<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996
REGISTRATION NO. 333-11173
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
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)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
----------------
KEVCO, INC. UNIVERSITY CENTRE I 1300 JERRY E. KIMMEL UNIVERSITY CENTRE I
S. UNIVERSITY DRIVE SUITE 200 FORT 1300 S. UNIVERSITY DRIVE SUITE 200
WORTH, TEXAS 76107 (817) 332-2758 FORT WORTH, TEXAS 76107 (817) 332-
2758
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA (NAME AND ADDRESS, INCLUDING ZIP
CODE, OF REGISTRANT'S PRINCIPAL CODE, AND TELEPHONE NUMBER, INCLUDING
EXECUTIVE OFFICES) AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
RICHARD S. TUCKER JACKSON & WALKER, PATRICK OWENS STRASBURGER & PRICE,
L.L.P. 777 MAIN STREET SUITE 1800 FORT L.L.P. 901 MAIN STREET SUITE 4300
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 24, 1996
2,100,000 SHARES
LOGO KEVCO, INC.
COMMON STOCK
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>
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- --------------------------------------------------------------------------------
(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 3,894 4,779 8,363 10,989 2,256 8,083
Income before income
taxes.................. 98 1,959 3,552 5,298 7,026 8,888 2,096 7,025
Net income.............. 98 1,959 3,552 5,247 6,981 8,843 2,076 7,000
SUPPLEMENTAL INCOME
STATEMENT DATA(3):
Net income ............. $ 4,286 $ 5,422 $ 4,285
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).............. $ 0.96 $ 0.72
<CAPTION>
JUNE 30, 1996
-------------------
AS FURTHER
ACTUAL ADJUSTED(6)
------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $16,048 $16,048
Total assets............ 60,902 60,902
Total debt.............. 27,827 8,645
Stockholders' equity.... 10,443 29,625
</TABLE>
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(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, net of cash distributions declared and made
during such period, 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 estimated 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, net of cash distributions declared and made during such period,
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, plus cash distributions
declared and made during the period from July 1, 1996 through the day
immediately preceding the consummation of this offering, 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 to $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..... (0.71)
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, $0.01 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 6,666 29,560
Retained earnings(3)...................... 8,024 -- --
Treasury stock............................ (748) -- --
------- ------- -------
Total stockholders' equity.............. 10,443 6,710 29,625
------- ------- -------
Total capitalization.................... $35,982 $32,249 $35,982
======= ======= =======
</TABLE>
- --------
(1) Reflects the issuance of the $3.7 million Prior S Corporation Earnings
Note, which represents the estimated 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 (net of cash distributions declared and made
during such period), 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 10,550 11,941 20,889 27,001 6,908 14,968
------- ------- ------- ------- -------- -------- ------- --------
Operating income........ 636 2,293 3,894 4,779 8,363 10,989 2,256 8,083
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 3,552 5,298 7,026 8,888 2,096 7,025
Accounting change....... 225 -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- ------- --------
Income before income
taxes.................. 98 1,959 3,552 5,298 7,026 8,888 2,096 7,025
State income taxes...... -- -- -- 51 45 45 20 25
------- ------- ------- ------- -------- -------- ------- --------
Net income.............. $ 98 $ 1,959 $ 3,552 $ 5,247 $ 6,981 $ 8,843 $ 2,076 $ 7,000
======= ======= ======= ======= ======== ======== ======= ========
SUPPLEMENTAL INCOME
STATEMENT DATA (3):
Net income.............. $ 4,286 $ 5,422 $ 4,285
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).............. $ 0.96 $ 0.72
</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 15,052 17,485 54,851 60,902 60,902
Total debt.............. 1,868 1,815 5,547 6,385 31,263 27,827 8,645
Stockholders' equity.... 4,483 5,060 3,537 5,512 8,738 10,443 29,625
</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, net of cash distributions
declared and made during such period, 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 12.3 11.0
----- ----- ----- ----- -----
Operating income............................. 4.9 4.9 4.6 4.0 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% 3.7% 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 $8.1 million, or
117.4%, to $15.0 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 12.3% 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 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
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 $9.0 million, or
75.6%, to $20.9 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 $1.8 million, or 34.6%, to $7.0 million in 1995 from
$5.2 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 59.1%. 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 $1.3 million, or
12.3%, to $11.9 million in 1994 from $10.6 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 $1.6 million, or 44.4%, to $5.2 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 22.2%. 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 and its 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............. 3,557 4,526
Income before income taxes... 3,010 4,015
Supplemental net income(2)... 1,836 2,449
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............. 1,198 1,056 2,826 3,283
Income before income taxes... 1,151 943 2,173 2,759
Supplemental net income(2)... 702 575 1,326 1,683
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............. 1,249 1,189 1,481 860
Income before income taxes... 1,182 1,122 2,209 785
</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
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<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.
In 1995, the Company purchased an aircraft for approximately $2 million in
cash to facilitate management visits to the Company's various manufacturing
and distribution locations and its customers. The Company carries aircraft
insurance (in the indicated amounts) for bodily injury and property damage
($100 million each occurrence), medical expenses ($10,000 per person), and
hull damage ($2 million). The Company has a strict policy limiting the use of
the aircraft for business purposes only, with limited exceptions as permitted
by the regulations promulgated under the Internal Revenue Code.
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
29
<PAGE>
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.
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........ 38 Vice President of Sales, Service Supply division
C. Monroe Hunt....... 52 President, Service Supply division
Gregory G. Kimmel.... 28 Vice President
Tom G. Parish........ 48 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. Mr. Tucker will become the
Secretary of the Company upon consummation of this offering. 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
31
<PAGE>
Professional Corporation, located in Fort Worth, Texas. Mr. Tucker received his
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 $110,000 -- $ 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 $55,000 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 $14,000 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 shares of Common Stock
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 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.
Gregory G. Kimmel, a Vice President of the Company and the son of Mr. Jerry
E. Kimmel, and Mr. James Kimmel, an employee of the Company and the brother of
Mr. Jerry E. Kimmel, in the aggregate held, prior to the consummation of this
offering, 4.82% of the Common Stock of the Company and, as such, have received
and do receive their pro rata portion of distributions made to the Company's
shareholders.
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). Mr.
Kollat, the Company's former President of its IDC Limited division, owns a
one-third interest in 1741 Conant Partnership. 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. Mr. Kollat owns a one-third indirect interest in the third of
such leases through his ownership of a partnership interest in 1741 Conant
Partnership. 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
38
<PAGE>
family members' interests) and of which approximately $77,000, $77,000 and
$77,000 were indirectly attributable to Mr. Kollat's interest in 1741 Conant
Partnership. 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) and of which approximately $841,000 will be indirectly payable
(less partnership expenses) to Mr. Kollat. 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 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.
Mr. Gregory G. Kimmel and Mr. James Kimmel earned, in the aggregate,
$111,000 in compensation in 1995. Mr. Tucker, a director of the Company, is a
partner in Jackson & Walker, L.L.P., which is the Company's principal outside
legal counsel.
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 $0.01 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
Independent Auditors' Report............................................... 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.
The Company has applied push down accounting as more fully described in Note
2 of the consolidated financial statements.
/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.
The Company has applied push down accounting as more fully described in Note
2 of the financial statements.
/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............. 1,968 10,162 9,817 9,817
Other assets....................... 357 459 405 405
------- ------- ------- -------
Total assets................... $17,485 $54,851 $60,902 $60,902
======= ======= ======= =======
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 6,666
Loan to stockholder.............. (4,187) (3,437) -- --
Retained earnings................ 7,563 9,842 8,024 --
Treasury stock, 306 shares at
cost............................ (748) (748) (748) --
------- ------- ------- -------
Total stockholders' equity..... 5,512 8,738 10,443 6,710
------- ------- ------- -------
Total liabilities and
stockholders' equity.......... $17,485 $54,851 $60,902 $60,902
======= ======= ======= =======
</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............... 10,550 11,941 20,889 6,908 14,968
------- ------- -------- ------------ -------------
Operating income.... 3,894 4,779 8,363 2,256 8,083
Other income............ -- 800 -- -- --
Interest income......... 83 346 355 186 141
Interest expense........ (425) (627) (1,692) (346) (1,199)
------- ------- -------- ------------ -------------
Income before income
taxes.............. 3,552 5,298 7,026 2,096 7,025
State income taxes...... -- 51 45 20 25
------- ------- -------- ------------ -------------
Net income.......... $ 3,552 $ 5,247 $ 6,981 $ 2,076 $ 7,000
======= ======= ======== ============ =============
Supplemental information
(unaudited) (Note 13):
Historical income
before income taxes.. $ 7,026 $ 7,025
Income tax expense
adjustments.......... 2,740 2,740
-------- -------------
Supplemental net
income............... $ 4,286 $ 4,285
======== =============
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.............. -- -- -- -- -- -- 3,552 3,552
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) 6,338 3,537
Net income.............. -- -- -- -- -- -- 5,247 5,247
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) 7,563 5,512
Net income.............. -- -- -- -- -- -- 6,981 6,981
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) 9,842 8,738
Net income (unaudited).. -- -- -- -- -- -- 7,000 7,000
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 $ -- $ 8,024 $10,443
===== === ====== ======== ====== ======= ======= =======
</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............. $ 3,552 $ 5,247 $ 6,981 $ 2,076 $ 7,000
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 317 399 1,041 233 903
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 repurchased 305,500 shares of common stock from one
of its 50% stockholders in exchange for a promissory note in the original
principal amount of $748. The Company's other 50% stockholder purchased
2,044,500 remaining shares of common stock in exchange for approximately
$5,000. 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 hedge agreement in conjunction
with its primary credit facility to alter interest rate exposure on both the
revolver and the term debt. Amounts expected to be paid or received on the
interest rate hedge are recognized as adjustments to interest expense. Any
gain or loss from the termination of this hedge agreement will be recognized
at that time.
