
such claims or that any such claims will be covered by the Company's
insurance. Any material claim that is not covered by insurance may have an
adverse effect on the Company's business. Claims against the Company,
regardless of their merit or outcome, may also have an adverse effect on the
Company's reputation and business.
REGULATION
The Company's suppliers and customers are subject to a variety of federal,
state and local laws and regulations. The National Manufactured Housing
Construction and Safety Standards Act of 1974 and regulations promulgated
thereunder by HUD impose comprehensive national construction standards for
manufactured homes and preempt conflicting state and local regulations. HUD
has adopted regulations that divide the United States into three "Wind Zones"
and impose more stringent construction standards for homes to be sold in areas
designated as Wind Zones II or III. These regulations have resulted in higher
manufacturing and dealer costs. The Company cannot predict if additional
regulations will be adopted or the effect any such regulations would have on
the Company. To the extent regulations make manufactured housing less
competitive with other housing alternatives, the Company's operations could be
negatively impacted.
30
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the Company's
directors, certain officers, certain key employees and nominees. Each person
nominated (as indicated below) as a director or officer has agreed to become a
director or officer of the Company upon the consummation of this offering.
Inclusion in this list as an officer or officer nominee is not intended to act
as an admission that such individual is or will become subject to Section 16
under the Exchange Act.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Jerry E. Kimmel...... 59 Chairman of the Board, President, Chief Executive
Officer, Treasurer and Secretary
Clyde A. Reed, Jr. .. 61 Executive Vice President, Chief Operating Officer
and Director*
Ellis L. McKinley, 44 Vice President, Chief Financial Officer, Treasurer*
Jr. ................ and Director*
Richard S. Tucker.... 52 Secretary* and Director
Martin C. Bowen...... 53 Director*
Richard Nevins....... 49 Director*
C. Lee Denham........ 48 Vice President, Sunbelt
Don R. Felten........ 41 Vice President, Western Region
Dan R. Hardin........ 37 Vice President of Sales, Service Supply division
C. Monroe Hunt....... 52 President, Service Supply division
Gregory G. Kimmel.... 28 Vice President
Tom G. Parish........ 47 President, IDC Limited division
Mark J. Walker....... 40 Vice President, Purchasing
</TABLE>
- --------
* Nominee
Jerry E. Kimmel is a founder of the Company and has spent his entire career
in this industry. Mr. Kimmel has served as President of Kevco since 1978 and
has served as Chairman of the Board and Chief Executive Officer of the Company
since 1993. In 1992, Mr. Kimmel was inducted into the MH/RV Hall of Fame.
Mr. Kimmel served as the Chairman of the Board of Governors of the
Manufactured Housing Institute ("MHI"), a leading manufactured housing trade
group, in 1983 and 1984, and has served in various other MHI board capacities.
Clyde A. Reed joined the Company in 1965 and has served as Executive Vice
President since 1986 and Chief Operating Officer since 1991. From 1978 to
1986, Mr. Reed served as Vice President of the Company. Mr. Reed will become a
director of the Company upon consummation of this offering.
Ellis L. McKinley, Jr. joined the Company in 1995 as Vice President and
Chief Financial Officer. Mr. McKinley will become a director and the Treasurer
of the Company upon consummation of this offering. From 1994 to 1995, Mr.
McKinley was Vice President of Finance, Chief Financial Officer, Secretary and
Treasurer of Renters Choice, Inc. From 1976 until 1994, Mr. McKinley was
employed with Grant Thornton, a public accounting firm in Dallas, Texas, where
he served as an audit partner from 1987 through 1994. Mr. McKinley received
his B.B.A. in Accounting from the University of Texas in 1976.
Richard S. Tucker has been a director of the Company since 1976 and an
assistant secretary of the Company since 1988. Since 1995, Mr. Tucker has been
a partner in the law firm of Jackson & Walker, L.L.P., the Company's outside
legal counsel. From 1984 to 1995, Mr. Tucker was a member of the law firm of
Simon, Anisman, Doby, & Wilson, a Professional Corporation, located in Fort
Worth, Texas. Mr. Tucker received his
31
<PAGE>
B.B.A. in Accounting from the University of Texas in 1966 and his J.D. from
Southern Methodist University School of Law in 1969.
Martin C. Bowen will become a director of the Company upon consummation of
this offering. Mr. Bowen has served as President and Chief Executive Officer
of Performing Arts Fort Worth, Inc. since 1993, Vice President of Fine Line,
Inc. since January 1996 and as a director of Aztec Manufacturing Company since
November 1993. From 1989 to 1992 he was Chairman of the Fort Worth Region for
Team Bank. From 1987 to 1989, Mr. Bowen served as Chairman & CEO of Texas
American Bank/Houston. From 1985 to 1987 he served as Executive Vice President
of Texas American Bank/Fort Worth. Mr. Bowen received his B.B.A. in Finance
from Texas A&M University in 1964 and his Bachelor of Foreign Trade degree
from the American Institute of Foreign Trade, Phoenix, Arizona, in 1968.
Additionally, he received his J.D. from Baylor University School of Law in
1973.
Richard Nevins will become a director of the Company upon consummation of
this offering. Since 1992, Mr. Nevins has served as President of Richard
Nevins & Associates, a financial advisory firm. Mr. Nevins has served as a
director of Fruehauf Trailer Corporation ("Fruehauf") since 1995 and as
Chairman of Fruehauf's executive committee, since August 1996. On October 7,
1996, Fruehauf filed for relief under Chapter 11 of the Bankruptcy Code of the
United States. Together with the other two independent members of the Fruehauf
board, Mr. Nevins resigned his positions with Fruehauf effective October 9,
1996. During 1996, Mr. Nevins has served as acting Chief Operating Officer and
Chief Restructuring Officer for Sun World International, a California
agricultural firm, following the filing of a petition in bankruptcy by Sun
World International. From 1995 to 1996, Mr. Nevins served as a director of
Ampex Corporation and from 1993 to 1995 he served as a director of The Actava
Group (now Metromedia International Group). From 1990 to 1992 he was a
Managing Director of Smith Barney Harris Upham & Co. Mr. Nevins received his
B.A. in Economics from the University of California, Riverside in 1972 and his
M.B.A. from Stanford Graduate School of Business in 1975.
C. Lee Denham will serve as President of Kevco's Sunbelt subsidiary upon
consummation of this offering. Mr. Denham has served as Vice President of the
Sunbelt Wood Components division of Kevco since 1995. Mr. Denham was division
manager of Sunbelt Wood Components from 1991 to 1995. From 1981 to 1991,
Mr. Denham was President of Sunbelt Wood Components. From 1970 until founding
Sunbelt Wood Components in 1981, Mr. Denham was employed by Universal Forest
Products, Inc. Mr. Denham received his B.B.A. in Marketing from the University
of Georgia in 1970.
Don R. Felten has served as Vice President for Kevco's Western Region since
January 1996. From December 1994 to January 1996, Mr. Felten served as general
manager of the Western Region. From 1983 to December 1994, Mr. Felten served
as a profit center manager for the Company. Mr. Felten has worked in this
industry for 22 years.
Dan R. Hardin will serve as Vice President, Eastern Region upon consummation
of this offering. Mr. Hardin has served as the Vice President of Sales for the
Service Supply division of Kevco since July 1995. From 1991 to 1995, Mr.
Hardin served as National Sales Manager for Service Supply. Mr. Hardin
received his B.B.A. in Personnel Management from the University of Georgia in
1981.
C. Monroe Hunt has served as President of Kevco's Service Supply division
since 1995. From 1986 to 1995, Mr. Hunt served as President and Chief
Executive Officer of Service Supply.
Gregory G. Kimmel joined the Company in 1994 and has served as Vice
President since January 1996. Mr. Kimmel received his B.S. in Education from
McMurry University in 1994. Gregory G. Kimmel is the son of Jerry E. Kimmel,
the Chairman, President and Chief Executive Officer of the Company.
Tom G. Parrish has served as President of the IDC Limited division of Kevco
since August 1996. From 1995 to 1996, Mr. Parrish was President of Champion
Homebuilders, a wholly-owned subsidiary of Champion
32
<PAGE>
Enterprises, Inc. From 1986 to 1995, Mr. Parrish was President of Philips
Products, a division of Philips Industries. Mr. Parrish received his B.S. in
Management from the University of Detroit in 1971.
Mark J. Walker joined the Company in 1995 as Vice President, Purchasing.
From 1993 until joining the Company, Mr. Walker was employed by Builders
Square, a division of KMart Corporation, in the corporate office serving as a
divisional Purchasing Manager. From 1980 to 1993, Mr. Walker was a senior
buyer for the Hechinger Company. Mr. Walker received his B.S. in Psychology
from James Madison University in 1977.
BOARD OF DIRECTORS
Upon consummation of this offering, the Board of Directors of the Company
will be divided into three classes with two directors in each class. The term
of one class will expire at each annual meeting of shareholders of the
Company, commencing in 1997. At each annual meeting of shareholders, directors
of the class the term of which then expires will be elected for three year
terms by the holders of the Common Stock to succeed those directors whose
terms are expiring. The Company's Bylaws require that notice of shareholder
director nominees be given to the Company not less than 120 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders
of the Company (or not later than 10 days following the mailing of notices of
a special meeting at which directors are to be elected), or, with respect to
the first annual meeting of shareholders following this offering, on or before
January 1, 1997.
The Company expects that the Board of Directors will establish an Audit
Committee and a Compensation Committee prior to the consummation of this
offering. The members of each committee are expected to be determined at the
first meeting of the Board of Directors following the consummation of this
offering.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive a fee of $1,000 for attendance at each Board of
Directors meeting and $500 for attendance at each Board committee meeting
(unless held on the same day as a Board of Directors meeting). All directors
of the Company are reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof, and for other out-
of-pocket expenses incurred in their capacity as directors of the Company.
33
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents information regarding the compensation for the
year ended December 31, 1995 awarded to or earned by the chief executive
officer of the Company and all other executive officers of the Company whose
salary and bonus exceeded $100,000 for services rendered in all capacities to
Kevco (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL
COMPENSATION AWARDS
----------------- ------------
SECURITIES
NAME AND PRINCIPAL SALARY BONUS UNDERLYING ALL OTHER
POSITION YEAR ($) ($) OPTIONS COMPENSATION ($)
------------------ ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Jerry E. Kimmel........... 1995 $398,470 $191,530 -- $19,463(1)
Chairman of the Board,
President and Chief
Executive Officer
Clyde A. Reed, Jr. ....... 1995 $179,737 $154,007 7,097 $26,440(2)
Executive Vice President
and Chief Operating
Officer
C. Lee Denham............. 1995 $ 39,000 $154,007 -- $ 4,292(3)
Vice President, Sunbelt
Roger J. Kollat........... 1995 $140,358 $ 81,500 3,548(4) $ 3,535(5)
</TABLE>
- --------
(1) Consists of $12,546, representing personal use of a Company supplied car,
$3,866, representing payments by the Company for medical insurance
premiums and $3,051, representing the Company's contribution to such
individual's 401(k) Plan account.
(2) Consists of $2,491, representing personal use of a Company supplied car,
$20,898, representing expense recognized by the Company in 1995 relating
to future payments to be made under a deferred compensation agreement and
$3,051, representing the Company's contribution to such individual's
401(k) Plan account.
(3) Consists of $1,241, representing personal use of a Company supplied car
and $3,051, representing the Company's contribution to such individual's
401(k) Plan account.
(4) All such options were cancelled upon Mr. Kollat's termination of his
employment with the Company on July 17, 1996.
(5) Consists of $484, representing personal use of a Company supplied car and
$3,051, representing the Company's contribution to such individual's
401(k) Plan account.
34
<PAGE>
OPTION GRANTS DURING 1995
The following table presents information regarding grants of stock options
to purchase shares of Common Stock during the year ended December 31, 1995 for
each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
------------------------------------------------ RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE EXPIRATION ------------------- -------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerry E. Kimmel......... -- -- -- -- -- --
Clyde A. Reed, Jr. ..... 7,097(2) 14.8% $5.64(3) 6/19/04 $ 22,068 $ 54,355
C. Lee Denham........... -- -- -- -- -- --
Roger J. Kollat......... 3,548(4) 7.4% $5.64(3) 6/19/04(4) $ 11,032 $ 27,174
</TABLE>
- --------
(1) The dollar amounts in these columns represent potential value that might
be realized upon exercise of the options immediately prior to the
expiration of their term, assuming that the market price of the Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by regulation, and therefore are not intended to forecast
possible future appreciation, if any, of the price of the Common Stock.
(2) Options become exercisable upon consummation of this offering.
(3) The option exercise price may, in some cases, be paid in shares of Common
Stock owned by the executive officer or received upon exercise of such
option. The exercise price of each option was equal to the fair market
value of the Common Stock on the date of grant, as determined by the Board
of Directors.
(4) All such options were cancelled upon Mr. Kollat's termination of his
employment with the Company on July 17, 1996.
AGGREGATE 1995 YEAR END OPTION VALUES
The following table presents information regarding the value of stock
options outstanding at December 31, 1995 held by each of the Named Executive
Officers. No stock options were exercised by the Named Executive Officers in
1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jerry E. Kimmel............. -- -- -- --
Clyde A. Reed, Jr. ......... -- 7,097(2) -- $39,246
C. Lee Denham............... -- -- -- --
Roger J. Kollat............. -- 3,548(3) -- 19,620(3)
</TABLE>
- --------
(1) On December 31, 1995, the fair market value of the Company's Common Stock,
as determined by the Board of Directors, was approximately $11.17 per
share. The value shown is calculated on the basis of the difference
between the option exercise price and $11.17, multiplied by the number of
shares of Common Stock underlying the option.
(2) Options become exercisable upon consummation of this offering.
(3) All such options were cancelled upon Mr. Kollat's termination of his
employment with the Company on July 17, 1996.
35
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Kimmel has entered into a five year employment agreement with Kevco
providing for an annual base salary of $250,000. In addition to base salary,
beginning in 1997, Mr. Kimmel, through his employment agreement, is eligible
for an annual bonus equal to 2.4% of the Company's income before income taxes
for the year provided that income before income taxes is at least $5.0
million. Such salary and bonus are subject to increase, but not decrease, by
the Company. Increases in Mr. Kimmel's compensation will be reviewed annually
by the Company's Compensation Committee in a manner so as to qualify under the
performance based compensation provisions of the Internal Revenue Code. Under
the agreement, Mr. Kimmel has agreed to perform services on behalf of the
Company and its subsidiaries in Fort Worth, Texas as he reasonably determines
are necessary to carry out his duties under the agreement. Mr. Kimmel, his
spouse and dependents are, until the death of the survivor of Mr. Kimmel and
his spouse, entitled to participate at Kevco's expense in health programs
offered to Company employees generally or, if insurance coverage is not
available, to have their health care costs reimbursed by the Company. Upon the
death of Mr. Kimmel, the Company must continue to pay his base salary for the
remainder of the then existing agreement term. The agreement can be terminated
by the Company only for cause (as defined in such agreement). The employment
agreement, which will be guaranteed by the subsidiaries of the Company, is
automatically extended for an additional year at the end of each year's
service.
Effective June 30, 1995, Mr. Denham entered into a two-year employment
agreement with Kevco providing for an annual base salary of $78,000. In
addition to base salary, Mr. Denham is eligible to participate in a bonus
pool, which pool during the term of the agreement will not exceed, in the
aggregate, $1.0 million. Mr. Denham's portion of such pool is determined by
the Company's Board of Directors. Mr. Denham's agreement is automatically
extended each year for an additional year if not terminated sixty days prior
to its then current term.
Effective May 24, 1977, Mr. Reed entered into a retirement agreement with
the Company that generally provides that the Company will pay Mr. Reed or his
beneficiaries $35,000 per year for 10 years if Mr. Reed is employed with the
Company at age 65 or upon death or disability. Such agreement also provides
for a smaller lump sum payment that the Company will make upon Mr. Reed's
termination of employment prior to age 65, death or disability. Such lesser
amount equals approximately $7,000 for each year following the effective date
of the agreement, up to such termination.
STOCK OPTION PLANS
In 1995, the Board of Directors adopted, and the stockholders of the Company
approved, the 1995 Stock Option Plan (the "1995 Plan"), which was amended and
restated on August 30, 1996. The purpose of the 1995 Plan is to provide
employees and directors of the Company and its subsidiaries with additional
incentives by increasing their proprietary interest in the Company. The
aggregate number of shares of Common Stock with respect to which options may
be granted under the 1995 Plan may not exceed 258,500 shares; however,
cancelled options become available for later regrant.
The 1995 Plan provides for the grant of incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended and
nonqualified stock options (collectively, "Awards"). Following the
consummation of this offering, the 1995 Plan will be administered by the
Compensation Committee of the Board of Directors, which will be comprised of
not less than two members of the Board of Directors (the "Committee"). Prior
to the consummation of this offering, the 1995 Plan had been administered by
the Company's full Board of Directors. The Committee has, subject to the terms
of the 1995 Plan, the sole authority to grant Awards under the 1995 Plan, to
construe and interpret the 1995 Plan and to make all other determinations and
take any and all actions necessary or advisable for the administration of the
1995 Plan.
All of the Company's full-time, salaried employees and members of the Board
of Directors are eligible to receive Awards under the 1995 Plan. Options will
be exercisable during the period specified in each option agreement and will
generally be exercisable in installments pursuant to a vesting schedule to be
designated by the Committee. Options granted under the 1995 Plan may be
exercised by the payment of cash (including cash
36
<PAGE>
loaned to the optionee by the Company for the purpose of such exercise) and
shares of Common Stock (including shares to be issued upon the exercise of
such options). The provisions of option agreements may provide for the
acceleration of the exercisability in the event of certain events including
certain reorganizations and changes in control of the Company. No option will
remain exercisable later than ten years after the date of grant. The exercise
prices for ISOs granted under the 1995 Plan may be no less than the fair
market value of the Common Stock on the date of grant. The exercise prices of
nonqualified stock options are set by the Committee.
In December 1995, the Board of Directors adopted the 1996 Stock Option Plan
(the "1996 Plan"). The 1996 Plan has generally the same terms (including
eligibility and administration terms) as the 1995 Plan, except that only
nonqualified stock options may be granted under the 1996 Plan and no option
granted under the 1996 Plan will remain exercisable later than seven years
after the date of grant. The options currently outstanding under the 1995 Plan
and the 1996 Plan become immediately exercisable upon consummation of this
offering. On August 30, 1996, the Board of Directors of the Company terminated
the 1996 Plan as it relates to future option grants.
There are no federal income tax consequences upon the grant of an option
under the 1995 Plan or the 1996 Plan. Upon exercise of a nonqualified option,
the optionee generally will recognize ordinary income in the amount equal to
the difference between the fair market value of the option shares at the time
of exercise and the exercise price, and the Company is generally entitled to a
corresponding tax deduction. When an optionee sells shares issued upon the
exercise of a nonqualified stock option, the optionee realizes short-term or
long-term capital gain or loss, depending on the length of the holding period,
but the Company is not entitled to any tax deduction in connection with such
sale.
An optionee will not be subject to federal income taxation upon the exercise
of ISOs granted under the 1995 Plan, and the Company will not be entitled to a
federal income tax deduction by reason of such exercise. A sale of shares of
Common Stock acquired upon exercise of an ISO that does not occur within one
year after the exercise or within two years after the grant of the option
generally will result in the recognition of long-term capital gain or loss by
the optionee in the amount of the difference between the amount realized on
the sale and the exercise price, and the Company is not entitled to any tax
deduction in connection therewith. If a sale of shares of Common Stock
acquired upon exercise of an ISO occurs within one year from the date of
exercise of the option or within two years from the date of the option grant
(a "disqualifying disposition"), the optionee generally will recognize
ordinary income equal to the lesser of (i) the excess of the fair market value
of the shares on the date of exercise of the options over the exercise price
or (ii) the excess of the amount realized on the sale of the shares over the
exercise price. Any amount realized on a disqualifying disposition in excess
of the amount treated as ordinary income will be long-term or short-term
capital gain, depending upon the length of time the shares were held. The
Company generally will be entitled to a tax deduction on a disqualifying
disposition corresponding to the ordinary income recognized by the optionee.
The Company anticipates that upon the consummation of this offering it will
have (i) outstanding options to purchase a total of approximately 44,306
shares of Common Stock under the 1995 Plan and 374,120 under the 1996 Plan,
all of which will be immediately exercisable, (ii) options to purchase 214,194
additional shares available for grant under the 1995 Plan and (iii) no
additional options issuable under the 1996 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the Company has not had a Compensation Committee and
executive compensation has been set by the Company's Board of Directors. Jerry
E. Kimmel is Chairman of the Board of Directors.
PRIOR S CORPORATION STATUS AND DISTRIBUTIONS TO SHAREHOLDERS
In 1986, the Company elected to be treated as an S corporation under
Subchapter S of the Internal Revenue Code and comparable provisions of various
state income tax laws for the years beginning after December 31, 1986. As a
result, earnings prior to the termination of the Company's S corporation
status are taxed for federal
37
<PAGE>
and certain state income tax purposes directly to the shareholders of the
Company. Since its election to be treated as an S corporation, the Company has
made cash distributions to its shareholders in amounts at least equal to their
federal and state income tax liabilities attributable to the Company's
earnings. Such distributions have generally been made on a quarterly basis as
needed to satisfy such tax liabilities. The Company made aggregate cash
distributions to its shareholders of approximately $2.0 million, $4.0 million
and $4.7 million in 1993, 1994 and 1995, respectively, the amounts of which
that were distributed to Jerry E. Kimmel, the Chairman of the Board, President
and Chief Executive Officer of the Company, were approximately $1.4 million,
$3.6 million and $4.2 million, respectively. The Company has made or declared
aggregate cash distributions to its shareholders of approximately $5.8 million
with respect to the six months ended June 30, 1996, of which approximately
$4.7 million was, and approximately $257,000 will be, distributed to Mr.
Kimmel. On June 30, 1996, the Company also distributed to its shareholders a
note payable to the Company. See "--Certain Business Relationships."
Immediately prior to the consummation of this offering, the Company will
declare and make the S Corporation Distribution, consisting of the Prior S
Corporation Earnings Note in the principal amount of approximately $3.7
million and the Future S Corporation Earnings Note. Mr. Kimmel will receive
approximately 85.5% of such distribution.
The Company will enter into an agreement with each of its shareholders of
record immediately prior to the consummation of this offering (including Mr.
Kimmel) pursuant to which the Company agrees to distribute to such
shareholders an amount equal to certain earnings of the Company as provided in
the agreement and as finally determined for tax purposes for the period
January 1, 1995 through the date immediately preceding the consummation of
this offering, to the extent such earnings exceed the earnings for such period
as theretofore reported by the Company. In addition, the Company will agree to
indemnify such shareholders for any penalties and interest attributable to any
additional income taxes they incur as a result of being taxed on such
additional earnings, as well as for related costs and expenses incurred.
The Company is a plaintiff in a pending lawsuit involving a disability
insurance policy on a former shareholder of the Company. The Company has
heretofore distributed to its shareholders of record immediately prior to the
consummation of the offering (including Mr. Kimmel) all claims and any future
awards in this lawsuit other than the contractual claims and awards relating
to this policy.
CERTAIN BUSINESS RELATIONSHIPS
The Company leases three of its warehouse locations from two affiliated
partnerships (K&E Land & Leasing, a Texas general partnership of which Mr.
Kimmel is a managing partner, and 1741 Conant Partnership, a Texas general
partnership of which K&E Land & Leasing is the managing general partner). The
Company also leases computer equipment from K&E Land & Leasing. These leases
(i) expire in November 2003, April 2005, October 2007 and October 2003,
respectively, (ii) provide for total future base rent payments of
approximately $907,000, $778,000, $2.5 million and $1.5 million, respectively,
and (iii) require payments to be made in equal monthly amounts. Mr. Kimmel's
indirect interest in such leases is 38.0%, 38.0%, 25.3% and 38.0%,
respectively. Mr. Kimmel's immediate family members (including a trust for the
benefit of one such family member) own indirect interests in such leases of
12.0%, 12.0%, 8.0% and 12.0%, respectively. Aggregate expenditures by the
Company under such leases in 1993, 1994 and 1995 were approximately $656,000,
$672,000 and $672,000, respectively, of which approximately $220,000, $226,000
and $226,000 were indirectly attributable to Mr. Kimmel's interests in such
partnerships (excluding immediate family members' interests). It is
anticipated that aggregate expenditures by the Company under such leases for
the remainder of their terms will be approximately $5.7 million, of which
approximately $1.9 million will be indirectly payable (less partnership
expenses) to Mr. Kimmel (excluding immediate family members' interests). With
respect to the premises leased from 1741 Conant Partnership, the Company has
agreed to perform the obligations of the partnership contained in the
mortgage. The Company believes that the amounts it has paid under such leases
have not been less favorable to the Company than had the leases been
negotiated on an arms-length basis. The Company has
38
<PAGE>
amended the terms of such leases so that their terms are no less favorable to
the Company than had the leases been negotiated on an arms-length basis. Two of
the leased warehouses were financed through economic development and industrial
revenue bonds; one series of which was issued by Newton, Kansas in the original
principal amount of $575,000, and with respect to which the Company is the sub-
lessee of the premises and a co-guarantor, and one series of which was issued
by Elkhart, Indiana in the original principal amount of $400,000, and with
respect to which the Company is the lessee of the premises and has agreed to
perform the obligations of the lessor contained in the mortgage.
Prior to October 26, 1993, Billy T. Everett owned 50% of the then outstanding
common stock of the Company and served as Chairman of the Board of the Company.
Effective October 26, 1993, the Company repurchased 13% of Mr. Everett's Common
Stock holdings in exchange for the issuance of a promissory note in the
original principal amount of $747,500 and bearing interest at a floating rate,
which was 6% per annum on the date of the note; such note was retired in 1994.
Also effective October 26, 1993, Mr. Kimmel purchased Mr. Everett's remaining
Common Stock holdings in exchange for approximately $5.0 million cash and, in
order to facilitate such purchase, the Company loaned Mr. Kimmel $5.0 million.
The loan is payable in monthly principal installments of $62,500 plus interest
at 9% per annum as of December 31, 1995 with the final installment due in
November 1997. As of June 30, 1996, $3.1 million remained outstanding under
such loan, and effective as of such date the note evidencing this loan was
distributed to Kevco's shareholders.
39
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of Common Stock as of August 30, 1996 by (i) all persons known to
Kevco to be the beneficial owner of 5% or more of the Common Stock, (ii) each
director and director nominee of Kevco, (iii) each of the Named Executive
Officers and (iv) all Kevco directors and executive officers as a group. All
persons listed have sole voting and investment power with respect to their
shares.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
AMOUNT AND NATURE -----------------
NAME OF BENEFICIAL
OWNER OR NUMBER OF OF BENEFICIAL BEFORE AFTER
PERSONS IN GROUP OWNERSHIP OFFERING OFFERING
------------------ ----------------- -------- --------
<S> <C> <C> <C>
Jerry E. Kimmel(1)......................... 3,759,196(2) 85.5% 57.9%
Clyde A. Reed, Jr. ........................ 28,515(3) * *
Ellis L. McKinley, Jr ..................... 16,450(4) * *
Richard S. Tucker.......................... 0 * *
Martin C. Bowen............................ 0 * *
Richard Nevins............................. 0 * *
C. Lee Denham.............................. 9,400(5) * *
Roger J. Kollat(6)......................... 0 * *
All directors and executive officers as a
group (5 persons)......................... 3,813,561(7) 85.9% 58.3%
</TABLE>
- --------
* Less than 1%
(1) The address of Mr. Kimmel is University Centre I, 1300 S. University
Drive, Suite 200, Fort Worth, Texas 76107.
(2) Excludes 625,636 shares of outstanding Common Stock and 15,299 shares of
Common Stock issuable upon exercise of options beneficially owned by Mr.
Kimmel's adult children and his brother. Mr. Kimmel disclaims beneficial
ownership of such shares.
(3) Includes options to acquire 18,847 shares of Common Stock that will be
exercisable upon consummation of this offering.
(4) Consists of options to acquire 16,450 shares of Common Stock that will be
exercisable upon consummation of this offering.
(5) Consists of options to acquire 9,400 shares of Common Stock that will be
exercisable upon consummation of this offering.
(6) Mr. Kollat is no longer an employee of the Company.
(7) Includes options to acquire 44,697 shares of Common Stock that will be
exercisable upon consummation of this offering.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of August 30, 1996, the authorized capital stock of the Company consisted
of 100,000,000 shares of Common Stock, par value $.01 per share, and there
were 4,394,500 shares of Common Stock outstanding held by six shareholders of
record.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share in the
election of directors and for all other purposes. There are no cumulative
voting or preemptive rights applicable to any shares of Common Stock. Under
the terms of the Company's Articles of Incorporation, directors are elected by
a plurality of the votes cast at a meeting of shareholders at which a quorum
is present. Matters for which the affirmative vote of a specified portion of
shares entitled to vote is specified by the Texas Business Corporation Act
(the "TBCA"), are determined by the affirmative vote of the holders of at
least a majority of the shares entitled to vote on the matter. Certain matters
relating to business combinations with Affiliated Shareholders (as defined
below) are determined by the affirmative vote of two-thirds of the shares of
Common Stock issued and outstanding (excluding such Affiliated Shareholder's
shares). See "--Certain Anti-Takeover Provisions." All other matters are
determined by the affirmative vote of at least a majority of the shares
entitled to vote on, and voted for or against, such matter. All shares of
Common Stock are entitled to participate pro rata in such distributions and
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Notwithstanding the foregoing, purchasers of shares of
Common Stock in this offering will not be entitled to receive any portion of
the S Corporation Distribution. Subject to the prior rights of creditors, all
shares of Common Stock are entitled in the event of liquidation to participate
ratably in the distribution of all the remaining assets of the Company. The
outstanding shares of Common Stock are, and the shares offered hereby will be
upon issuance and sale as described herein, fully paid and nonassessable.
LIMITATIONS ON DIRECTOR LIABILITY; INDEMNIFICATION
The Company's Articles of Incorporation provide that, to the fullest extent
permitted by Texas law, no director shall be liable to the Company or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director. By virtue of these provisions, a director of the
Company is not personally liable for monetary damages for a breach of such
director's fiduciary duty except for liability for (i) breach of the duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith that constitute a breach of duty of the director or that involve
intentional misconduct or a knowing violation of law, (iii) any transaction
from which such director receives an improper benefit and (vi) an act or
omission for which the liability of a director is expressly provided by an
applicable statute. In addition, the Company's Articles of Incorporation
provide that if the TBCA is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of the directors
will be eliminated or limited to the fullest extent permitted by the TBCA, as
amended. In addition, such Articles and the Bylaws of the Company provide that
the Company will indemnify and advance expenses to, to the fullest extent
permissible, persons named or threatened to be named in a proceeding resulting
from their status as a director or officer of the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation prohibit the Company from entering
into a broad range of business combinations with a person, or an affiliate or
associate of such person, who is an "Affiliated Shareholder," for the three
year period immediately following the date that such person became an
Affiliated Shareholder, unless (i) approved by the Board of Directors of the
Company prior to such person becoming an Affiliated Shareholder or (ii)
approved by two-thirds of the Company's Common Stock issued and outstanding
(excluding the shares of Common Stock Beneficially Owned (as defined generally
to include shares that the Affiliated Shareholder, with its affiliates and
associates, owns or has the right to acquire or vote) by the Affiliated
Shareholder) at a meeting of shareholders of the Company called for such
purpose not less than six months after such person became an Affiliated
Shareholder. Such provisions generally do not apply to persons that
continuously Beneficially Owned
41
<PAGE>
20% or more of the outstanding shares of Common Stock of the Company (i)
immediately prior to the consummation of this offering or (ii) upon receipt of
shares of Common Stock by will or intestate succession, and through the
announcement date of such business combination. The Company's Bylaws provide
for a classified Board of Directors and require that notice of shareholder
director nominees be given to the Company not less than 120 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders
of the Company (or not later than 10 days following the mailing of notices of
a special meeting in which directors are to be elected), or with respect to
the first annual meeting of shareholders following this offering, on or before
January 1, 1997. The Company's Bylaws further provide that notice of
shareholder proposals must be given to the Company not less than 120 days
prior to the anniversary date of the immediately preceding annual meeting of
shareholders of the Company, or, with respect to the first annual meeting of
shareholders following this offering, on or before January 1, 1997. These
provisions may inhibit a change of control of the Company.
The Company's Articles of Incorporation and Bylaws provide that a special
meeting of the shareholders of the Company may be called by the holders of at
least 40% of all shares entitled to vote at the proposed special meeting. The
Articles of Incorporation also provide that the power to amend the Bylaws is
reserved exclusively to the Board of Directors. These provisions may also
inhibit a change of control of the Company.