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........................................ $ 5,992 $ 8,843
Earnings per share................................ $ 1.27 $ 1.79
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. As a result, inventories were
written up by $614 to adjust them to their fair value. The acquisition cost in
excess of the fair value of the net assets acquired in the amount of $2,026
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............. (58) (408) (753)
------ ------- ------
Intangible assets, net.................. $1,968 $10,162 $9,817
====== ======= ======
</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, in order to reduce interest rate risk on the credit facility,
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
the interest rate hedge agreement is not considered to be material.
The fair value of long-term debt 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
nine-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 $0.01 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>
INDEPENDENT AUDITOR'S REPORT
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............ 20,889 5,904 208 (1) 27,001 -- 27,001 -- 27,001
-------- ------- ---- -------- ------- -------- ----- --------
Operating income.... 8,363 2,834 (208) 10,989 -- 10,989 -- 10,989
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.............. 7,026 2,428 (566) 8,888 -- 8,888 1,418 10,306
State income taxes... 45 -- -- 45 (45)(4) -- -- --
Provision for income
taxes............... -- 843 (843)(3) -- 3,466 (5) 3,466 553(5) 4,019
-------- ------- ---- -------- ------- -------- ----- --------
Net income.......... $ 6,981 $ 1,585 $277 $ 8,843 $(3,421) $ 5,422 $ 865 $ 6,287
======== ======= ==== ======== ======= ======== ===== ========
Earnings per share... $ 1.10 $ 0.96
======== ========
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............... 14,968 -- 14,968 -- 14,968
-------- ------- -------- ----- --------
Operating income...... 8,083 -- 8,083 -- 8,083
Interest income......... 141 -- 141 -- 141
Interest expense........ (1,199) -- (1,199) 735(4) (464)
-------- ------- -------- ----- --------
Income before income
taxes................ 7,025 -- 7,025 735 7,760
State income taxes...... 25 (25)(1) -- -- --
Provision for income
taxes.................. -- 2,740 (2) 2,740 287(2) 3,027
-------- ------- -------- ----- --------
Net income............ $ 7,000 $(2,715) $ 4,285 $ 448 $ 4,733
======== ======= ======== ===== ========
Earnings per share...... $ 0.90 $ 0.72
======== ========
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 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)
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.)(1)
2.3 --Form of Bill of Sale and General Assignment from Kevco Delaware,
Inc., as Assignor, to Sunbelt Wood Components, Inc., as
Assignee.(1)
2.4 --Form of Assumption Agreement between Kevco Delaware, Inc. and
Sunbelt Wood Components, Inc.(1)
3.1 --Articles of Incorporation of Kevco, Inc., as amended.(1)
3.2 --Bylaws of Kevco, Inc.(2)
4.1 --Form of certificate evidencing ownership of the Common Stock of
Kevco, Inc.(1)
5.1 --Opinion of Jackson & Walker, L.L.P.(2)
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated
1995 Stock Option Plan of Kevco, Inc.) and Supplementary Letter.(1)
10.2 --1996 Stock Option Plan of Kevco, Inc., as amended, and
Supplementary Letter.(1)
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.(2)
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.(2)
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.(1)
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.(2)
</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 --Form of Tax Indemnification and Distribution Agreement(2)
10.34 --Form of Promissory Note made by Kevco Texas, Inc. in the amount of
$3,733,000 (the Prior S Corporation Earnings Note).(1)
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.).(2)
10.37 --Form of Adoption Agreement by Kevco, Inc. and Kevco Texas, Inc.
(re: 1995 Stock Option Plan and 1996 Stock Option Plan).(1)
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.).(1)
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).(1)
10.40 --Letter Agreement dated October 1, 1996 by Kevco, Inc., K&E Land &
Leasing, and 1741 Conant Partnership (re: lease rental).(1)
10.41 --Form of Parent Pledge Agreement.(2)
10.42 --Consent and Waiver, dated as of October 21, 1996, by and among
NationsBank of Texas, N.A., The Sumitomo Bank, Ltd. and Kevco
Texas, Inc.(2)
11.1 --Computation of Earnings Per Common Share.(2)
16.1 --Letter regarding Change of Accountants.(1)
21.1 --Subsidiaries(2)
23.1 --Consent of Coopers & Lybrand L.L.P.(2)
23.2 --Consent of Jackson & Walker, L.L.P. (contained in its opinion
filed herewith)
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>
- --------
(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. 3 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 24, 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. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED AND ON OCTOBER 24, 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
/s/ Richard S. Tucker
*By:_________________________________
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)
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.)(1)
2.3 --Form of Bill of Sale and General Assignment from
Kevco Delaware, Inc., as Assignor, to Sunbelt Wood
Components, Inc., as Assignee.(1)
2.4 --Form of Assumption Agreement between Kevco Delaware,
Inc. and Sunbelt Wood Components, Inc.(1)
3.1 --Articles of Incorporation of Kevco, Inc., as
amended.(1)
3.2 --Bylaws of Kevco, Inc.(2)
4.1 --Form of certificate evidencing ownership of the
Common Stock of Kevco, Inc.(1)
5.1 --Opinion of Jackson & Walker, L.L.P.(2)
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended
and Restated 1995 Stock Option Plan of Kevco, Inc.)
and Supplementary Letter.(1)
10.2 --1996 Stock Option Plan of Kevco, Inc., as amended,
and Supplementary Letter.(1)
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.(2)
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.(2)
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.(1)
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.(2)
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 --Form of Tax Indemnification and Distribution
Agreement(2)
10.34 --Form of Promissory Note made by Kevco Texas, Inc.
in the amount of $3,733,000 (the Prior S Corporation
Earnings Note).(1)
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.).(2)
10.37 --Form of Adoption Agreement by Kevco, Inc. and Kevco
Texas, Inc. (re: 1995 Stock Option Plan and 1996
Stock Option Plan).(1)
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.).(1)
</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).(1)
10.40 --Letter Agreement dated October 1, 1996 by Kevco,
Inc., K&E Land & Leasing, and 1741 Conant
Partnership (re: lease rental).(1)
10.41 --Form of Parent Pledge Agreement.(2)
10.42 --Consent and Waiver, dated as of October 21, 1996,
by and among NationsBank of Texas, N.A., The
Sumitomo Bank, Ltd. and Kevco Texas, Inc.(2)
11.1 --Computation of Earnings Per Common Share.(2)
16.1 --Letter regarding Change of Accountants.(1)
21.1 --Subsidiaries(2)
23.1 --Consent of Coopers & Lybrand L.L.P.(2)
23.2 --Consent of Jackson & Walker, L.L.P. (contained in
its opinion filed herewith)
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>
- --------
(1) Previously filed.
(2) Filed herewith.
II-9
<PAGE>
EXHIBIT 1.1
KEVCO, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
_______________
UNDERWRITING AGREEMENT
----------------------
____________
_______________, 1996
Rauscher Pierce Refsnes, Inc.
Oppenheimer & Co., Inc.,
As Representatives of the several
Underwriters named in Schedule I hereto
c/o Rauscher Pierce Refsnes, Inc.
Cityplace
2711 N. Haskell Avenue, Suite 2400
Dallas, Texas 75204-2936
Dear Sirs:
Kevco, Inc., a Texas corporation (the "Company"), proposes, subject to
the terms and conditions stated in this Underwriting Agreement (this
"Agreement"), to issue and sell to the Underwriters named in Schedule I hereto
(the "Underwriters") an aggregate of 2,100,000 shares, and at the election of
the Underwriters solely for the purpose of covering over-allotments, up to
315,000 additional shares, of Common Stock, par value $.01 per share ("Stock"),
of the Company. The aggregate of 2,100,000 shares to be sold by the Company is
herein called the "Firm Shares" and the aggregate of 315,000 additional shares
to be sold by the Company is herein called the "Optional Shares." The Firm
Shares, and the Optional Shares which the Underwriters elect to purchase
pursuant to Section 3 hereof, are herein collectively called the "Shares."
The parties to this Agreement understand that the Company's operations
are currently being conducted through Kevco Texas, Inc., a Texas corporation
("Kevco Texas"). After the date of this Agreement and prior to the First Time
of Delivery (as defined in Section 5 hereof), the following transactions will be
effected in the order indicated: (a) the shareholders of Kevco Texas will
exchange each of their outstanding shares of Kevco Texas Common Stock, par value
$.01 per share (the "Kevco Texas Stock"), for one share of Stock (the
"Exchange"), (b) immediately after consummation of the Exchange, Kevco Texas
will be renamed Kevco Delaware, Inc.
<PAGE>
pursuant to a merger in which Kevco Texas will merge into Kevco Delaware, Inc.,
a Delaware corporation ("Kevco Delaware"), pursuant to a Plan and Agreement of
Merger (the "Merger Agreement") in the form filed as Exhibit 2.2 to the
Registration Statement (as defined in Section 1(a) hereof) (the "Merger"), with
Kevco Delaware being the surviving corporation of the Merger, and (c)
immediately after consummation of the Merger, Kevco Delaware will assign and
transfer to Sunbelt Wood Components, Inc., a Delaware corporation ("Sunbelt"),
pursuant to a Bill of Sale and General Assignment (the "Bill of Sale") in the
form filed as Exhibit 2.3 to such Registration Statement, assets and properties
of the Sunbelt Wood Components Division (the "Division") of Kevco Delaware in
consideration of the issuance to Kevco Delaware by Sunbelt of shares of Sunbelt
common stock and the assumption by Sunbelt of obligations and liabilities of the
Division (such assumption to occur pursuant to an Assumption Agreement (the
"Assumption Agreement") in the form filed as Exhibit 2.4 to such Registration
Statement). The transactions described in the immediately preceding sentence are
hereinafter collectively referred to as the "Restructuring." The Merger
Agreement, the Bill of Sale and the Assumption Agreement are hereinafter
collectively referred to as the "Restructuring Documents." From and after the
time of consummation of the Restructuring, each reference in this Agreement to
any subsidiary or subsidiaries of the Company shall include Kevco Delaware, as
successor by Merger to Kevco Texas, and Sunbelt.
In addition, prior to the Exchange, Kevco Texas will execute and
deliver to its shareholders the "Prior S Corporation Earnings Note" and the
"Future S Corporation Earnings Note," as such terms are discussed and defined in
the Registration Statement under the caption "Prior S Corporation Status." The
Prior S Corporation Earnings Note and the Future S Corporation Earnings Note are
referred to collectively in this Agreement as the "S Corporation Notes." The
execution and delivery of the S Corporation Notes to the shareholders of Kevco
Texas as provided above are referred to in this Agreement as the "S Corporation
Distribution."
1. The Company represents and warrants to, and agrees with, each of
the Underwriters that, as of the date of this Agreement and as of each Time of
Delivery (as defined in Section 5 hereof):
(a) A registration statement on Form S-1 (File No. 333-11173) in
respect of the Firm Shares and Optional Shares has been filed with the
Securities and Exchange Commission (the "Commission"); such registration
statement and any post-effective amendment thereto, each in the form
heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the
Commission in such form; no other document with respect to such registration
statement has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of such registration statement has been issued
and no proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in such registration
statement or filed with the Commission pursuant to Rule 424(a) of the rules
and regulations of the Commission under the Securities Act of 1933,
2
<PAGE>
as amended (the "Act"), is hereinafter called a "Preliminary Prospectus";
the various parts of such registration statement, including all exhibits
thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act
in accordance with Section 6(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the registration statement at the time it was
declared effective, each as amended at the time such part of the
registration statement became effective, are hereinafter called the
"Registration Statement"; and such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of the
Commission thereunder, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through you expressly for use
therein;
(c) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder and do not
and will not, as of the applicable effective date as to the Registration
Statement and any amendment thereto and as of the applicable filing date as
to the Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
you expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, that is
material to the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock, material change in the short-term debt or long-term debt of
the Company or any of its subsidiaries or any material adverse
3
<PAGE>
change in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and indefeasible
title in fee simple to all material real property and good and sufficient
title for the use made and proposed to be made of all material personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any material real property and buildings
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Texas, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus, and has been duly qualified as
a foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, except where the failure to be so qualified will not have a
material adverse effect on the Company and its subsidiaries considered as a
whole; and each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation and is in good standing under the laws of
its jurisdiction of incorporation, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, except where
the failure to be so qualified will not have a material adverse effect on
the Company and its subsidiaries considered as a whole;
(g) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims other than a
security interest granted in favor of the lenders under the Credit Agreement
dated June 30, 1995, among the Company and NationsBank of Texas, N.A., as
Administrative Lender, as amended (the "Credit Agreement");
4
<PAGE>
(h) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding agreement of
the Company and is enforceable against the Company in accordance with its
terms, except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general equitable principles;
(i) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly authorized and, when issued and
delivered against payment therefor as provided herein, will be validly
issued and fully paid and nonassessable and will conform to the description
of the Stock contained in the Prospectus;
(j) The issue and sale of the Shares by the Company, the
compliance by the Company with all of the provisions of this Agreement, the
consummation of the Restructuring, the S Corporation Distribution and the
payment of the S Corporation Notes, and the consummation of the transactions
contemplated in this Agreement will not (after considering waivers or
consents that have been obtained) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement,
sale/leaseback agreement or other agreement or instrument (collectively, the
"Specified Documents") to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject (except where such breach or violation will not have
a material adverse effect on the Company and its subsidiaries considered as
a whole), nor will any such action result in any violation of the provisions
of the Articles or Certificate of Incorporation, as amended, or the By-laws
of the Company or any of its subsidiaries or any statute or any order, rule
or regulation of any court or government agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties; and
no consent, approval, authorization, order, registration or qualification of
or with any such court or government agency or body is required for the
issue and sale of the Shares, the consummation by the Company of the
transactions contemplated by this Agreement, the consummation of the
Restructuring, the S Corporation Distribution or payment of the S
Corporation Notes, except the registration under the Act of the Shares and
such consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters;
(k) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the Company
or any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a material adverse effect on the consolidated
5
<PAGE>
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and, to the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(l) The financial statements, including the notes thereto, of the
Company and its subsidiaries included in the Registration Statement and
Prospectus fairly present the financial condition of the Company and its
subsidiaries as of the dates indicated therein and the results of operations
and changes in financial position of the Company and its subsidiaries for
the periods therein specified in conformity with generally accepted
accounting principles consistently applied throughout the periods involved
(except as otherwise stated therein). The financial statements, including
the notes thereto, of Service Supply Systems, Inc. and its subsidiary
included in the Registration Statement and Prospectus fairly present the
results of operations and changes in financial position of Service Supply
Systems, Inc. and its subsidiary for the periods therein specified in
conformity with generally accepted accounting principles consistently
applied throughout the periods involved (except as otherwise stated
therein). Coopers & Lybrand L.L.P., who have audited the financial
statements, together with the related schedules and notes, entitled "Kevco,
Inc." as of December 31, 1995 and for the year then ended, and Rylander,
Clay & Opitz, L.L.P., who have audited the financial statements, together
with the related schedules and notes, of Kevco Texas as of December 31, 1994
and for each of the years in the two years ended December 31, 1994, and
Rumsey & Huckaby, P.C., who have audited the financial statements, together
with the related schedules and notes, of Service Supply Systems, Inc. and
its subsidiary for each of the years in the three years ended December 31,
1994, each as filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
rules and regulations of the Commission thereunder;
(m) As of the date of this Agreement, the Company does not have
any subsidiaries. As of each Time of Delivery, Kevco Delaware and Sunbelt
will be wholly-owned subsidiaries, and the only subsidiaries, of the
Company;
(n) The Company and its subsidiaries each owns, or possesses
adequate rights to use, all the patents, trademarks, service marks, trade
names and copyrights ("Intellectual Property") necessary for the conduct of
its business as currently conducted by it, except where the failure to so
own or possess the rights to use will not have a material adverse effect on
the Company and its subsidiaries considered as a whole. To the knowledge of
the Company, none of the activities engaged in by the Company infringes or
conflicts with Intellectual Property rights of others;
(o) The Company and its subsidiaries each owns or possesses all
governmental licenses, permits, certificates, consents, orders, approvals
and other authorizations issued by the appropriate state, federal or foreign
regulatory agencies or bodies (collectively,
6
<PAGE>
"Governmental Licenses") necessary to carry on its business as presently
conducted, with such exceptions as do not have a material adverse effect on
the financial condition or results of operations of the Company and its
subsidiaries, considered as a whole, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to revocation
or modification of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries, considered as a whole;
(p) Except as set forth in the Prospectus, no person has (i) any
right to require the Company to register any securities under the Act or
(ii) the preemptive right to acquire any securities of the Company;
(q) Neither the Company nor any of its subsidiaries does business
with the Government of Cuba or with any person or affiliate located in Cuba,
and the Company is not required by Section 517.075, Florida Statutes, to
disclose in the Prospectus any information regarding doing business with the
Government of Cuba or with any person or affiliate located in Cuba;
(r) Neither the Company nor any of its subsidiaries is (i) in
violation of its Articles or Certificate of Incorporation or By-laws, (ii)
in default in the performance or observance of any Specified Document to
which it is a party or by which it or any of its properties may be bound or
(iii) in violation of any applicable statute or any applicable order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties, except, in the case of Clauses (ii) and (iii), where such
default or violation will not have a material adverse effect on the
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(s) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute a
summary of the terms of the Stock, are accurate in all material respects;
(t) The Company is not, and after giving effect to the offering
and sale of the Shares, will not be, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(u) The Restructuring will be consummated in accordance with
applicable law and the terms of the Restructuring Documents prior to the
First Time of Delivery; and
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(v) For federal income tax purposes, (i) neither Kevco Texas nor
the Company will recognize gain or loss as a result of the Exchange, (ii)
neither Kevco Delaware, Kevco Texas nor the Company will recognize gain or
loss as a result of the Merger, (iii) neither Kevco Delaware nor Sunbelt
will recognize gain or loss as a result of the transfer of the Division from
Kevco Delaware to Sunbelt and (iv) Kevco Texas will recognize no gain or
loss as a result of the S Corporation Distribution.