Upon consummation of this offering, Jerry E. Kimmel, the President, Chairman
of the Board and Chief Executive Officer of the Company, will own
approximately 57.9% of the outstanding Common Stock of the Company. As a
result, Mr. Kimmel will be able to control the management and policies of the
Company through the ability to determine the outcome of elections for the
Company's Board of Directors and other matters requiring the vote or consent
of shareholders of the Company. In addition, Mr. Kimmel has entered into a
rolling five year employment agreement with the Company and its subsidiaries
that can be terminated by the Company only for cause (as defined in such
agreement). These matters may also inhibit a change of control of the Company.
See "Principal Shareholders" and "Management--Employment Agreements."
TRANSFER AGENT AND REGISTRAR
Upon consummation of the offering, the transfer agent and registrar for the
Common Stock will be ChaseMellon Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
6,494,500 shares of Common Stock (6,809,500 if the Underwriters' over-
allotment option is exercised in full), of which the 2,100,000 shares sold in
this offering (2,415,000 if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, except for those held by "affiliates"
(as defined in the Securities Act) of the Company, which shares will be
subject to the resale limitations of Rule 144 under the Securities Act. The
remaining 4,394,500 shares of outstanding Common Stock are deemed "restricted
securities" under Rule 144 in that they were originally issued and sold by the
Company in private transactions in reliance upon exemptions under the
Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.
In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of restricted securities from the
issuer or from an "affiliate" of the issuer, as that term is defined under the
Securities Act, the acquirer or subsequent holder would be entitled to sell
within any three-month period a number of those shares that does not exceed
the greater of one percent of the number of shares of such class of stock then
outstanding or the average weekly trading volume of the shares of such class
of stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public
42
<PAGE>
information about the issuer. In addition, if three years have elapsed since
the later of the date of acquisition of restricted securities from the issuer
or from an affiliate of the issuer, and the acquirer or subsequent holder
thereof is deemed not to have been an affiliate of the issuer of such
restricted securities at any time during the 90 days preceding such sale, such
person would be entitled to sell such restricted securities under Rule 144(k)
without regard to the restrictions described above.
As of August 1, 1996, options to purchase an aggregate of 418,426 shares of
Common Stock were outstanding under the Company's 1995 Plan and 1996 Plan (all
of which will become immediately exercisable upon consummation of this
offering), and options to purchase an additional 214,194 shares were available
for grant under the 1995 Plan. See "Management--Stock Option Plans." In
general, pursuant to Rule 701 under the Securities Act, any employee, officer
or director of, or consultant to, the Company who purchased his or her shares
pursuant to a written compensatory benefit plan or contract is entitled to
rely on the resale provisions of Rule 701, which permit non-affiliates to sell
such shares without compliance with the public information, holding period,
volume limitation or notice provisions of Rule 144, and permit affiliates to
sell such shares without compliance with the holding period provisions of Rule
144, in each case commencing 90 days after the date of this Prospectus. A
total of 418,426 shares of Common Stock will be eligible for resale pursuant
to Rule 701 (upon exercise of options) 90 days following the date of this
Prospectus. In addition, the Company may elect to file a registration
statement covering the 214,194 additional shares issuable upon exercise of
stock options that may be granted in the future under the 1995 Plan, in which
case such shares of Common Stock generally will be freely tradable by non-
affiliates in the public market without restriction under the Securities Act.
The Company, its executive officers and directors and certain other
shareholders have agreed that for a period of 180 days after the date of this
Prospectus, they will not offer, sell or otherwise dispose of any shares of
Common Stock beneficially owned or controlled by them (including subsequently
acquired shares) without the prior written consent of Rauscher Pierce Refsnes,
Inc. on behalf of the Underwriters (subject to certain limited exceptions and
the Company's right to issue shares of Common Stock upon the exercise of stock
options granted under its existing stock option plans).
Prior to this offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time
after the offering. The Company is unable to estimate the number of shares
that may be sold in the public market under Rule 144, or otherwise, because
such amount will depend on the trading volume in, and market price for, the
Common Stock and other factors. Nevertheless, sales of substantial amounts of
shares of Common Stock in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock of
the Company. See "Underwriting."
43
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Rauscher Pierce Refsnes, Inc.
and Oppenheimer & Co., Inc. (the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock set forth opposite their
names below. The nature of the obligations of the Underwriters is such that,
if any of such shares are purchased, all must be purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Rauscher Pierce Refsnes, Inc. ....................................
Oppenheimer & Co., Inc. ..........................................
---------
Total........................................................... 2,100,000
=========
</TABLE>
The Underwriters propose initially to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover
page of this Prospectus. The Underwriters may allow a concession to selected
dealers who are members of the National Association of Securities Dealers,
Inc. ("NASD") not in excess of $ per share, and the Underwriters may allow,
and such dealers may reallow, to members of the NASD a concession not in
excess of $ per share. After this offering, the price to public, the
concession and the reallowance may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
315,000 shares of Common Stock at the initial price to public, less
underwriting discount, set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only for the purpose of covering any
over-allotments. To the extent that the Underwriters exercise such option,
each Underwriter will be committed, subject to certain conditions, to purchase
that number of the additional shares of Common Stock which is proportionate to
such Underwriter's initial commitment.
Prior to the offering, there has been no market for the Common Stock, and
there can be no assurance that a regular trading market will develop upon the
consummation of the offering. The initial public offering price was determined
by negotiations between the Company and the Representatives. The primary
factors considered by the Representatives in determining such public offering
price included the history of and the prospects for the industry in which the
Company competes, an assessment of the Company's management, its past and
present operations, its past and present earnings and the trend of such
earnings, the general condition of the securities markets at the time of the
offering and the price-earnings multiples and market prices of publicly traded
securities of comparable companies.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company, its executive officers and directors and certain other
shareholders have agreed that for a period of 180 days after the date of this
Prospectus, they will not offer, sell or otherwise dispose of any shares of
Common Stock beneficially owned or controlled by them (including subsequently
acquired shares) without the prior written consent of Rauscher Pierce Refsnes,
Inc. on behalf of the Underwriters.
The Representatives have advised the Company that they do not expect any
sales by the Underwriters to accounts over which they exercise discretionary
authority.
Rauscher Pierce Refsnes, Inc. rendered certain financial advisory services
to the Company in connection with Kevco obtaining its existing credit
facilities in June 1995, and received customary fees therefor. Rauscher Pierce
Refsnes, Inc. may render financial advisory services to Kevco in connection
with potential future acquisitions by the Company, for which it would receive
customary fees.
44
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jackson & Walker, L.L.P., Dallas, Texas. Richard S.
Tucker, a partner in Jackson & Walker, L.L.P., is a director of the Company.
Certain legal matters in connection with the sale of the Common Stock offered
hereby will be passed upon for the Underwriters by Strasburger & Price,
L.L.P., Dallas, Texas.
EXPERTS
The consolidated balance sheet as of December 31, 1995 of Kevco, Inc. and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year ended December 31, 1995 included in this Prospectus have
been included herein in reliance on the report, which includes an explanatory
paragraph regarding a change in accounting method, of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in auditing and accounting. The balance sheet as of December 31, 1994
of Kevco, Inc. and the related statements of income, stockholders' equity, and
cash flows for the years ended December 31, 1994 and 1993 included in this
Prospectus have been included herein in reliance on the report, which includes
an explanatory paragraph regarding a change in accounting method, of Rylander,
Clay & Opitz, L.L.P., independent auditors, given on the authority of that
firm as experts in auditing and accounting. On July 14, 1995, the Company,
with the approval of its Board of Directors, dismissed Rylander, Clay & Opitz,
L.L.P. as the Company's independent auditor. The report of Rylander, Clay &
Opitz, L.L.P. for the periods referred to above did not contain an adverse
opinion, disclaimer of opinion, qualification, or modification as to
certainty, audit scope or accounting principles. There were no disagreements
between the Company and Rylander, Clay & Optiz, L.L.P. in the periods referred
to above or in subsequent periods on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope which, if not
resolved to the satisfaction of Rylander, Clay & Opitz, L.L.P., would have
caused it to make a reference to the subject matter of the disagreements in
connection with its report. On July 15, 1995, the Company engaged Coopers &
Lybrand L.L.P. to act as the Company's principal independent accountants. The
consolidated statements of income and cash flows for the years ended December
31, 1994, 1993, and 1992 of Service Supply Systems, Inc. and Subsidiary
included in this Prospectus have been included herein in reliance on the
report of Rumsey & Huckaby, P.C., independent auditors, given on the authority
of that firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
exhibits, schedules and amendments relating thereto, the "Registration
Statement") with respect to the Common Stock offered hereby. This Prospectus,
filed as part of the Registration Statement, does not contain all the
information included in the Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
document are not necessarily complete, and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. All of these documents may be inspected without charge at the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies can also be obtained from the Commission at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
The Company intends to furnish to its shareholders annual reports containing
audited financial statements, and quarterly reports containing unaudited
summary financial information for the first three quarters of each fiscal year
of the Company.
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
KEVCO, INC.
Report of Independent Accountants.......................................... F-2
Independent Auditor's Report............................................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Income........................................ F-5
Consolidated Statements of Stockholders' Equity.......................... F-6
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-9
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
Report of Independent Auditors............................................. F-18
Consolidated Financial Statements:
Consolidated Statements of Income........................................ F-19
Consolidated Statements of Cash Flows.................................... F-20
Notes to Consolidated Financial Statements............................... F-21
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
Unaudited Pro Forma Consolidated Statements of Income.................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Kevco, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheet of Kevco, Inc.
as of December 31, 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Kevco, Inc. as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As a result of the proposed common stock offering, the Company has applied
push down accounting as more fully described in Note 2, and the consolidated
financial statements have been restated accordingly.
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
April 15, 1996 except for Note 11
as to which the date is August 29, 1996
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Kevco, Inc.
Fort Worth, Texas
We have audited the accompanying balance sheet of Kevco, Inc. (an S-
Corporation) as of December 31, 1994, and the related statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1994 and
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kevco, Inc. as of December
31, 1994, and the results of its operations and its cash flows for the years
ended December 31, 1994 and 1993, in conformity with generally accepted
accounting principles.
As a result of the proposed common stock offering, the Company has applied
push down accounting as more fully described in Note 2, and the financial
statements have been restated accordingly.
/s/ Rylander, Clay & Opitz, L.L.P
Fort Worth, Texas
March 24, 1995
F-3
<PAGE>
KEVCO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, AS ADJUSTED
---------------- JUNE 30, JUNE 30, 1996
1994 1995 1996 (NOTE 13)
------- ------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 627 $ 977 $ 86 $ 86
Trade receivables (less allowance
for doubtful accounts of $160
and $75 in 1995 and 1994,
respectively, and $229 at June
30, 1996)....................... 4,732 14,769 16,443 16,443
Inventories...................... 7,275 18,383 23,668 23,668
Prepaid expenses and other....... 384 343 399 399
------- ------- ------- -------
Total current assets........... 13,018 34,472 40,596 40,596
Property and equipment, net........ 2,142 9,758 10,084 10,084
Intangible assets, net............. 2,026 10,270 9,950 9,950
Other assets....................... 357 459 405 405
------- ------- ------- -------
Total assets................... $17,543 $54,959 $61,035 $61,035
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQ-
UITY
Current liabilities:
Trade accounts payable........... $ 3,903 $11,258 $18,159 $18,159
Accrued liabilities.............. 1,352 3,231 4,101 4,101
Current portion of long-term
debt............................ 3,267 1,057 2,288 6,021
------- ------- ------- -------
Total current liabilities...... 8,522 15,546 24,548 28,281
Long-term debt, less current
portion........................... 3,118 30,206 25,539 25,539
Deferred compensation obligation... 333 361 372 372
------- ------- ------- -------
Total liabilities.............. 11,973 46,113 50,459 54,192
------- ------- ------- -------
Commitments and contingencies (Note
7)
Stockholders' equity:
Common stock, $.01 par value;
100,000 shares authorized; 4,700
shares issued (including 306
shares held in treasury)........ 47 47 47 44
Additional paid-in capital....... 2,837 3,034 3,120 6,799
Loan to stockholder.............. (4,187) (3,437) -- --
Retained earnings................ 7,621 9,950 8,157 --
Treasury stock, 306 shares at
cost............................ (748) (748) (748) --
------- ------- ------- -------
Total stockholders' equity..... 5,570 8,846 10,576 6,843
------- ------- ------- -------
Total liabilities and
stockholders' equity.......... $17,543 $54,959 $61,035 $61,035
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- -----------------------------
1993 1994 1995 1995 1996
------- ------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $80,257 $99,279 $182,519 $ 56,301 $ 135,598
Cost of sales........... 67,087 83,625 155,877 47,649 115,247
------- ------- -------- ------------ -------------
Gross profit........ 13,170 15,654 26,642 8,652 20,351
Commission income....... 1,274 1,066 2,610 512 2,700
------- ------- -------- ------------ -------------
14,444 16,720 29,252 9,164 23,051
Selling, general and
administrative
expenses............... 10,542 11,891 20,839 6,883 14,943
------- ------- -------- ------------ -------------
Operating income.... 3,902 4,829 8,413 2,281 8,108
Other income............ -- 800 -- -- --
Interest income......... 83 346 355 186 141
Interest expense........ (425) (627) (1,692) (346) (1,199)
------- ------- -------- ------------ -------------
Income before income
taxes.............. 3,560 5,348 7,076 2,121 7,050
State income taxes...... -- 51 45 20 25
------- ------- -------- ------------ -------------
Net income.......... $ 3,560 $ 5,297 $ 7,031 $ 2,101 $ 7,025
======= ======= ======== ============ =============
Supplemental information
(unaudited) (Note 13):
Historical income
before income taxes.. $ 7,076 $ 7,050
Income tax expense
adjustments.......... 2,760 2,750
-------- -------------
Supplemental net
income............... $ 4,316 $ 4,300
======== =============
Supplemental earnings
per share............ $ 0.87 $ 0.90
======== =============
Weighted average
shares outstanding... 4,946 4,778
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
------------- ----------------- PAID-IN LOAN TO RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER EARNINGS TOTAL
------ ------ ------- -------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... 4,700 $47 -- -- $ 197 -- $ 4,816 $ 5,060
Net income.............. -- -- -- -- -- -- 3,560 3,560
Distribution to
stockholders........... -- -- -- -- -- -- (2,030) (2,030)
Loan to stockholder..... -- -- -- -- -- $(5,000) -- (5,000)
Collections from
stockholder............ -- -- -- -- -- 63 -- 63
Acquisition by majority
stockholder............ -- -- -- -- 2,640 -- -- 2,640
Purchase of treasury
stock.................. -- -- 306 $ (748) -- -- -- (748)
----- --- ------ -------- ------ ------- ------- -------
Balance at December 31,
1993................... 4,700 47 306 (748) 2,837 (4,937) 6,346 3,545
Net income.............. -- -- -- -- -- -- 5,297 5,297
Distribution to
stockholders........... -- -- -- -- -- -- (4,022) (4,022)
Collections from
stockholder............ -- -- -- -- -- 750 -- 750
----- --- ------ -------- ------ ------- ------- -------
Balance at December 31,
1994................... 4,700 47 306 (748) 2,837 (4,187) 7,621 5,570
Net income.............. -- -- -- -- -- -- 7,031 7,031
Distribution to
stockholders........... -- -- -- -- -- -- (4,702) (4,702)
Collections from
stockholder............ -- -- -- -- -- 750 -- 750
Contributed capital..... -- -- -- -- 197 -- -- 197
----- --- ------ -------- ------ ------- ------- -------
Balance at December 31,
1995................... 4,700 47 306 (748) 3,034 (3,437) 9,950 8,846
Net income (unaudited).. -- -- -- -- -- -- 7,025 7,025
Distribution to
stockholders
(unaudited)............ -- -- -- -- -- -- (5,756) (5,756)
Collections from
stockholder
(unaudited)............ -- -- -- -- -- 375 -- 375
Distribution of loan to
stockholder
(unaudited)............ -- -- -- -- -- 3,062 (3,062) --
Contributed capital
(unaudited)............ -- -- -- -- 86 -- -- 86
----- --- ------ -------- ------ ------- ------- -------
Balance at June 30,
1996................... 4,700 $47 306 $ (748) $3,120 $ -- $ 8,157 $10,576
===== === ====== ======== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- ----------------------------
1993 1994 1995 1995 1996
------- ------- ------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 3,560 $ 5,297 $ 7,031 $ 2,101 $ 7,025
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 309 349 991 208 878
Gain on sale of
assets.............. (9) (11) (16) (6) (3)
Deferred compensation
obligation.......... 2 (7) 28 10 11
Changes in assets and
liabilities, net of
effects from
purchase of Service
Supply Systems,
Inc.:
Trade receivables,
net............... (586) (835) (2,014) (1,663) (1,674)
Inventories........ (1,262) (1,335) (1,127) (1,488) (5,285)
Prepaid expenses
and other......... (31) (9) 71 73 (56)
Trade accounts
payable........... 1,650 (591) 3,650 3,399 6,901
Accrued
liabilities....... 293 218 (166) 64 570
------- ------- ------- ------------ ------------
Net cash provided by
operating
activities.......... 3,926 3,076 8,448 2,698 8,367
------- ------- ------- ------------ ------------
Cash flows from
investing activities:
Purchase of equipment.. (258) (432) (2,844) (262) (884)
Proceeds from sale of
assets................ 9 11 594 7 3
Decrease (increase) in
other assets.......... 377 (47) 180 (51) 54
Purchase of Service
Supply Systems, Inc.,
net of cash acquired.. -- -- (17,449) -- --
Loan origination fees.. -- -- (913) -- --
------- ------- ------- ------------ ------------
Net cash provided
(used) by investing
activities.......... 128 (468) (20,432) (306) (827)
------- ------- ------- ------------ ------------
Cash flows from
financing activities:
Proceeds (payment) of
line of credit, net... -- 2,400 (4,587) 1,000 --
Distributions paid..... (2,030) (4,022) (4,702) (3,880) (5,456)
Payments of long-term
debt.................. (177) (1,578) (1,900) (434) (29,336)
Capital contributions.. -- -- 197 107 86
Proceeds from long-term
debt.................. 3,000 -- 30,700 -- 25,900
Payment of acquired
debt.................. -- -- (8,124) -- --
Long-term loan to
stockholder........... (5,000) -- -- -- --
Collections on loan to
stockholder........... 63 750 750 375 375
------- ------- ------- ------------ ------------
Net cash (used)
provided by
financing
activities.......... (4,144) (2,450) 12,334 (2,832) (8,431)
------- ------- ------- ------------ ------------
Net (decrease) increase
in cash and cash
equivalents............ (90) 158 350 (440) (891)
Beginning cash and cash
equivalents............ 559 469 627 627 977
------- ------- ------- ------------ ------------
Ending cash and cash
equivalents............ $ 469 $ 627 $ 977 $ 187 $ 86
======= ======= ======= ============ ============
Supplemental cash flow
information:
Cash paid during the
period for:
Interest............. $ 404 $ 604 $ 1,471 $ 329 $ 1,192
======= ======= ======= ============ ============
</TABLE>
(Continued)
F-7
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
Supplemental schedule of noncash investing and financing activities:
During 1993, the Company's current majority stockholder purchased all
remaining outstanding shares of common stock for a purchase price of $5,748.
Of this amount, $748 was payable from the Company to the previous stockholder
and represents a non-cash stock for debt transaction. The remaining $5,000 was
paid by the current majority stockholder to the previous stockholder in cash.
This stock purchase transaction resulted in goodwill being recognized in the
amount of $2,026 and a non-cash inventory write-up of $614.
Capital lease obligations of $16 and $162 were incurred when the Company
entered into capital leases for property and equipment in 1994 and 1993,
respectively.
During 1995, the Company purchased all of the capital stock of Service
Supply Systems, Inc. for approximately $17,700. In conjunction with the
acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.......................................... $32,400
Cash paid for the capital stock........................................ 17,700
-------
Liabilities assumed.................................................. $14,700
=======
</TABLE>
Of the $14,700 in liabilities assumed, approximately $8,100 was immediately
paid off with the proceeds from long-term debt.
Non-compete obligations of $544 were incurred when the Company purchased
Service Supply Systems, Inc. and entered into two non-compete agreements which
are being amortized over the life of the agreements.
As of June 30, 1996, the Company had declared distributions to stockholders
of $300 which had not yet been paid.
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS
ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Company Restructuring
Prior to the effective date of the common stock offering (the "Offering"),
Kevco, Inc. (the "Company") will restructure and create an operating company
subsidiary with a subsidiary. Accordingly, these financial statements are
referred to as consolidated financial statements.
Description of Operations
The Company manufactures and distributes products and materials for use by
the manufactured housing and recreational vehicle industries.
Interim Financial Statements
In the opinion of management, the unaudited interim consolidated financial
statements at June 30, 1996 and for the six-month periods ended June 30, 1996
and 1995 include all adjustments, consisting of normal recurring accruals,
necessary to present fairly the Company's consolidated financial position at
June 30, 1996 and the consolidated results of operations and cash flows for
the six-month periods ended June 30, 1996 and 1995. Results for the period
ended June 30, 1996 are not necessarily indicative of the results to be
expected for the entire fiscal year.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, deposits with banks and all highly liquid investments with original
maturities at date of purchase of three months or less. The carrying value of
cash and cash equivalents approximates fair value as of December 31, 1995.
Inventories
Inventories are stated at the lower of cost or market. Inventories purchased
for resale are valued using the last-in, first-out (LIFO) method. Manufactured
inventories are valued using the first-in, first-out (FIFO) method. Had the
first-in, first-out method been used to determine purchased inventory cost,
inventories would have increased by approximately $1,258,000 and $762,000 at
December 31, 1995 and 1994, respectively and $1,258,000 at June 30, 1996. For
the years ended December 31, 1995 and 1994 and the six months ended June 30,
1996, the percentage of inventory valued at LIFO was 81%, 100% and 83%,
respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Additions to and major improvements of property and equipment are capitalized.
Maintenance and repair costs are expensed as incurred. When assets are retired
or otherwise disposed of, their costs and related accumulated depreciation are
removed from the accounts and any resulting gains or losses are included in
the operations for the period.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings.................................................... 40 years
Furniture and equipment...................................... 5 to 10 years
Transportation equipment..................................... 4 to 10 years
Leasehold improvements....................................... 10 years
</TABLE>
F-9
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
Intangible Assets
Non-compete agreements are amortized on a straight-line basis over the terms
of the related agreements (24 to 30 months). Loan origination fees associated
with the acquisition of the Company's term debt and revolving credit facility
have been capitalized and are being amortized on a straight line basis over
five years. The excess of acquisition cost of acquired businesses over the
fair value of net assets acquired ("goodwill") is amortized, using the
straight-line method, over 40 years. The Company reviews goodwill to assess
recoverability periodically. Impairment would be recognized in operating
results if expected future operating undiscounted cash flows of the acquired
business are less than the carrying value of goodwill.
Deferred Compensation Obligation
The Company has entered into deferred compensation agreements with certain
employees, whereby payments will be made upon death or retirement for a ten
year period. The agreements are partially funded by life insurance contracts
and a liability has been recorded at the present value of the anticipated
future payments.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment or the time
of receipt in the case of direct shipments from vendors to customers.
Commissions are recognized as earned.
Income Taxes
The Company's stockholders have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. As a result, there is no provision
for federal income taxes in the accompanying financial statements, as such
taxes are the responsibility of the individual stockholders.
Interest Rate Hedge
The Company entered into an interest rate collar agreement in conjunction
with its primary credit facility to alter interest rate exposure. Amounts
expected to be paid or received on the interest rate collar are recognized as
adjustments to interest expense.
Concentration of Credit Risk
The Company's sales are primarily to the manufactured housing and
recreational vehicle industries across a wide geographical area and the
Company generally requires no collateral from customers. The Company had sales
to two customers representing approximately 12% and 8% of net sales in 1995,
12% and 10% in 1994, and 10% and 8% in 1993.
The Company estimates future credit losses based on continual evaluation of
customers' financial condition, historical loss experience and current
economic conditions. The estimated future credit losses are expensed through
an allowance for doubtful receivables and actual credit losses are charged to
the allowance when incurred.
The Company regularly maintains cash balances at financial institutions in
excess of federally insured limits.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses in the reporting
periods. Actual results could differ from those estimates.
F-10
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. This Statement,
which became effective in 1996, requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. As of June 30, 1996, no such events or
changes in circumstances have occurred which management believes would
indicate that the carrying amount of an asset may not be recoverable.
Management continues to believe that this statement will not have a material
effect on the Company's future financial position, operating results, cash
flow or liquidity.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. This statement requires a determination of the fair value of
stock options at the date of grant for stock options issued after December 15,
1995. This statement permits an entity to continue to apply the accounting
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
but the Company must comply with the disclosure requirements of SFAS No. 123.
The Company has adopted the disclosure method of presentation as allowed under
SFAS No. 123 and such disclosures will be made in the December 31, 1996
consolidated financial statements.
Stock-split
As described in Note 11, on August 29, 1996, the Company effected a .47-for-
1 reverse stock split of its common stock. All share and per share amounts
included in the accompanying financial statements and notes have been restated
to reflect the stock split.
Unaudited Supplemental Net Income
Supplemental net income represents the results of operations adjusted to
reflect a provision for income tax on historical income before income taxes,
which gives effect to the change in the Company's income tax status to a C
corporation prior to the public sale of its common stock. The difference
between the supplemental income tax rates utilized and the federal statutory
rate of 34% relates primarily to state income taxes (5%, net of federal tax
benefit).
Unaudited Supplemental Earnings Per Share
Supplemental earnings per share has been computed by dividing supplemental
net income by the weighted average number of shares of common stock
outstanding during the period.
In accordance with a regulation of the Securities and Exchange Commission,
supplemental earnings per share data have been presented to reflect the effect
of the assumed issuance of that number of shares of common stock that would
generate sufficient cash to pay an S corporation distribution in an amount
equal to previously taxed but undistributed earnings at December 31, 1995 and
June 30, 1996.
Historical net income per common share is not presented because it is not
indicative of the ongoing entity.
Unaudited As Adjusted Balance Sheet
As adjusted balance sheet information as of June 30, 1996 has been presented
to reflect (a) the S corporation distribution of undistributed earnings
previously taxed at the stockholder level, (b) the retirement of the treasury
stock, and (c) the presentation of undistributed retained earnings as
additional paid-in capital. (See Note 13).
F-11
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
2. ACQUISITIONS:
The Company purchased all of the capital stock of Service Supply Systems,
Inc. ("Service Supply") on June 30, 1995 for approximately $17,700,000 and at
that date merged Service Supply with and into the Company. The acquisition was
accounted for as a purchase and, accordingly, the operating results of Service
Supply have been included in the operating results of the Company since June
30, 1995. The acquisition cost in excess of the fair value of net assets of
Service Supply of $7,087,000 has been accounted for as goodwill and will be
amortized over its useful life of 40 years.
The following summary, prepared on a pro forma basis, combines the results
of operations as if Service Supply had been acquired as of the beginning of
each of the two fiscal years presented, after including the impact of
adjustments for amortization of intangibles, income taxes and interest expense
on the acquisition debt (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales......................................... $ 200,189 $ 241,846
Net income........................................ $ 6,042 $ 8,893
Earnings per share................................ $ 1.28 $ 1.80
Weighted average shares outstanding............... 4,733 4,946
</TABLE>
The pro forma information is presented for informational purposes only and
is not necessarily indicative of operating results that would have occurred
had the acquisition been consummated as of the above dates, nor are they
necessarily indicative of future operating results.
Effective October 26, 1993, the Company repurchased 305,500 shares of common
stock from one of its 50% stockholders ("Selling Stockholder") in exchange for
the issuance of a promissory note in the original principal amount of $747,500
and bearing interest at a floating rate, which was 6% per annum on the date of
the note; such note was retired in 1994. Also effective October 26, 1993, the
Company's other 50% stockholder ("Buying Stockholder") purchased Selling
Stockholder's 2,044,500 remaining common shares in exchange for approximately
$5.0 million cash and, in order to facilitate such purchase, the Company
loaned Buying Stockholder $5.0 million. The loan is payable in monthly
principal installments of $62,500 plus interest at 9% per annum as of December
31, 1995 with the final installment due in November 1997. These transactions
resulted in the Company becoming wholly owned by the Buying Stockholder
resulting in a partial change in basis. Accordingly, the previously issued
financial statements have been restated to apply push down accounting as
required by Staff Accounting Bulletin Topic 5-J. The acquisition cost in
excess of the fair value of the net assets acquired has been accounted for as
goodwill and is being amortized over an estimated useful life of 40 years. The
results of operations of the Company would not have been significantly
different had this transaction occurred as of January 1, 1993. As of June 30,
1996, $3.1 million remained outstanding under the loan to the Buying
Stockholder, and effective as of such date, the note evidencing this loan was
distributed to the Company's stockholders.
F-12
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
3. INVENTORIES:
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1994 1995 1996
------ ------- --------
<S> <C> <C> <C>
Raw materials........................................ $ -- $ 2,314 $ 2,591
Work-in-process...................................... -- 303 364
Finished goods....................................... -- 828 1,059
Goods held for resale................................ 7,275 14,938 19,654
------ ------- -------
$7,275 $18,383 $23,668
====== ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Land............................................. $ -- $ 242 $ 242
Buildings........................................ 2,231 4,774 5,123
Furniture and equipment.......................... 2,246 5,213 5,616
Transportation equipment......................... 832 3,232 3,326
Leasehold improvements........................... 412 503 537
------- ------- -------
5,721 13,964 14,844
Less accumulated depreciation.................... (3,579) (4,206) (4,760)
------- ------- -------
Property and equipment, net.................... $ 2,142 $ 9,758 $10,084
======= ======= =======
</TABLE>
Property and equipment under capital leases consists of buildings of
$2,231,000 and furniture and equipment of $640,000 at December 31, 1995 and
1994 and June 30, 1996, and accumulated depreciation of $1,846,000 and
$1,710,000 at December 31, 1995 and 1994, respectively, and $1,914,000 at June
30, 1996. Included in transportation equipment is an aircraft purchased during
1995 with a net book value of $2,050,000 as of December 31, 1995.
5. INTANGIBLE ASSETS:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Goodwill.................................. $2,026 $ 9,113 $9,113
Loan origination fees..................... -- 913 913
Non-compete agreements.................... -- 544 544
------ ------- ------
2,026 10,570 10,570
Less accumulated amortization............. -- (300) (620)
------ ------- ------
Intangible assets, net.................. $2,026 $10,270 $9,950
====== ======= ======
</TABLE>
F-13
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
6. LONG-TERM DEBT:
Long-term debt consists or the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Term debt payable to a bank with interest pay-
able monthly and quarterly principal payments
of $625 commencing on October 1, 1996 until
maturity at June 30, 2001. Interest is paid at
LIBOR rates based on pricing options selected
by the Company plus a margin determined by op-
erating statistics of the Company (7.54% at
December 31, 1995 and 7.31% at June 30,
1996)......................................... $ -- $14,500 $14,500
Revolving credit facility payable to a bank,
due June 30, 1998, with interest payable
monthly. Interest is paid at the bank's prime
rate or LIBOR rates based on pricing options
selected by the Company plus a margin deter-
mined by operating statistics of the Company
(7.93% at December 31, 1995 and 7.49% at June
30, 1996). $5,261, net of an outstanding let-
ter of credit in the amount of $239, was
available under the credit facility at Decem-
ber 31, 1995.................................. -- 14,500 11,300
Capital lease obligations to related party,
collateralized by equipment, maturing through
2007, with interest rates from 13.9% to
26.8%......................................... 1,798 1,681 1,615
Obligations payable under non-compete and
consulting agreements, due in 24 to 48 months
with payments ranging from $3,000 to $10,833
per month, maturing through 1999, interest
imputed at 8.50%.............................. -- 582 412
Note payable to bank, due in monthly payments
of $62,500 plus interest at the bank's prime
rate of 9%, maturing on November 1, 1997, col-
lateralized by inventory, accounts receivable,
property and equipment, common stock of the
Company and guaranty of majority stockhold-
er............................................ 2,187 -- --
Line of credit payable to a bank with interest
at 8.50% due October 1995, collateralized by
inventory, accounts receivable, property and
equipment, common stock of the Company and
guaranty of majority stockholder.............. $ 2,400 $ -- $ --
------- ------- -------
6,385 31,263 27,827
Less current portion........................... (3,267) (1,057) (2,288)
------- ------- -------
$ 3,118 $30,206 $25,539
======= ======= =======
</TABLE>
The term debt and revolving credit facility are collateralized by inventory,
accounts receivable and property and equipment and upon consummation of the
Offering will be collateralized by substantially all of the assets of the
Company and its subsidiaries including a pledge of all outstanding capital
stock of such subsidiaries. The
F-14
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
related credit agreement contains certain restrictions and conditions which
include cash flow requirements, limitations on acquisitions of property and
equipment and restrictions on distributions to stockholders.
The following are scheduled maturities of debt at December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996............................................................. $ 1,057
1997............................................................. 2,867
1998............................................................. 17,131
1999............................................................. 2,627
2000............................................................. 2,614
Thereafter....................................................... 4,967
-------
$31,263
=======
</TABLE>
In addition, the Company has entered into an interest rate hedge agreement
in the notional amount of $15.0 million, whereby the Company will receive
interest payments should LIBOR increase above 9.00% and, conversely, will make
interest payments should LIBOR decrease below 5.25%, the effect of which
limits the Company's interest expense within the range of 9.00% to 5.25% LIBOR
on $15.0 million of debt. Management intends to hold the interest rate hedge
until maturity on August 28, 1998. The Company has incurred no gain or loss
related to this interest rate hedge for the year ended December 31, 1995.
The fair value of long-term debt, inclusive of the interest rate hedge
agreement, was approximately $32.0 million as of December 31, 1995. The fair
value of the Company's long-term debt was calculated by discounting future
cash flows using an estimated fair market value interest rate.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases various equipment and buildings under capital and
noncancelable operating leases with an initial term in excess of one year. As
of December 31, 1995, future minimum rental payments required under these
capital and operating leases are summarized as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ------- ---------
<S> <C> <C>
1996.................................................. $ 432 $1,969
1997.................................................. 432 1,743
1998.................................................. 363 1,445
1999.................................................. 340 1,012
2000.................................................. 340 602
Thereafter............................................ 1,877 516
------- ------
Total................................................. 3,784 $7,287
======
Less amount representing interest....................... (2,103)
-------
Present value of minimum lease payments................. $ 1,681
=======
</TABLE>
Rental expense for operating leases was $2,640,000, $1,574,000 and
$1,469,000 for the years ended December 31, 1995, 1994 and 1993, respectively
and $1,941,000 for the six months ended June 30, 1996.
F-15
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
Employment Agreements
The Company has entered into an employment agreement with its majority
stockholder for a five-year term renewable annually and has entered into a
consulting agreement with a former stockholder through October 1998.
Litigation
There are claims and pending actions incident to the business operations of
the Company. Management does not expect resolution of these matters to have a
material adverse effect on the Company's financial position or future results
of operations or cash flows.
8. RETIREMENT PLAN:
The Company has a defined contribution retirement plan that covers
substantially all full-time employees and is qualified under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may voluntarily
contribute a percentage of their compensation to the plan and the Company may
make discretionary contributions. Retirement plan expense for the years ended
December 31, 1995, 1994 and 1993 was $225,000, $150,000 and $125,000,
respectively and $180,000 for the six months ended June 30, 1996.
9. RELATED PARTY TRANSACTIONS:
The Company leases certain buildings and data processing equipment under
capital leases from partnerships partially owned by the majority stockholder
of the Company. Two of the leased warehouses were financed through economic
development and industrial revenue bonds; one series of which was issued by
Newton, Kansas in the original principal amount of $575,000, and with respect
to which, the Company is the sub-lessee of the premises and a co-guarantor,
and one series of which was issued by Elkhart, Indiana in the original
principal amount of $400,000, and with respect to which, the Company is the
lessee of the premises and has agreed to perform the obligations of the lessor
contained in the mortgage. Lease payments for the facilities and equipment
were approximately $672,000, $672,000 and $656,000 in 1995, 1994 and 1993,
respectively, and approximately $336,000 for the six months ended June 30,
1996. (See Note 6).
The Company loaned its majority stockholder $5.0 million in 1993, payable in
monthly principal installments of $62,500 plus interest at 9% at December 31,
1995, due November 1997. The Company distributed the Loan to stockholder to
the Company's stockholders effective June 30, 1996.
10. STOCK OPTIONS:
During 1995, the Company issued options to purchase 47,854 shares of the
Company's common stock. As of June 30, 1996, 47,854 of these options were
still outstanding. The option price is $5.64 per share, exercisable over a
ten-year vesting period, expiring June 19, 2004 although immediately
exercisable as of the effective date of the common stock offering. No shares
have been exercised.
Effective January 1, 1996, the Company issued options to purchase 392,450
shares with an option price of $11.17 exercisable over a three-year vesting
period, expiring in seven years although immediately exercisable as of the
effective date of the common stock offering. As of June 30, 1996, 383,520 of
these options were still outstanding. No shares have been exercised.
11. STOCK SPLIT:
During 1994, the Company's board of directors authorized a 10,000-to-1 stock
split with $.01 par value common stock exchanged for cancellation of all $1.00
par value common stock previously issued. As a result,
F-16
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
the stockholders received 10,000 shares of common stock for each share
previously held. The par value of the additional shares of common stock issued
in connection with the stock split ($99,000) was credited to common stock and
a like amount charged to paid-in capital in 1994. On August 29, 1996, the
Company effected a .47-for-1 reverse stock split of its common stock. All
share and per share amounts included in the accompanying financial statements
and footnotes have been restated to reflect both of these stock splits.
12. OTHER INCOME:
The Company received $800,000 in 1994 from a disability insurance policy on
a former stockholder who was determined disabled and used the proceeds to
retire a note payable to the former stockholder.
13. UNAUDITED AS ADJUSTED AND SUPPLEMENTAL INFORMATION:
The following unaudited as adjusted and supplemental information reflects
certain assumptions regarding transactions and their effects that would occur
as a result of the Offering.
Unaudited As Adjusted Consolidated Balance Sheet
The unaudited as adjusted consolidated balance sheet at June 30, 1996
reflects adjustments to effect the conversion of the Company to a C
corporation. Prior to this conversion, the Company will distribute an amount
equal to undistributed earnings that were previously taxed at the stockholder
level at June 30, 1996, which was $3.7 million. No adjustment has been made to
give effect to the distribution to the Company's stockholders in the amount of
any S corporation earnings for the period from July 1, 1996 through the
consummation of this Offering, which will be taxed at the stockholder level.
Additionally, the unaudited as adjusted consolidated balance sheet reflects
the retirement of treasury stock and the presentation of undistributed
earnings as additional paid-in capital.
Unaudited Supplemental Consolidated Income Information
The unaudited supplemental consolidated information as shown on the income
statement is presented to show the effects of income tax expense related to
the Company's anticipated termination of its Subchapter S corporation status.
The unaudited supplemental income tax expense adjustment is presented as if
the Company had been a C corporation subject to federal and state income taxes
throughout the periods presented at an effective tax rate of 39%.
The supplemental information is presented for informational purposes only
and is not necessarily indicative of operating results that would have
occurred had the Company elected to terminate its Subchapter S corporation
status as of the beginning of each of the periods presented, nor are they
necessarily indicative of future operating results.
Unaudited Supplemental Earnings Per Share
Supplemental earnings per share has been computed by dividing supplemental
net income by the weighted average number of shares of common stock
outstanding during the period.
In accordance with a regulation of the Securities and Exchange Commission,
supplemental earnings per share data have been presented to reflect the effect
of the assumed issuance of that number of shares of common stock that would
generate sufficient cash to pay an S corporation distribution in an amount
equal to previously taxed but undistributed earnings at December 31, 1995 and
June 30, 1996.
Historical net income per common share is not presented because it is not
indicative of the ongoing entity.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Service Supply Systems, Inc.
We have audited the accompanying consolidated statements of income and cash
flows of Service Supply Systems, Inc. and Subsidiary for the years ended
December 31, 1994, 1993, and 1992. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Service Supply Systems, Inc. and Subsidiary for
the years ended December 31, 1994, 1993, and 1992 in conformity with generally
accepted accounting principles.
/s/ Rumsey & Huckaby, P.C.
Cordele, Georgia
February 28, 1995
F-18
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
-------------------------- ENDED
1992 1993 1994 JUNE 30, 1995
------- ------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................... $59,804 $73,625 $100,910 $59,327
Cost of sales....................... 51,493 63,234 88,029 51,972
------- ------- -------- -------
Gross profit...................... 8,311 10,391 12,881 7,355
Commission income................... 913 1,219 1,953 1,383
------- ------- -------- -------
9,224 11,610 14,834 8,738
Selling, general and administrative
expenses........................... 7,978 9,345 11,899 5,904
------- ------- -------- -------
Operating income.................. 1,246 2,265 2,935 2,834
Other income........................ 4 4 33 1
Interest income..................... 15 23 -- --
Interest expense.................... (372) (314) (582) (407)
------- ------- -------- -------
Income before income taxes........ 893 1,978 2,386 2,428
Provision for income taxes.......... 330 732 871 843
------- ------- -------- -------
Net income........................ $ 563 $ 1,246 $ 1,515 $ 1,585
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-19
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
---------------------------- ENDED
1992 1993 1994 JUNE 30, 1995
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income........................ $ 563 $ 1,246 $ 1,515 $ 1,585
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Depreciation and amortization... 290 332 515 364
(Gain) loss on disposal of
assets......................... (5) 6 (33) (1)
Increase in deferred tax asset.. (3) (13) (266) --
Changes in assets and
liabilities:
Accounts receivable, net....... (1,117) 314 (2,279) (2,235)
Inventories.................... (1,075) (1,372) (2,346) 135
Other receivables.............. 131 (145) (206) 191
Prepaid expenses............... 3 131 (250) 110
Accounts payable............... 899 304 590 928
Accrued expenses............... 292 643 1,239 (573)
-------- -------- -------- -------
Net cash provided (used) by
operating activities......... (22) 1,446 (1,521) 504
-------- -------- -------- -------
Cash flows from investing
activities:
Purchase of property and
equipment........................ (63) (460) (3,850) (234)
Proceeds from sale of assets...... 34 24 77 2
Payments received from other note
receivable....................... 13 23 -- --
Other assets...................... -- -- (25) 26
Cash surrender value of insurance
policies......................... (35) 103 (34) (15)
-------- -------- -------- -------
Net cash used by investing
activities................... (51) (310) (3,832) (221)
-------- -------- -------- -------
Cash flows from financing
activities:
Proceeds from new borrowings...... 2,644 3,113 8,290 7,922
Payments of long-term debt........ (2,881) (4,700) (3,113) (8,291)
Common stock repurchases.......... (9) (14) -- --
Proceeds from the issuance of
common stock..................... 317 536 -- 257
Dividends paid.................... -- (66) (123) (193)
Loan to stockholders.............. -- (25) -- --
Collections on loan to
stockholders..................... -- -- 153 --
Stock subscriptions receivable.... -- 25 149 23
-------- -------- -------- -------
Net cash provided (used) by
financing activities......... 71 (1,131) 5,356 (282)
-------- -------- -------- -------
Net (decrease) increase in cash and
cash equivalents.................. (2) 5 3 1
Beginning cash and cash
equivalents....................... 22 20 25 28
-------- -------- -------- -------
Ending cash and cash equivalents... $ 20 $ 25 $ 28 $ 29
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-20
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Service Supply Systems, Inc. (the "Company") is in the business of
procuring, producing, transporting, storing and wholesaling plumbing and
building parts to the housing industry. It also acts as warehousing and sales
agent for certain manufacturers of housing components. The Company has
operations in Georgia, Florida, Alabama, North Carolina and Texas. The Company
extends credit to its customers in these states during the normal course of
business.
Interim Financial Statements
In the opinion of management, the unaudited interim consolidated financial
statements at June 30, 1995 and for the six-month period ended June 30, 1995
include all adjustments, consisting of normal recurring accruals, necessary to
present fairly the Company's consolidated results of operations and cash flows
for the six-month period ended June 30, 1995. Results for the period ended
June 30, 1995 are not necessarily indicative of the results to be expected for
the entire fiscal year.
Property and Equipment
Property and equipment are recorded at cost. The Company uses the straight-
line and declining-balance methods to recognize depreciation over the
estimated useful lives of the related assets. Estimated useful lives range
from three to thirty-nine years.
Principles of Consolidation
The financial statements are a presentation of Service Supply Systems, Inc.
consolidated with its wholly-owned subsidiary, Sunbelt Wood Components, Inc.
All intercompany accounts and transactions are eliminated in consolidation.
Inventories
Inventories are valued at the lower of cost or market. Market is replacement
cost or net realizable value. Inventories purchased for resale are valued
using the last-in, first-out (LIFO) method. Manufactured inventories are
valued using the first-in, first-out (FIFO) method. For the years ended
December 31, 1994, 1993 and 1992, the percentage of inventory valued at LIFO
was 79%, 75% and 80%, respectively. The LIFO reserve at December 31, 1994,
1993 and 1992 was $565,150, $242,916 and $256,626, respectively.
Income Taxes
Incomes taxes are provided on pre-tax earnings reported in the financial
statements. Deferred income taxes have been provided on the future tax effects
of differences between the financial statement and tax values of assets and
liabilities.
Employee Stock Ownership Plan (ESOP)
Dividends on shares held by the ESOP are charged to retained earnings.
F-21
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes......................... $296,000 $662,000 $993,793
State income taxes........................... 36,000 83,000 142,222
Deferred income taxes on temporary
differences................................. (2,000) (13,000) (265,015)
-------- -------- --------
Provision for income taxes $330,000 $732,000 $871,000
======== ======== ========
A reconciliation between the taxes due on pre-tax income using the effective
Federal and State tax rates and the provision for income taxes is as follows:
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Tax at effective rates....................... $338,000 $727,000 $905,000
Permanent differences and other adjusting
items....................................... (8,000) 5,000 (34,000)
-------- -------- --------
$330,000 $732,000 $871,000
======== ======== ========
</TABLE>
At December 31, 1994, a deferred tax asset of $300,000 is included in
prepaid expenses. This represents the estimated future tax effects
attributable to temporary differences in tax and financial accounting for
accounts receivable, inventory and accrued liabilities.
3. LEASES AND RELATED PARTIES
The Company leases land, buildings, autos, trucks, trailers and equipment
under operating leases. Rental expense for the years ended December 31, 1994,
1993 and 1992 amounted to $1,136,784, $1,299,744 and $1,194,359, respectively.
Some of these leases were paid to partnerships which are comprised of
stockholders and officers of the Company. Rental expenses paid to these
partnerships for the years ended December 31, 1994, 1993 and 1992 amounted to
$136,000, $496,555 and $466,570, respectively.
As of December 31, 1994, future minimum lease payments under noncancelable
terms were as follows for the five succeeding years:
<TABLE>
<S> <C>
1995.............................. $ 866,567
1996.............................. 808,925
1997.............................. 795,325
1998.............................. 739,571
1999.............................. 319,944
----------
Total........................... $3,530,332
==========
</TABLE>
4. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan covering all of its
employees. It provides for discretionary contributions by the Company as
determined annually by the Board of Directors, up to the maximum amount
permitted under the Internal Revenue Code. The plan is a qualified profit
sharing plan required to invest primarily in Company stock. Contributions are
allocated to participants on a nondiscriminatory formula basis.
F-22
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company contributed $732,286, $574,709 and $477,390 to the plan in 1994,
1993 and 1992 respectively. The plan purchased 6,200 shares of stock in 1994
for $148,800, 14,000 shares of stock in 1993 for $336,000 and 20,000 shares of
stock in 1992 for $250,000.
The plan owned 234,140 shares at December 31, 1994, 227,940 shares at
December 31, 1993 and 213,940 shares at December 31, 1992. These shares were
subject to a repurchase obligation by the Company at $40.00 per share at
December 31, 1994, $24.00 per share at December 31, 1993 and $11 per share at
December 31, 1992.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
Cash paid for interest and income taxes for periods was as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- ----------
<S> <C> <C> <C>
Interest........................................ $392,000 $318,000 $ 582,000
======== ======== ==========
Income Taxes.................................... $232,000 $432,000 $1,615,000
======== ======== ==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company is party to a shareholders' agreement giving the Company an
option to purchase all or part of the stock proposed for sale by any
shareholder and requiring the Company to purchase all of the shares upon death
of a shareholder. Terminating employees must offer all of their stock for
purchase by the Company. The purchase price is the fair market value as of the
most recent Annual Valuation Date as determined by independent appraisal
required by the Employee Stock Ownership Plan.
F-23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
The unaudited pro forma consolidated statement of income of the Company for
the year ended December 31, 1995 is based on the Consolidated Financial
Statements of the Company and the Consolidated Financial Statements of Service
Supply, included elsewhere in this Prospectus, adjusted to give effect to (i)
the acquisition of Service Supply, (ii) the Company's conversion from an S
corporation to a C corporation and (iii) the sale of the Common Stock offered
hereby and the application of the net proceeds therefrom, as if these
transactions had occurred on January 1, 1995.
The unaudited pro forma consolidated statement of income of the Company for
the six months ended June 30, 1996 is based on the unaudited Consolidated
Financial Statements of the Company, included elsewhere in this Prospectus,
adjusted to give effect to (i) the Company's conversion from an S corporation
to a C corporation and (ii) the sale of the Common Stock offered hereby and
the application of the net proceeds therefrom, as if these transactions had
occurred on January 1, 1996.
The acquisition adjustments, supplemental adjustments and offering
adjustments are based upon historical financial information of the Company and
Service Supply and certain assumptions that management of the Company believes
are reasonable. The unaudited pro forma consolidated statements of income are
not necessarily indicative of the results of operations as if the transactions
and the offering had occurred on the dates specified or to project the
Company's results of operations for any future period. The unaudited pro forma
consolidated statements of income should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto, and other
information pertaining to the Company, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of Service Supply and the Notes thereto
included elsewhere in this Prospectus.
F-24
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
---------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1995 JUNE 30, 1995 ACQUISITION ACQUISITION SUPPLEMENTAL OFFERING AS
KEVCO SERVICE SUPPLY ADJUSTMENTS PRO FORMA ADJUSTMENTS SUPPLEMENTAL ADJUSTMENTS ADJUSTED
------------ -------------- ----------- ----------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $182,519 $59,327 $-- $241,846 $ -- $241,846 $ -- $241,846
Cost of sales........ 155,877 51,972 -- 207,849 -- 207,849 -- 207,849
-------- ------- ---- -------- ------- -------- ----- --------
Gross profit........ 26,642 7,355 -- 33,997 -- 33,997 -- 33,997
Commission income.... 2,610 1,383 -- 3,993 -- 3,993 -- 3,993
-------- ------- ---- -------- ------- -------- ----- --------
29,252 8,738 -- 37,990 -- 37,990 -- 37,990
Selling, general and
administrative
expenses............ 20,839 5,904 208 (1) 26,951 -- 26,951 -- 26,951
-------- ------- ---- -------- ------- -------- ----- --------
Operating income.... 8,413 2,834 (208) 11,039 -- 11,039 -- 11,039
Interest income...... 355 1 356 -- 356 -- 356
Interest expense..... (1,692) (407) (358)(2) (2,457) -- (2,457) 1,418(7) (1,039)
-------- ------- ---- -------- ------- -------- ----- --------
Income before income
taxes.............. 7,076 2,428 (566) 8,938 -- 8,938 1,418 10,356
State income taxes... 45 -- -- 45 (45)(4) -- -- --
Provision for income
taxes............... -- 843 (843)(3) -- 3,486 (5) 3,486 553(5) 4,039
-------- ------- ---- -------- ------- -------- ----- --------
Net income.......... $ 7,031 $ 1,585 $277 $ 8,893 $(3,441) $ 5,452 $ 865 $ 6,317
======== ======= ==== ======== ======= ======== ===== ========
Earnings per share... $ 1.10 $ 0.97
======== ========
Weighted average
shares outstanding.. 4,946 (6) 6,544
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of income.
F-25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(1) To reflect an additional $208,000 of amortization of goodwill and non-
compete agreements generated as a result of the June 30, 1995 purchase of
Service Supply.
(2) To reflect an additional $267,000 of interest expense as if the Company's
acquisition debt had been outstanding for an additional six months and an
additional $91,000 of amortization of loan costs generated as a result of
the June 30, 1995 purchase of Service Supply.
(3) To eliminate the provision for income taxes for Service Supply, which was
a C corporation prior to its acquisition by the Company.
(4) To eliminate state income taxes paid by the Company while it was an S
corporation as such taxes would be incorporated into the effective income
tax rate as a C corporation. See Note (5).
(5) To reflect a provision for income taxes at an effective rate of 39%
associated with the Company's conversion to a C corporation.
(6) Amount reflects the assumed issuance of 502,379 shares of Common Stock at
the initial public offering price per share, less underwriting discount,
to generate sufficient cash to fund the distribution of undistributed
earnings previously taxed at the stockholder level existing at December
31, 1995.
(7) To reflect a decrease in interest expense as if debt of $17.3 million, at
an average interest rate of 8.2%, had been repaid on January 1, 1995 from
the net proceeds of the Common Stock offered hereby. Indebtedness repaid
reflects the portion of net proceeds that would have been available to
repay debt after making an S corporation distribution in an amount equal
to undistributed earnings previously taxed at the stockholder level
existing at December 31, 1995.
F-26
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUPPLEMENTAL OFFERING
ACTUAL ADJUSTMENTS SUPPLEMENTAL ADJUSTMENTS AS ADJUSTED
-------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales............... $135,598 $ -- $135,598 $ -- $135,598
Cost of sales........... 115,247 -- 115,247 $ -- 115,247
-------- ------- -------- ----- --------
Gross profit.......... 20,351 -- 20,351 -- 20,351
Commission income....... 2,700 -- 2,700 -- 2,700
-------- ------- -------- ----- --------
23,051 -- 23,051 -- 23,051
Selling, general and
administrative
expenses............... 14,943 -- 14,943 -- 14,943
-------- ------- -------- ----- --------
Operating income...... 8,108 -- 8,108 -- 8,108
Interest income......... 141 -- 141 -- 141
Interest expense........ (1,199) -- (1,199) 735(4) (464)
-------- ------- -------- ----- --------
Income before income
taxes................ 7,050 -- 7,050 735 7,785
State income taxes...... 25 (25)(1) -- -- --
Provision for income
taxes.................. -- 2,750 (2) 2,750 287(2) 3,037
-------- ------- -------- ----- --------
Net income............ $ 7,025 $(2,725) $ 4,300 $ 448 $ 4,748
======== ======= ======== ===== ========
Earnings per share...... $ 0.90 $ 0.73
======== ========
Weighted average shares
outstanding............ 4,778 (3) 6,544
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of income.
F-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(1) To eliminate state income taxes paid by the Company while it was an S
corporation as such taxes would be incorporated into the effective income
tax rate as a C corporation. See Note (2).
(2) To reflect a provision for income taxes at an effective rate of 39%
associated with the Company's conversion to a C corporation.
(3) Amount reflects the assumed issuance of 334,488 shares of Common Stock at
the initial public offering price per share, less underwriting discount,
to generate sufficient cash to fund the distribution of undistributed
earnings previously taxed at the stockholder level existing at June 30,
1996.
(4) To reflect a decrease in interest expense as if debt of $19.2 million, at
an average interest rate of 7.7%, had been repaid on January 1, 1996 from
the net proceeds of the Common Stock offered hereby. Indebtedness repaid
reflects the portion of net proceeds that would have been available to
repay debt after making an S corporation distribution in an amount equal
to undistributed earnings previously taxed at the stockholder level
existing at June 30, 1996.
F-28
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Prior S Corporation Status............................................... 10
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 11
Dilution................................................................. 12
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 22
Management............................................................... 31
Principal Shareholders................................................... 40
Description of Capital Stock............................................. 41
Shares Eligible for Future Sale.......................................... 42
Underwriting............................................................. 44
Legal Matters............................................................ 45
Experts.................................................................. 45
Additional Information................................................... 45
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,100,000 SHARES
LOGO
KEVCO, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
RAUSCHER PIERCE REFSNES, INC.
OPPENHEIMER & CO., INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by the Company (other
than underwriting compensation expected to be incurred) in connection with the
offering described in this Registration Statement. All amounts are estimates,
except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $10,826
NASD Filing Fee.................................................... 3,639
Nasdaq National Market Listing Fee................................. 33,736
Blue Sky Fees and Expenses......................................... 20,000
Printing and Engraving Costs....................................... 50,000
Legal Fees and Expenses............................................ 150,000
Accounting Fees and Expenses....................................... 140,000
Transfer Agent and Registrar Fees and Expenses..................... 5,000
Premiums for D&O Insurance......................................... 65,000
Miscellaneous...................................................... 21,799
--------
Total............................................................ $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that, to the fullest extent
permitted by Texas law, directors of the Company will not be liable to the
Company or its shareholders for monetary damages for an act or omission in the
director's capacity as a director. Texas law does not currently authorize the
elimination or limitation of the liability of a director to the extent the
director is found liable for (i) any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) acts or omissions not in good faith
that constitute a breach of duty of the director to the Company or which
involve intentional misconduct or a knowing violation of law, (iii)
transactions from which the director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office or (iv) acts or omissions for which the liability of a
director is expressly provided by an applicable statute. In addition, the
Company's Articles of Incorporation provide that if applicable law is amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of the directors shall be eliminated or limited
to the fullest extent permitted by law, as amended.
The Company's Articles of Incorporation and Bylaws grant mandatory
indemnification and advancement of expenses to directors and officers of the
Company to the fullest extent authorized by Texas law. In general, a Texas
corporation may indemnify a director or officer who was, is or is threatened
to be made a named defendant or respondent in a proceeding by virtue of his
position in the corporation if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in the case of criminal proceedings, had no reasonable cause
to believe his conduct was unlawful. A Texas corporation may indemnify a
director or officer in an action brought by or in the right of the corporation
only if such director or officer was not found liable to the corporation,
unless or only to the extent that a court finds him to be fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
The Company will enter into an agreement with each of its shareholders of
record immediately prior to the consummation of this offering (including Mr.
Kimmel) pursuant to which the Company agrees to distribute to such
shareholders an amount equal to certain earnings of the Company as provided in
the agreement and as finally determined for tax purposes for the period
January 1, 1995 through the date of the consummation of this offering, to the
extent such earnings exceed the earnings for such period as theretofore
reported by the Company. In addition, the Company will agree to indemnify such
shareholders for any penalties and interest attributable to any additional
income taxes they incur as a result of being taxed on such additional
earnings, as well as for related costs and expenses incurred.
II-1
<PAGE>
The Company intends to procure insurance that purports to insure the
Company's directors and officers against certain liabilities incurred by them
in the discharge of their functions as directors and officers, with certain
exceptions including exceptions for liabilities arising from such directors'
and officers' own malfeasance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities issued by the Company within
the last three years:
(i) Between June 19, 1995 and January 1, 1996, the Company granted
options to purchase in the aggregate 440,304 shares of Common Stock to
certain employees (of which 21,878 options have since been cancelled).
These transactions were effected without registration of such options, or
the underlying shares of Common Stock, under the Securities Act in reliance
upon Section 4(2) and Rule 701 under the Securities Act.
(ii) In 1994, the Operating Company declared a 10,000-to-1 stock split
pursuant to which 10,000 shares of Common Stock, $.01 par value, of the
Operating Company were exchanged for each of the shares of Common Stock,
$1.00 par value, of the Operating Company previously issued. On August 29,
1996, the Operating Company effected a 0.47-for-1 reverse stock split of
its Common Stock. Such transactions were effected without registration in
reliance upon Section 4(2) under the Securities Act.
(iii) Immediately prior to the consummation of this offering, the Company
will issue 4,394,500 shares of Common Stock in a one for one shares
exchange for shares of the common stock of the Operating Company. See
"Business--History." Such transaction will be effected without registration
in reliance upon Section 4(2) under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.*
2.1 --Merger Agreement, dated June 6, 1995 by and among Kevco, Inc. and
Service Supply Systems, Inc., joined by a wholly-owned subsidiary
of Kevco, Inc.(1)
2.2 --Form of Plan and Agreement of Merger (between Kevco Texas, Inc.
and Kevco Delaware, Inc.)(2)
2.3 --Form of Bill of Sale and General Assignment from Kevco Delaware,
Inc., as Assignor, to Sunbelt Wood Components, Inc., as
Assignee.(2)
2.4 --Form of Assumption Agreement between Kevco Delaware, Inc. and
Sunbelt Wood Components, Inc.(2)
3.1 --Form of Articles of Incorporation of Kevco, Inc., as amended.(2)
3.2 --Form of Bylaws of Kevco, Inc.(2)
4.1 --Form of certificate evidencing ownership of the Common Stock of
Kevco, Inc.(2)
5.1 --Opinion of Jackson & Walker, L.L.P.*
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated
1995 Stock Option Plan of Kevco, Inc.) and Supplementary Letter.(2)
10.2 --1996 Stock Option Plan of Kevco, Inc., as amended, and
Supplementary Letter.(2)
10.3 --Form of Amended and Restated Employment Agreement (between Gerald
E. Kimmel and Kevco, Inc.), joined therein by Kevco Delaware, Inc.
and Sunbelt Wood Components, Inc.*
10.4 --Employment Agreement between C. Lee Denham and Kevco, Inc. dated
June 30, 1995.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.5 --Lease between K & E Land & Leasing and Kevco, Inc. dated December
1, 1977.(1)
10.6 --Amendment No. 1 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated March , 1982.(1)
10.7 --Amendment No. 2 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated May 30, 1983.(1)
10.8 --Amendment No. 3 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated February 1, 1993.(1)
10.9 --Lease dated April 1, 1980 between City of Newton, Kansas and K & E
Land & Leasing.(1)
10.10 --Sublease and Lease Guarantee Agreement dated April 1, 1980 between
K & E Land & Leasing and Kevco, Inc.(1)
10.11 --Amendment No. 1 to Sublease and Lease Guaranty Agreement by and
between K & E Land & Leasing and Kevco, Inc. dated May 30, 1983.(1)
10.12 --Lease Agreement dated October 12, 1987 between 1741 Conant
Partnership & Kevco Inc.(1)
10.13 --Equipment Lease Agreement dated January 1, 1991 between K & E Land
& Leasing and Kevco, Inc.(1)
10.14 --Amendment No. 1 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated February 12, 1993.(1)
10.15 --Amendment No. 2 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.16 --Amendment No. 3 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated May 23, 1994.(1)
10.17 --Deferred Compensation Agreement between Kevco, Inc. and Clyde A.
Reed, Jr. dated May 24, 1977.(1)
10.18 --Amendment No. 1 to Deferred Compensation Agreement dated May ,
1980.(1)
10.19 --Amendment No. 2 to Deferred Compensation Agreement dated March 10,
1992.(1)
10.20 --Amended and Restated Health and Accident Plan of Kevco, Inc.(2)
10.21 --Investment and Tax Advice Plan of Kevco, Inc.(1)
10.22 --Credit Agreement among Kevco, Inc., certain Lenders and
NationsBank of Texas, N.A., as Administrative Lender dated June 30,
1995.(1)
10.23 --First Amendment to Credit Agreement, dated as of September 1,
1995, among Kevco, Inc., the banks listed on the signature pages
thereof, and NationsBank of Texas, N.A.(1)
10.24 --Second Amendment to Credit Agreement, dated as of November 29,
1995, among Kevco, Inc., the banks listed on the signature pages
thereof, and NationsBank of Texas, N.A.(1)
10.25 --Revolving Credit Note of Kevco, Inc. to NationsBank of Texas, N.A.
dated September 1, 1995 in the amount of $14,285,714.28.(1)
10.26 --Term Loan Note of Kevco, Inc. to NationsBank of Texas, N.A. dated
September 1, 1995 in the amount of $10,714,285.72.(1)
10.27 --Revolving Credit Note of Kevco, Inc. to The Sumitomo Bank, Ltd.
dated February 2, 1996 in the amount of $5,714,285.72.(1)
10.28 --Term Loan Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated
February 2, 1996 in the amount of $4,285,714.28.(1)
10.29 --PaineWebber Standardized 401(K) Profit-Sharing Adoption Agreement
(No. 005) (To be used with Basic Plan Document No. 03 Only) for
Kevco, Inc. dated May 24, 1996 and PaineWebber Defined Contribution
Plan.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.30 --Promissory Note of Gerald E. Kimmel to Kevco, Inc. dated October
26, 1993 in the amount of $5,000,000.(1)
10.31 --Amendment No. 4 to Lease dated December 1, 1977 by and between K&E
Land & Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.32 --Assignment and Acceptance dated February 2, 1996 between The Daiwa
Bank, Limited and The Sumitomo Bank, Ltd., Chicago Branch.(1)
10.33 --Tax Indemnification Agreement*
10.34 --Form of Promissory Note made by Kevco Texas, Inc. in the amount of
$3,733,000 (the Prior S Corporation Earnings Note).(2)
10.35 --Form of Promissory Note made by Kevco Texas, Inc. (the Future S
Corporation Earnings Note).(2)
10.36 --Form of Assignment of $5,000,000 Note made by Kevco, Inc. (n/k/a
Kevco Texas, Inc.).*
10.37 --Form of Adoption Agreement by Kevco, Inc. and Kevco Texas, Inc.