2. Kevco Texas represents and warrants to, and agrees with, each of
the Underwriters that, as of the date of this Agreement:
(a) Kevco Texas has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Texas, with
power and authority (corporate and other) to own its properties and conduct
its business, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases property, or conducts any business,
so as to require such qualification, except where the failure to be so
qualified will not have a material adverse effect on Kevco Texas;
(b) The authorized capital stock of Kevco Texas consists of
100,000,000 shares of Common Stock, $.01 par value per share, of which
4,394,500 shares are issued and outstanding. All of the issued and
outstanding shares of capital stock of Kevco Texas have been duly and
validly authorized and issued, are fully paid and non-assessable and are
owned directly or indirectly by the shareholders of Kevco Texas, free and
clear of all liens, encumbrances, equities or claims other than the terms of
certain shareholder agreements among Kevco Texas and its shareholders that
will be terminated in full prior to or upon the consummation of the
Exchange. Kevco Texas has no subsidiaries;
(c) This Agreement has been duly authorized, executed and
delivered by Kevco Texas and constitutes the valid and binding agreement of
Kevco Texas and is enforceable against Kevco Texas in accordance with its
terms, except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general equitable principles;
(d) The compliance by Kevco Texas with all of the provisions of
this Agreement applicable to it, the consummation of the Restructuring, the
S Corporation Distribution and the payment of the S Corporation Notes, and
the consummation of the transactions contemplated in this Agreement will not
(after considering waivers or consents that have been obtained) conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any Specified Documents to which Kevco
Texas is a party or by which it is bound or to which any of the property or
assets of Kevco Texas is subject (except where such breach or violation
would not have a material adverse effect on Kevco Texas), nor will any such
action result in any violation
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of the provisions of the Articles of Incorporation, as amended, or the By-
laws of Kevco Texas or any statute or any order, rule or regulation of any
court or government agency or body having jurisdiction over Kevco Texas or
any of its properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or government agency
or body is required for the consummation by Kevco Texas of the transactions
contemplated by this Agreement, the consummation of the Restructuring, the S
Corporation Distribution or the payment of the S Corporation Notes;
(e) The financial statements, including the notes thereto,
entitled "Kevco, Inc." included in the Registration Statement and Prospectus
fairly present the financial condition of Kevco Texas as of the dates
indicated therein and the results of operations and changes in financial
position of Kevco Texas for the periods therein specified in conformity with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise stated therein);
(f) The representations and warranties of the Company in Sections
1(d), 1(e), 1(k), 1(n), 1(o), 1(p), 1(q), 1(r) and 1(t) of this Agreement
are true and correct with respect to Kevco Texas as if each reference in
such sections to "the Company" or "the Company and its subsidiaries" or "the
Company and its subsidiaries considered as a whole" (or similar language)
referred instead to Kevco Texas; and
(g) The Restructuring will be consummated in accordance with
applicable law and the terms of the Restructuring Documents prior to the
First Time of Delivery.
3. Subject to the terms and conditions set forth in this Agreement,
(a) the Company agrees to issue and sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at a purchase price per share of $________, the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto and (b) in
the event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares to cover over-allotments in the sale of the Firm Shares
as provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 3, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction, the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of the Optional Shares which all of the Underwriters are
entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 315,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for
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the sole purpose of covering over-allotments in the sale of the Firm Shares. Any
such election to purchase Optional Shares may be exercised only by written
notice from you to the Company, given within a period of 30 calendar days after
the date of this Agreement, setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares are to be
delivered, as determined by you but in no event earlier than the First Time of
Delivery (as defined in Section 5 hereof) or, unless you and the Company
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
4. Upon the authorization by you of the release of the Firm Shares
and, if applicable, the Optional Shares, the several Underwriters propose to
offer the Firm Shares and, if applicable, the Optional Shares, for sale upon the
terms and conditions set forth in the Prospectus.
5. Certificates in definitive form for the Shares to be purchased by
each Underwriter hereunder, and in such denominations and registered in such
names as Rauscher Pierce Refsnes, Inc. may request upon at least 48 hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to you
for the account of such Underwriter, against payment by such Underwriter or on
its behalf of the purchase price therefor by certified or official bank check or
checks or wire transfer, payable to the order of the Company in same day funds,
or by payment in such other manner as shall be agreed to in writing by the
Company and Rauscher Pierce Refsnes, Inc., all at the offices of Rauscher Pierce
Refsnes, Inc. in Dallas, Texas. The time and date of such delivery and payment
shall be, with respect to the Firm Shares, 9:00 a.m., Dallas time, on
___________________, 1996, or at such other time and date as you and the Company
may agree upon in writing, and, with respect to the Optional Shares, 9:00 a.m.,
Dallas time, on the date specified by you in the written notice given by you of
the Underwriters' election to purchase such Optional Shares, or at such other
time and date as you and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery," such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery," and each
such time and date for delivery is herein called a "Time of Delivery."
If registration of any certificate shall be requested in a name other
than that of an Underwriter, there shall be delivered to ChaseMellon Shareholder
Services, L.L.C. ("Chase Shareholder Services") a transfer application in form
acceptable to Chase Shareholder Services with respect to the person in whose
name registration of such certificate is so requested. The certificates
representing the Shares will be made available for checking and packaging at
least 24 hours prior to the Time of Delivery with respect thereto at such place
as is designated by Rauscher Pierce Refsnes, Inc.
If certificates in temporary form are issued, the Company agrees to
cause definitive certificates to be prepared as soon as practicable following
the Time of Delivery. After the preparation of definitive certificates, the
temporary certificates shall be exchangeable for definitive certificates upon
surrender of the temporary certificates, without charge to the holder
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thereof. Until so exchanged, the Company agrees that the temporary certificates
shall in all respects be entitled to the same benefits as the definitive
certificates.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus
which shall be reasonably disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof, of
the time when the Registration Statement, or any amendment thereto, has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies thereof; to
advise you, promptly after it receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or Prospectus, of the suspension of
the qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or suspending
any such qualification, to use promptly its best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus as
amended or supplemented in such quantities as you may from time to time
reasonably request, and, if the delivery of a prospectus is required at any
time prior to the expiration of nine months after the time of the issue of
the Prospectus in connection with the offering or sale of the Shares and if
at such time either (i) any event shall have occurred as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or (ii) if for any other reason it shall be
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<PAGE>
necessary during such same period to amend or supplement the Prospectus in
order to comply with the Act, to notify you and upon your request to prepare
and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of
an amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue of
the Prospectus, upon your request but at the expense of such Underwriter, to
prepare and deliver to such Underwriter as many copies as you may request of
an amended or supplemented Prospectus complying with Section 10(a)(3) of the
Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than 18 months after the "effective
date of the Registration Statement" (as defined in Rule 158(c) under the
Act), an earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder (including, at the option of the Company, Rule 158);
(e) (i) During the period beginning from the date hereof and
continuing to and including the date 180 days after the effective date of
the Prospectus, not to offer, sell, contract to sell or otherwise dispose of
Stock or other securities which are substantially similar to the Stock or
which are convertible into or exchangeable for Stock or other securities
which are substantially similar to the Stock, without your prior written
consent (other than pursuant to stock option plans existing on the date of
this Agreement); and (ii) that it will use its reasonable efforts to cause
each person who has entered into a Lock-up Agreement (as hereinafter
defined) to comply therewith, and will not grant any waivers or consents to
non-compliance therewith and will otherwise enforce its rights under each
such agreement, in each case unless and to the extent that it shall have
obtained your prior written consent;
(f) During a period of five years from the effective date of the
Registration Statement, to furnish to you, upon request, copies of all
reports or other communications (financial or other) furnished to
stockholders, and to deliver to you, upon request, copies of any reports and
financial statements furnished to or filed with the Commission, the Nasdaq
National Market or any national securities exchange on which any class of
securities of the Company is listed;
(g) To use the net proceeds received by it from the sales of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds" ;
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(h) To use commercially reasonable efforts to have the Shares
accepted for quotation on the Nasdaq National Market; and
(i) To cause the Restructuring to be consummated in accordance with
applicable law and the terms of the Restructuring Documents prior to the
First Time of Delivery.