(re: 1995 Stock Option Plan and 1996 Stock Option Plan).(2)
10.38 --Amendment No. 1 dated September 21, 1988, to Lease Agreement by
1741 Conant Partnership as lessor and Kevco, Inc. (n/k/a Kevco
Texas, Inc.).(2)
10.39 --Letter Agreement dated June 22, 1982, between Kevco, Inc. (n/k/a
Kevco Texas, Inc.) and K&E Land & Leasing. (re: lease rentals).(2)
10.40 --Letter Agreement dated October 1, 1996 by Kevco, Inc., K&E Land &
Leasing, and 1741 Conant Partnership (re: lease rental).(2)
10.41 --Form of Security Agreement.*
11.1 --Computation of Earnings Per Common Share.(2)
16.1 --Letter regarding Change of Accountants.(2)
21.1 --Subsidiaries*
23.1 --Consent of Coopers & Lybrand L.L.P.(2)
23.2 --Consent of Jackson & Walker, L.L.P.*
23.3 --Consent of Rylander, Clay & Opitz, L.L.P.(2)
23.4 --Consent of Rumsey & Huckaby, P.C.(2)
24.1 --Power of Attorney.(1)
27.1 --Financial Data Schedule.(2)
99.1 --Consent of Director Nominee.(1)
99.2 --Consent of Director Nominee.(1)
99.3 --Consent of Director Nominee.(1)
</TABLE>
- --------
* To be filed by amendment.
(1) Previously filed.
(2) Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
II-4
<PAGE>
claim for indemnification against such liabilities (other than the payments
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) That, for the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURE PAGE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
KEVCO, INC. HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF FORT WORTH, STATE OF TEXAS, ON OCTOBER 8, 1996.
Kevco, Inc.
/s/ Ellis L. McKinley, Jr.
By: _________________________________
ELLIS L. MCKINLEY, JR., VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED AND ON OCTOBER 8, 1996.
SIGNATURES TITLE
---------- -----
/s/ Jerry E. Kimmel* Chairman of the Board, President and
--------------------------------- Chief Executive Officer (Principal
Jerry E. Kimmel Executive Officer)
/s/ Ellis L. McKinley, Jr. Vice President and Chief Financial
--------------------------------- Officer (Principal Financial
Ellis L. McKinley, Jr. Officer and Principal Accounting
Officer)
/s/ Richard S. Tucker Director
---------------------------------
Richard S. Tucker
*By:/s/ Richard S. Tucker
---------------------------------
RICHARD S. TUCKER,
Pursuant to the Power of Attorney
previously filed with the
Securities and Exchange Commission
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
1.1 --Form of Underwriting Agreement.*
2.1 --Merger Agreement, dated June 6, 1995 by and among
Kevco, Inc. and Service Supply Systems, Inc., joined
by a wholly-owned subsidiary of Kevco, Inc.(1)
2.2 --Form of Plan and Agreement of Merger (between Kevco
Texas, Inc. and Kevco Delaware, Inc.)(2)
2.3 --Form of Bill of Sale and General Assignment from
Kevco Delaware, Inc., as Assignor, to Sunbelt Wood
Components, Inc., as Assignee.(2)
2.4 --Form of Assumption Agreement between Kevco Delaware,
Inc. and Sunbelt Wood Components, Inc.(2)
3.1 --Form of Articles of Incorporation of Kevco, Inc., as
amended.(2)
3.2 --Form of Bylaws of Kevco, Inc.(2)
4.1 --Form of certificate evidencing ownership of the
Common Stock of Kevco, Inc.(2)
5.1 --Opinion of Jackson & Walker, L.L.P.*
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended
and Restated 1995 Stock Option Plan of Kevco, Inc.).
and Supplementary Letter.(2)
10.2 --1996 Stock Option Plan of Kevco, Inc., as
amended.(2)
10.3 --Form of Amended and Restated Employment Agreement
(between Gerald E. Kimmel and Kevco, Inc.), joined
therein by Kevco Delaware, Inc. and Sunbelt Wood
Components, Inc.*
10.4 --Employment Agreement between C. Lee Denham and
Kevco, Inc. dated June 30, 1995.(1)
10.5 --Lease between K & E Land & Leasing and Kevco, Inc.
dated December 1, 1977.(1)
10.6 --Amendment No. 1 to Lease by and between K & E Land &
Leasing and Kevco, Inc. dated March , 1982.(1)
10.7 --Amendment No. 2 to Lease, by and between K & E Land
& Leasing and Kevco, Inc. dated May 30, 1983.(1)
10.8 --Amendment No. 3 to Lease, by and between K & E Land
Leasing and Kevco, Inc. dated February 1, 1993.(1)
10.9 --Lease dated April 1, 1980 between City of Newton,
Kansas and K & E Land & Leasing.(1)
10.10 --Sublease and Lease Guarantee Agreement dated April
1, 1980 between K & E Land & Leasing and Kevco,
Inc.(1)
10.11 --Amendment No. 1 to Sublease and Lease Guaranty
Agreement by and between K & E Land & Leasing and
Kevco, Inc. dated May 30, 1983.(1)
10.12 --Lease Agreement dated October 12, 1987 between 1741
Conant Partnership & Kevco Inc.(1)
10.13 --Equipment Lease Agreement dated January 1, 1991
between K & E Land & Leasing and Kevco, Inc.(1)
10.14 --Amendment No. 1 to Equipment Lease Agreement between
K & E Land & Leasing and Kevco, Inc. dated February
12, 1993.(1)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.15 --Amendment No. 2 to Equipment Lease Agreement
between K & E Land & Leasing and Kevco, Inc. dated
October 26, 1993.(1)
10.16 --Amendment No. 3 to Equipment Lease Agreement
between K & E Land & Leasing and Kevco, Inc. dated
May 23, 1994.(1)
10.17 --Deferred Compensation Agreement between Kevco, Inc.
and Clyde A. Reed, Jr. dated May 24, 1977.(1)
10.18 --Amendment No. 1 to Deferred Compensation Agreement
dated May , 1980.(1)
10.19 --Amendment No. 2 to Deferred Compensation Agreement
dated March 10, 1992.(1)
10.20 --Amended and Restated Health and Accident Plan of
Kevco, Inc.(2)
10.21 --Investment and Tax Advice Plan of Kevco, Inc.(1)
10.22 --Credit Agreement among Kevco, Inc., certain Lenders
and NationsBank of Texas, N.A., as Administrative
Lender dated June 30, 1995.(1)
10.23 --First Amendment to Credit Agreement, dated as of
September 1, 1995, among Kevco, Inc., the banks
listed on the signature pages thereof, and
NationsBank of Texas, N.A.(1)
10.24 --Second Amendment to Credit Agreement, dated as of
November 29, 1995, among Kevco, Inc., the banks
listed on the signature pages thereof, and
NationsBank of Texas, N.A.(1)
10.25 --Revolving Credit Note of Kevco, Inc. to NationsBank
of Texas, N.A. dated September 1, 1995 in the amount
of $14,285,714.28.(1)
10.26 --Term Loan Note of Kevco, Inc. to NationsBank of
Texas, N.A. dated September 1, 1995 in the amount of
$10,714,285.72.(1)
10.27 --Revolving Credit Note of Kevco, Inc. to The
Sumitomo Bank, Ltd. dated February 2, 1996 in the
amount of $5,714,285.72.(1)
10.28 --Term Loan Note of Kevco, Inc. to The Sumitomo Bank,
Ltd. dated February 2, 1996 in the amount of
$4,285,714.28.(1)
10.29 --PaineWebber Standardized 401(K) Profit-Sharing
Adoption Agreement (No. 005) (To be used with Basic
Plan Document No. 03 Only) for Kevco, Inc. dated
May 24, 1996 and PaineWebber Defined Contribution
Plan.(1)
10.30 --Promissory Note of Gerald E. Kimmel to Kevco, Inc.
dated October 26, 1993 in the amount of
$5,000,000.(1)
10.31 --Amendment No. 4 to Lease dated December 1, 1977 by
and between K&E Land & Leasing and Kevco, Inc. dated
October 26, 1993.(1)
10.32 --Assignment and Acceptance dated February 2, 1996
between The Daiwa Bank, Limited and The Sumitomo
Bank, Ltd., Chicago Branch.(1)
10.33 --Tax Indemnification Agreement*
10.34 --Form of Promissory Note made by Kevco Texas, Inc.
in the amount of $3,700,000 (the Prior S-Corporation
Earnings Note).(2)
10.35 --Form of Promissory Note made by Kevco Texas, Inc.
(the Future S-Corporation Earnings Note).(2)
10.36 --Form of Assignment of $5,000,000 Note made by
Kevco, Inc. (n/k/a Kevco Texas, Inc.).*
10.37 --Form of Adoption Agreement by Kevco, Inc. and Kevco
Texas, Inc. (re: 1995 Stock Option Plan and 1996
Stock Option Plan).(2)
10.38 --Amendment No. 1 dated September 21, 1988, to Lease
Agreement by 1741 Conant Partnership as lessor and
Kevco, Inc. (n/k/a Kevco Texas, Inc.).(2)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.39 --Letter Agreement dated June 22, 1982, between
Kevco, Inc. (n/k/a Kevco Texas, Inc.) and K&E Land &
Leasing. (re: lease rentals).(2)
10.40 --Letter Agreement dated October 1, 1996 by Kevco,
Inc., K&E Land & Leasing, and 1741 Conant
Partnership re: lease rental.(2)
10.41 --Form of Security Agreement.*
11.1 --Computation of Earnings Per Common Share.(2)
16.1 --Letter re: Change of Accountants.(2)
21.1 --Subsidiaries*
23.1 --Consent of Coopers & Lybrand, L.L.P.(2)
23.2 --Consent of Jackson & Walker, L.L.P.*
23.3 --Consent of Rylander, Clay & Opitz, L.L.P.(2)
23.4 --Consent of Rumsey & Huckaby, P.C.(2)
24.1 --Power of Attorney.(1)
27.1 --Financial Data Schedule.(2)
99.1 --Consent of Director Nominee.(1)
99.2 --Consent of Director Nominee.(1)
99.3 --Consent of Director Nominee.(1)
</TABLE>
- --------
* To be filed by amendment.
(1) Previously filed.
(2) Filed herewith.
II-9
<PAGE>
EXHIBIT 2.2
Plan and Agreement of Merger
This Plan and Agreement of Merger (the "Plan of Merger") is dated as of
_______________________, 1996 by and between KEVCO TEXAS, INC., a Texas
corporation ("Texas Corporation") and KEVCO DELAWARE, INC., a Delaware
corporation ("Delaware Corporation"). Texas Corporation and Delaware
Corporation are hereinafter sometimes collectively called the "Constituent
Corporations."
WITNESSETH:
----------
WHEREAS, Article 5.01A of the Texas Business Corporation Act (the "TBCA")
and Section 252 of the Delaware General Corporation Law (the "Delaware Law")
confer upon Texas Corporation and Delaware Corporation the power to merge; and
WHEREAS, Texas Corporation shall merge with and into Delaware Corporation
(the "Merger"). Pursuant to the Merger, Delaware Corporation shall be the
surviving corporation (the "Surviving Corporation") and, pursuant to Article
5.06 of the TBCA and Section 259 of the Delaware Law, shall possess all of the
powers, properties, rights, title, interest, privileges and franchises formerly
possessed by Texas Corporation and Delaware Corporation; and
WHEREAS, the respective boards of directors of the Constituent Corporations
deem it advisable for the general welfare and advantage of Texas Corporation and
Delaware Corporation that said Constituent Corporations merge pursuant to the
TBCA and the Delaware Law; and
WHEREAS, the total number of shares of Common Stock which Delaware
Corporation has authority to issue is 1,000 shares of Common Stock with a par
value of $.01 per share each ("Delaware Corporation Common Stock"), all 1,000
shares of which Delaware Corporation Common Stock are issued, outstanding and
entitled to vote and are owned by Texas Corporation; and
Page 1
<PAGE>
WHEREAS, the total number of shares of Common Stock which Texas Corporation
has authority to issue is 100,000,000 shares of Common Stock with a par value of
$.01 per share each (the "Texas Corporation Common Stock"), of which 4,394,500
shares of Texas Corporation Common Stock are issued, outstanding and entitled to
vote; and
WHEREAS, the respective board of directors of the Constituent Corporations
have adopted this Plan of Merger and recommend its approval by the shareholders
of the respective Constituent Corporations because they deem it advisable for
the general welfare and advantage of the Constituent Corporations and their
shareholders that said Constituent Corporations merge; and
NOW, THEREFORE, IN CONSIDERATION of the premises and the covenants and
agreements hereinafter set forth, it is hereby agreed that, in accordance with
the provisions of the TBCA and Delaware Law, the Texas Corporation shall be, and
hereby is, as of the Effective Time of the Merger, merged with and into Delaware
Corporation with Delaware Corporation as the Surviving Corporation, one of the
Constituent Corporations which shall continue its corporate existence and remain
a Delaware corporation governed by the laws of the state of Delaware, all on the
terms and subject to the conditions hereinafter set forth.
ARTICLE ONE
Merger
------
A. The board of directors of Delaware Corporation shall recommend that the
Plan of Merger and the Merger be approved by the shareholders of Delaware
Corporation in accordance with the TBCA and the Delaware Law. This Plan of
Merger shall be submitted to Texas Corporation, as the sole shareholder of
Delaware Corporation, for adoption and approval in accordance with the TBCA and
Delaware Law.
B. The board of directors of the Texas Corporation shall recommend that
the Plan of Merger and the Merger be approved by the shareholders of the Texas
Corporation. This Plan of Merger shall be submitted to the shareholders of the
Texas Corporation for adoption and approval in accordance with the TBCA.
Page 2
<PAGE>
C. Upon the adoption and approval of the Merger and this Plan of Merger by
the shareholders of the Constituent Corporations as aforesaid, unless previously
terminated in accordance with the terms hereof, Articles of Merger shall be
delivered to the Secretary of State of Texas, and a Certificate of Merger shall
be delivered to the Secretary of State of Delaware, for filing in accordance
with the provisions of the TBCA and the Delaware Law, respectively.
D. An executed copy of this Plan of Merger shall be kept on file at the
principal place of business of the Delaware Corporation at 1300 So. University
Drive, Suite 200, Fort Worth, Texas 76107.
E. A copy of the Plan of Merger shall be furnished by Delaware Corporation
on request and without cost, to any shareholder of the Constituent Corporations.
F. The Merger of Texas Corporation with and into Delaware Corporation
shall become effective, pursuant to the provisions of Article 5.05 of the TBCA
and Section 251 of the Delaware Law, upon the last to occur of (i) the issuance
by the Secretary of State of the State of Texas of a Certificate of Merger
pursuant to the provisions of Article 5.04 of the TBCA, and (ii) subject to
Section 103(d) of the Delaware Law, at and as of the date of filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
pursuant to Section 103 of the Delaware Law, respectively (the "Effective
Time").
ARTICLE TWO
Name and Continued Existence of Surviving Corporation
-----------------------------------------------------
The corporate name of Delaware Corporation, as the Surviving Corporation in
the Merger, shall continue as the corporate name of the Surviving Corporation,
the same being Delaware Corporation, the Constituent Corporation whose corporate
existence is to survive the Merger provided for herein and continue thereafter
as the Surviving Corporation. The identity, existence, purposes, powers,
objects, franchises, rights, privileges and immunities of the Surviving
Corporation shall continue unaffected and unimpaired by the Merger and the
corporate identity, existence, purposes, powers, objects, franchises, rights,
privileges and immunities of Texas Corporation shall be merged with and into
Delaware Corporation, and Delaware Corporation shall be fully vested therewith.
The Surviving Corporation shall thereupon and thereafter possess all the rights,
privileges, powers and franchises of a
Page 3
<PAGE>
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each Constituent Corporation; and all and singular,
the rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
any of the Constituent Corporations on whatever account, as well as for stock
subscriptions as all other things in action or belonging to each of the
Constituent Corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the respective Constituent Corporations, and the
title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; but all rights of creditors and all liens upon any property of
either of the Constituent Corporations shall be preserved unimpaired, and all
debts, liabilities and duties of the respective Constituent Corporations shall
thenceforth attach to the Surviving Corporation, and may be enforced against it
to the same extent as if said debts, liabilities and duties had been incurred or
contracted by it. Specifically, but not by way of limitation, any action or
proceeding, whether civil, criminal or administrative, pending by or against
either Constituent Corporation shall be prosecuted as if the Merger had not
taken place, or the Surviving Corporation may be substituted in such action or
proceeding. Accordingly, at the Effective Time, the separate existence of the
Texas Corporation, except insofar as continued by statute, shall cease.
Delaware Corporation shall continue to maintain its registered office in
the state of Delaware at 1209 Orange Street, Wilmington, Delaware 19801.
All corporate acts, plans, policies, contracts, approvals and
authorizations of the Texas Corporation and its shareholders, board of
directors, committees elected or appointed by the board of directors, officers
and agents, which were valid and effective immediately prior to the Effective
Time of the Merger shall be taken for all purposes as the acts, plans, policies,
contracts, approvals and authorizations of the Surviving Corporation and shall
be as effective and binding thereon as the same were with respect to the Texas
Corporation. The employees of the Texas Corporation shall become the employees
of the Surviving Corporation and continue to be entitled to the same rights and
benefits which they, enjoyed as employees of the Texas Corporation.
The assets, liabilities, reserves and accounts of each Constituent
Corporation shall be recorded on the books of the Surviving Corporation at the
amounts at which
Page 4
<PAGE>
they, respectively, have been carried on the books of each Constituent
Corporation subject to such adjustments or eliminations of intercompany items as
may be appropriate in giving effect to the Merger.
ARTICLE THREE
Governing Laws; Certificate of Incorporation
--------------------------------------------
A. The laws of the State of Delaware shall govern the Surviving
Corporation.
B. The Certificate of Incorporation of Delaware Corporation in effect at
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation.
C. In addition to the powers conferred upon it by law, the Surviving
Corporation shall have the powers set forth in the Certificate of Incorporation
of Delaware Corporation and be governed by the provisions thereof. From and
after the Effective Time, and until further amended, as provided by law, the
Certificate of Incorporation of Delaware Corporation may be certified, separate
and apart from this Plan of Merger, as the Certificate of Incorporation of the
Surviving Corporation.
ARTICLE FOUR
Bylaws of Surviving Corporation
-------------------------------
From and after the Effective Time, the Bylaws of Delaware Corporation in
effect at the Effective Time shall be the Bylaws of the Surviving Corporation
until the same shall be altered, amended or repealed, or until new Bylaws shall
be adopted in accordance with the provisions of law.
ARTICLE FIVE
Directors and Officers
----------------------
The directors and officers of Delaware Corporation shall continue in office
after the Effective Time as the directors and officers of the Surviving
Corporation. The directors and officers of the Surviving Corporation shall serve
in such capacities until their successors are duly elected and qualified in
accordance with law and the Bylaws of the Surviving Corporation.
Page 5
<PAGE>
ARTICLE SIX
Capital Stock of Surviving Corporation
--------------------------------------
The authorized capital stock of Delaware Corporation, from and after the
Effective Time, shall be the authorized capital stock of the Surviving
Corporation.
ARTICLE SEVEN
Conversion of Securities on Merger
----------------------------------
The manner and basis of converting shares of the Constituent Corporations
are as follows:
A. Each of the presently issued and outstanding shares of Delaware
Corporation Common Stock at the Effective Time and owned by Texas Corporation
shall, by virtue of the Merger, be cancelled and new certificates aggregating
1,000 shares of Delaware Corporation Common Stock shall be issued to the
shareholders of Texas Corporation.
B. Each share of Texas Corporation Common Stock issued and outstanding
immediately prior to the Effective Time (being in the aggregate 4,394,500
shares) and all rights in respect thereof shall, upon the Effective Time, by
virtue of the Merger and without any further action on the part of any holder
thereof, be completely cancelled and retired and shall cease to exist, and all
certificates representing such shares shall be cancelled, and no cash or
securities or other property shall be issued in the Merger in respect thereof.
ARTICLE EIGHT
Assets and Liabilities
----------------------
At the Effective Time pursuant to the TBCA and the Delaware Law and as
hereinabove provided:
(i) Texas Corporation shall be merged with and into the Surviving
Corporation and the separate existence of Texas Corporation shall cease;
(ii) all rights, title and interest in and to all real estate and other
property owned by each of the Constituent Corporations shall be allocated to and
Page 6
<PAGE>
invested in the Surviving Corporation without reversion or impairment, without
further act or deed, and without any transfer or assignment having occurred, but
subject to any existing liens or encumbrances thereon; and
(iii) all liabilities and obligations of each of the Constituent
Corporations shall be allocated to the Surviving Corporation. The Surviving
Corporation shall be the primary obligor therefor and, except as otherwise
provided by law or contract, no party to the Merger, other than the Surviving
Corporation, shall be liable therefor.
In furtherance of the foregoing, at the Effective Time, all property, rights,
title, interests, privileges and franchises of Texas Corporation, real, personal
or mixed, tangible or intangible, and all debts and obligations of Texas
Corporation, shall be taken by and deemed to be transferred and assigned to and
vested in Delaware Corporation as they were in Texas Corporation without further
act or deed; and all such property, rights, title, interests, privileges and
franchises shall thereafter be the property of Delaware Corporation as it was of
Texas Corporation. Title to any real property, or any interest therein, whether
vested by deed of otherwise, of Texas Corporation shall not revert or be in any
way impaired by reason of the Merger; provided, however, that all liens upon any
property of Texas Corporation shall be preserved unimpaired, and all debts,
liabilities, obligations and duties of the respective Constituent Corporations
shall thenceforth attach to the Surviving Corporation, and may be enforced
against it to the same extent as if said debts, liabilities, obligations and
duties had been incurred or contracted by it. The parties hereto hereby
respectively agree that from time to time, as and when requested by the
Surviving Corporation or by its successors, assigns, receivers, trustees or
other legal representatives, they will execute and deliver or cause to be
executed and delivered all such deeds and instruments and further assurances and
will take or cause to be taken all such further and other action, as the
Surviving Corporation may deem necessary or desirable in order to vest in and
confirm to the Surviving Corporation, or its successors, assigns, receivers,
trustees or other legal representatives, title to and possession of all of the
aforesaid properties and rights and otherwise carry out the intent and purposes
of this Merger Agreement.
Page 7
<PAGE>
No shareholder of Delaware Corporation will, as a result of the Merger,
become personally liable without his consent, for the liabilities or obligations
of Texas Corporation or any other person or entity.
ARTICLE NINE
Consummation; Termination
-------------------------
After the Merger is approved, and at any time prior to the filing of the
Plan of Merger (or a Certificate of Merger in lieu thereof), the Plan of Merger
may be terminated and abandoned (subject to any contractual rights) by either
Texas Corporation or Delaware Corporation without shareholder approval,
notwithstanding approval of the Plan of Merger by the shareholders of all or any
of the Constituent Corporations. In accordance with the provisions of Article
5.03I of the TBCA and Section 251(d) of the Delaware Law, if Articles of Merger
have been filed with the Secretary of State of Texas or the Plan of Merger (or a
Certificate of Merger in lieu thereof) has been filed with the Secretary of
State of Delaware but the Merger has not become effective, the Merger may be
abandoned as provided in Article 5.03I of the TBCA and Section 251(d) of the
Delaware Law if a statement or certificate of termination, executed on behalf of
each of the Constituent Corporations, stating that the Plan of Merger has been
abandoned in accordance with such Plan of Merger and Article 5.03I of the TBCA
and Section 251(a) of the Delaware Law, is filed with the Secretary of State of
Texas and the Secretary of State of Delaware prior to the Effective Time of the
Merger. Notwithstanding shareholder authorization and at any time prior to the
filing of the Articles of Merger or the Plan of Merger (or a Certificate of
Merger in lieu thereof), the Merger may be deferred from time to time on mutual
consent of the respective boards of directors of each of the Constituent
Corporations.
ARTICLE TEN
Amendments
----------
The Plan of Merger may be amended by the boards of directors of the
Constituent Corporations before or after the approval and adoption hereof by
shareholders of each of the Constituent Corporations at any time after filing of
the Articles of Merger with the Secretary of State of Texas or the Plan of
Merger (or a Certificate of Merger in lieu thereof) with the Secretary of State
of Delaware and prior to the Effective Time with respect to any of the terms
contained herein; provided, however, that any amendment so made shall not (i)
alter or change the amount or kind
Page 8
<PAGE>
of shares, securities, cash, property and/or rights to be received in exchange
for or on conversion of all or any of the shares of any class or series thereof
of any Constituent Corporation, (ii) alter or change any term of the Certificate
of Incorporation of the Surviving Corporation to be effected by the Merger, or
(iii) alter or change any of the terms and conditions of the Plan of Merger if
such alteration or change would adversely affect the holders of any class or
series thereof of such Constituent Corporation. Any such amendment shall be
filed with the appropriate Secretary of State to the extent required by
applicable law.
ARTICLE ELEVEN
Binding Agreement
-----------------
This Plan of Merger shall be binding upon and shall inure to the benefit of
the Constituent Corporations, their respective successors, assigns, receivers,
trustees and other legal representatives.
IN WITNESS WHEREOF, each of the parties hereto has caused this Plan of
Merger to be executed on its behalf by its officers thereunto duly authorized,
all as of the date and year first above written.
Texas Corporation:
KEVCO TEXAS, INC.
By: ______________________ATTEST:
Signature
______________________ Print Name: Jerry E. Kimmel
Richard S. Tucker, Secretary Title: Chairman of the Board and President
Page 9
<PAGE>
Delaware Corporation:
KEVCO DELAWARE, INC.
By: _________________ATTEST:
Signature
Print Name: Jerry E. Kimmel
- ------------------------
Richard S. Tucker, Secretary Title: Chairman of the Board and President
THE STATE OF TEXAS (S)
(S)
COUNTY OF TARRANT (S)
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared JERRY E. KIMMEL, Chairman of the Board
and President of Kevco Texas, Inc., a Texas corporation and one of the
corporations described and which executed the foregoing Plan and Agreement of
Merger, known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he, the said JERRY E. KIMMEL, as such
Chairman of the Board and President, duly executed said Plan and Agreement of
Merger before me and acknowledged to me that said Plan and Agreement of Merger
is the act, deed and agreement of said Kevco Texas, Inc., and that the facts
stated therein are true.
GIVEN under my hand and seal of office this _____ day of ________, 1996.
-----------------------------------------
Notary Public - State of Texas
My commission expires:
---------------
Page 10
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF TARRANT (S)
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared JERRY E. KIMMEL, Chairman of the Board
and President of Kevco Delaware, Inc., a Delaware corporation and one of the
corporations described and which executed the foregoing Plan and Agreement of
Merger, known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he, the said JERRY E. KIMMEL, as such
Chairman of the Board and President, duly executed said Plan and Agreement of
Merger before me and acknowledged to me that said Plan and Agreement of Merger
is the act, deed and agreement of said Kevco Delaware, Inc., and that the facts
stated therein are true.
GIVEN under my hand and seal of office this _____ day of ________, 1996.
-----------------------------------------
Notary Public - State of Texas
My commission expires:
-----------
Page 11
<PAGE>
EXHIBIT 2.3
Bill of Sale and General Assignment
This Bill of Sale and General Assignment (the "Assignment") is executed and
delivered this _____ day of ____________, 1996 by KEVCO DELAWARE, INC., a
Delaware corporation ("Assignor"), to SUNBELT WOOD COMPONENTS, INC., a Delaware
corporation ("Assignee");
WITNESSETH:
WHEREAS, Assignor has determined that it is in its best interest to
restructure its operations along product lines in order to, among other things,
enable its Sunbelt Wood Components division (the "Division") to more accurately
account for and budget its revenues and expenses, including overhead expenses,
conduct its business and achieve a higher visibility and separate identity as a
manufacturer of wood products for sale generally to the manufactured housing
industry (the "Restructuring"); and
WHEREAS, following consummation of the Restructuring, Assignee will be a
wholly-owned subsidiary of Assignor; and
WHEREAS, in order to consummate the Restructuring, it is necessary for
Assignor to transfer and assign to Assignee all of Assignor's rights, title,
interests, claims, equities, and incidents of ownership in and to all assets and
properties of Assignor, tangible or intangible, real, personal or mixed, and
wheresoever located, used by Assignor in the operation of the Division
(collectively the "Assigned Property"). As used herein, the term "Assigned
Property" means the assets described on the balance sheet of the Division
attached hereto as Exhibit "A" and herein incorporated by reference for all
purposes, together with any assets of the Division acquired since such date and
less any assets of the Division disposed of since such date in the ordinary
course of the Division's business, together with all leases, trademarks, service
marks and other intellectual property owned by the Division or in which it has
an interest;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged,
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Assignor does hereby transfer, convey, assign, deliver and set over, and by
these presents does hereby transfer, convey, assign, deliver and set over, unto
Assignee, without recourse and without any representation or warranty being
made, express, implied or statutory, all of Assignor's rights, title, interest,
claims, equities and incidents of ownership in and to the Assigned Property.
TO HAVE AND TO HOLD the Assigned Property with all of the appurtenances
thereto unto Assignee, its successors, assigns, receivers, trustees and legal
representatives forever, to its and their own use and benefit.
Assignor covenants and agrees to and with Assignee that Assignor will, at
any time and from time to time from and after the date hereof, upon the
reasonable request of Assignee, execute and deliver to Assignee or Assignee's
designee or designees, all other and further instruments and assurances
reasonably necessary so as to further vest in Assignee full right, title and
interest in and to any of the Assigned Property or interest therein, which this
instrument purports to transfer to Assignee.
This Assignment shall be binding upon Assignor, its successors, assigns,
receivers, trustees and other legal representatives, and it shall inure to the
benefit of Assignee, its successors, assigns, receivers, trustees and other
legal representatives.
EXECUTED AND DELIVERED as of the day and year first above written,
effective _______________, 1996.
ASSIGNOR:
KEVCO DELAWARE, INC.
By:__________________________________
Its ______________________________
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THE STATE OF TEXAS (S)
(S)
COUNTY OF TARRANT (S)
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared ___________________________,
__________________________________ of KEVCO DELAWARE, INC., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated and
as the act and deed of said corporation.
GIVEN under my hand and seal of office this _____ day of
_________________________, 1995.
----------------------------------------
Notary Public - State of Texas
My commission expires:
--------------------------
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EXHIBIT 2.4
Assumption Agreement
This Assumption Agreement (the "Assumption Agreement") is made and entered
into as of the _______ day of _____________________, 1996 by and between KEVCO
DELAWARE, INC., a Delaware corporation (the "Company"), and SUNBELT WOOD
COMPONENTS, INC., a Delaware corporation ("Sunbelt");
WITNESSETH:
WHEREAS, the Company has determined that it is in its best interest to
restructure its operations along product lines in order to, among other things,
enable its Sunbelt Wood Components division (the "Division") to more accurately
account for and budget its revenues and expenses, including overhead expenses,
conduct its business and achieve a higher visibility and separate identity as a
manufacturer of wood products for sale generally to the manufactured housing
industry (the "Restructuring"); and
WHEREAS, following consummation of the Restructuring, Sunbelt will be a
wholly-owned subsidiary of the Company;
WHEREAS, in connection with the Restructuring, Sunbelt has agreed to assume
the debts, obligations and liabilities of the Company as set forth on the
balance sheet of the Division, as well as any other liabilities incurred in the
ordinary course of business of the Division since the date thereof (the "Assumed
Liabilities");
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed as follows:
1. Assumed Liabilities. Sunbelt hereby assumes the Assumed Liabilities
-------------------
and hereby covenants and agrees to and with the Company to timely, punctually
and promptly keep, perform, fulfill and discharge in accordance with their
respective terms, each and every of the Assumed Liabilities.
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2. Indemnification. Sunbelt hereby covenants and agrees to indemnify and
---------------
hold harmless the Company and its officers, directors, shareholders and other
representatives from and against any breach of this Assumption Agreement or any
failure by Sunbelt to fulfill or perform any of the terms or provisions of this
Assumption Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Assumption
Agreement to be executed by their respective officers, duly authorized, as of
the day and year first above written, effective ____________________, 1996.
COMPANY:
KEVCO DELAWARE, INC.
By:
-----------------------------
Its
-----------------------
SUNBELT:
SUNBELT WOOD COMPONENTS, INC.
By:
-----------------------------
Its
-----------------------
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EXHIBIT 3.1
Amended and Restated
ARTICLES OF INCORPORATION
of
KEVCO, INC.
Pursuant to the provisions of Article 4.07 of the Texas Business
Corporation Act (the "TBCA"), the undersigned corporation hereby adopts Amended
and Restated Articles of Incorporation (the "Restated Articles") that accurately
copy the Articles of Incorporation and all amendments thereto that are in effect
immediately prior hereto (collectively the "Old Articles") and that further
amend such Old Articles by the Restated Articles as hereinafter set forth and
which contain no other change in any provision thereof.
Section One
The Restated Articles restate and integrate and further amend the Old
Articles by substituting for the provisions of the Old Articles in their
entirety the provisions of the Restated Articles set forth in Section Four of
these Restated Articles. The amendments effected by these Restated Articles
affect the Old Articles, as follows:
(i) by amending Article Four (Capitalization);
(ii) by amending Article Five (Denial of Preemptive Rights);
(iii) by amending Article Seven (Shareholder Approval);
(iv) by amending Article Eight (Limitation of Liability and
Indemnification);
(v) by amending Article Nine (Business Combinations);
(vi) by amending Article Twelve (Amendment of Bylaws);
(vii) by amending Article Sixteen (Directors);
(viii) by deleting Article Thirteen;
(ix) by deleting Article Seventeen; and
(x) by renumbering the Articles.
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Section Two
Each amendment made by the Restated Articles has been effected in
conformity with the provisions of the TBCA.
Section Three
The amendments contained in these Restated Articles, which amend the
Old Articles were adopted by the board of directors of the corporation on
October 2, 1996. No shares of the corporation have been issued.
Section Four
The Old Articles are hereby superseded by the following Restated
Articles, which Restated Articles accurately copy the entire text thereof as
amended:
Amended and Restated
Articles of Incorporation of Kevco, Inc.
ARTICLE ONE
-----------
The name of the corporation is Kevco, Inc.
ARTICLE TWO
-----------
The period of its duration is perpetual.
ARTICLE THREE
-------------
The purpose for which the corporation is organized is to buy, sell and
deal in personal property, real property and services as well as to engage in
any and all other lawful business and activities authorized or permitted under
Texas law.
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ARTICLE FOUR
------------
The aggregate number of shares of capital stock which the corporation
shall have the authority to issue is ONE HUNDRED MILLION (100,000,000) shares of
common stock, ONE CENT ($.01) par value per share. Each share of stock shall
have identical rights and privileges in every respect.
ARTICLE FIVE
------------
No shareholder of the corporation shall have any preemptive or
preferential right whatsoever to acquire additional, unissued, or treasury
shares of the corporation, or securities of the corporation convertible into or
carrying a right to subscribe to or acquire shares of any class of stock of the
corporation.
ARTICLE SIX
-----------
Directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present. Cumulative voting in the election of
directors of the corporation is expressly denied.
ARTICLE SEVEN
-------------
With respect to any matter, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the Texas Business Corporation Act,
the act of the shareholders shall be the affirmative vote of at least a majority
of the shares entitled to vote on, and voted for or against, that matter at a
meeting of shareholders at which a quorum is present.
With respect to any matter for which the affirmative vote of the
holders of a specified portion of the shares entitled to vote is required by the
Texas Business Corporation Act, the act of the shareholders on that matter shall
be the affirmative vote of the holders of at least a majority of the
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majority of the shares entitled to vote on that matter, rather than the
affirmative vote otherwise required by the Texas Business Corporation Act.
ARTICLE EIGHT
-------------
(A) Limitation of Liability. In addition to any other limitation of
-----------------------
liability for directors provided for at law (including the TBCA), the Articles
of Incorporation or the Bylaws, no director of this corporation shall be
personally liable to the corporation or any of its shareholders for monetary
damages for an act or omission in the director's capacity as a director, except
that this Article Eight (A) does not eliminate or limit the liability of a
director to the extent the director is found liable for: (i) a breach of the
director's duty of loyalty to the corporation or its shareholders; (ii) an act
or omission not in good faith that constitutes a breach of duty of the director
to the corporation or an act or omission that involves intentional misconduct or
a knowing violation of the law; (iii) a transaction from which the director
received an improper benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office; (iv) an act or omission for
which the liability of a director is expressly provided by an applicable
statute. Neither the amendment nor repeal of this Article Eight (A), nor the
adoption of any provisions of the Articles of Incorporation of this corporation
inconsistent with this Article Eight (A), shall eliminate or reduce the effect
of this Article Eight (A) in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article Eight (A), would accrue or
arise, prior to such amendment, repeal or adoption of any inconsistent
provision. If, after approval of this Article Eight (A), the TBCA, the Texas
Miscellaneous Corporation Laws Act (the "TMCLA") or any other laws of the State
of Texas are enacted or amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director
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of this corporation shall be eliminated or limited to the fullest extent
permitted by such laws as so enacted or amended from time to time.
(B) Indemnification.
---------------
(1) The corporation shall indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director to the fullest extent and manner permissible
under the TBCA or applicable rules, regulations or laws.
(2) A person shall be indemnified under paragraph (1) of this Article
Eight (B) against judgments, penalties (including excise and similar taxes),
fines, settlements, and reasonable expenses actually incurred by the person in
connection with the proceeding; but if the person is found liable to the
corporation or is found liable on the basis that personal benefit was
improperly received by the person, the indemnification (a) shall be limited to
reasonable expenses actually incurred by the person in connection with the
proceeding and (b) shall not be made in respect of any proceeding in which the
person shall have been found liable for willful or intentional misconduct in the
performance of his duty to the corporation.
(3) The mandatory indemnification provision set forth in paragraph (1)
of this Article Eight (B) shall be deemed to constitute authorization of
indemnification in the manner required by the TBCA even though this provision
may not have been adopted or authorized in the same manner as the determination
that indemnification is permissible.
(4) The corporation shall indemnify a director against reasonable
expenses incurred by him in connection with a proceeding in which he is a named
defendant or respondent because he is or was a director if he has been wholly
successful, on the merits or otherwise, in the defense of the proceeding.
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(5) Reasonable expenses incurred by a director who was, is, or is
threatened to be made a named defendant or respondent in a proceeding shall be
paid or reimbursed by the corporation in advance of the final disposition of the
proceeding (and without any prior determination or authorization being first
required) after (a) the corporation receives a written affirmation by the
director of his good faith belief that he has met the standard of conduct
necessary for indemnification under this Article Eight and the TBCA, and (b) a
written undertaking by or on behalf of the director to repay the amount paid or
reimbursed if it is ultimately determined that he has not met that standard or
if it is ultimately determined that indemnification of the director against
expenses incurred by him in connection with that proceeding is prohibited by the
TBCA. This mandatory payment or reimbursement provision shall be deemed to
constitute authorization of that payment or reimbursement.
(6) The written undertaking required by paragraph (5) of this Article
Eight (B) must be an unlimited general obligation of the director that need not
be secured. It may be accepted without reference to financial ability to make
repayment.
(7) Notwithstanding any other provision of this Article Eight, the
corporation shall pay or reimburse expenses incurred by a director in
connection with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
(8) An officer of the corporation shall be indemnified as, and to the
same extent, provided by the TBCA and this Article Eight for a director and is
entitled to indemnification to the same extent as a director. The corporation
shall indemnify and advance expenses to an officer, and
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may indemnify advance expenses to an employee or agent, of the corporation to
the same extent that it is authorized to indemnify and advance expenses to
directors under this Article Eight.
(9) The corporation may indemnify and advance expenses to persons who
are not or were not officers, employees or agents of the corporation, but who
are or were serving at the request of the corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, a partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise to the same
extent that it is authorized to indemnify and advance expenses to directors
under this Article Eight.
(10) The corporation shall indemnify and advance expenses to an
officer, and may indemnify and advance expenses to an employee, agent or person
indemnified in paragraph (9) of this Article Eight (B) and who is not a
director, to such further extent, consistent with law, as may be provided by the
Articles of Incorporation of this corporation, the bylaws, general or specific
action of the board of directors of this corporation, or contract or is
permitted or required by common law.
(C) Insurance or Other Arrangement. The corporation may purchase and
------------------------------
maintain insurance or another arrangement on behalf of any person who is or was
a director, officer, employee or agent of this corporation or who is or was
serving at the request of this corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against any
liability asserted against him and incurred by him in such a capacity or arising
out of his status as such a person, whether or not the corporation would have
the power to indemnify him against that liability under this Article Eight. If
the insurance or other arrangement is with a person or entity that is not
regularly engaged in the business
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of providing insurance coverage, the insurance or arrangement may provide for
payment of a liability with respect to which the corporation would not have the
power to indemnify the person only if including coverage for the additional
liability has been approved by the shareholders of the corporation.
(D) Miscellaneous.
-------------
(1) Any indemnification of or advance of expenses to a director in
accordance with this Article Eight shall be reported in writing to the
shareholders of this corporation with or before the notice or waiver of notice
of the next shareholders' meeting or with or before the next submission to
shareholders of a consent to action without a meeting pursuant to the TBCA
and, in any case, within the twelve month period immediately following the date
of the indemnification or advance.
(2) For purposes of this Article Eight, the corporation is deemed to
have requested a director to serve an employee benefit plan whenever the
performance by him of his duties to the corporation also imposes duties on or
otherwise involve services by him to the plan or participants or beneficiaries
of the plan. Excise taxes assessed on a director with respect to an employee
benefit plan pursuant to applicable law are deemed fines. Action taken or
omitted by him with respect to a employee benefit plan in the performance of his
duties for a purpose reasonably believed by him to be in the best interest of
the participants and beneficiaries of the plan is deemed to be for a purpose
which is not opposed to the best interest of the corporation.
(E) Definitions. As used in this Article Eight the following terms shall
-----------
have the following meanings:
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(1) The terms "corporation," "director," "expenses," and "proceeding,"
shall have the meanings given such terms in Art. 2.02-1 of the TBCA.
(2) The term "TBCA" means the Texas Business Corporation Act as now in
effect or as hereafter amended.
(F) Enforceability. This Article Eight shall be given its broadest
--------------
effect and application permissible under the TBCA and other applicable law and
only to such extent. If it is finally determined by a court of competent
jurisdiction that this Article Eight is invalid, illegal or unenforceable in any
respect or respects, it shall nevertheless be enforceable to the extent and
given its broadest effect and application found by such court to be consistent
with the TBCA and other applicable law.
(G) Non-Exclusive Rights. The rights of indemnification and reimbursement
--------------------
provided herein shall not be exclusive of any other rights to which such person
may be entitled by law, agreement, general or specific action of the board of
directors, shareholders' vote or otherwise.
ARTICLE NINE
------------
(A) The corporation shall not, directly or indirectly, enter into or engage
in a business combination with an affiliated shareholder, or any affiliate or
associate of such affiliated shareholder, during the three year period
immediately following such affiliated shareholder's share acquisition date
unless:
(1) the business combination or the purchase or acquisition of shares
of the corporation made by such affiliated shareholder on the affiliated
shareholder's share acquisition date is approved by the board of directors of
the corporation before the affiliated shareholder's share acquisition date; or
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(2) the business combination is approved, by the affirmative vote of
the holders of at least two-thirds of the issued and outstanding voting shares
of the corporation not beneficially owned by such affiliated shareholder or an
affiliate or associate of such affiliated shareholder, at a meeting of
shareholders and not by written consent, duly called for that purpose not less
than six months after the affiliated shareholder's share acquisition date.
(B) Article Nine (A) shall not apply to:
(1) a business combination of the corporation with an affiliated
shareholder that became an affiliated shareholder inadvertently, if the
affiliated shareholder:
(a) as soon as practicable divests itself of a sufficient number
of the voting shares of the corporation so that it no longer is the beneficial
owner, directly or indirectly, of twenty percent or more of the issued and
outstanding voting shares of the corporation; and
(b) would not at anytime within the three year period preceding
the announcement date of the business combination, have been an affiliated
shareholder but for the inadvertent acquisition;
(2) a business combination with Jerry E. Kimmel or an affiliate or
associate of Jerry E. Kimmel; or
(3) a business combination with an affiliated shareholder or an
affiliate or associate of an affiliated shareholder who became an affiliated
shareholder through a transfer of shares of the corporation by will or intestate
succession and continuously was such an affiliated shareholder until the
announcement date of the business combination; or
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(4) a business combination of the corporation with a domestic wholly-
owned subsidiary if the domestic subsidiary is not an affiliate or associate of
the affiliated shareholder other than by reason of the affiliated shareholder's
beneficial ownership of voting shares in the corporation.
(C) This Article shall not affect, directly or indirectly, the validity of
any other action by the board of directors of the corporation, nor does it
preclude the board of directors from taking other action in accordance with law,
nor does the board of directors incur a liability for elections made or not made
under this Article.
(D) In discharging the duties of director under the Texas Business
Corporation Act or otherwise, a director, in considering the best interests of
the corporation, may consider the long-term as well as the short-term interests
of the corporation and its shareholders, including the possibility that those
interests may be best served by the continued independence of the corporation.
(E) If any provision or clause of this Article or application thereof
to any person or circumstance is held invalid, such invalidity shall not affect
other provisions or applications of this Article that can be given effect
without the invalid provision or application and without being inconsistent with
the intent of this Article, and to this end, the provisions of this Article are
declared to be severable.
(F) In this Article Nine:
(1) "Affiliate" means a person who directly or indirectly through one
or more intermediaries controls, is controlled by, or is under common control
with, a specified person.
(2) "Affiliated Shareholder" means a person, other than the
corporation or a wholly-owned subsidiary of the corporation, that is the
beneficial owner of twenty percent or more of the issued and outstanding voting
shares of the corporation, or that, within the preceding three
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year period, was the beneficial owner of twenty percent or more of the then
issued and outstanding voting shares of the corporation. For purposes of
determining whether a person is an affiliated shareholder, the number of voting
shares of the corporation considered outstanding includes shares considered
beneficially owned by that person under subdivision 4 of this Article Nine(F),
but does not include other unissued voting shares of the corporation that may be
issuable pursuant to an agreement, arrangement or understanding, or upon
exercise or conversion of rights, warrants, or options, or otherwise.
(3) "Associate," when used to indicate a relationship with any person,
means:
(a) a corporation or organization (other than the corporation or a
majority owned subsidiary of the corporation) of which such person is an
officer, director or partner or is, directly or indirectly, the beneficial owner
of ten percent or more of any class of equity securities;
(b) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
capacity; or
(c) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or officer of
such person or any subsidiary of such person.
(4) "Beneficial Owner" means a person who, with respect to shares or
similar securities:
(a) individually, or with or through an affiliate or associate,
beneficially owns the shares or similar securities, directly or indirectly;
(b) individually, or with or through an affiliate or associate, has
the right to:
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(i) acquire the shares or similar securities, whether the right
may be exercised immediately or only after the passage of time, pursuant to an
agreement, arrangement, or understanding, whether or not in writing, or upon the
exercise of conversion rights, exchange rights, warrants, or options, or
otherwise, except that a person is not considered the beneficial owner of shares
or similar securities (aa) tendered pursuant to a tender or exchange offer made
by the person or an affiliate or associate until the tendered shares or similar
securities are accepted for purchase or exchange, or (bb) that may be subject to
an agreement, arrangement, or understanding that expressly conditions the
acquisition or purchase on the approval of the acquisition or purchase pursuant
to Article Nine (A) as long as such person has no direct or indirect rights of
ownership or voting with respect to such shares until such time that such
approval is obtained, at which time such person shall be considered the
beneficial owner of such shares; or
(ii) vote the shares or similar securities pursuant to an
agreement, arrangement, or understanding, whether or not in writing, except that
a person is not considered the beneficial owner of shares or similar securities
for purposes of this subparagraph if the agreement, arrangement, or
understanding to vote the shares: (aa) arises solely from an immediately
revocable proxy that authorizes the person named in the proxy to vote at a
meeting of shareholders that has been called when the proxy is delivered or at
any adjournment of the meeting, and (bb) is not then reportable on a Schedule
13D under the Securities Exchange Act of 1934 or a comparable or successor
report; or
(c) has an agreement, arrangement, or understanding, whether or not in
writing, to acquire, hold, or dispose (except pursuant to an agreement,
arrangement, or understanding permitted by subdivision (4)(b)(i) of this Article
Nine) or to vote (except under an immediately
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revocable proxy under subdivision (4)(b)(ii) of this Article Nine) the shares or
similar securities with another person who beneficially owns, or whose affiliate
or associate beneficially owns, directly or indirectly, the shares or similar
securities.
(5) "Business combination" means:
(a) any merger, share exchange, or conversion of the corporation or a
subsidiary with:
(i) an affiliated shareholder;
(ii) a foreign or domestic corporation or other entity that is,
or after the merger, share exchange, or conversion would be, an affiliate or
associate of the affiliated shareholder; or
(iii) another domestic or foreign corporation or other entity, if
the merger, share exchange, or conversion is caused by an affiliated
shareholder, or an affiliate or associate of an affiliated shareholder, and as a
result of the merger, share exchange, or conversion this Article Nine does not
apply to the surviving corporation or other entity;
(b) a sale, lease, exchange, mortgage, pledge, transfer, or other
disposition, in one transaction or a series of transactions, including an
allocation of assets pursuant to a merger, to or with the affiliated
shareholder, or an affiliate or associate of the affiliated shareholder, of
assets of the corporation or any subsidiary that:
(i) have an aggregate market value equal to 10 percent or more of
the aggregate market value of all the assets, determined on a consolidated
basis, of the corporation;
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(ii) have an aggregate market value equal to 10 percent or more
of the aggregate market value of all the outstanding common stock of the
corporation; or
(iii) represent 10 percent or more of the earning power or net
income, determined on a consolidated basis, of the corporation;
(c) the issuance or transfer by the corporation or a subsidiary to an
affiliated shareholder or an affiliate or associate of the affiliated
shareholder, in one transaction or a series of transactions, of shares of the
corporation or a subsidiary, except by the exercise of warrants or rights to
purchase shares of the corporation offered, or a share dividend paid, pro rata
to all shareholders of the corporation after the affiliated shareholder's share
acquisition date;
(d) the adoption of a plan or proposal for the liquidation or
dissolution of a corporation proposed by, or pursuant to any agreement,
arrangement, or understanding, whether or not in writing, with an affiliated
shareholder or an affiliate or associate of the affiliated shareholder;
(e) a reclassification of securities, including a reverse share split
or a share split-up, share dividend, or other distribution of shares, a
recapitalization of the corporation, a merger of the corporation with a
subsidiary or pursuant to which the assets and liabilities of the corporation
are allocated among two or more surviving or new domestic or foreign
corporations or other entities, or any other transaction, whether or not with,
into, or otherwise involving the affiliated shareholder, proposed by, or
pursuant to an agreement, arrangement, or understanding, whether or not in
writing, with an affiliated shareholder or an affiliate or associate of the
affiliated shareholder that has the effect, directly or indirectly, of
increasing the proportionate ownership percentage of the outstanding shares of a
class or series of voting shares or securities convertible into voting shares of
the
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corporation that is beneficially owned by the affiliated shareholder or an
affiliate or associate of the affiliated shareholder, except as a result of
immaterial changes due to fractional share adjustments; or
(f) the direct or indirect receipt by an affiliated shareholder or an
affiliate or associate of the affiliated shareholder of the benefit of a loan,
advance, guarantee, pledge, or other financial assistance or a tax credit or
other tax advantage provided by or through the corporation, except
proportionately as a shareholder of the corporation.
(6) "Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of equity securities, by contract, or
otherwise. A person's beneficial ownership of 10 percent or more of a person's
outstanding voting shares or similar interests creates a presumption that the
person has control of such other person.
(7) "Person" means an individual, trust, domestic or foreign corporation
or other entity, or a government, or a political subdivision, agency, or
instrumentality of a government. If two or more persons act as a partnership,
limited partnership, syndicate, or other group under an agreement, arrangement,
or other understanding, whether or not in writing, to acquire, hold, vote, or
dispose of shares of a corporation, all members of the partnership, limited
partnership, syndicate, or other group are considered to be a person.
(8) "Share acquisition date" means the date that a person first becomes an
affiliated shareholder of the corporation.
(9) "Subsidiary" means a domestic or foreign corporation or other
entity of which a majority of the outstanding voting shares are owned, directly
or indirectly, by the corporation.
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<PAGE>
(10) "Voting share" means a share of capital stock of a corporation
entitled to vote generally in the election of directors.
ARTICLE TEN
-----------
Special meetings of the shareholders of the corporation may be called
by the holders of at least 40% of the issued and outstanding shares of the
corporation entitled to vote at the proposed special meeting of shareholders of
the corporation.
ARTICLE ELEVEN
--------------
Any action required by the Texas Business Corporation Act to be taken
at any annual or special meeting of shareholders, or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE TWELVE
--------------
The board of directors of the corporation shall have the sole power to
alter, amend or repeal the bylaws of the corporation or adopt new bylaws.
ARTICLE THIRTEEN
----------------
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of at least ONE THOUSAND
AND NO/100 DOLLARS ($1,000.00) consisting of money paid, labor done or property
actually received.
Page 17
<PAGE>
ARTICLE FOURTEEN
----------------
The address of its initial registered office is: 1300 So. University
Drive, Suite 200, Fort Worth, Texas 76107 and the registered agent at such
address is Gerald E. Kimmel.
ARTICLE FIFTEEN
---------------
The number of directors of the corporation shall be fixed from time
to time by the bylaws of the corporation, and such number may from time to time
be increased or decreased in such manner as may be prescribed in the bylaws.
The names and addresses of the persons currently serving as directors are as
follows and such persons shall serve as directors until the annual meeting of
the shareholders of the corporation or until their successors are duly elected
and qualified:
Page 18
<PAGE>
Jerry E. Kimmel
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107
Richard S. Tucker
777 Main Street, Suite 1800
Fort Worth, Texas 76102
DATE: October ____, 1996.
KEVCO, INC.
By:
------------------------------------
Jerry E. Kimmel, Director
By:
------------------------------------
Richard S. Tucker, Director
Page 19
<PAGE>
Page 20
<PAGE>
EXHIBIT 3.2
Bylaws of
Kevco, Inc.
<TABLE>
<CAPTION>
<S> <C>
Article 1: Offices......................................... 1
- -------------------
1.01 Registered Office and Agent...................... 1
---------------------------
1.02 Other Offices.................................... 1
-------------
Article 2: Shareholders..................................... 1
2.01 Place of Meetings................................ 1
-----------------
2.02 Annual Meeting................................... 2
--------------
2.03 Voting List...................................... 2
-----------
2.04 Special Meeting.................................. 3
---------------
2.05 Notice........................................... 3
------
2.06 Quorum/Withdrawal of Quorum...................... 4
---------------------------
2.07 Voting by Shareholders........................... 4
----------------------
2.08 Method of Voting................................. 5
----------------
2.09 Record Date; Closing Transfer Books.............. 5
-----------------------------------
2.10 Action Without Meeting........................... 5
----------------------
Article 3: Directors....................................... 6
- ---------------------
3.01 Management....................................... 6
----------
3.02 Number; Qualifications; Election; Term........... 6
--------------------------------------
3.03 Change in Number................................. 7
----------------
3.04 Removal.......................................... 7
-------
3.05 Vacancies........................................ 7
---------
3.06 Nominations for Election as a Director........... 8
--------------------------------------
3.07 Place of Meetings................................ 9
-----------------
3.08 First Meeting.................................... 9
-------------
3.09 Regular Meetings................................. 9
----------------
3.10 Special Meetings................................. 9
----------------
3.11 Quorum of and Action by Directors................ 9
---------------------------------
3.12 Compensation..................................... 9
------------
3.13 Procedure........................................ 9
---------
3.14 Interested Directors, Officers and Shareholders.. 9
-----------------------------------------------
3.15 Action Without Meeting........................... 10
----------------------
3.16 Limitation of Liability.......................... 10
-----------------------
Article 4: Indemnification and Insurance.................... 11
- ----------------------------------------
4.01 Indemnification.................................. 11
---------------
4.02 Insurance or Other Arrangement................... 12
------------------------------
4.03 Miscellaneous.................................... 13
-------------
4.04 Definitions...................................... 13
-----------
4.05 Enforceability................................... 13
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.06 Non-Exclusive Rights............................. 13
--------------------
Article 5: Notice.......................................... 14
-----------------
5.01 Method 14
------
5.02 Waiver 14
------
Article 6: Officers and Agents.............................. 14
- ------------------------------
6.01 Number; Qualifications; Election; Term........... 14
--------------------------------------
6.02 Removal.......................................... 15
-------
6.03 Vacancies........................................ 15
---------
6.04 Authority........................................ 15
---------
6.05 Compensation..................................... 15
------------
6.06 Chairman of the Board............................ 15
---------------------
6.07 President........................................ 15
---------
6.08 Vice Presidents.................................. 15
---------------
6.09 Secretary........................................ 15
---------
6.10 Assistant Secretary.............................. 16
-------------------
6.11 Treasurer........................................ 16
---------
6.12 Assistant Treasurer.............................. 17
-------------------
Article 7: Certificates and Shareholders.................... 17
- ----------------------------------------
7.01 Certificates..................................... 17
------------
7.02 Replacement of Lost or Destroyed Certificates.... 17
--------------------------------------------
7.03 Transfer of Shares............................... 17
------------------
7.04 Registered Shareholders.......................... 17
-----------------------
Article 8: General Provisions............................... 18
- -----------------------------
8.01 Dividends and Reserves........................... 18
----------------------
8.02 Books and Records................................ 18
-----------------
8.03 Checks and Notes................................. 18
----------------
8.04 Fiscal Year...................................... 18
-----------
8.05 Seal............................................. 18
----
8.06 Resignation...................................... 18
-----------
8.07 Amendment of Bylaws.............................. 19
-------------------
8.08 Construction..................................... 19
------------
8.09 Table of Contents; Headings...................... 19
---------------------------
Article 9: Committees of the Board of Directors............. 19
- -----------------------------------------------
9.01 Designation...................................... 19
-----------
9.02 Number; Qualifications; Term..................... 19
----------------------------
9.03 Authority........................................ 19
---------
9.04 Change in Number................................. 20
----------------
9.05 Removal.......................................... 20
-------
9.06 Vacancies........................................ 20
---------
9.07 Meetings......................................... 20
--------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.08 Quorum; Majority Vote............................ 20
---------------------
9.09 Compensation..................................... 20
------------
9.10 Procedure........................................ 20
---------
9.11 Action Without Meeting........................... 20
----------------------
9.12 Responsibility................................... 20
--------------
</TABLE>
<PAGE>
Bylaws of
Kevco, Inc.
Article 1: Offices
-------------------
1.01 Registered Office and Agent. The registered office of the
---------------------------
corporation shall be at its office designated in its Articles of Incorporation
and the name of the registered agent at such address shall be such person as is
named in its Articles of Incorporation.
1.02 Other Offices. The corporation may also have offices at such other
-------------
places both within and without the state of Texas as the board of directors may
from time to time determine or the business of the corporation may require.
Article 2: Shareholders
------------------------
2.01 Place of Meetings. All meetings of the shareholders for the election
-----------------
of directors or for the conduct of other business shall be held at such time and
place, within or without the state of Texas, as shall be stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
2.02 Annual Meeting. An annual meeting of the shareholders, commencing
--------------
with the year 1997, shall be held each year at a time and place as may be
designated from time to time by the board of directors of the corporation and
stated in the notice of the meeting. If such a day is a legal holiday, then the
meeting shall be on the next secular day following. At the meeting, the
shareholders shall elect directors and transact such other business as may
properly be brought before the meeting. In the event the annual meeting is
omitted by oversight or otherwise and not held as provided herein, an annual
meeting may be called in the manner provided for special meetings herein at a
subsequent date and the business transacted at such meeting shall be valid as if
transacted at the annual meeting. If called in the manner provided for special
meetings, only the time and place need be stated in the notice calling the
meeting, there being no requirement to specify or describe any purpose for which
the annual meeting is being called.
At the annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before the annual meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (ii) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (iii) otherwise properly
brought before the meeting by a shareholder of the corporation who is a
shareholder of record at the time of giving notice provided for in this Bylaw
2.02, who shall be entitled to vote at such meeting and who complies with the
notice procedures set forth in this Bylaw 2.02. For business to be properly
brought before an annual meeting by a shareholder, the shareholder, in addition
to other applicable requirements, must have given timely notice thereof in
writing to the secretary of the corporation. To be timely, a
Page 1
<PAGE>
a shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) days prior to the anniversary date of the immediately preceding annual
meeting of shareholders of the corporation, or in the case of the first annual
meeting to be held in 1997, by January 1, 1997. A shareholder's notice to the
secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the shareholder proposing such business, (iii) the class
and number of shares of voting stock of the corporation that are beneficially
owned by the shareholder, (iv) a representation that the shareholder intends to
appear in person or by proxy at the meeting to bring the proposed business
before the annual meeting, and (v) a description of any material interest of the
shareholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Bylaw 2.02. The presiding
officer of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that the business was not properly brought before the meeting in
accordance with the provisions of this Bylaw 2.02, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Bylaw 2.02, a shareholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder with respect
to the matters set forth in this Bylaw 2.02.
2.03 Voting List. At least ten (10) days before each meeting of
-----------
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each and the number
of voting shares held by each, shall be prepared by the officer or agent having
charge of the share transfer records. The list, for a period of ten (10) days
prior to the meeting, shall be kept on file in the registered office or
principal place of business of the corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. The list
shall also be produced and kept open at the time and place of the meeting during
the whole time thereof, and shall be subject to the inspection of any
shareholder during the whole time of the meeting.
2.04 Special Meeting. Special meetings of the shareholders, for any
---------------
purpose or purposes, may be called by the (i) chairman of the board, the
president, the board of directors, or (ii) holders of at least forty percent
(40%) of all the shares entitled to vote at the proposed special meeting, unless
the Articles of Incorporation provide for a number of shares greater than or
less than forty percent (40%), in which event special meetings of the share-
holders may be called by the holders of at least the percentage of shares so
specified in the Articles of Incorporation.
Only business within the purpose or purposes described in the notice required by
Section 2.05 of these Bylaws may be conducted at any special meeting of the
shareholders.
Page 2
<PAGE>
2.05 Notice. Written or printed notice stating the place, day and hour of
------
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
---
than sixty (60) days before the date of the meeting, either personally or by
-----
mail, by or at the direction of the president, the secretary, or the officer or
person calling the meeting, to each shareholder entitled to vote at the meeting.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail addressed to the shareholder at his address as it appears on
the share transfer records of the corporation, with postage thereon prepaid.
Any notice required to be given to any shareholder, by statute or the Articles
of Incorporation or the Bylaws of this corporation, need not be given to any
shareholder if (i) notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if any, or (ii)
all (but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a twelve month period, have been
mailed to that person, addressed at his address as shown on the share transfer
records of the corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such a person shall have the same force
and effect as if the notice had been duly given and, if the action taken by the
corporation is reflected in any articles or document filed with the Secretary of
State of Texas, those articles or that document may state that notice was duly
given to all persons to whom notice was required to be given. If such a person
delivers to the corporation a written notice setting forth his then current
address, the requirement that notice be given to that person shall be
reinstated.
2.06 Quorum/Withdrawal of Quorum. Unless otherwise provided by the
---------------------------
Articles of Incorporation, with respect to any matter, a quorum shall be present
at a meeting of shareholders if the holders of a majority of the shares entitled
to vote on that matter are represented at the meeting in person or by proxy.
Unless otherwise provided by the Articles of Incorporation, the shareholders
represented in person or by proxy at a meeting of shareholders at which a quorum
is not present may adjourn the meeting until such time and to such place as may
---
be determined by a vote of the holders of a majority of the shares represented
in person or by proxy at that meeting.
Unless otherwise provided by the Articles of Incorporation once a quorum is
present at a meeting of shareholders, the shareholders represented in person or
by proxy at the meeting may conduct such business as may be properly brought
before the meeting until it is adjourned, and the subsequent withdrawal from the
meeting of any shareholder or the refusal of any shareholder represented in
person or by proxy to vote shall not affect the presence of a quorum at the
meeting.
2.07 Voting by Shareholders.
----------------------
(a) Voting on matters other than with respect to the election of
------------------------------------------------------------
directors: With respect to any matter, other than the election of directors or
- ---------
a matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by statute, the affirmative vote of the
holders of a majority of the shares entitled to vote on that matter and
represented in person or by proxy at a meeting of shareholders at which a quorum
is present shall be the act of the shareholders, unless otherwise provided by
the Articles of Incorporation.
Page 3
<PAGE>
(b) Voting in the election of directors: Unless otherwise provided
-----------------------------------
by the Articles of Incorporation, directors shall be elected by a plurality of
the votes cast by the holders of shares entitled to vote in the election of
directors at a meeting of shareholders at which a quorum is present.
2.08 Method of Voting. Each outstanding share, regardless of class, shall
----------------
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders except (a) to the extent that the Articles of Incorporation provide
for more or less than one vote per share or (if and to the extent permitted by
statute) limit or deny voting rights to the holders of the shares of any class
or series, or (b) as otherwise provided by statute. At any meeting of the
shareholders, any shareholder may vote either in person or by proxy executed in
writing by such shareholder. A telegram, telex, cablegram or similar
transmission by the shareholder, or a photographic, photostatic, facsimile or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing for such purposes. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy. Each proxy shall be revocable unless the proxy form conspicuously states
that the proxy is irrevocable and the proxy is coupled with an interest. Each
proxy shall be filed with the secretary of the corporation prior to or at the
time of the meeting. Voting for directors shall be in accordance with Bylaw
3.02(d). Any vote may be taken viva voce or by show of hands unless someone
entitled to vote objects, in which case, written ballots shall be used.
2.09 Record Date; Closing Transfer Books.
-----------------------------------
(a) Fixing record dates for matters other than consents to actions:
---------------------------------------------------------------
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or entitled to receive a
distribution by the corporation (other than a distribution involving a purchase
or redemption by the corporation of any of its shares) or a share dividend, or
in order to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the board
of directors of the corporation may provide that the share transfer records
shall be closed for a stated period, but not to exceed, in any case, 60 days.
If the share transfer records shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
records shall be closed for at least 10 days immediately preceding such meeting.