7. The Company covenants and agrees with the several Underwriters
that, except as provided below, the Company will pay or cause to be paid all
costs and expenses incident to the performance of the Company's obligations
hereunder including: (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation, printing and
filing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof to the Underwriters and dealers; (ii) the cost of printing or
producing any Agreement among Underwriters, this Agreement, the Blue Sky
Memorandum and any other documents in connection with the offering, purchase,
sale and delivery of the Shares; (iii) all expenses in connection with the
qualification of the Shares for offering and sale under state securities laws as
provided in Section 6(b) hereof, including the fees and disbursements of counsel
for the Underwriters in connection with such qualification and in connection
with the Blue Sky survey; (iv) all fees and expenses in connection with
including the Shares in the Nasdaq National Market; (v) the filing fees and the
fees and disbursements of counsel for the Underwriters incident to securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vi) the cost of preparing stock certificates;
(vii) the cost and charges of any transfer agent or registrar; (viii) the
printing of internal sales materials; and (ix) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that the
Company shall bear the cost of any other matters not directly relating to the
sale and purchase of the Shares pursuant to this Agreement and that, except as
provided in this Section, Section 9 and Section 12 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct in
all material respects (except that such phrase "in all material respects" shall
be disregarded to the extent any such representation or warranty is qualified by
"material," "material adverse change" or any similar phrase), the condition that
the Company shall have performed all of its obligations hereunder theretofore to
be performed, and the following additional conditions:
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(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
6(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) The Restructuring Documents shall have been duly authorized,
executed and delivered by the respective parties thereto, and the
Restructuring shall have been consummated in accordance with applicable law
and the terms of the Restructuring Documents;
(c) Strasburger & Price, L.L.P., counsel for the Underwriters, shall
have furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the incorporation of the Company, the validity of the Shares
being delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(d) Jackson & Walker, L.L.P., counsel for the Company and Kevco Texas,
shall have furnished to you their written opinion, dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Texas,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus; all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable and conform to the description of the Stock contained in
the Prospectus; and the Shares being delivered at such Time of Delivery
have been duly authorized and, upon payment and delivery in accordance
with this Agreement, will be validly issued, fully paid and non-
assessable and will conform to the description of the Stock contained in
the Prospectus;
(iii) The Company is duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each other jurisdiction set forth in such opinion;
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(iv) The Restructuring Documents have been duly authorized,
executed and delivered by the respective parties thereto, and such
Restructuring Documents constitute the valid and binding agreements of
the respective parties thereto enforceable against such parties in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by general equitable
principles. The Exchange has been consummated and the Merger has become
effective. The S Corporation Distribution has been duly authorized by
all necessary corporate action on the part of Kevco Texas;
(v) Each subsidiary of the Company listed on Exhibit A has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with power
and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and each subsidiary is duly
qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each jurisdiction listed across
from its name on Exhibit A under the heading Jurisdiction of Foreign
Qualification; and all of the issued shares of capital stock of each
such subsidiary have been duly and validly authorized and issued, are
fully paid and non-assessable, and such shares are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims other than a security interest granted in favor of
the lenders under the Credit Agreement;
(vi) To such counsel's actual knowledge, and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of
which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
and, to such counsel's actual knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others except as described in the Prospectus;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company and Kevco Texas and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company and Kevco Texas enforceable against the Company
and Kevco Texas in accordance with its terms, except insofar as
indemnification or contribution provisions may be limited by applicable
law, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general equitable principles;
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(viii) The issue and sale to you of the Shares being delivered at
such Time of Delivery by the Company in accordance with and upon the
terms and conditions set forth herein, the compliance by the Company
with all of the provisions of this Agreement, the consummation of the
Restructuring, the S Corporation Distribution and the payment of the S
Corporation Notes, and the consummation of the transactions contemplated
in this Agreement do not and will not (after considering waivers or
consents that have been obtained) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any Specified Document known to such counsel to which the Company
or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Articles or Certificate
of Incorporation or By-laws of the Company or any of its subsidiaries or
the violation of any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties that are
typically applicable to transactions similar to those contemplated by
this Agreement, the Restructuring or the S Corporation Distribution, as
applicable, except for such violations that would not have a material
adverse effect on the financial condition or the results of operation of
the Company and its subsidiaries considered as a whole;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, the
consummation of the Restructuring, the S Corporation Distribution or the
payment of the S Corporation Notes, except the registration under the
Act of the Shares, such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters, and the filing of merger
certificates with the appropriate government officials with respect to
the Merger;
(x) Neither the Company nor any of its subsidiaries is (i) to the
actual knowledge of such counsel, in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any Specified Document to which it is a party or by which
it or any of its properties may be bound or (ii) in violation of any
applicable statute or any applicable order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties, except
for such violations in the case of Clause (ii) that would not have a
material adverse effect
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on the financial condition or the results of operation of the Company
and its subsidiaries considered as a whole;
(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act;
(xii) To the actual knowledge of such counsel, neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to revocation or modification of any Governmental Licenses
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(xiii) The Registration Statement was declared effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission; and
(xiv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder. Such counsel shall further
state that it has participated in the preparation of the Registration
Statement and the Prospectus and meetings with members of management of
the Company and its independent certified public accountants relating to
the Registration Statement and the Prospectus, and although such counsel
has not verified the accuracy or completeness of the information
contained in the Registration Statement or the Prospectus, nothing has
come to the attention of such counsel which has caused it to believe
that, as of its effective date, the Registration Statement or any
further amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were
17
<PAGE>
made, not misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading or that, as of
such Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need
express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading;
and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or
the Prospectus which are not filed or described as required.
In rendering such opinion, (i) such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the laws of
the State of Texas, the General Corporation Law of the State of Delaware,
and the federal laws of the United States and (ii) may rely as to matters of
fact upon certificates of officers of the Company and its subsidiaries,
provided that such counsel shall state that they believe that both you and
they are justified in relying upon such officers' certificates;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:00 a.m., Dallas, Texas time on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Coopers &
Lybrand L.L.P. shall have furnished to you a letter or letters, dated the
respective date of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto;
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included
in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus and (ii) since
the respective dates as of which information is given in the Prospectus
there shall not have been any change in the capital stock (other than
issuances of stock upon the exercise of stock options which were outstanding
on the date of the latest balance sheet included in the Prospectus), short-
term or long-term debt of the Company or any of its subsidiaries or any
change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries otherwise than as
set forth or contemplated in the Prospectus, the effect of which, in any
such case described in Clause (i) or (ii), is in your reasonable judgment so
material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the
18
<PAGE>
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof through such Time of Delivery there
shall not have occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the New York Stock
Exchange; (ii) a general moratorium on commercial banking activities in New
York declared by either Federal or New York authorities; or (iii) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this Clause (iii) in your judgment
makes it impracticable or inadvisable to proceed with the public offering or
delivery of the Shares being delivered at such Time of Delivery on the terms
and in the manner contemplated by the Prospectus;
(h) The Shares to be sold by the Company at such Time of Delivery
shall have been duly accepted, subject to notice of issuance, for quotation
on the Nasdaq National Market;
(i) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and warranties
of the Company herein at and as of such Time of Delivery (it being agreed
that for purposes of any such certificate, each reference in such
representations and warranties of the Company to any subsidiary or
subsidiaries of the Company shall include Kevco Delaware, as successor by
Merger to Kevco Texas, and Sunbelt), as to the performance by the Company of
all of its obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request and the
Company shall have furnished or caused to be furnished certificates as to
the matters set forth in subsections (a) and (f) of this Section and as to
such other matters as you may reasonably request; and
(j) On or prior to the First Time of Delivery, the directors and
executive officers of the Company, and all shareholders of the Company
immediately after the Exchange (other than James W. Kimmel with respect to
4,834 shares of Stock), shall have each entered into a Lock-up Agreement (a
"Lock-up Agreement") with the Underwriters on terms satisfactory to you
pursuant to which such parties agree that, during the period beginning from
the date stated in such Lock-Up Agreements and continuing to and including
the date 180 days after the date of the Prospectus, they shall not, without
your prior written consent, offer, sell, contract to sell or otherwise
dispose of any Stock or other securities which are substantially similar to
the Stock or which are convertible into or exchangeable for Stock or other
securities which are substantially similar to the Stock (other than pursuant
to bona fide gifts to persons who agree in writing with you to be bound by
the terms of such agreement or as otherwise allowed by the terms of such
Lock-Up Agreements).
19
<PAGE>
9. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through you expressly
for use therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the threat or commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the threat or commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except
20
<PAGE>
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. The indemnifying party may not effect
any compromise or settlement of any claim or action against an indemnified party
without the indemnified party's consent unless such compromise or settlement
releases and fully satisfies such claim or action against such indemnified
party, but if the indemnified party withholds any such required consent, the
indemnifying party's liability to indemnify the indemnified party shall be
limited to the amount for which the indemnifying party would have been liable
had the consent been obtained.
(d) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters with respect to the Shares purchased under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purposes) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other
21
<PAGE>
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 9 shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 9 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company within the meaning of the Act.
10. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within 36
hours after such default by any Underwriter you do not arrange for the purchase
of such Shares, then the Company shall be entitled to a further period of 36
hours within which to procure another party or other parties satisfactory to you
to purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the
22
<PAGE>
number of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
nondefaulting Underwriter or the Company, except for the expenses to be borne by
the Company and the Underwriters as provided in Section 7 hereof and the
indemnity and contribution agreements in Section 9 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
11. The respective indemnities, agreements, representations,
warranties and other statements of the Company, Kevco Texas and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company or any officer or director or controlling person of
the Company, or Kevco Texas or any officer or director or controlling person of
Kevco Texas, and shall survive delivery of and payment for the Shares.
12. If this Agreement shall be terminated pursuant to Section 10
hereof, the Company shall not be under any liability to any Underwriter except
as provided in Section 7 and Section 9 hereof; but, if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Section 7 and Section 9 hereof.
13. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Rauscher Pierce Refsnes, Inc. on behalf of you as the
Representatives.
23
<PAGE>
All statements, requests, notices, and agreements hereunder shall be
in writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the Representatives in care of Rauscher
Pierce Refsnes, Inc. at Cityplace, 2711 N. Haskell Avenue, Suite 2500, Dallas,
Texas 75204-2936, Facsimile No.: (214) 989-1592, Attention: Corporate Syndicate
Department; and if to the Company or Kevco Texas shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth in
the Registration Statement, or to Facsimile No.: (817) 332-2765, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 9(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex or facsimile constituting such Questionnaire, which
address will be supplied to the Company by you on request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
14. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters and the Company and Kevco Texas and, to the extent
provided in Section 9 and Section 11 hereof, the officers and directors of the
Company and each person who controls the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
16. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS.
17. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
18. Kevco Texas has requested that the Restructuring be done in
connection with the public offering contemplated by this Agreement but does not
intend to effect the Restructuring until after the execution of this Agreement.
Kevco Texas will benefit directly or indirectly from the sale of Shares provided
for herein. The Underwriters are willing to enter into this Agreement and to
permit the Restructuring provided that Kevco Texas joins in this Agreement for
the purposes set forth in Section 2 of this Agreement and guarantees the payment
and performance of the Company's obligations and liabilities under this
Agreement. In consideration of the foregoing, Kevco Texas hereby irrevocably
and unconditionally guarantees the prompt payment and performance of all of the
obligations and liabilities of the Company provided for in or arising pursuant
to this Agreement, including, without limitation, the obligations and
liabilities of the
24
<PAGE>
Company provided for in or arising pursuant to Sections 1, 3, 5, 6, 7, 9 and 12
of this Agreement.
If the foregoing is in accordance with your understanding, please sign
and return to us _____ counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company and Kevco Texas. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company for examination, upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
KEVCO, INC.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
KEVCO TEXAS, INC.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
Accepted as of the date hereof:
RAUSCHER PIERCE REFSNES, INC.
OPPENHEIMER & CO., INC.
By:
----------------------------------
(Rauscher Pierce Refsnes, Inc.)
On behalf of each of the Underwriters
25
<PAGE>
SCHEDULE I
NUMBER OF
OPTIONAL
TOTAL SHARES TO BE
NUMBER OF PURCHASED IF
FIRM MAXIMUM
SHARES TO BE OPTION
UNDERWRITER PURCHASED EXERCISED
- ----------- --------- ---------
Rauscher Pierce Refsnes, Inc. ...
Oppenheimer & Co., Inc. .........
[NAMES OF OTHER UNDERWRITERS]....
Total ..................... 2,100,000 315,000
========= =======
I-1
<PAGE>
ANNEX I
Pursuant to Section 8(e) of the Underwriting Agreement, Coopers &
Lybrand L.L.P. shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited (and, if applicable, prospective
financial statements and/or pro forma financial information examined) by
them and included in the Prospectus or the Registration Statement comply as
to form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations thereunder; and,
if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, prospective financial statements
and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter;
(iii) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred
to below, a reading of the latest available interim financial statements of
the Company and its subsidiaries, inspection of the minute books of the
Company and its subsidiaries since the date of the latest audited financial
statements included in the Prospectus, inquiries of officials of the Company
and its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) any unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows as of dates or
for periods beginning after December 31, 1994, included in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations thereunder, or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with the basis for the audited consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus;
AI-1
<PAGE>
(B) any other unaudited income statement data and balance sheet
items for the periods or as of the dates referred to in Clause (A) above
included in the Prospectus do not agree with the corresponding items in
the unaudited consolidated financial statements from which such data and
items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements as of dates or for periods beginning after December
31, 1994, and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with the basis for the
audited consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options which were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its subsidiaries, or any
decreases in consolidated net current assets or net assets or other
items specified by the representatives of the Underwriters (the
"Representatives") or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus; except in each case for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to
in Clause (E) there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or any increases
in any items specified by the Representatives, in each case as compared
with the comparable period of the preceding year and with any other
period of corresponding length specified by the Representatives, except
AI-2
<PAGE>
in each case for decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(iv) In addition to the audit referred to in their report included in
the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraph (iii) above, they
have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records of
the Company and its subsidiaries or other specified materials, which appear
in the Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries or other specified
materials and have found them to be in agreement.
AI-3
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
CORPORATE JURISDICTION OF JURISDICTION OF
SUBSIDIARIES INCORPORATION FOREIGN QUALIFICATION
- -------------------------- --------------- ---------------------
<S> <C> <C>
1) Kevco Delaware, Inc. Delaware Alabama
Arizona
California
Colorado
Florida
Georgia
Idaho
Indiana
Kansas
Minnesota
North Carolina
Oregon
Pennsylvania
Tennessee
Texas
2) Sunbelt Wood Components,
Inc. Delaware Alabama
Georgia
Texas
</TABLE>
E-1
<PAGE>
EXHIBIT 3.2
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.
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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.
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(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(c). 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
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<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
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<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.
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<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
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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
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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
such laws, 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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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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(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.
Page 12
<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.
Page 14
<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.
Page 15
<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
----------------------------------------
Page 16
<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.
Page 18
<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.
Page 19
<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 5.1
October 24, 1996
Kevco, Inc.
University Centre I
1300 S. University Drive, Suite 200
Fort Worth, Texas 76107
Re: Registration Statement on Form S-1 of Kevco, Inc.
Registration No. 333-11173
Ladies and Gentlemen:
We are acting as counsel for Kevco, Inc., a Texas corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of the offer and sale of 2,100,000 shares
(and up to an additional 315,000 shares to cover underwriters' overallotments)
of common stock, par value $.01 per share, of the Company (the "Shares"). A
Registration Statement on Form S-1, Registration No. 333-11173, covering the
offer and sale of the Shares was filed with the Securities and Exchange
Commission (the "Commission") on August 30, 1996 (as amended, the "Registration
Statement"). The Shares are to be sold to the underwriters for resale to the
public as described in the Registration Statement and pursuant to the
underwriting agreement (the "Underwriting Agreement") filed as an exhibit to the
Registration Statement.
In reaching the conclusions expressed in this opinion, we have examined and
relied on such documents, corporate records and other instruments, including
certificates of public officials and certificates of officers of the Company,
and made such further investigation and inquiry as we have deemed necessary for
the expression of the opinions expressed herein. In making the foregoing
examinations, we have assumed that all signatures on all documents submitted to
us are genuine, that all documents submitted to us as originals are accurate and
complete, and that all documents submitted to us as copies are true, correct and
complete copies of the originals thereof.
<PAGE>
Kevco, Inc.
October 24, 1996
Page 2
Based solely upon the foregoing and subject to the comments and exceptions
herein stated, we are of the opinion that the Shares have been duly and validly
authorized by the Company, and when paid for, issued and delivered as described
in and in accordance with the Registration Statement and the Underwriting
Agreement, the Shares will be legally issued, fully paid and nonassessable.
We express no opinion as to the laws of any jurisdiction other than the
State of Texas.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to our firm therein
under the caption "Legal Matters." In giving this consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ JACKSON & WALKER, L.L.P.
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement") is made
and entered into as of the 1st day of October, 1996, by and between KEVCO, INC.,
a Texas Corporation (the "Employer") and GERALD E. KIMMEL (the "Employee");
WITNESSETH;
-----------
WHEREAS, Employer is engaged, through its subsidiaries, in the wholesale
distribution of building products primarily to the manufactured housing and
recreational vehicle industries, in the manufacture and distribution of wood
products to the manufactured housing industry, and in providing services
ancillary and incidental thereto (collectively the "Employer's Business");
WHEREAS, Employee is experienced and qualified to perform duties connected
and associated with Employer's Business; and
WHEREAS, Employer and Employee wish to amend and restate in its entirety
that certain Employment Agreement dated May 31, 1991 as thereafter amended on
December 16, 1994 (collectively the "Prior Agreement") by entering into this
Agreement;
NOW, THEREFORE, IN CONSIDERATION of the premises and the covenants and
agreements contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto have agreed and hereby agree that the Prior
Agreement is hereby amended and restated in its entirety to read as follows:
1. Employment. Employer hereby employs the Employee and Employee hereby
----------
accepts such employment upon the terms and conditions hereinafter set forth.
2. Term of Employment. Employee's term of employment under this Agreement
------------------
shall begin on the effective date of this Agreement as hereinafter provided and
shall, subject to early termination as hereinafter set forth in this
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 1
<PAGE>
Agreement, continue for a term of five (5) years; provided, however, that
unless sooner terminated as provided herein, on each anniversary date of the
effective date of this Agreement, an additional period of one year shall be
added to the term of employment provided for herein, it being the intention of
the parties that the term of this Agreement shall always be five (5) years in
duration.
3. Duties of Employee. For the term provided in Paragraph 2 of this
------------------
Agreement (subject to earlier termination as hereinafter provided), Employee
shall be employed as chairman of the board, president and chief executive
officer of Employer and Kevco Delaware, Inc. ("Delaware"), and as chairman of
the board and chief executive officer of Sunbelt Wood Components, Inc.
("Sunbelt"). Employee shall perform such duties and services on behalf of
Employer and each of its subsidiaries as is customarily performed by persons
holding the same or similar offices in other public companies.
4. Place of Employment. The duties to be performed by Employee shall be
-------------------
performed at the offices of Employer, located in Fort Worth, Texas and at such
other locations on a temporary nature as Employee may from time to time
determine or require as necessary for the performance of his duties hereunder.
5. Time Requirements. Employee shall devote such time and attention to
-----------------
Employer's Business during the term of this Agreement as Employee shall
reasonably determine is necessary for the carrying out of his duties hereunder;
provided, however, that Employee shall not be required to devote his entire
productive time, ability and attention to the business of Employer and in such
regard may devote a portion of his time, attention and abilities to other
businesses or activities in which Employee may be engaged of a business,
commercial or professional nature, whether for or without profit, and whether
for compensation or otherwise.