In lieu of closing the share transfer records, the board of directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than sixty (60) days and, in the case of a
meeting of shareholders, not less than ten (10) days, prior to the date on which
the particular action requiring such determination of shareholders is to be
taken. If the share transfer records are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of the shareholders, or shareholders entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the corporation
of any of its own shares) or a share dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such distribution or share dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to notice at any meeting of shareholders
has been made as provided herein, such determination shall
Page 4
<PAGE>
apply to any adjournment thereof except where the determination has been made
through the closing of share transfer records and the stated period of closing
has expired. In the absence of any action by the board of directors, the date
upon which the notice of the meeting is mailed shall be the record date.
(b) Fixing record dates for consents to action: Unless a record date
------------------------------------------
shall have previously been fixed or determined by statute, whenever action by
shareholders is proposed to be taken by consent in writing without a meeting of
shareholders, the board of directors may fix a record date for the purpose of
determining shareholders entitled to consent to that action, which record date
shall not precede and shall not be more than 10 days after, the date upon which
the resolution fixing the record date is adopted by the board of directors. If
no record date has been fixed by the board of directors and the prior action of
the board of directors is not required by statute, the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation as
provided by statute. Delivery shall be by hand or by certified or registered
mail, return receipt requested. Delivery to the corporation's principal place
of business shall be addressed to the president or the principal executive
officer of the corporation. If no record date shall have been fixed by the
board of directors and prior action of the board of directors is required by
statute, the record date for determining shareholders entitled to consent to
action in writing without a meeting shall be at the close of business on the
date on which the board of directors adopts a resolution taking such prior
action.
2.10 Action Without Meeting. Any action required by statute to be taken
----------------------
at any annual or special meeting of shareholders, or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall have been signed by the holder
or holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting of shareholders at which the
holders of all shares entitled to vote the action were present and voted. Every
written consent signed by the holders of less than all the shares entitled to
vote with respect to the action that is the subject of the consent shall bear
the date of signature of each shareholder who signs the consent. No written
consent signed by the holders of less than all the shares entitled to vote with
respect to the action that is the subject of the consent shall be effective to
take the action that is the subject of the consent unless, within 60 days after
the date of the earliest dated consent delivered to the corporation in the
manner required by statute, a consent or consents signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take the action that is the subject of the consent are delivered to
the corporation by delivery to its registered office, its registered agent,
principal place of business, transfer agent, or an officer or agent of the
corporation having custody of the books in which proceedings of meetings of
shareholders are recorded. Delivery shall be by hand or certified or registered
mail, return receipt requested. Delivery to the corporation's principal place of
business shall be addressed to the president or principal executive officer of
the corporation. A telegram, telex, cablegram or similar transmission by a
shareholder, or a photographic, photostatic, facsimile or similar reproduction
of a writing signed by a shareholder, shall be regarded as signed by the
shareholder. Prompt notice of the taking of any action by
Page 5
<PAGE>
shareholders without a meeting by less than unanimous written consent shall be
given to those shareholders who did not consent in writing to the action. If any
action by shareholders is taken by written consent, any articles or documents
filed with the Secretary of State as a result of the taking of the action shall
state, in lieu of any statement required by statute concerning any vote of
shareholders, that written consent has been given in accordance with statutory
provisions and that any written notice required by such statutory provisions has
been given. Any such signed consent, or a signed copy thereof, shall be placed
in the minute book of the corporation.
Article 3: Directors
---------------------
3.01 Management. The powers of the corporation shall be exercised by or
----------
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the board of directors.
3.02 Number; Qualifications; Election; Term.
--------------------------------------
(a) Regular Directors: The number of directors constituting the board
-----------------
of directors shall be fixed from time to time by the board of directors, but
shall not be less than two (2), nor more than nine (9), none of whom need be a
shareholder or a resident of the state of Texas. Such directors shall be elected
at the annual meeting of the shareholders except as provided in Bylaws 3.02(c),
3.03 and 3.05. Each director shall hold office until his successor shall be
elected and shall qualify.
(b) Classification of Directors. The board of directors shall be
---------------------------
classified with respect to the time for which they shall severally hold office
by dividing the board into three (3) classes, each class to be as nearly equal
in number as possible. Each director of the corporation shall hold office until
his successor shall be duly elected and shall qualify. The term of office of
directors of the first class shall expire at the first annual meeting of
shareholders after their election, the term of office of directors of the second
class shall expire at the second annual meeting of shareholders after their
election, and the term of office of directors of the third class shall expire at
the third annual meeting of shareholders after their election. At each annual
meeting of shareholders after such classification, the number of directors equal
to the number of the class whose term expires at the time of such meeting shall
be elected to hold office until the third succeeding annual meeting so that the
term of office of one class of directors shall expire each year.
Page 6
<PAGE>
(c) Election. At each election for directors, every shareholder
--------
entitled to vote at such election shall have the right to vote the number of
shares owned by such shareholder for as many persons as there are directors to
be elected and for whose election he has a right to vote. At each annual
meeting of shareholders, the holders of shares entitled to vote in the election
of directors shall elect directors to hold office until the next succeeding
annual meeting, except in the case of the classification of directors.
3.03 Change in Number. The number of directors may be increased or
----------------
decreased by resolution of the Board of Directors from time to time, but no
decrease shall have the effect of shortening the term of any incumbent director.
Any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual meeting of shareholders or at a
special meeting of shareholders called for that purpose or may be filled by the
board of directors for a term of office continuing only until the next election
of one or more directors by the shareholders; provided, however, that the board
of directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders.
3.04 Removal. Except as otherwise specifically provided by the Articles
-------
of Incorporation, any director or the entire board of directors may be removed,
for or without cause, at any meeting of shareholders called expressly for that
purpose by the affirmative vote of at least a majority in number of the shares
then entitled to vote at an election of directors.
3.05 Vacancies. Any vacancy occurring in the board of directors after the
---------
issuance of shares (by death, resignation or removal) may be filled by an
affirmative vote of a majority of the remaining directors though less than a
quorum of the board of directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.
3.06 Nominations for Election as a Director. Other than with respect to
--------------------------------------
the initial board of directors of the corporation, only persons who are
nominated in accordance with the procedure set forth in these Bylaws shall be
eligible for election as, and to serve as, directors. Nominations of persons for
election to the board of directors of the corporation may be made at a meeting
of shareholders (i) by or at the direction of the board of directors, or (ii) by
any shareholder of the corporation who is a shareholder of record at the time of
giving of notice provided for in this Bylaw 3.06, who shall be entitled to vote
for the election of directors at the meeting and who complies with the notice
procedure set forth in this Bylaw 3.06. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the secretary of the corporation. To be timely, a
shareholder's notice shall be delivered or mailed and received at the principal
executive offices of the corporation (i) with respect to an election to be held
at an annual meeting of shareholders of the corporation, not less than 120 days
prior to the anniversary date of the immediately preceding annual meeting of
shareholders of the corporation, or with respect to the first annual meeting of
shareholders to be held in 1997, on or before January 1, 1997, and (ii) with
respect
Page 7
<PAGE>
to an election to be held at a special meeting of shareholders of the
corporation for the election of directors, not later than the close of business
on the 10th day following the day on which notice of the date of the special
meeting was mailed to the shareholders of the corporation as provided in Bylaw
2.05 or public disclosure of the date of the special meeting was made, whichever
first occurs. Such shareholder's notice to the secretary shall set forth (i) as
to each person whom the shareholder proposes to nominate for election or
reelection, as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or as otherwise required, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent to
being named in the proxy statement as a nominee and to serve as a director if
elected) and (ii) as to the shareholder giving the notice (a) the name and
address, as they appear on the corporation's books, of such shareholder, and (b)
the class and number of shares of voting stock of the corporation which are
beneficially owned by such shareholder. At the request of the board of
directors, any person nominated by the board of directors for election as a
director shall furnish to the secretary of the corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. Other than directors chosen pursuant to the provisions of Bylaw
3.05, no person shall be eligible to serve as a director of the corporation
unless nominated in accordance with the procedures set forth in this Bylaw 3.06.
The presiding officer of the meeting of shareholders shall, if the facts
warrant, determine and declare to the meeting that the nomination was not made
in accordance with the procedures prescribed by these Bylaws, and if he should
so determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
Notwithstanding the foregoing provisions of this Bylaw 3.06, a shareholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder with respect
to the matters set forth in this Bylaw 3.06.
3.07 Place of Meetings. Meetings of the board of directors, regular or
-----------------
special, may be held either within or without the state of Texas.
3.08 First Meeting. The first meeting of each newly elected board shall
-------------
be held without further notice immediately following the annual meeting of
shareholders and at the same place, unless (by unanimous consent of the
directors then elected and serving) such time or place shall be changed.
3.09 Regular Meetings. Regular meetings of the board of directors may be
----------------
held without notice at such time and place as shall from time to time be
determined by the board.
3.10 Special Meetings. Special meetings of the board of directors may be
----------------
called by the chairman of the board, if any, the president, or by a majority of
the directors upon at least two (2) days written notice stating the time and
place at which such meeting shall be held.
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3.11 Quorum of and Action by Directors. A majority of the number of
---------------------------------
directors then in office shall constitute a quorum for the transaction of
business unless a different number or portion is required by law, the Articles
of Incorporation or these Bylaws. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by statute, the
Articles of Incorporation or these Bylaws. If a quorum is not present at a
meeting of the board of directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
3.12 Compensation. By resolution of the board of directors, the directors
------------
may be paid their expenses, if any, of attendance at each meeting of the board
of directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
3.13 Procedure. The board of directors shall keep regular minutes of its
---------
proceedings. The minutes shall be placed in the minute book of the corporation.
3.14 Interested Directors, Officers and Shareholders.
-----------------------------------------------
(a) Validity. Any contract or other transaction between the
--------
corporation and any of its directors, officers or shareholders (or any other
corporation, partnership, association or other organization in which any of them
are directly or indirectly interested, whether as officers or directors or in
which they have a financial interest), shall be valid for all purposes
notwithstanding the presence of such director, officer or shareholders at the
meeting authorizing such contract or transaction or his participation in such
meeting or authorization.
(b) Disclosure, Approval. The foregoing shall, however, apply only
--------------------
if the material facts as to his relationship or interest and as to the contract
or transaction, is known or disclosed:
(1) to the board of directors and it nevertheless in good faith,
authorizes or ratifies the contract or transaction by the affirmative vote of a
majority of the disinterested directors even though the disinterested directors
be less than a quorum; or
(2) to the shareholders entitled to vote thereon and the
shareholders of the corporation nevertheless in good faith authorize and ratify
the contract or transaction.
(c) Non-Exclusive. This provision shall not be construed to
-------------
invalidate any contract or transaction which would be valid in the absence of
this provision.
3.15 Action Without Meeting. Any action required or permitted to be taken
----------------------
at a meeting of the board of directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all members
of the board of directors. Such consent shall have the same force
Page 9
<PAGE>
and effect as a unanimous vote at a meeting and may be stated as such in any
document or instrument filed with the Secretary of State.
3.16 Limitation of Liability. In addition to any other limitation of
-----------------------
liability for directors provided for at law [including the Texas Business
Corporation Act ("TBCA")], the Articles of Incorporation or these Bylaws, no
director of this corporation shall be liable to this corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this Bylaw 3.16 does not eliminate or limit
the liability of a director to the extent the director is found liable for:
(i) a breach of the director's duty of loyalty to the corporation or its
shareholders; (ii) an act or omission not in good faith that constitutes a
breach of duty of the director to the corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law; (iii) a
transaction from which the director received an improper benefit, whether or not
the benefit resulted from an action taken within the scope of the director's
office; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute. Neither the amendment nor repeal of
this Bylaw 3.16, nor the adoption of any provisions of the Bylaws of this
corporation inconsistent with this Bylaw 3.16 shall eliminate or reduce the
effect of this Bylaw 3.16 in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Bylaw 3.16, would accrue or arise,
prior to such amendment, repeal or adoption of any inconsistent provision. If,
after approval of this Section the TBCA; the Texas Miscellaneous Corporation
Laws Act (the "TMCLA") or any other laws of the State of Texas are enacted or
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of this
corporation shall be eliminated or limited to the fullest extent permitted by
the TBCA or the TMCLA, as so enacted or amended from time to time.
Article 4: Indemnification and Insurance
----------------------------------------
4.01 Indemnification.
---------------
(a) The corporation shall indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director to the fullest extent and manner permissible
under the TBCA or applicable rules, regulations or laws.
(b) A person shall be indemnified under paragraph (a) of this Bylaw
4.01 against judgments, penalties (including excise and similar taxes), fines,
settlements, and reasonable expenses actually incurred by the person in
connection with the proceeding; but if the person is found liable to the
corporation or is found liable on the basis that personal benefit was improperly
received by the person, the indemnification (i) shall be limited to reasonable
expenses actually incurred by the person in connection with the proceeding and
(ii) shall not be made in respect of any proceeding in which the person shall
have been found liable for willful or intentional misconduct in the performance
of his duty to the corporation.
(c) The mandatory indemnification provision set forth in paragraph (a)
of this Bylaw 4.01 shall be deemed to constitute authorization of
indemnification in the manner required by the
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<PAGE>
TBCA even though this provision may not have been adopted or authorized in the
same manner as the determination that indemnification is permissible.
(d) The corporation shall indemnify a director against reasonable
expenses incurred by him in connection with a proceeding in which he is a named
defendant or respondent because he is or was a director if he has been wholly
successful, on the merits or otherwise, in the defense of the proceeding.
(e) Reasonable expenses incurred by a director who was, is, or is
threatened to be made a named defendant or respondent in a proceeding shall be
paid or reimbursed by the corporation in advance of the final disposition of the
proceeding after the corporation receives a written affirmation by the director
of his good faith belief that he has met the standard of conduct necessary for
indemnification under this Article 4 and the TBCA and a written undertaking by
or on behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met that standard or if it is ultimately
determined that indemnification of the director against expenses incurred by him
in connection with that proceeding is prohibited by the TBCA. A provision
contained in the Articles of Incorporation, these Bylaws, a resolution of
shareholders or directors, or an agreement that makes mandatory the payment or
reimbursement permitted by the TBCA, shall be deemed to constitute authorization
of that payment or reimbursement.
(f) The written undertaking required by paragraph (e) of this Bylaw
4.01 must be an unlimited general obligation of the director that need not be
secured. It may be accepted without reference to financial ability to make
repayment.
(g) Notwithstanding any other provision of this Article 4, the
corporation shall pay or reimburse expenses incurred by a director in connection
with his appearance as a witness or other participation in a proceeding at a
time when he is not a named defendant or respondent in the proceeding.
(h) An officer of the corporation shall be indemnified as, and to the
same extent, provided by the TBCA and this Article 4 for a director and is
entitled to indemnification to the same extent as a director. The corporation
shall indemnify and advance expenses to an officer, and may indemnify and
advance expenses to employees and agents of the corporation to the same extent
it is authorized to indemnify and advance expenses to directors under this
Article Four.
(i) The corporation may indemnify and advance expenses to persons who
are not or were not officers, employees or agents of the corporation, but who
are or were serving at the request of the corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, a partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise to the same
extent that it is authorized to indemnify and advance expenses to directors
under this Article 4.
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<PAGE>
(j) The corporation shall indemnify and advance expenses to an
officer, and may indemnify and advance expenses to an employee, agent or person
indemnified in paragraph (i) of this Bylaw 4.01 and who is not a director, to
such further extent, consistent with law, as may be provided by the Articles of
Incorporation of this corporation, these Bylaws, general or specific action of
the board of directors of this corporation, or contract or is permitted or
required by common law.
4.02 Insurance or Other Arrangement. The corporation may purchase and
------------------------------
maintain insurance or another arrangement on behalf of any person who is or was
a director, officer, employee or agent of this corporation or who is or was
serving at the request of this corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against any
liability asserted against him and incurred by him in such a capacity or arising
out of his status as such a person, whether or not the corporation would have
the power to indemnify him against that liability under this Article 4. If the
insurance or another arrangement is with a person or entity that is not
regularly engaged in the business of providing insurance coverage, the insurance
or arrangement may provide for payment of a liability with respect to which the
corporation would not have the power to indemnify the person only if including
coverage for the additional liability has been approved by the shareholders of
the corporation.
4.03 Miscellaneous.
-------------
(a) Any indemnification of or advance of expenses to a director in
accordance with this Article 4 shall be reported in writing to the shareholders
with or before the notice or waiver of notice of the next shareholders' meeting
or with or before the next submission to shareholders of a consent to action
without a meeting pursuant to the TBCA and, in any case, within the twelve-month
period immediately following the date of the indemnification or advance.
(b) For purposes of this Article 4, the corporation is deemed to have
requested a director to serve an employee benefit plan whenever the performance
by him of his duties to the corporation also imposes duties on or otherwise
involve services by him to the plan or participants or beneficiaries of the
plan. Excise taxes assessed on a director with respect to an employee benefit
plan pursuant to applicable law are deemed fines. Action taken or omitted by
him with respect to an employee benefit plan in the performance of his duties
for a purpose reasonably believed by him to be in the best interest of the
participants and beneficiaries of the plan is deemed to be for a purpose which
is not opposed to the best interest of the corporation.
4.04 Definitions. As used in this Article 4 the following terms shall have
-----------
the following meanings:
(a) The terms "corporation," "director," "expenses," and "proceeding,"
shall have the meanings given such terms in Art. 2.02-1 of the TBCA.
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<PAGE>
(b) The term "TBCA" means the Texas Business Corporation Act as now in
effect or as hereafter amended.
4.05 Enforceability. This Article 4 shall be given its broadest effect and
--------------
application permissible under the TBCA and other applicable law and only to such
extent. If it is finally determined by a court of competent jurisdiction that
this Article 4, in whole or in part, is invalid, illegal or unenforceable in any
respect or respects, it shall nevertheless be enforceable to the extent and
given its broadest effect and application found by such court to be consistent
with the TBCA and other applicable law.
4.06 Non-Exclusive Rights. The rights of indemnification and
--------------------
reimbursement provided herein shall not be exclusive of any other rights to
which such person may be entitled by law, agreement, general or specific action
of the board of directors, shareholders' vote or otherwise.
Page 13
<PAGE>
Article 5: Notice
-----------------
5.01 Method. Whenever by statute or the Articles of Incorporation or these
------
Bylaws, notice is required to be given to any director or shareholder, and no
provision is made as to how the notice shall be given, it shall not be construed
to mean personal notice but any such notice may be given (a) in writing, by
mail, postage prepaid, addressed to the director or shareholder at the address
appearing on the books of the corporation, or (b) in any other method permitted
by law. Any notice required or permitted to be given by mail shall be deemed
given at the time when the same is thus deposited in the United States mails.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board of directors need be specified in the notice or
waiver of notice of any such meeting.
5.02 Waiver. Whenever, by statute or the Articles of Incorporation or these
------
Bylaws, notice is required to be given to any shareholder or director, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated in such notice, shall be equivalent to
the giving of such notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called or convened.
Article 6: Officers and Agents
------------------------------
6.01 Number; Qualifications; Election; Term.
--------------------------------------
(a) The corporation shall have:
(1) A chairman of the board, president, one or more vice
presidents, and a secretary; and
(2) Such other officers and assistant officers and agents as the
board of directors may think necessary.
(b) No officer or agent need be a shareholder, a director, an employee
of the corporation, or a resident of Texas.
(c) Officers named in Section 6.01(a)(1) shall be elected by the board
of directors on the expiration of an officer's term or whenever a vacancy
exists. Officers and agents named in Section 6.01(a)(2) may be elected by the
board at any meeting.
(d) Unless otherwise specified by the board at the time of election or
appointment, or in any employment contract approved by the board, each officer's
and agent's term shall end at the first meeting of directors after the next
annual meeting of shareholders. He shall serve until the end of his term or, if
earlier, his death, resignation or removal.
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<PAGE>
(e) Any two or more offices may be held by the same person.
6.02 Removal. Except as specifically provided by statute, the Articles of
-------
Incorporation, these Bylaws, or by contract, any officer or agent elected or
appointed by the board of directors may be removed by the board of directors
whenever, in its judgment, the best interest of the corporation will be served
thereby. Such removal shall be without prejudice to the contract right, if any,
of the person so removed. Election or appointment of an officer or agent shall
not of itself create contract rights.
6.03 Vacancies. Any vacancy occurring in any office of the corporation (by
---------
death, resignation, removal or otherwise) may be filled by the board of
directors.
6.04 Authority. Officers and agents shall have such authority and perform
---------
such duties in the management of the corporation as are provided in these Bylaws
or as may be determined by resolution of the board of directors not inconsistent
with these Bylaws.
6.05 Compensation. The compensation of officers and agents shall be fixed
------------
from time to time by the board of directors.
6.06 Chairman of the Board. The chairman of the board, if any, shall
---------------------
preside at all meetings of the shareholders and the board of directors of the
corporation. He shall perform such other duties and have such other authority
and power as the board of directors may from time to time prescribe.
6.07 President. In the absence of or upon the disability of the chairman of
---------
the board, or if there is no chairman of the board, the president shall preside
at meetings of the shareholders and the board of directors. He shall be the
chief executive officer of the corporation and in connection therewith shall
manage the day-to-day affairs of the corporation. He shall perform such other
duties and have such other authority and powers as the board of directors may
from time to time prescribe.
6.08 Vice Presidents. The vice presidents, if any, in the order of their
---------------
seniority unless otherwise determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and have the
authority and exercise the powers of the president. They shall perform such
other duties and have such other authority and powers as the board of directors
may from time to time prescribe.
6.09 Secretary.
---------
(a) The secretary shall attend all meetings of the board of directors
and all meetings of the shareholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose.
(b) The secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the board of directors.
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<PAGE>
(c) The secretary shall keep in safe custody the seal of the
corporation and, when authorized by the board of directors or the executive
committee, affix the same to any instrument requiring it and, when so affixed,
it shall be attested by the secretary's signature or by the signature of the
treasurer or an assistant secretary.
(d) The secretary shall be under the supervision of the president and
shall perform such other duties and have such other authority and powers as the
board of directors may from time to time prescribe or as the chairman of the
board, if any, may from time to time delegate.
6.10 Assistant Secretary. The assistant secretary, if any, shall, in the
-------------------
absence or disability of the secretary, perform the duties and have the
authority and exercise the powers of the secretary. He shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe or as the chairman of the board, if any, may from time to time
delegate.
6.11 Treasurer.
---------
(a) The treasurer, if any, shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation and shall deposit all monies and other valuable
effects in the name and to the credit to the corporation in such depositories as
may be designated by the board of directors.
(b) The treasurer shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper procedures for such
disbursements, and shall render to the chairman of the board, if any, and
directors, at the regular meetings of the board, or whenever they may require
it, an account of all his transactions as treasurer and of the financial
condition of the corporation.
(c) If required by the board of directors, he shall give the
corporation a bond in such form, in such sum, and with such surety of sureties
as shall be satisfactory to the board for the faithful performance of the duties
of his office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
(d) The treasurer shall perform such other duties and have such other
authority and powers as the board of directors may from time to time prescribe
or as the chairman of the board, if any, may from time to time delegate.
6.12 Assistant Treasurer. The assistant treasurer, if any, shall, in the
-------------------
absence or disability of the treasurer, perform the duties and have the
authority and exercise the powers of the treasurer. He shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe or the chairman of the board, if any, may from time to time
delegate.
Article 7: Certificates and Shareholders
----------------------------------------
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<PAGE>
7.01 Certificates. Certificates in the form determined by the board of
------------
directors shall be delivered representing all shares to which shareholders are
entitled. Certificates shall be consecutively numbered and shall be entered in
the books of the corporation or its agents as they are issued. Each certificate
shall state on the face thereof the holder's name, the number and class of
shares, the par value of shares or a statement that such shares are without par
value, and such other matters as may be required by law. They shall be signed
by the chairman of the board, if any, or the president or any vice president, if
any, and the secretary or any assistant secretary, and may be sealed with the
seal of the corporation or a facsimile thereof. If any certificate is
countersigned by a transfer agent or registered by a registrar (either of which
is other than the corporation or an employee of the corporation), the signatures
of any such officer may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon such certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by
the corporation with the same effect as if he were such officer at the date of
its issuance.
7.02 Replacement of Lost or Destroyed Certificates. The board of directors
---------------------------------------------
may direct a new certificate or certificates to be issued in place of any
certificate previously issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the loss or destruction. In so doing, the board of directors may, in its
discretion and as a condition precedent to the issuance (a) require the owner of
the lost or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require and/or (b) to give the corporation a
bond (with a surety or sureties satisfactory to the corporation) in such sum as
it may direct, as indemnity against any claim, or expense resulting from any
claim, that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
7.03 Transfer of Shares. Shares of stock shall be transferable only on the
------------------
books of the corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender to the corporation or its transfer agent of
a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the corporation or
its transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
7.04 Registered Shareholders. The corporation shall be entitled to treat
-----------------------
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it has express or other notice thereof, except as otherwise provided by law.
Article 8: General Provisions
-----------------------------
8.01 Dividends and Reserves.
----------------------
(a) Declaration and Payment. Subject to statute and the Articles of
-----------------------
Incorporation, the board of directors may authorize at any regular or special
meeting that distributions be made to the shareholders of the corporation.
Subject to statute and the Articles of Incorporation, the board of directors at
any regular or special meeting may authorize that share dividends be paid to the
Page 17
<PAGE>
shareholders of the corporation. The declaration and payment shall be at the
discretion of the board of directors.
(b) Reserves. By resolution, the board of directors may create such
--------
reserve or reserves out of the surplus of the corporation as the directors from
time to time, in their discretion, think proper to provide for contingencies, or
to equalize dividends, or to repair or maintain any property of the corporation,
or for any other purpose they think beneficial to the corporation. The
directors may modify or abolish any such reserve in the manner in which it was
created.
8.02 Books and Records. The corporation shall keep books and records of
-----------------
account and shall keep minutes of the proceedings of its shareholders, its board
of directors, and each committee of its board of directors. The corporation
shall keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of the original issuance of
shares issued by the corporation and a record of each transfer of those shares
that have been presented to the corporation for registration of transfer. Such
records shall contain the names and addresses of all past and current
shareholders of the corporation and the number of each class of shares issued by
the corporation held by each of them.
8.03 Checks and Notes. All checks or demands for money and notes of the
----------------
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
8.04 Fiscal Year. The fiscal year of the corporation shall be fixed by
-----------
resolution of the board of directors.
8.05 Seal. The corporation seal (of which there may be one or more
----
examples) shall contain the name of the corporation and the name of the state of
incorporation. The seal may be used by impressing it or reproducing a facsimile
of it, or otherwise. Impressing or reproducing the seal shall not be required to
signify action by the secretary of the corporation.
8.06 Resignation. Any director, officer or agent may resign by giving
-----------
written notice to the president or the secretary. The resignation shall take
effect at the time specified therein, or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
8.07 Amendment of Bylaws. Subject to the Articles of Incorporation, these
Bylaws may be altered, amended or repealed or new Bylaws may be adopted at any
meeting of the board of directors at which a quorum is present by the
affirmative vote of a majority of the directors present at such meeting,
provided notice of the proposed alteration, amendment or repeal is contained in
the notice of such meeting.
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<PAGE>
8.08 Construction. Whenever the context so requires, the masculine shall
------------
include the feminine and neuter, and the singular shall include the plural, and
conversely. If any portion of these Bylaws shall be invalid or inoperative,
then, so far as is reasonable and possible:
(a) the remainder of these Bylaws shall be considered valid and
operative; and
(b) effect shall be given to the intent manifested by the portion held
invalid or inoperative.
8.09 Table of Contents; Headings. The table of contents and headings used
---------------------------
in these Bylaws have been inserted for convenience only and do not constitute
matter to be construed in interpretation.
Article 9: Committees of the Board of Directors
-----------------------------------------------
9.01 Designation. The board of directors may, by resolution adopted by a
-----------
majority of the full board of directors, designate from its members one or more
committees, including an executive committee, each of which shall be comprised
of one or more of its members, and may designate one or more of its members as
alternate members of any committee, who may, subject to any limitations imposed
by the board of directors, replace absent or disqualified members at any meeting
of that committee.
9.02 Number; Qualifications; Term. Any committee of the board of directors
----------------------------
shall consist of such number of the board of directors of the corporation, as
the board of directors shall designate. The committee shall serve at the
pleasure of the board of directors.
9.03 Authority. Except as limited by statute, the Articles of
---------
Incorporation, or these Bylaws, any committee of the board of directors, to the
extent provided in any resolution adopted by the board of directors, shall have
and may exercise the authority of the board of directors granted to such
committee in the management of the business and affairs of the corporation.
9.04 Change in Number. The number of members of any committee of the board
----------------
of directors may be increased or decreased from time to time by resolution
adopted by a majority of the entire board of directors.
9.05 Removal. Except as specifically provided by statute, the Articles of
-------
Incorporation, or these Bylaws, any member of a committee of the board of
directors may be removed by the board of directors by the affirmative vote of at
least a majority of the whole board, whenever in its judgment, the best interest
of the corporation will be served thereby.
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<PAGE>
9.06 Vacancies. A vacancy occurring in any committee (by death,
---------
resignation, removal or otherwise) may be filled by the board of directors in
the manner provided for original designation in Bylaw 9.01.
9.07 Meetings. Time, place and notice (if any) of committee meetings shall
--------
be determined by the committee.
9.08 Quorum; Majority Vote. At meetings of any committee of the board of
---------------------
directors, a majority of the members of such committee shall constitute a quorum
for the transaction of business. The act of a majority of the members present
at any meeting at which a quorum is present shall be the act of the committee,
except as otherwise specifically provided by statute, the Articles of
Incorporation, or by these Bylaws. If a quorum is not present at a meeting of a
committee, the members present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
9.09 Compensation. By resolution of the board of directors, members of any
------------
committee may be paid their expenses, if any, of attendance at each meeting of a
committee and may be paid a fixed sum for attendance at each meeting of the
committee or a stated salary as members thereof.
9.10 Procedure. Each committee of the board of directors shall keep regular
---------
minutes of its proceedings and report the same to the board of directors when
required. The minutes of proceedings of any executive committee shall be placed
in the minute book of the corporation.
9.11 Action Without Meeting. Any action required or permitted to be taken
----------------------
at a meeting of any committee of the board of directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed by
all the members of such committee. Such consent shall have the same force and
effect as a unanimous vote at a meeting. The signed consent, or a signed copy,
shall be placed in the minute book.
9.12 Responsibility. The designation of a committee and the delegation of
--------------
authority to it shall not operate to relieve the board of directors, or any
members thereof, of any responsibility imposed upon it or them by law.
Page 20
<PAGE>
EXHIBIT 4.1
================================================================================
INCORPORATED UNDER THE LAWS
OF THE STATE OF TEXAS
COMMON PAR VALUE
STOCK $.01 PER SHARE
[CERTIFICATE NUMBER [LOGO OF KEVCO, INC. [CERTIFICATE SHARES
APPEARS HERE] APPEARS HERE] APPEARS HERE]
THIS CERTIFICATE IF TRANSFERABLE IN CUSIP 492716 10 5
DALLAS, TEXAS OR NEW YORK, NEW YORK. SEE REVERSE FOR CERTAIN
DEFINITIONS AND LEGENDS
________________________________________________________________________________
THIS CERTIFIES THAT
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
is the owner of
________________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
KEVCO, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Article of Incorporation of the Corporation and all
amendments thereto. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the seal of the Corporation and the signature of its duly authorized
officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
[SEAL OF KEVCO, INC. TEXAS 1996 APPEARS HERE]
/s/ [SIGNATURE APPEARS HERE] /s/ [SIGNATURE APPEARS HERE] BY
PRESIDENT AND CHIEF SECRETARY AUTHORIZED
EXECUTIVE OFFICER SIGNATURE
================================================================================
SECURITY COLUMBIAN UNITED STATES BANKNOTE CORPORATION
KEVCO, INC.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT-_____ Custodian ______
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right Under Uniform Gifts to Minors
of survivorship and not as Act ________________________
tenants in common (State)
UNIF TRF MIN ACT- ________ Custodian
(Cust)
(until age __)
_________ Under Uniform Transfer
(Minor)
to Minors Act _________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
- ----------------------------------------
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Company
with full power of substitution in the premises.
Dated___________________________
NOTICE X ______________________________________________
THE SIGNATURE(S) TO (SIGNATURE)
THIS ASSIGNMENT MUST
CORRESPOND WITH THE
NAME(S) AS WRITTEN
UPON THE FACE OF THE
CERTIFICATE IN EVERY
PARTICULAR WITHOUT
ALTERATION OR EN- X ______________________________________________
LARGEMENT OR ANY (SIGNATURE)
CHANGE WHATEVER.
------>
-------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
-------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
-------------------------------------------------
DENIAL OF PREEMPTIVE RIGHTS
The Corporation has, as set forth in its Articles of Incorporation on file in
the office of the Secretary of State of the State of Texas, denied the
preemptive right of its shareholders to acquire unissued or treasury shares of
the Corporation. The Corporation will furnish a copy of such provision of its
Articles of Incorporation to the record holder of this certificate without
charge upon written request to the Corporation at its principal place of
business or registered office.