6. Conduct Requirements. Employee shall, at all times during the term of
--------------------
this Agreement, conduct himself in such a manner so as to reflect credit to
Employer and its subsidiaries and shall not do or perform any acts in his
capacity as an employee of Employer which shall cause Employer to suffer loss of
reputation or embarrassment.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 2
<PAGE>
7. Compensation. Effective as of the effective date of this Agreement,
------------
Employer shall pay to Employee as compensation during the term of this
Employment Agreement (unless this Agreement is earlier terminated as hereinafter
provided) the following compensation:
(a) Salary. During the term of this Agreement, Employee shall
------
receive an annual salary of $250,000, subject to mandatory deductions and
withholdings as required by law, payable each weekly payroll period in an amount
equal to $4,807.69, figured to and prorated for any partial employment period.
Employee's salary shall be reviewed by Employer's Compensation Committee no less
often than annually and may be increased (but not decreased) from time to time
in such amounts as the Compensation Committee shall determine. Any increases in
salary shall be reflected upon the "Schedule of Compensation" attached hereto
and made a part hereof. Any change in regular annual compensation shall be
effective as of the date it is entered on said schedule, initialled by the
proper officers of Employer and initialled by Employee.
(b) Bonus. Employee shall be entitled to receive an annual performance
-----
bonus for each fiscal year of Employer, beginning January 1, 1997, in an amount
equal to 2.4% of the Pre-Tax Income of Employer for each such fiscal year,
provided the Pre-Tax Income of Employer for such fiscal year is at least
$5,000,000. Each such bonus shall be subject to mandatory deductions and
withholdings as required by law and may be paid in installments in advance from
time to time based upon the Pre-Tax Income of Employer as of any applicable date
and the estimated Pre-Tax Income for the balance of such fiscal year. In the
event it is ultimately determined that the aggregate bonus prepaid to Employee
during any fiscal year exceeds the bonus to which Employee would have been
entitled based upon the Pre-Tax Income of the Employer for the entire fiscal
year, such excess amount actually received by Employee shall be deducted from
any bonus to which Employee would be entitled in the next succeeding fiscal year
or years of Employer. Employer's Compensation Committee shall review and
consider an increase in such performance bonus for Employee no less often than
annually, and in any event, not later than ninety (90) days after the beginning
of the fiscal year and shall otherwise comply with the provisions of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), it being
the intention of the parties that the provisions hereof with respect to
Employee's performance-based bonus compensation shall be interpreted and
construed in such a manner so as to comply with Section 162(m) of the Code and
the rules and regulations promulgated
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 3
<PAGE>
thereunder. Any change in the performance bonus granted to Employee shall be
reflected upon the "Schedule of Compensation" attached hereto and made a part
hereof. Any change in such performance bonus shall be effective as of the date
indicated on such Schedule. As used herein, the term "Pre-Tax Income" shall
mean the net income of Employer and its subsidiaries on a consolidated basis
from all sources before all applicable federal and state income taxes and before
any deduction or accrual for Employee's bonus, and including any extraordinary
income, gains or other credits, computed in accordance with generally accepted
accounting principles applied on a basis consistent with that of prior periods.
8. Employee Benefits. For the periods set forth in this Paragraph 8,
-----------------
Employee shall be entitled to the following benefits:
(a) Medical and Dental Benefits. Until the death of the survivor of
---------------------------
Employee and Employee's spouse (the "Coverage Term"), Employer shall use its
best efforts to include (i) Employee, (ii) Employee's spouse, and (iii) other
dependents [(ii) and (iii) being collectively referred to as the "Family")] in
all present and future group health, medical, dental, hospitalization and
similar programs offered by Employer and its subsidiaries to their respective
employees generally (collectively the "Insurance Coverage"). Employer covenants
and agrees to use its best efforts to cause its current and all future Insurance
Coverage to include retired employees (as defined in such Insurance Coverage)
(and their spouses), of Employer and its subsidiaries. For such purposes,
Employee, by definition, upon his retirement, shall be considered a "retired
employee" of Employer and its subsidiaries. The Employer shall bear all costs
and expenses of the Insurance Coverage for Employee and the Family. Employer
shall not take any action, or fail to take any action, the effect or result of
which would be to exclude or otherwise disqualify Employee or any of the Family
from inclusion in the Insurance Coverage. If Employee or any of the Family
cannot be included in or covered by the Insurance Coverage or if there is no
Insurance Coverage or to the extent there is no Insurance Coverage, the Employer
shall obtain for Employee or the affected members of the Family and shall keep
in full force and effect during the Coverage Term, comparable or additional
coverage for such persons; provided, however, if any of such coverage is not
available or to the extent any of such coverage is not available, Employer
shall, at its sole cost and expense, pay, or reimburse Employee and the affected
members of the Family for, all health, medical, dental, hospitalization,
deductibles and other similar costs and expenses (collectively the "Health
Costs") incurred or sustained by such persons
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 4
<PAGE>
during the Coverage Term not covered by or paid for by the Insurance Coverage or
such other coverage, including the insurance premiums for the Insurance Coverage
or other coverage. In determining whether coverage is "comparable coverage" the
following factors, among others, shall be considered relevant: quality of care,
freedom to select facilities, physicians and other health care providers,
relative financial responsibility of insured and insurer to cover Health Costs,
benefits and illnesses covered by applicable insurance, and ease of obtaining
health care provider services.
If Employer desires to sell to a third party all or substantially all of
the assets of Employer, Employer covenants and agrees to and with Employee to
cause such third party to assume the obligations set forth in this Paragraph
8(a), but any such assumption shall not relieve Employer of its obligations
hereunder.
(b) Other Benefits Plans. Employee, during the term of this Employment
--------------------
Agreement, shall be included in the Health and Accident Plan and in the
Investment and Tax Advice Plan previously adopted by Employer or its
subsidiaries, as well as shall be eligible to be included in any profit sharing,
pension, deferred compensation or other benefit plans of Employer or its
subsidiaries, including group term life insurance, as may be adopted by Employer
for all or any portion of its employees, including its key employees, from time
to time during the term of this Employment Agreement. The costs of
participating in any of such benefit plans shall be borne as provided in rules
and regulations adopted by Employer or its subsidiaries from time to time
dealing with any of such plans.
It is agreed and understood that there shall be no obligation on the part
of Employer or its subsidiaries to provide for the participation of the Employee
in, or to institute, any such plan or plans or to make any contribution or
contributions thereunder other than the Health and Accident Plan and the
Investment and Tax Advice Plan hereinabove described.
(c) Vacation and Holidays. Employee shall be entitled to thirty (30)
---------------------
days vacation with pay (or such greater length of time as may be approved from
time to time by the board of directors of Employer) during each fiscal year of
Employer, such vacation to be taken by Employee at such time or times as shall
be approved by the board of directors. In addition, Employee shall be entitled
to
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 5
<PAGE>
such holidays as the board of directors may approve. Unused vacation days may
not be carried over from one fiscal year to another.
9. Business Expenses. Employee shall be entitled to receive reimbursement
-----------------
for, or payment directly by the Company of, all reasonable expenses incurred by
Employee in the performance of his duties under this Agreement, provided that
the Employee accounts therefor in writing pursuant to Section 274 of the
Internal Revenue Code of 1986, as amended (the "Code"), that such expenses are
ordinary and necessary business expenses of Employer within the meaning of
Section 162 of the Code.
10. Termination. Except for the obligations of Employer set forth in
-----------
Paragraphs 8(a) and 10(a) hereof, which obligations shall remain in full force
and effect as provided therein, this Agreement shall terminate earlier than
provided in Paragraph 2 hereof upon the first to occur of any of the following:
(a) Death. In the event Employee shall die during the term of this
-----
Employment Agreement, then and in such event, Employer shall continue to pay to
the executors, administrators or other legal representatives of Employee the
then salary being paid to Employee pursuant to Paragraph 7(a) for the balance of
the then existing term of this Agreement the same as if Employee had not died.
(b) Termination for Cause. This Agreement and Employee's employment by
---------------------
Employer may be terminated by Employer for cause. As used herein, the term "for
cause" shall mean (i) Employee willfully breaching or habitually neglecting the
duties he is required to perform under the terms of this Agreement, or (ii)
Employee being adjudicated a bankrupt, or (iii) Employee making an assignment of
his assets for the benefit of creditors, or (iv) Employee breaching the
provisions of Paragraphs 12 or 13 of this Agreement.
(c) Involuntary Termination Without Cause. This Employment Agreement
-------------------------------------
and Employee's employment by Employer may not be terminated by Employer without
cause.
(d) Early Termination by Employee. If Employee resigns or otherwise
-----------------------------
terminates his employment with Employer (and all offices and duties with its
subsidiaries) prior to the expiration of the term provided in Paragraph 2
hereof, Employee shall forfeit and shall not be entitled to receive any
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 6
<PAGE>
compensation or other amounts from Employer whatsoever except any salary and
bonus earned by him prior to the date of termination as provided for in this
Agreement. Any termination pursuant to this Paragraph 10(d) shall not limit any
right or remedy that Employer may have against Employee.
11. Status of Agreement. The benefits or payments made under this
-------------------
Employment Agreement shall be independent of and in addition to those under any
other agreement which may be in effect between the parties hereto or any other
compensation payable to Employee or his designees or estate by the Employer and
unless specifically referred to herein or unless otherwise provided by agreement
or law, nothing contained herein shall be deemed to exclude Employee from any
pension, profit-sharing, insurance or other benefits to which he may otherwise
be or might become entitled as an employee of Employer.