<PAGE>
EXHIBIT 10.1
Amendment No. 2 to
1995 STOCK OPTION PLAN
This Amendment No. 2 (the "Amendment") to the 1995 Stock Option Plan (the
"Plan") of Kevco Texas, Inc., a Texas corporation and its subsidiaries and their
respective successors, if any (collectively the "Company") shall be and become
effective as of the Effective Date (hereinafter defined);
W I T N E S S E T H:
WHEREAS, the Company has heretofore adopted the Plan, which Plan was
amended by Amendment No. 1 thereto effective July 31, 1995; and
WHEREAS, the Company desires to amend and restate the Plan in its entirety
as hereinafter set forth;
NOW, THEREFORE, the Plan as heretofore amended, is hereby amended and
restated in its entirety to hereafter read as follows:
Amended and Restated
1995 STOCK OPTION PLAN
----------------------
Kevco Texas, Inc.
1. Purpose of the Plan. Under this Stock Option Plan (the "Plan") of
Kevco Texas, Inc., a Texas corporation and its subsidiaries and their respective
successors, if any (collectively the "Company"), options may be granted to
eligible persons identified in Section 3 below to purchase shares of the
Company's $.01 par value Common Stock (the "Common Stock"). The Plan is
designed to enable the Company to attract, retain and motivate its employees and
other persons by providing for or increasing the proprietary interests of such
persons in the Company. The Plan provides for options which qualify as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), as well as options which do not
so qualify.
2. Stock Subject to Plan. The maximum number of shares of Common Stock
subject to this Plan and for which options heretofore or hereafter granted
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<PAGE>
hereunder may therefore be exercised shall be 258,500 shares of the Company's
Common Stock (after giving effect to a reverse stock split effected on August
29, 1996), subject to the adjustments provided in Sections 6 and 12. Shares of
Common Stock subject to the unexercised portions of any options granted under
this Plan which expire or terminate or are cancelled may again be subject to
options under the Plan. When the exercise price for an option granted under
this Plan is paid with previously outstanding shares or with shares as to which
the option is being exercised, as permitted in Section 9, the total number of
Shares of Common Stock for which options granted under this Plan may thereafter
be exercised shall be irrevocably reduced by the total number of shares for
which such option is thus exercised, without regard to the number of shares
received or retained by the Company in connection with that exercise.
3. Eligible Persons. The persons eligible to be considered for the grant
of Options hereunder are any persons regularly employed by the Company on a
full-time, salaried basis and any persons serving as members of the board of
directors of the Company but who are not employees of the Company ("Optionees").
4. Minimum Exercise Price. The exercise price for each option granted
hereunder, if an Incentive Option, shall be not less than 100% of the Fair
Market Value (defined hereinbelow) of the Common Stock being optioned at the
date of the grant of the option. The exercise price for any options which are
not Incentive Options shall be the exercise price determined by the Board (as
hereinafter defined) or the Committee (as hereinafter defined). Notwithstanding
the foregoing, Options granted by the Board or Committee to any eligible
participant who at the time of the grant of the Option, owned, directly or
indirectly, more than 10% of the total combined voting power of all classes of
capital stock of the Company, shall not qualify as Incentive Options unless (i)
the exercise price for each Option granted is at least 110% of the Fair Market
Value of the Common Stock determined at the time such Option is granted, and
(ii) the Option by its terms is not exercisable after five (5) years from the
date such Option is granted. The attribution rules of Section 424(d) of the
Code shall apply in the determination of indirect ownership of Common Stock of
the Company.
5. Non-transferability. Any option granted under this Plan shall by its
terms be nontransferable by the Optionee and shall be exercisable during the
Optionee's lifetime only by the Optionee or by the Optionee's guardian or legal
representative, except that an option which is not intended to be an Incentive
Option may, if the
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<PAGE>
instrument evidencing it so provides, also be transferable to members of the
Optionee's Immediate Family (defined hereinbelow), to a partnership whose
members are only the Optionee and/or members of the Optionee's Immediate Family,
or to a trust for the benefit of only the Optionee and/or members of the
Optionee's Immediate Family.
6. Adjustments. If the outstanding shares of Common Stock are increased
or decreased, or are changed into or exchanged for a different number or kind of
shares or securities or other forms of property (including cash) or rights, as a
result of one or more reorganizations, recapitalizations, spin-offs, stock
splits, reverse stock splits, stock dividends or the like, appropriate
adjustments shall be made in the number and/or kind of shares or securities or
other forms of property (including cash) or rights for which options may
thereafter be granted under this Plan and for which options then outstanding
under this Plan may thereafter be exercised. Any such adjustment in outstanding
options shall be made without changing the aggregate exercise price applicable
to the unexercised portions of such options.
In connection with any reorganization, recapitalization, spin-off or other
transaction in which the outstanding shares of Common Stock then subject to
options outstanding under this Plan are changed into or exchanged for property
(including cash), rights and/or securities other than, or in addition to, Common
Stock of the Company, an outstanding option may under this Section entitled
"Adjustments" be adjusted to become exercisable for either: (a) the property
(including cash), rights and/or securities receivable in that transaction by a
holder of the number and kind of outstanding shares of stock subject to the
option immediately prior to the transaction; or (b) stock of the Company or of a
successor employer corporation, or a parent or subsidiary thereof, provided,
that (i) such adjustment may preserve but may not increase any amount by which
the Fair Market Value of the stock subject to the option exceeds the option
exercise price, comparing such excess immediately before and immediately after
the transaction, and (ii) such adjustment may preserve but may not reduce the
ratio of the option exercise price to the Fair Market Value of the stock subject
to the option, comparing such ratio immediately before and immediately after the
transaction.
7. Maximum Option Term. No option granted under this Plan may be
exercised in whole or in part more than ten years less one (1) day after its
date of grant.
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<PAGE>
8. Plan Duration. Options may not be granted under this Plan more than
ten years less one (1) day after the adoption of the Plan, or shareholder
approval, if any, thereof, whichever is earlier.
9. Payment. Payment for Common Stock purchased upon any exercise of an
option granted under this Plan shall be made in full in cash (including payment
by check) concurrently with such exercise, except that, if and to the extent the
instrument evidencing the option so provides and the Company is not then
prohibited from purchasing or acquiring shares of such stock, such payment may
be made in whole or in part with shares of the same class of stock as that then
subject to the option, delivered in lieu of cash concurrently with such
exercise, the shares so delivered to be valued on the basis of the Fair Market
Value of the stock on the date of exercise. If and while payment with stock is
permitted for the exercise of an option granted under this Plan in accordance
with the foregoing provision, the instrument evidencing the option may also
permit the person then entitled to exercise that option, in lieu of using
previously outstanding shares therefor, to use some of the shares as to which
the option is then being exercised.
10. Administration. The Plan shall be administered by the Company's Board
of Directors (the "Board") or, at the discretion of the Board, by a committee
(the "Committee") of not less than two members of the Board. The Board may,
from time to time, remove members from, or add members to, the Committee.
Vacancies on the Committee, however caused, shall be filled by the Board. The
Committee shall select one of its members as Chairman, and shall hold meetings
at such times and places as it may determine. Decisions by a majority of the
Committee, at which a quorum is present, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee.
The interpretation and construction by the Board or by the Committee (if
delegated by the Board) of any term or provision of the Plan or of any option
granted under it, including without limitation any determination of adjustments
required pursuant to Section 6 hereof, shall be conclusive, unless otherwise
determined by the Board in which event such action by the Board shall be
conclusive, and such interpretation and construction shall be binding upon all
those who hold or are eligible to receive options under the Plan, and all
persons claiming under them. The Board or Committee may from time to time adopt
rules and regulations for carrying out this Plan
Page 4
<PAGE>
and, subject to the provisions of this Plan, may prescribe the form or forms of
the instruments evidencing any option granted under this Plan.
Subject to the provisions of this Plan, the Board or, by delegation from
the Board, the Committee, shall have full and final authority in its discretion
to select the employees to be granted options, to authorize granting such
options and to determine the number of shares to be subject thereto, the
exercise prices, the terms of exercise, expiration dates and other pertinent
provisions thereof.
11. Other Option Provisions. Options granted under this Plan shall
contain such other terms and provisions which are not inconsistent with this
Plan as the Board or Committee may authorize, including but not limited to (a)
vesting schedules governing the exercisability of such options, (b) provisions
for acceleration of such vesting schedules in certain events, (c) arrangements
whereby the Company may fulfill any tax withholding obligations it may have in
connection with the exercise of such options, and (d) provisions imposing
restrictions upon the transferability of stock acquired on exercise of such
options, whether required by this Plan or applicable securities laws or imposed
for other reasons. Incentive Options shall contain the terms and provisions
required of them under the Code.
12. Corporate Reorganizations; Other Events. Upon (a) the dissolution or
liquidation of the Company, or (b) a reorganization, merger or consolidation of
the Company as a result of which the outstanding Common Stock then subject to
options hereunder are changed into or exchanged for property (including cash),
rights or securities not of the Company's issue, or any combination thereof, or
(c) a sale of all or substantially all the property of the Company to, or the
acquisition of stock representing a change in control in the voting power of the
stock of the Company then outstanding by, another corporation or person, the
Plan shall terminate, and all options theretofore granted hereunder shall
terminate, unless provisions to the contrary are set forth in an option granted
hereunder or provision otherwise be made in writing in connection with such
transaction for the continuance of the Plan and/or for the assumption of options
theretofore granted, or the substitution for such options of options covering
the stock of a successor employer corporation, or a parent or a subsidiary
thereof, with appropriate adjustments in accordance with Section 6 hereof as to
the number and kind of shares optioned and their exercise prices, in which event
the Plan and options theretofore granted shall continue in the manner and under
the terms so provided. The instrument evidencing any option may also provide for
the
Page 5
<PAGE>
acceleration of portions of the option not otherwise exercisable (a) if the
option shall terminate pursuant to the foregoing sentence, such acceleration to
become effective at such time prior to the consummation of the transaction
causing such termination as the Company shall designate, and (b) upon other
specified events or occurrences, such as involuntary termination of the option
holder's employment following certain changes in the control of the Company.
13. Financial Assistance. The Company is vested with authority under this
Plan to assist any Optionee to whom an option is granted hereunder (including
any director or officer of the Company who is also an employee) in the payment
of the purchase price payable on exercise of that option, by lending the amount
of such purchase price to such Optionee on such terms and at such rates of
interest and upon such basis, secured or unsecured, as shall have been
authorized by or under authority of the Board.
14. Additional Documents. To the extent deemed necessary by the Board or
Committee, as a condition precedent to the exercise of any option granted under
this Plan, the Optionee shall execute and deliver to the Company such other
documents as the Board or Committee shall determine are necessary or appropriate
(the "Additional Documents"). The shares of Common Stock of the Company
received upon exercise of any option granted under this Plan may only be
transferred in strict accordance with the terms and provisions of the Additional
Documents. Any attempted or purported transfer which is not effected in strict
accordance with the terms and provisions of the Additional Documents shall be
null and void and of no further force or effect pursuant to the provisions of
the Additional Documents.
15. Limitations of Rights of Participants.
(a) A person to whom an option is granted under this Plan shall not
have any interest in the optioned shares or in any dividends paid thereon, and
shall not have any of the rights or privileges of a shareholder with respect to
such shares, until the certificates therefor have been issued and delivered to
him or her.
(b) No shares of Common Stock issuable under the Plan shall be issued
and no certificate therefor delivered unless and until, in the opinion of legal
counsel for the Company, such securities may be issued and delivered without
causing the Company to be in violation of, or to incur any liability under, any
federal, state or other
Page 6
<PAGE>
securities law, or any other requirement of law or of any regulatory body having
jurisdiction over the Company.
(c) The participation by an employee in the Plan does not create any
contractual obligations of the Company to employ an Optionee or of the
Optionee's right to continued employment for any period of time, each employee
of the Company and each participant in the Plan being an employee terminable at
will.
(d) Nothing contained in this Plan shall constitute the granting of an
option hereunder, which shall occur only pursuant to express authorization by
the Board or the Committee.
(e) Any option granted to an Optionee under the Plan which is not an
Incentive Option, shall not be exercisable by the Optionee unless and until at
all times beginning with the date of the grant of an option hereunder and ending
on the date of exercise of such option, the Optionee shall have been in the
continuous employment of the Company or then serving as a member of the board of
directors of the Company; provided, however, subject to the provisions hereof,
for a period of sixty (60) days after termination of employment or ceasing to
serve as a director, for any reason other than termination or removal for cause,
the Optionee shall have the right to exercise that portion, if any, of the
Option theretofore vested; and further provided, however, that if the option is
an Incentive Option, an option granted shall not be exercisable by the Optionee
unless at all times beginning with the date of grant and [except as otherwise
provided in this Section 15(e)] ending on the date three months before the date
of exercise of such option, the Optionee shall have been in the continuous
employment of the Company, a parent or subsidiary of the Company, or a
corporation (or parent or subsidiary of that corporation) which has assumed the
option of another corporation as a result of a corporate reorganization,
liquidation or similar event. If the option is an Incentive Option, then the
following provisions shall apply on the death or permanent and total disability
of the Optionee:
(i) In the event of the death of the Optionee while in the
employ of the Company or any subsidiary of the Company, and before the date of
expiration of any option granted to him, the option to the extent unexercised as
of the date of death shall terminate on the earlier of the date of its
expiration in accordance with its terms or that day which is three (3) months
after the date of the death of the Optionee. After the death of the Optionee,
his executors, administrators or any person or persons
Page 7
<PAGE>
to whom his option may be transferred by will, or by the laws of descent and
distribution shall have the right at any time during the period specified in
this subparagraph (i) to exercise that portion, if any, of the Option
theretofore vested to the extent unexercised, in whole or in part.
(ii) If before the date of expiration of any option granted
herein to the extent unexercised, the Optionee shall terminate his employment
with the Company or any subsidiary of the Company by reason of his permanent and
total disability, the option to the extent vested and unexercised as of such
time shall terminate on the earlier of its date of expiration or a day which is
one year after the date of such permanent and total disability.
Notwithstanding the foregoing, the requisite employment relationship with
respect to an option granted hereunder will be treated as continuing intact
while the Optionee (with the prior approval of the Board of the Company or any
subsidiary of the Company) is on military leave, sick leave or other bona fide
leave of absence (such as temporary employment by the United States Government)
if the period of such leave does not exceed 90 days, or, if longer, so long as
the Optionee's right to reemployment is guaranteed by statute or by contract.
(f) Notwithstanding anything herein to the contrary, the Optionee
shall have no right to exercise any Option granted, after such Optionee's
termination of employment with the Company or ceasing to serve as a director, if
the Optionee after such termination or cessation conducts himself in a manner
adversely affecting the Company, it being agreed and understood by the Optionee
that the exercise of any Option is subject to satisfaction of the conditions
precedent that the Optionee does not (i) make any false, misleading or
disparaging statements, either orally or in writing, about the Company or any of
its officers, directors, employees or shareholders, or (ii) render services for
any organization or engage directly or indirectly in any business which is or
becomes competitive with the Company, or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company, or (iii)
otherwise engage, directly or indirectly, in any activities or conduct which is
or becomes otherwise prejudicial to or in conflict with the interests of the
Company.
(g) (i) The Company shall not be required to sell or issue any
shares of Common Stock under any Option if the issuance of such shares shall
constitute a
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violation by the participant or the Company of any provisions of any law or
regulation of any governmental authority.
(ii) If, at any time, the Board of the Company shall determine,
in its discretion, that the listing, registration or qualification of any of the
shares subject to Options under this Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of or in connection
with the granting of Options or the purchase or issuance of shares thereunder,
then if the Board deems it necessary, no further Options may be granted and
outstanding Options may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board. The
Board shall have the authority to cause the Company at its expense to take any
action related to this Plan which may be required in connection with such
listing, registration, qualification, consent or approval; provided, however,
that the Company is not obligated to register any shares of Common Stock covered
by this Plan, nor is the Company required to take any other affirmative action
in order to cause the exercise of an Option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority.
16. Amendment and Termination. The Board may alter, amend, suspend or
terminate this Plan, provided that no such action shall deprive an Optionee who
has not consented thereto of any option granted to the Optionee pursuant to this
Plan or of any of the Optionee's rights under such option. Except as herein
provided, no such action of the Board, unless taken with the approval of the
Company's shareholders, may increase the maximum number of shares for which
options granted under this Plan may be exercised. With respect to Incentive
Options, except as herein provided, no such action of the board, unless taken
with the approval of the Company's shareholders, may:
(a) reduce the minimum permissible exercise price;
(b) extend the duration of the Plan set forth herein; or
(c) alter the class of employees eligible to receive options under
the Plan.
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<PAGE>
17. Certain Definitions. The terms "Board," "Committee," and "Incentive
Options" have been defined hereinabove. In addition, as used in this Plan, the
following terms shall have the following meanings:
(a) The "Fair Market Value" of the Common Stock shall mean:
(i) If the Common Stock is then Publicly Traded: The closing
price of the Common Stock as of the day in question (or, if such day
is not a trading day in the principal securities market or markets for
such stock, on the nearest preceding trading day), as reported with
respect to the market (or the composite of markets, if more than one)
in which shares of such stock are then traded, or, if no such closing
prices are reported, on the basis of the mean between the high bid and
low asked prices that day on the principal market or quotation system
on which shares of such stock are then quoted, or, if not so quoted,
as furnished by a professional securities dealer making a market in
such stock selected by the Board or the Committee.
(ii) If the Common Stock is then not Publicly Traded:
(A) The price, determined by the Board or the Committee, at
which one could reasonably expect shares of Common Stock of the
Company to be sold in an arms-length transaction, for cash, other
than on an installment basis, to a person not employed by,
controlled by, in control of, or under common control with, the
Company.
(B) In any case, Fair Market Value as determined, whether
by the Board or the Committee or by an appraiser or appraisers
selected by the Board or the Committee, shall give due
consideration to recent transactions involving shares of such
stock, if any, the Company's net worth, prospective earning power
and dividend-paying capacity, the goodwill of the Company's
business, the Company's industry position and its management,
that industry's economic outlook, the values of securities of
issuers whose stock is Publicly Traded and which are engaged in
similar businesses, the effect of transfer restrictions to which
such stock
Page 10
<PAGE>
may be subject under law and under the applicable terms of the
Additional Documents, the absence of a public market for such
stock and such other matters as the Board, the Committee or its
appraiser or appraisers deem pertinent. The determination by the
Board, the Committee or its appraiser or appraisers of the Fair
Market Value shall, if not unreasonable, be conclusive and
binding notwithstanding the possibility that other persons might
make a different, and also reasonable, determination. If the Fair
Market Value to be used was thus fixed more than six (6) months
prior to the date as of which Fair Market Value is being
determined, it shall in any event be no less than the book value
of the stock being valued at the end of the most recent period
for which financial statements of the Company are available.
(b) Corporate stock is "Publicly Traded" if stock of that class is
listed or admitted to unlisted trading privileges on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
("NASD") or if sales or bid and offer quotations are reported for that class of
stock in the automated quotation system operated by the NASD.
(c) "Immediate Family" shall mean an Optionee's spouse, parents or
other ancestors, and children and other direct descendants of that individual or
of his or her spouse (including such ancestors and descendants by adoption).
(d) "Permanent and Total Disability" shall have the same meaning as
that set forth in Section 22(e)(3) of the Code.
18. Compliance With Law. The Plan and all options granted hereunder are
subject to federal and applicable state tax and securities laws. No options may
be granted and no shares of Common Stock may be issued pursuant to the Plan
unless in full compliance with such laws.
19. Effective Date. The effective date (the "Effective Date") of this
Amendment is August 30, 1996.
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<PAGE>
Kevco stationery
_____________________, 1996
TO: Optionees under Kevco 1995 Stock Option Plan
Ladies and Gentlemen:
Reference is hereby made to the Kevco 1995 Stock Option Plan (the "Plan").
Pursuant to the provisions of Section 14 of the Plan, as a condition precedent
to the exercise of any options granted under the Plan, you are required to
execute and deliver to the Company certain documents which are referred to in
Section 14 as the "Additional Documents". As you may be aware, the Company has
consummated its initial public offering of its common stock (the "Offering"). As
such, the Company is no longer a privately held corporation. The Additional
Documents, as originally prepared and as referred to in the Plan, related
primarily to a privately held corporation. Given the fact that this no longer is
the case, the Company has determined that it will not require that you execute
and deliver any of the Additional Documents as a condition precedent to the
exercise of any options granted under the Plan. All other terms and provisions
of the Plan and any Stock Option Agreement executed by you with respect to the
granting of any options under the Plan shall continue in full force and effect
and unimpaired.
Please acknowledge your receipt of this letter by signing and returning one
of the two copies enclosed. The second copy enclosed is for your file.
If you have any questions with regard to any of the foregoing, please feel
free to call me.
Yours very truly,
Jerry E. Kimmel
Chairman of the Board and President
JEK:sw
101888.5/80919.1-2.F
Enclosures
RECEIPT ACKNOWLEDGED:
- -----------------------
Optionee's Signature
Date:___________, 1996
<PAGE>
EXHIBIT 10.2
1996 STOCK OPTION PLAN
----------------------
1. Purpose of the Plan. Under this Stock Option Plan (the "Plan") of
KEVCO, INC., a Texas corporation and its subsidiaries, if any, (collectively the
"Company") options may be granted to eligible employees identified in Section 3
below to purchase shares of the Company's $.01 par value Common Stock (the
"Common Stock"). The Plan is designed to enable the Company to attract, retain
and motivate its employees by providing for or increasing the proprietary
interests of such employees in the Company. The Plan provides for options which
do not qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Stock Subject to Plan. The maximum number of shares of Common Stock
subject to this Plan and for which options granted hereunder may therefore be
exercised shall be 945,181 shares of the Company's Common Stock, subject to the
adjustments provided in Sections 6 and 12. Shares of Common Stock subject to the
unexercised portions of any options granted under this Plan which expire or
terminate or are cancelled may again be subject to options under the Plan. When
the exercise price for an option granted under this Plan is paid with previously
outstanding shares or with shares as to which the option is being exercised, as
permitted in Section 9, the total number of Shares of Common Stock for which
options granted under this Plan may thereafter be exercised shall be irrevocably
reduced by the total number of shares for which such option is thus exercised,
without regard to the number of shares received or retained by the Company in
connection with that exercise.
3. Eligible Employees. The employees eligible to be considered for the
grant of options hereunder are any persons regularly employed by the Company on
a full-time, salaried basis.
4. Minimum Exercise Price. The exercise price for each option granted
hereunder shall be not less than 100% of the Fair Market Value (defined
hereinbelow) of the Common Stock being optioned at the date of the grant of the
option.
5. Non-transferability. Any option granted under this Plan shall by its
terms be nontransferable by the Optionee other than by will or the laws of
descent and distribution and shall be exercisable during the Optionee's lifetime
only by the Optionee or by the Optionee's guardian or legal representative.
6. Adjustments. If the outstanding shares of Common Stock are increased
or decreased, or are changed into or exchanged for a different number or kind of
shares or securities or other forms of property (including cash) or rights, as a
result of one or more reorganizations,
PAGE 1
<PAGE>
recapitalization, spin-offs, stock splits, reverse stock splits, stock dividends
or the like, appropriate adjustments shall be made in the number and/or kind of
shares or securities or other forms of property (including cash) or rights for
which options may thereafter be granted under this Plan and for which options
then outstanding under this Plan may thereafter be exercised. Any such
adjustment in outstanding options shall be made without changing the aggregate
exercise price applicable to the unexercised portions of such options.
In connection with any reorganization, recapitalization, spin-off or other
transaction in which the outstanding shares of Common Stock then subject to
options outstanding under this Plan are changed into or exchanged for property
(including cash), rights and/or securities other than, or in addition to, Common
Stock of the Company, an outstanding option may under this Section entitled
"Adjustments" be adjusted to become exercisable for either: (a) the property
(including cash), rights and/or securities receivable in that transaction by a
holder of the number and kind of outstanding shares of stock subject to the
option immediately prior to the transaction; or (b) stock of the Company or of a
successor employer corporation, or a parent or subsidiary thereof, provided,
that (i) such adjustment may preserve but may not increase any amount by which
the Fair Market Value of the stock subject to the option exceeds the option
exercise price, comparing such excess immediately before and immediately after
the transaction, and (ii) such adjustment may preserve but may not reduce the
ratio of the option exercise price to the Fair Market Value of the stock subject
to the option, comparing such ratio immediately before and immediately after the
transaction.
7. Maximum Option Term. No option granted under this Plan may be
exercised in whole or in part more than seven (7) years after its date of grant.
8. Plan Duration. Options may not be granted under this Plan more than
ten years less one (1) day after the adoption of the Plan, or Shareholder
approval, if any, thereof, whichever is earlier.
9. Payment. Payment for Common Stock purchased upon any exercise of an
option granted under this Plan shall be made in full in cash (including payment
by check) concurrently with such exercise, except that, if and to the extent the
instrument evidencing the option so provides and the Company is not then
prohibited from purchasing or acquiring shares of such stock, such payment may
be made in whole or in part with shares of the same class of stock as that then
subject to the option, delivered in lieu of cash concurrently with such
exercise, the shares so delivered to be valued on the basis of the Fair Market
Value of the stock on the date of exercise. If and while payment with stock is
permitted for the exercise of an option granted under this Plan in accordance
with the foregoing provision, the instrument evidencing the option may also
permit the person then entitled to exercise that option, in lieu of using
previously outstanding shares therefor, to use some of the shares as to which
the option is then being exercised.
PAGE 2
<PAGE>
10. Administration. The Plan shall be administered by the Company's Board
of Directors (the "Board") or, at the discretion of the Board, by a committee
(the "Committee") of not less than two members of the Board. The Board may, from
time to time, remove members from, or add members to, the Committee. Vacancies
on the Committee, however caused, shall be filled by the Board. The Committee
shall select one of its members as Chairman, and shall hold meetings at such
times and places as it may determine. Decisions by a majority of the Committee,
at which a quorum is present, or acts reduced to or approved in writing by a
majority of the Members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Board or by the Committee (if
delegated by the Board) of any term or provision of the Plan or of any option
granted under it, including without limitation any determination of adjustments
required pursuant to Section 6 hereof, shall be conclusive, unless otherwise
determined by the Board in which event such action by the Board shall be
conclusive, and such interpretation and construction shall be binding upon all
those who hold or are eligible to receive options under the Plan, and all
persons claiming under them. The Board or Committee may from time to time adopt
rules and regulations for carrying out this Plan and, subject to the provisions
of this Plan, may prescribe the form or forms of the instruments evidencing any
option granted under this Plan.
Subject to the provisions of this Plan, the Board or, by delegation from
the Board, the Committee, shall have full and final authority in its discretion
to select the employees to be granted options, to authorize granting such
options and to determine the number of shares to be subject thereto, the
exercise prices, the terms of exercise, expiration dates and other pertinent
provisions thereof.
11. Other Option Provisions. Options granted under this Plan shall
contain such other terms and provisions which are not inconsistent with this
Plan as the Board or Committee may authorize, including but not limited to (a)
vesting schedules governing the exercisability of such options, (b) provisions
for acceleration of such vesting schedules in certain events, (c) arrangements
whereby the Company may fulfill any tax withholding obligations it may have in
connection with the exercise of such options, (d) provisions imposing
restrictions upon the transferability of stock acquired on exercise of such
options, whether required by this Plan or applicable securities laws or imposed
for other reasons, and (e) provisions regarding the termination or survival of
any such options upon the Optionee's death, retirement or other termination of
employment and the extent, if any, to which any such options may be exercised
after such event.
12. Corporate Reorganizations; Other Events. Upon (a) the dissolution or
liquidation of the Company, or (b) a reorganization, merger or consolidation of
the Company as a result of which the outstanding Common Stock then subject to
options hereunder are changed into or exchanged for property (including cash),
rights or securities not of the Company's issue, or any
PAGE 3
<PAGE>
combination thereof, or (c) a sale of all or substantially all the property of
the Company to, or the acquisition of stock representing a change in control in
the voting power of the stock of the Company then outstanding by, another
corporation or person, the Plan shall terminate, and all options theretofore
granted hereunder shall terminate, unless provisions to the contrary are set
forth in an option granted hereunder or provision otherwise be made in writing
in connection with such transaction for the continuance of the Plan and/or for
the assumption of options theretofore granted, or the substitution for such
options of options covering the stock of a successor employer corporation, or a
parent or a subsidiary thereof, with appropriate adjustments in accordance with
Section 6 hereof as to the number and kind of shares optioned and their exercise
prices, in which event the Plan and options theretofore granted shall continue
in the manner and under the terms so provided. The instrument evidencing any
option may also provide for the acceleration of portions of the option not
otherwise exercisable (a) if the option shall terminate pursuant to the
foregoing sentence, such acceleration to become effective at such time prior to
the consummation of the transaction causing such termination as the Company
shall designate, and (b) upon other specified events or occurrences, such as
involuntary termination of the option holder's employment following certain
changes in the control of the Company.
13. Additional Documents. As a condition precedent to the exercise of any
option granted under this Plan, the Optionee shall execute and deliver to the
Company a copy of the Shareholders' Agreement substantially in the form attached
hereto as Exhibit "A" (the "Shareholders' Agreement") and a Representation
Letter substantially in the form of Exhibit "B" attached hereto (which, together
with the Shareholders' Agreement, is referred to as the "Additional Documents").
The shares of Common Stock of the Company received upon exercise of any option
granted under this Plan may only be transferred in strict accordance with the
terms and provisions of the Additional Documents. Any attempted or purported
transfer which is not effected in strict accordance with the terms and
provisions of the Additional Documents shall be null and void and of no further
force or effect pursuant to the provisions of the Additional Documents.
14. Limitations Of Rights Of Participants.
(a) A person to whom an option is granted under this Plan shall not
have any interest in the optioned shares or in any dividends paid thereon, and
shall not have any of the rights or privileges of a shareholder with respect to
such shares, until the certificates therefor have been issued and delivered to
him or her.
(b) No shares of Common Stock issuable under the Plan shall be issued
and no certificate therefor delivered unless and until, in the opinion of legal
counsel for the Company, such securities may be issued and delivered without
causing the Company to be in violation of, or to incur any liability under, any
federal, state or other securities law, or any other requirement of law or of
any regulatory body having jurisdiction over the Company.
PAGE 4
<PAGE>
(c) The participation by an employee in the Plan does not create any
contractual obligations of the Company to employ an Optionee or of the
Optionee's right to continued employment for any period of time, each employee
of the Company and each participant in the Plan being an employee terminable at
will.
(d) Nothing contained in this Plan shall constitute the granting of
an option hereunder, which shall occur only pursuant to express authorization by
the Board or the Committee.
(e) Any option granted to an Optionee under the Plan shall not be
exercisable by the Optionee unless and until at all times beginning with the
date of the grant of an option hereunder and ending on the date of exercise of
such option, the Optionee shall have been in the continuous employment of the
Company; provided, however, for a period of sixty (60) days after termination of
employment for any reason, whether by the Company or the Optionee, and whether
voluntary or involuntary, the Optionee shall have the right to exercise that
portion, if any, of the option theretofore vested.
Notwithstanding the foregoing, the requisite employment relationship with
respect to an option granted hereunder will be treated as continuing intact
while the Optionee (with the prior approval of the Board of the Company or any
subsidiary of the Company) is on military leave, sick leave or other bona fide
leave of absence (such as temporary employment by the United States Government)
if the period of such leave does not exceed 90 days, or, if longer, so long as
the Optionee's right to reemployment is guaranteed by statute or by contract.
15. Amendment And Termination. The Board may alter, amend, suspend or
terminate this Plan, provided that no such action shall deprive an Optionee who
has not consented thereto of any option granted to the Optionee pursuant to this
Plan or of any of the Optionee's rights under such option. Except as herein
provided no such action of the Board, may:
(a) increase the maximum number of shares for which options granted
under this Plan may be exercised;
(b) reduce the minimum permissible exercise price;
(c) extend the duration of the Plan set forth herein; or
(d) alter the class of employees eligible to receive options under
the Plan.
16. Certain Definitions. The terms "Board," "Committee," and "Incentive
Options" have been defined hereinabove. In addition, as used in this Plan, the
following terms shall have the following meanings:
PAGE 5
<PAGE>
(a) The "Fair Market Value" of the Common Stock shall mean:
(i) If the Common Stock is then Publicly Traded: The closing
price of the Common Stock as of the day in question (or, if such day
is not a trading day in the principal securities market or markets for
such stock, on the nearest preceding trading day), as reported with
respect to the market (or the composite of markets, if more than one)
in which shares of such stock are then traded, or, if no such closing
prices are reported, on the basis of the mean between the high bid and
low asked prices that day on the principal market or quotation system
on which shares of such stock are then quoted, or, if not so quoted,
as furnished by a professional securities dealer making a market in
such stock selected by the Board or the Committee.
(ii) If the Common Stock is then not Publicly Traded:
(A) With respect to options granted contemporaneously
with the adoption of this Plan, that price determined by the
Board of Directors of the Company based upon an independent
appraisal of the Company prepared by an independent firm of
certified public accountants of national standing.
(B) With respect to all other options, the price at
which one could reasonably expect the Common Stock to be sold in
an arms length transaction, for cash, other than on an
installment basis, to a person not employed by, controlled by, in
control of, or under common control with, the Company.
(C) In any case, Fair Market Value as determined,
whether by the Board or by an appraiser or appraisers selected by
the Board, shall give due consideration to recent transactions
involving shares of such stock, if any, the Company's net worth,
prospective earning power and dividend-paying capacity, the
goodwill of the Company's business, the Company's industry
position and its management, that industry's economic outlook,
the values of securities of issuers whose stock is Publicly
Traded and which are engaged in similar businesses, the effect of
transfer restrictions to which such stock may be subject under
law and under the applicable terms of the Additional Documents,
the absence of a public market for such stock and such other
matters as the Board or its appraiser or appraisers deem
pertinent. The determination by the Board or its appraiser or
appraisers of the Fair Market Value shall, if not unreasonable,
be conclusive and binding notwithstanding the possibility that
other persons
PAGE 6
<PAGE>
might make a different, and also reasonable, determination. If
the Fair Market Value to be used was thus fixed more than six (6)
months prior to the date as of which Fair Market Value is being
determined, it shall in any event be no less than the book value
of the stock being valued at the end of the most recent period
for which financial statements of the Company are available.
(b) Corporate stock is "Publicly Traded" if stock of that class is
listed or admitted to unlisted trading privileges on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
("NASD") or if sales or bid and offer quotations are reported for that class of
stock in the automated quotation system operated by the NASD.
17. Compliance With Law. The Plan and all options granted hereunder are
subject to federal and applicable state tax and securities laws. No options may
be granted and no shares of Common Stock may be issued pursuant to the Plan
unless in full compliance with such laws.
PAGE 7
<PAGE>
Kevco stationery
_____________________, 1996
TO: Optionees under Kevco 1995 and 1996 Stock Option Plans
Ladies and Gentlemen:
Reference is hereby made to the Kevco 1995 and 1996 Stock Option Plans (the
"Plans"). Pursuant to the provisions of the Plans, as a condition precedent to
the exercise of any options granted under the Plans, you are required to execute
and deliver to the Company certain documents which are referred to therein as
the "Additional Documents". As you may be aware, the Company has consummated its
initial public offering of its common stock (the "Offering"). As such, the
Company is no longer a privately held corporation. The Additional Documents, as
originally prepared and as referred to in the Plans, related primarily to a
privately held corporation. Given the fact that this no longer is the case, the
Company has determined that it will not require that you execute and deliver any
of the Additional Documents as a condition precedent to the exercise of any
options granted under the Plans. All other terms and provisions of the Plans and
any Stock Option Agreement executed by you with respect to the granting of any
options under the Plans shall continue in full force and effect and unimpaired.
Please acknowledge your receipt of this letter by signing and returning one
of the two copies enclosed. The second copy enclosed is for your file.
If you have any questions with regard to any of the foregoing, please feel
free to call me.
Yours very truly,
Jerry E. Kimmel
Chairman of the Board and President
JEK:sw
101888.5/80919.1-2.F
Enclosures
RECEIPT ACKNOWLEDGED:
- -----------------------
Optionee's Signature
Date:___________, 1996
<PAGE>
EXHIBIT 10.20
Amended and Restated
HEALTH AND ACCIDENT PLAN
of
Kevco, Inc.
1. Reimbursement for Covered Expenses.
----------------------------------
(a) Effective September 1, 1996, Kevco, Inc., a Texas corporation
(which term shall include its subsidiaries) (the "Corporation") will reimburse
(at least quarterly) any of the officers and/or employees of the Corporation (a
"Participant") specifically named in Paragraph 1(b) or hereinafter named in any
resolutions adopted by the board of directors of the Corporation for all costs
and expenses incurred by a Participant, a Participant's spouse or dependents,
for medical care [as defined in Section 213(d) of the Internal Revenue Code of
1986, as amended), (the "Code")], subject to any benefit limitations imposed by
the board of directors of the Corporation. A Participant shall be considered as
an employee of the Corporation if he is employed by the Corporation at the time
any covered expense is incurred and if, at such time, he is customarily working
at least nine (9) months of each year and thirty (30) hours in each week. An
officer shall be considered as such during the period commencing with their
election by the corporation's board of directors and ending when their successor
has been duly elected and qualified. Expenses for medical care, as so defined
in Section 213(d) of the Code, shall include (but are not limited to) all
amounts paid for hospital bills, doctor and dental bills, drugs, prescriptions,
prosthetic devices, together with amounts paid for transportation primarily for
and essential to the obtaining of medical and dental care, and premiums on
accident or health insurance, including hospitalization, surgical, medical,
dental and disability income insurance.
(b) The Participants of the Corporation initially covered by this Plan
and the benefits to which each of such Participants shall be entitled in any one
calendar year are as follows:
<TABLE>
<CAPTION>
Employee Benefits Limited To
-------- -------------------
<S> <C>
Gerald E. Kimmel $10,000
Clyde A. Reed, Jr. 3,000
Allen McGehee 500
Dick Grasso 500
Gregory G. Kimmel 1,000
Maria Allridge 1,000
</TABLE>
(c) The Corporation may, in its discretion, pay any or all of the
above-covered expenses directly in lieu of making reimbursement therefor. In
such event, the Corporation shall be relieved of all further responsibility with
respect to that particular covered expense. The reimbursement to or the payment
on behalf of any one Participant shall be limited in any one calendar year to
the benefit set forth as to each employee in Paragraph 1(b) above.
Page 1
<PAGE>
2. Other Insurance.
---------------
Reimbursement under this Plan shall be made by the Corporation only in the
event and to the extent that such reimbursement or payment is not provided for
under any insurance policy or policies, whether owned by the Corporation or the
Participant or under any other plan or similar program. In the event that there
is such a policy or plan in effect providing for reimbursement or payment in
whole or in part, then to the extent of the coverage under such policy or plan,
the Corporation shall be relieved of any liability hereunder.
3. Purpose.
-------
It is the intention of the Corporation that benefits payable under this
Plan shall (to the maximum extent allowable) be eligible for exclusion from the
gross income of the Participants, as provided by Sections 105 and 106 of the
Code.
4. Coverage.
--------
A Participant whose employment with the Corporation is terminated for any
reason, whether for or without cause and whether voluntarily or involuntarily,
or who terminates his employment with the Corporation for any reason, shall
forfeit as of the date of such termination all rights to reimbursement under the
Plan, whether or not theretofore accrued or incurred. A copy of this Plan shall
be given to all Participants of the Corporation as hereinabove provided who
become participants in the Plan.
5. Amendment, Termination.
----------------------
This Plan may be amended or terminated at any time subsequent hereto by the
affirmative vote of a majority of the board of directors of the Corporation;
provided, however, that any such amendment or termination shall not affect the
right to claim reimbursement for amounts expended for covered expenses prior to
such amendment or termination.
6. Named Fiduciary.
---------------
The named fiduciary of this Plan is the Corporation.
7. Administration.
--------------
The officers of the Corporation shall have authority and responsibility to
control and manage the operation and administration of this Plan.
8. Claim Procedure.
---------------
Page 2
<PAGE>
Claims for benefits under this Plan shall be made on forms maintained by
the Corporation. Each Participant applying for reimbursement under this Plan
shall submit claims for same at least quarterly, accompanied by copies of all
statements, bills or other documentation of medical care expenses. A failure to
comply herewith may at the discretion of the Corporation terminate such
Participant's right to reimbursement.
9. Procedure in the Event of Denial of a Claim.
-------------------------------------------
(a) In the event any claim for benefits hereunder is wholly or
partially denied, notice of such decision shall be furnished to the claimant
within a reasonable period of time after receipt of the claim by the named
fiduciary.
(b) The notice of the denial of a claim shall be in writing, shall be
set forth in a manner calculated to be understood by the claimant, shall set
forth the specific reason or reasons for the denial, shall refer to the
pertinent plan provisions upon which the denial is based, shall describe any
additional material or information necessary for the claimant to perfect the
claim, and shall contain an explanation of the Plan's claim review procedure.
(c) Every claimant, or his duly authorized representative, shall have
the right to appeal a denial of a claim under this Plan to the named fiduciary.
Such appeal may be accomplished by a written notice of appeal filed with the
named fiduciary within thirty (30) days of a claim. In the event a claimant
does not file a notice of appeal within this thirty (30) day period, he shall be
deemed to have irrevocably consented to the decision to deny the claim.
(d) A decision by the named fiduciary shall be made promptly within
sixty (60) days after the receipt of the notice of appeal, unless special
circumstances (such as the need for a hearing if the named fiduciary determines
that a hearing is necessary) require any extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not later than
one hundred twenty (120) days after receipt of a notice of appeal. The decision
on review shall be in writing, written in a manner calculated to be understood
by the claimant, and shall include specific reasons for the decision.
Page 3
<PAGE>
EXHIBIT 10.34
Non-Negotiable
PROMISSORY NOTE
$3,733,000.00 Fort Worth, Texas _________________, 1996
FOR VALUE RECEIVED, the undersigned, KEVCO TEXAS, INC., a Texas
corporation ("Maker"), promises to pay to the order of the persons identified on
EXHIBIT "A" attached hereto (collectively "Payees"), at the addresses of Payees
set forth on EXHIBIT "A", the principal sum shown opposite the name of each of
the Payees on EXHIBIT "A" hereto [or an aggregate principal sum of THREE MILLION
SEVEN HUNDRED THIRTY-THREE THOUSAND AND NO/100 DOLLARS ($3,733,000.00)],
together with interest thereon on the unpaid principal balance from date until
maturity at a simple rate of interest per annum equal to the lesser of (i) ____
percent (___%) or (ii) the Maximum Rate. All past due principal and interest
shall bear interest at the Maximum Rate. As used herein, the term "Maximum
Rate" shall mean, on any day, the highest lawful non-usurious rate of interest
(if any) permitted by applicable law, whether state or federal, on such day,
including the rate permitted by Vernon's Texas Code Ann. Art. 5069=1.04, but in
no event to exceed 18%.
If at any time and from time to time the rate of interest calculated
pursuant to subparagraph (i) above would exceed the Maximum Rate, thereby
causing the interest payable on this Note to be limited to the Maximum Rate as
provided in subparagraph (ii) above, then any subsequent reduction in the rate
specified in subparagraph (i) shall not reduce the rate of interest payable on
this note from and after the date of this Note equals the amount of interest
which would have accrued thereon if the applicable rate specified in
subparagraph (i) above had at all times been in effect.
Payments of both principal and interest hereon shall be made to Payees as
herein provided in lawful money of the United States of America, in immediately
available funds in Fort Worth, Texas. Interest shall be computed on the basis
of a year consisting of 365 days or, if appropriate, 366 days.
This Note, both principal and interest, shall be due and payable on the
first business day immediately following the consummation of an initial public
offering by
Page 1
<PAGE>
Kevco, Inc., a Texas corporation, of shares of its $.01 par value
common stock. Any interest payable on this Note shall be calculated on the
unpaid principal balance to the date of any payment of principal and any
payments made shall be credited first to the discharge of the interest accrued
and the balance to the reduction of principal.
No part of this Note, whether principal or interest, may be prepaid prior
to its due date as set forth herein.
Time is of the essence. Therefore, in the event of default in the timely
and punctual payment of any installment hereof as provided herein, neither
Payees nor any other holders of the Note shall be obligated to accept any
installment called for by this Note, whether principal or interest. Late
payment of any installment, whether principal or interest, shall constitute
default in Maker's obligations hereunder. Upon default in the punctual payment
when due of this Note, whether principal or interest, Payees or any other
holders of this Note may in such event at their option declare the entire unpaid
balance of principal and interest owing hereon at once matured and due and
payable in full and any holder of this Note may in such event exercise any and
all rights, remedies or privileges possessed by such holder, whether under the
terms hereof or at law or in equity.
If default be made in the payment of this Note or any part thereof, whether
principal or interest, and this Note is placed in the hands of an attorney or
attorneys for collection, for enforcement or for any other purposes or is
collected or enforced through bankruptcy proceedings (including any proceedings,
federal or state, for the relief of debtors), or through any other court
proceedings, whether before or after maturity, Maker agrees to pay to the holder
or holders hereof reasonable attorneys' fees.
Maker and any present or future sureties, guarantors and endorsers of this
Note and any other parties hereto severally waive the order of their liability,
the marshalling of assets, demands, presentment for payment, notice of
dishonor, protest, notice of protest and diligence in collecting this Note and
each, every and all installments hereof or bringing suit against any parties
hereto. In case of renewal or extension of this note or any part hereof, any
and all collateral or liens given to the Payees or other holders hereof at any
time will remain in full force and effect to secure the payment of the renewal
or extension Note.
PROMISSORY NOTE: Kevco Texas, Inc.
101888.5/80851.07F (10-4-96 12:43 am) - Page 2
<PAGE>
No provisions of this Note shall require the payment or permit the
collection of interest in excess of the Maximum Rate. If any excess of
interest in such respect is herein provided for or shall be adjudicated to be so
provided for herein the provisions of this paragraph shall govern and neither
Maker nor any of its successors, assigns or legal representative shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the amount permitted by law. If an excess amount should be collected it
shall be construed as a mutual mistake of the parties and the excess shall be
credited to principal. However, if all amounts due under this Note have been
paid, Maker and all of its successors, assigns or legal representatives shall be
entitled to a refund of the excess amount collected hereunder.
This Note and all payments and obligations hereof are fully performable in
Tarrant County, Texas where suit shall be brought hereon to enforce any of the
obligations created hereunder or to collect any amounts due hereunder and where
venue shall lie.
This Note is unsecured.
This Note is not negotiable and may not be assigned, sold, transferred,
hypothecated or otherwise disposed of, in whole or in part, by Payees.
MAKER:
KEVCO TEXAS, INC.
By:
-----------------------------
Its: Chairman of the Board
and President
PROMISSORY NOTE: Kevco Texas, Inc.
101888.5/80851.07F (10-4-96 12:43 am) - Page 3
<PAGE>
EXHIBIT "A"
to Promissory Note
<TABLE>
<CAPTION>
Name and Address of Payee Principal Amount
- ------------------------- ----------------
<S> <C>
Gerald E. Kimmel
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107 $ 3,193,308.20
Christine Sue Pearce
8605 Woodslane Drive
P.O. Box 79170*
Fort Worth, Texas 76179 $ 175,824.30
Amy Llewella Mueller
709 Evergreen
Hurst, Texas 76054 $ 175,824.30
Gregory Gerald Kimmel
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107 $ 175,824.30
Clyde A. Reed, Jr.
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107 $ 8,212.60
James W. Kimmel
1616 E. Cindy Lane
Chandler, Arizona 85225 $ 4,106.30
</TABLE>
*use this address for all mail
PROMISSORY NOTE: Kevco Texas, Inc.
101888.5/80851.07F (10-4-96 12:43 am) - Page 4
<PAGE>
Exhibit 10.35
Non-Negotiable
PROMISSORY NOTE
Fort Worth, Texas _______________, 1996
FOR VALUE RECEIVED, the undersigned, KEVCO TEXAS, INC., a Texas corporation
("Maker"), promises to pay to the order of the persons identified on EXHIBIT "A"
attached hereto (collectively "Payees"), at the addresses of Payees set forth on
EXHIBIT "A," and in the percentage set forth opposite the respective names of
Payees on EXHIBIT "A" hereto, an aggregate amount equal to Maker's net income
for the period July 1, 1996 through the date on which an initial public offering
of the $.01 par value common stock of Kevco, Inc., a Texas corporation, is
consummated (the "Offering"), together with interest thereon on the unpaid
principal balance from date until maturity at a simple rate of interest per
annum equal to the lesser of (i) ________ percent (____%) or (ii) the Maximum
Rate. All past due principal and interest shall bear interest at the Maximum
Rate. As used herein, the term "Maximum Rate" shall mean, on any day, the
highest lawful non-usurious rate of interest (if any) permitted by applicable
law, whether state or federal, on such day, including the rate permitted by
Vernon's Texas Code Ann. Art. 5069-1.04, but in no event to exceed 18%.
If at any time and from time to time the rate of interest calculated
pursuant to subparagraph (i) above would exceed the Maximum Rate, thereby
causing the interest payable on this Note to be limited to the Maximum Rate as
provided in subparagraph (ii) above, then any subsequent reduction in the rate
specified in subparagraph (i) shall not reduce the rate of interest payable on
this Note below the Maximum Rate until the total amount of interest accrued on
this Note from and after the date of this Note equals the amount of interest
which would have accrued thereon if the applicable rate specified in
subparagraph (i) above had at all times been in effect.
Payments of both principal and interest hereon shall be made to Payees as
herein provided in lawful money of the United States of America, in immediately
available funds in Fort Worth, Texas. Interest shall be computed on the basis
of a year consisting of 365 days or, if appropriate, 366 days.
Page 1
<PAGE>
This Note, both principal and interest, shall be due and payable on or
before Decemer 31, 1996. Any interest payable on this Note shall be calculated
on the unpaid principal balance to the date of any payment of principal and any
payments made shall be credited first to the discharge of the interest accrued
and the balance to the reduction of principal.
Time is of the essence. Therefore, in the event of default in the timely
and punctual payment of any installment hereof as provided herein, neither
Payees nor any other holders of the Note shall be obligated to accept any
installment called for by this Note, whether principal or interest. Late
payment of any installment, whether principal or interest, shall constitute
default in Maker's obligations hereunder. Upon default in the punctual payment
when due of this Note, whether principal or interest, Payees or any other
holders of this Note may in such event at their option declare the entire unpaid
balance of principal and interest owing hereon at once matured and due and
payable in full and any holder of this Note may in such event exercise any and
all rights, remedies or privileges possessed by such holder whether under the
terms hereof or at law or in equity.
If default be made in the payment of this Note or any part thereof, whether
principal or interest, and this Note is placed in the hands of an attorney or
attorneys for collection, for enforcement or for any other purposes or is
collected or enforced through bankruptcy proceedings (including any proceedings,
federal or state, for the relief of debtors), or through any other court
proceedings, whether before or after maturity, Maker agrees to pay to the holder
or holders hereof reasonable attorneys' fees.
Maker and any present or future sureties, guarantors and endorsers of this
Note and any other parties hereto severally waive the order of their liability,
the marshalling of assets, demands, presentment for payment, notice of
dishonor, protest, notice of protest and diligence in collecting this Note and
each, every and all installments hereof or bringing suit against any parties
hereto. In case of renewal or extension of this Note or any part hereof, any
and all collateral or liens given to the Payees or other holders hereof at any
time will remain in full force and effect to secure the payment of the renewal
or extension note.
No provisions of this Note shall require the payment or permit the
collection of interest in excess of the Maximum Rate. If any excess of
interest in such respect is
Page 2
<PAGE>
herein provided for or shall be adjudicated to be so provided for herein the
provisions of this paragraph shall govern and neither Maker nor any of its
successors, assigns or legal representative shall be obligated to pay the amount
of such interest to the extent that it is in excess of the amount permitted by
law. If an excess amount should be collected it shall be construed as a mutual
mistake of the parties and the excess shall be credited to principal. However,
if all amounts due under this Note have been paid, Maker and all of its
successors, assigns or legal representatives shall be entitled to a refund of
the excess amount collected hereunder.
This Note is unsecured.
This Note and all payments and obligations hereof are fully performable in
Tarrant County, Texas where suit shall be brought hereon to enforce any of the
obligations created hereunder or to collect any amounts due hereunder and where
venue shall lie.
This Note is not negotiable and may not be assigned, sold, transferred,
hypothecated or otherwise disposed of, in whole or in part, by Payees.
MAKER:
KEVCO TEXAS, INC.
By:______________________________
Its: Chairman of the Board
and President
Page 3
<PAGE>
EXHIBIT "A"
to Promissory Note
(No. 80851)
Name and Address of Payee Percentage Amount
- ------------------------- -----------------
Gerald E. Kimmel
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107 85.54%
Christine Sue Pearce
8605 Woodslane Drive
P.O. Box 79170 *
Fort Worth, Texas 76179 4.71%
Amy Llewella Mueller
709 Evergreen
Hurst, Texas 76054 4.71%
Gregory Gerald Kimmel
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107 4.71%
Clyde A. Reed, Jr.
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107 .22%
James W. Kimmel
1616 E. Cindy Lane
Chandler, Arizona 85225 .11%
*use this address for all mail
Page 4
<PAGE>
EXHIBIT 10.37
Adoption Agreement
------------------
THIS AGREEMENT is made and entered into as of the __ day of
________________, 1996, by and between Kevco, Inc., a Texas corporation (the
"Company") and Kevco Texas, Inc., a Texas corporation ("Kevco");
WHEREAS, Kevco has previously instituted a 1995 Stock Option Plan (the
"1995 Plan") and a 1996 Stock Option Plan (the "1996 Plan" which, together with
the 1995 Plan, is hereinafter collectively referred to as the "Plans"); and
WHEREAS, Kevco has previously set aside for issuance 258,500 shares of its
$.01 par value common stock (the "Kevco Common Stock") under the 1995 Plan and
444,235 shares of its Kevco Common Stock under the 1996 Plan; and
WHEREAS, options covering 44,306 shares of Kevco Common Stock have been
granted and are outstanding under the 1995 Plan and options covering 374,120
shares of Kevco Common Stock have been granted and are outstanding under the
1996 Plan; and
WHEREAS, the Company is making an initial public offering of shares of its
$.01 par value common stock (the "Company Common Stock") and as part of a
restructuring and incident to such offering, Kevco will become, by virtue of a
merger, a Delaware corporation and wholly-owned subsidiary of the Company; and
WHEREAS, it is deemed necessary and desirable for the Company to adopt and
assume the Plans and the obligations thereunder, pursuant to which the Plans
shall become the plans of the Company and pursuant to which the outstanding
options which have been granted by Kevco will be and become options to purchase
shares of Company Common Stock under the same terms and conditions as previously
granted to the optionees thereof;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, it
is agreed as follows:
Page 1
<PAGE>
1. The Company hereby adopts and assumes the Plans and all obligations
thereunder.
2. All outstanding options heretofore granted with respect to Kevco Common
Stock shall be and become options to purchase Company Common Stock under the
same terms and conditions as heretofore granted to the optionees thereof.
3. The parties hereto covenant and agree to execute such other documents
and to take such further action as may be deemed necessary, desirable or
appropriate in order to reflect the provisions of this Agreement.
4. All figures used herein reflect a .47 for 1 reverse stock split
effected by Kevco on August 29, 1996.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
KEVCO, INC.
By:
--------------------------------
Its Chairman of the Board
and President
KEVCO:
Kevco Texas, Inc.
By:
--------------------------------
Its Chairman of the Board
and President
Page 2
<PAGE>
Page 3
<PAGE>
EXHIBIT 10.38
ADDENDUM NO. 1
to Lease Agreement
THIS Addendum No. 1 to a lease (the "Lease") dated as of October 12, 1987,
by and between 1741 Conant Partnership ("Lessor") and Kevco, Inc. ("Lessee") is
made and entered into as of the 21 day of September, 1988;
WITNESSETH;
----------
WHEREAS, Lessee is in need of additional space for use in its business in
Elkhart, Indiana; and
WHEREAS, Lessor has agreed to lease to Lessee additional space upon the
terms and subject to the conditions contained in this Addendum and in the Lease;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
herein contained, the parties hereto have agreed and do hereby agree as follows:
1. As defined in Paragraph 1 of the Lease, the term "Demised Premises"
shall include the property and improvements thereon described on EXHIBIT "A"
attached to the Lease, as well as 18,000 square feet of new space being leased
by Lessor to Lessee pursuant to this Addendum to the Lease.
2. Paragraph 3 of the Lease is hereby amended as follows:
(a) By adding at the beginning of said paragraph, the words "Commencing the
effective date of this Addendum as provided herein,";
(b) The number $3,672,000 on Line 3 is hereby changed to $4,378,854.19; and
<PAGE>
(c) The number $15,300 on Line 4 is hereby changed to $19,260.
3. The effective date of the changes to the Lease as evidenced by this
Addendum shall be November 1, 1988.
4. Except as amended hereby, the Lease shall remain in full force and
effect and unimpaired.
IN WITNESS WHEREOF, the parties have executed this Addendum to the Lease as
of the date first above written, but effective the Effective Date provided
herein.
LESSOR:
1741 CONANT PARTNERSHIP,
a Texas General Partnership
BY: K & E Land and Leasing,
a Texas General Partnership
Managing Partner
BY: /s/ Jerry S. Kimmel
--------------------------------
Its Partner
LESSEE:
KEVCO, INC.
BY: [SIGNATURE APPEARS HERE]
--------------------------------
Its Chairman & Secretary
<PAGE>
EXHIBIT 10.39
K & E LAND & LEASING
Kevco, Inc.
Suite 503, Morrow Building II
301 Loop 820, N.E.
Hurst, Texas 76053
Gentlemen:
The purpose of this letter is to confirm our agreement that effective as of
January 1, 1982, the monthly rental with respect to the Elkhart, Indiana and
Newton, Kansas leased premises shall be increased to $8,500 and $7,700
respectively. The monthly rental to be paid by Kevco, Inc. to K & E Land &
Leasing shall be in addition to all other assessments and obligations of Kevco,
Inc. as set forth in the Lease and Sublease relating to the respective leased
premises.
The monthly rental as increased shall be paid each month as provided in the
Lease until subsequently increased by the mutual agreement of Kevco, Inc. and
K & E Land & Leasing.
If the foregoing accurately reflects our agreement, kindly indicate to such
effect on the second copy of this letter enclosed for that purpose and return
same to the undersigned at your earliest convenience.
Yours very truly,
K & E Land & Leasing
By: /s/ Billy T. Everett
------------------------------
Billy T. Everett
General Partner
AGREED: Kevco, Inc.
BY: /s/ Gerald E. Kimmel
-------------------------------
Gerald E. Kimmel
Its President
DATE: June 22, 1982
<PAGE>
EXHIBIT 10.40
KEVCO, INC.
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107
October 1, 1996
Mr. Jerry E. Kimmel and
Mr. Billy T. Everett, Managing General Partners of
K & E Land & Leasing
and
K & E Land & Leasing, Managing General Partner of
and
1741 Conant Partnership
1300 So. University Drive, Suite 200
Fort Worth, Texas 76107
RE: (i) Lease Agreement dated December 1, 1977, as amended, between
K & E Land & Leasing ("K&E") and Kevco, Inc. ("Kevco") with
respect to the certain real property and improvements
thereon located in Elkhart, Indiana and described in said
Lease Agreement (the "Elkhart Lease");
(ii) Sublease and Lease Guarantee Agreement dated April 1, 1980,
as amended, between K&E and Kevco with respect to the real
property and improvements thereon located in Newton, Kansas
as described therein (the "Newton Sublease");
(iii) Lease Agreement dated October 12, 1987, as amended, between
1741 Conant Partnership ("Conant") and Kevco with respect
to the real property and improvements thereon located in
Elkhart, Indiana as described therein (the "IDC Lease");
and
(iv) Equipment Lease Agreement dated January 1, 1991, as
amended, between K&E and Kevco with respect to the
Equipment described (the "Equipment Lease").
Gentlemen:
Reference is hereby made to the Elkhart Lease, the Newton Sublease and
the Equipment Lease (collectively the "K&E Leases"). Reference is also made to
the IDC Lease.
The purpose of this letter is to confirm our agreement that, effective
as of October 1, 1996, none of the K&E Leases or the IDC Lease will be amended
in any manner without our mutual consent, including increasing the current
rental payable under any of such leases, the effect or result of which would be
to cause the term of any such lease, as amended, to contain terms or provisions
less favorable to Kevco than that obtainable from an independent third party
<PAGE>
[K & E LAND & LEASING LETTERHEAD APPEARS HERE]
Page 2
lessor; provided, however, that notwithstanding the foregoing, in no event shall
the monthly rental under any of such leases be decreased from that currently
payable thereunder.
If the foregoing accurately reflects our agreement, kindly indicate to such
effect on the second copy of this letter enclosed for that purpose and return
same to the undersigned at your earliest convenience.
Yours very truly,
Jerry E. Kimmel
Chairman of the Board and President
AGREED TO:
K & E Land & Leasing,
a Texas General Partnership
By:
-----------------------------------
Jerry E. Kimmel, Managing General Partner
By:
-----------------------------------
Billy T. Everett, Managing General Partner
Date: October 2, 1996
1741 Conant Partnership,
a Texas General Partnership
K & E Land & Leasing, Managing General Partner
By:
-----------------------------------
Jerry E. Kimmel, General Partner
By:
-----------------------------------
Billy T. Everett, General Partner
Date: October 2, 1996
<PAGE>
EXHIBIT 11
KEVCO, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SUPPLEMENTAL SUPPLEMENTAL AS ADJUSTED SUPPLEMENTAL AS ADJUSTED
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED ENDED
1995(3) 1995(4) 1995 JUNE 30, 1996 JUNE 30, 1996
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income.............. $4,316 $5,452 $6,317 $4,300 $4,748
Weighted average number
of shares:
Average common shares
outstanding............ 4,395 4,395 4,395 4,395 4,395
Common share equivalents
resulting from assumed
exercise of stock
options................ 49 49 49 49 49
Other shares............ 502(1) 502(1) 2,100(2) 334(1) 2,100(2)
------ ------ ------ ------ ------
4,946 4,946 6,544 4,778 6,544
====== ====== ====== ====== ======
Earnings per share...... $ 0.87 $ 1.10 $ 0.97 $ 0.90 $ 0.73
</TABLE>
Earnings per share is computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
Common share equivalents are computed using the treasury stock method. Under
the treasury stock method, market price is used to determine the number of
common share equivalents.
- --------
(1) Amount reflects the assumed issuance of Common Stock at the initial public
offering price per share, less underwriting discount, to generate
sufficient cash to fund the distribution of undistributed earnings
previously taxed at the stockholder level.
(2) Amount reflects the assumed sale of the Common Stock offered hereby.
(3) Supplemental as presented on page F-5 of the Registration Statement to
which this Exhibit forms a part.
(4) Supplemental as presented on page F-25 of the Registration Statement to
which this Exhibit forms a part.
<PAGE>
[LETTERHEAD OF RYLANDER, CLAY & OPITZ, L.L.P. APPEARS HERE]
EXHIBIT 16.1
October 4, 1996
Securities and Exchange Commission
450 Fifth Street N.W., Mail Stop 3-5
Washington, D.C. 20549
Gentlemen:
We have read the "Experts" section included in the Registration Statement Form
S-1, Registration No. 333-11173, of Kevco, Inc. filed with the Securities and
Exchange Commission and are in agreement with the statements contained therein.
Very truly yours,
/s/ Rylander, Clay & Opitz, L.L.P.
Rylander, Clay, & Opitz, L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report, which includes an explanatory paragraph regarding a change in
accounting method, dated April 15, 1996, except for Note 11, as to which the
date is August 29, 1996 on our audit of the consolidated financial statements
of Kevco, Inc. as of December 31, 1995 and for the year then ended. We also
consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
October 7, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report, which includes an explanatory paragraph regarding a change in
accounting method, dated March 24, 1995, on our audits of the financial
statements of Kevco, Inc. as of December 31, 1994 and for the years ended
December 31, 1994 and 1993. We also consent to the reference to our firm under
the caption "Experts."
/s/ Rylander, Clay & Opitz, L.L.P.
Fort Worth, Texas
October 4, 1996
<PAGE>
LETTERHEAD OF RUMSEY & HUCKABY, P.C.
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 28, 1995, on our audits of the financial statements of
Service Supply Systems, Inc. and Subsidiary for the years ended December 31,
1994, 1993 and 1992. We also consent to the reference to our firm under the
caption "Experts."
/s/ Rumsey & Huckaby, P.C.
Cordele, Georgia
October 4, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 JUN-30-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 977 86
<SECURITIES> 0 0
<RECEIVABLES> 14,929 16,672
<ALLOWANCES> 160 229
<INVENTORY> 17,769 23,054
<CURRENT-ASSETS> 33,858 39,982
<PP&E> 13,964 14,844
<DEPRECIATION> 4,206 4,760
<TOTAL-ASSETS> 52,319 58,395
<CURRENT-LIABILITIES> 15,546 24,548
<BONDS> 0 0
0 0
0 0
<COMMON> 47 47
<OTHER-SE> 6,159 7,889
<TOTAL-LIABILITY-AND-EQUITY> 52,319 58,395
<SALES> 182,519 56,301
<TOTAL-REVENUES> 185,129 56,813
<CGS> 155,877 47,649
<TOTAL-COSTS> 23,449 54,532
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,692 346
<INCOME-PRETAX> 7,076 2,121
<INCOME-TAX> 45 20
<INCOME-CONTINUING> 7,031 2,101
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,031 2,101
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