12. Engaging in Other Employment. Employee covenants and agrees that,
----------------------------
without the prior written consent of Employer, Employee shall not, during the
term of this Employment Agreement, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director or in any other individual or representative
capacity, engage or participate in any business that is in competition in any
manner whatsoever with Employer's Business or take any action inconsistent with
the fiduciary relationship of an employee to his employer.
13. Trade Secrets. All non-public information relating to Employer's
-------------
Business, including but not limited to the identity of its customers and
suppliers, its arrangements with such suppliers and customers and data relating
to its products and services, shall be treated as confidential by Employee, both
during and after the termination of Employee's employment. Except with the
prior approval of Employer, Employee shall not disclose any of such information
at any time to any persons, firms, corporations, partnerships, associations or
other legal entities except authorized personnel of Employer or any subsidiary
of Employer. In the event of a breach or threatened breach by Employee of the
provisions of this Paragraph 13, Employer shall, in addition to any other
available remedies, be entitled to an injunction restraining Employee from
disclosing, in whole or in part, any such information or from rendering any
services to any person, firm, corporation, partnership, association or other
legal entity to whom any such information may have been disclosed or is
threatened to be disclosed.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 7
<PAGE>
14. Miscellaneous Provisions.
------------------------
(a) Notice. All notices, demands, changes of address, requests or
------
other communications that may be or are required to be given, served or sent by
any party to any other party pursuant to this Agreement shall be in writing and
shall be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery or telegram,
telephonic facsimile or other electronic process.
(b) Governing Law. This Agreement is being executed and delivered in
-------------
Tarrant County, Texas. This Agreement shall be subject to, governed by and
construed in accordance with federal law and the internal substantive laws, not
the law of conflicts, of the State of Texas.
(c) Captions. The captions used herein are for administrative and
--------
convenience purpose only and shall not be construed in interpreting this
Agreement.
(d) Gender. Whenever the context so requires, the masculine shall
------
include the feminine and neuter, and the singular shall include the plural, and
conversely.
(e) Legal Construction. If any portion of this Agreement shall be
------------------
held invalid or inoperative, then so far as reasonable and possible (i) the
remainder of this Agreement shall be considered valid and operative, and (ii)
effect shall be given to the intent manifested by the portion held invalid or
inoperative.
(f) Amendments. This Agreement may be amended from time to time by an
----------
instrument in writing signed by all those who are parties to this Agreement at
the time of such amendment, such instrument being designated on its face as an
"Amendment" to this Agreement.
(g) Waiver. The failure of any party to insist in one or more
------
instances upon the performance of any of the terms or conditions of this
Agreement shall not be construed as a waiver or relinquishment of any right
granted hereunder or of the future performance of any such term of condition,
but the obligations of any party with respect thereto shall continue in full
force and effect.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 8
<PAGE>
(h) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
(i) Remedies. Each party hereto acknowledges that a remedy at law
--------
for any breach or attempted breach of this Agreement will be inadequate, agrees
that each other party hereto shall be entitled to specific performance and
injunctive and other equitable relief in case of any such breach or attempted
breach and further agrees to waive any requirement for securing or posting of
any bond in connection with the obtaining of any such injunctive or other
equitable relief. Such remedy shall be cumulative and not exclusive and shall be
in addition to any other rights or remedies any party may have against the
other.
(j) Attorneys' Fees. If any action at law or in equity, or any
---------------
arbitration or mediation proceeding, including any action for injunctive or
declaratory relief, is brought to enforce or interpret any of the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses from the other party, which fees and expenses may
be set by the court or other trier in the trial of such action or may be
enforced in a separate action brought for that purpose and which fees and
expenses shall be in addition to any other relief which may be awarded.
(k) Prior Agreement. This Agreement contains the entire agreement
---------------
between the parties hereto and supersedes any and all prior agreements, whether
written or oral, including the Prior Agreement, between the parties with respect
to the within subject matter.
15. Mediation; Arbitration. If at any time a dispute or controversy
----------------------
should arise between Employer and Employee (the "Contestants") with respect to
an interpretation or the enforceability of any of the provisions of this
Agreement or with respect to any of the covenants or agreements contained in
this Agreement, the Contestants shall meet in the Dallas-Fort Worth metropolitan
area at a mutually agreed upon time and place within thirty (30) days of the
receipt of notice by any Contestant from any other Contestant (the "Initial
Notice") to meet to attempt to settle such dispute or controversy. If, as a
result of such meeting or any mutually agreed subsequent meetings held within
thirty (30) days thereafter, the Contestants are unable or unwilling to agree on
an appropriate resolution of such dispute or controversy, then and in such event
such dispute or controversy shall be submitted
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 9
<PAGE>
by the parties to binding arbitration to be conducted before a panel of
arbitrators in the Dallas-Fort Worth metropolitan area in accordance with the
Texas Rules of Civil Procedure and unless inconsistent, the Commercial
Arbitration Rules of the American Arbitration Association (or any successor
organization thereto) as then in effect. Any arbitration decision shall be
final and conclusive upon the Contestants, it being expressly agreed and
understood by the Contestants that any specific issue or issues relating to
disputes so determined shall not be the subject of any further dispute among the
Contestants or the subject of any further arbitration under this Paragraph 15.
The arbitrator's award in any such arbitration shall be final and binding and a
judgment upon such award may be enforced by any court of competent jurisdiction.
The expenses of such arbitration, including the fees of the arbitrators, shall
be borne equally between the Contestants unless otherwise specified in the
award. Each Contestant shall pay the fees and expenses of its own witnesses.
The prevailing Contestant shall be entitled to recover its attorneys' fees and
expenses unless otherwise specified in the award.
16. Time is of the Essence. Time shall be of the essence throughout the
----------------------
term of this Employment Agreement.
17. Effective Date. The effective date of this Agreement is October 1,
--------------
1996.
18. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties hereto and their heirs, executors, administrators,
successors, receivers, trustees, legal representatives, and permitted assigns
but is not assignable by either Employer or Employee without the prior written
consent of the party effected thereby.
19. Joinder. Employer covenants and agrees that, upon the organization of
-------
Delaware and Sunbelt, Employer will cause Delaware and Sunbelt to join in this
Agreement for the express purpose of jointly and severally making each of the
covenants, agreements and obligations of Employer set forth in this Agreement,
the same as if Delaware and Sunbelt were Employer hereunder; provided, however,
that such joinder is not meant to cause either Delaware or Sunbelt to duplicate
any compensation or benefits paid to Employee by Employer. The employment of
Employee is deemed to be necessary or convenient to the conduct, promotion or
attainment of the business of Delaware and Sunbelt and is in the best interest
of Delaware and Sunbelt.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written, effective the Effective Date.
EMPLOYER:
KEVCO, INC.,
A TEXAS CORPORATION
By:___________________________________
Its:_______________________________
Address: 1300 So. University Drive
Suite 200
Fort Worth, Tx. 76107
EMPLOYEE:
______________________________________
______________________________________
GERALD E. KIMMEL
Address: 6400 Cleburne Highway
Granbury, Texas 76049
JOINED IN BY:
DELAWARE:
KEVCO DELAWARE, INC.,
A DELAWARE CORPORATION
By:_________________________________
Its _____________________________
Address: 1300 So. University Drive
Suite 200
Fort Worth, Texas 76107
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 11
<PAGE>
SUNBELT:
SUNBELT WOOD COMPONENTS, INC.,
A DELAWARE CORPORATION
By:_________________________________
Its _____________________________
Address: 1300 So. University Drive
Suite 200
Fort Worth, Texas 76107
AMENDED AND RESTATED EMPLOYMENT AGREEMENT - Page 12
<PAGE>
EXHIBIT 10.17
DEFERRED COMPENSATION AGREEMENT
-------------------------------
THIS AGREEMENT is made and entered into this 24th day of May, 1977, by and
---- ---
between KEVCO, INC., a Texas corporation (the "Company ") and CLYDE A. REED
("Employee");
W I T N E S S E T H:
WHEREAS, Employee has been a loyal and trusted employee of the Company for
many years; and
WHEREAS, the Company values the efforts, abilities and accomplishments of
the Employee and recognizes that his efforts on behalf of the Company have
resulted in substantial growth and profits to the Company; and
WHEREAS, the Company recognizes that the services of the Employee are vital
to its continued growth and continued success; and
WHEREAS, the Company, in order to retain the services of Employee, is
willing to provide post-retirement or post-death benefits for Employee or his
named beneficiaries or estate, subject to the terms and conditions of this
Agreement;
NOW, THEREFORE, IN CONSIDERATION of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto have agreed and
do hereby agree as follows:
1. Deferred Compensation (a) Provided (i) Employee is still in the
---------------------
employment of the Company when he attains the age of sixty (60) years, dies or
becomes disabled (as herein defined), whichever shall first occur, and (ii)
Employee's right to deferred compensation is not forfeited by the occurrence of
any of the events of forfeiture specified in Paragraph 10 below, the Company
hereby agrees to pay deferred compensation to Employee, his legal
representatives, designated beneficiaries or estate, as the case may be, in the
sum of $20,000.00 per year, payable in equal monthly installments for a period
of ten (10) years, such installments to commence on the first day of the month
following the Employee's attaining tide age of sixty (60) years, the date of his
death or the determination of his disability, whichever shall first occur.
<PAGE>
(b) As used herein, the term "disabled" or "disability" shall mean the
physical or mental disability of the Employee which, in the opinion of a
physician appointed by the Company, will permanently prevent the Employee from
performing the usual duties of his employment with the Company.
(c) If the Company subsequently determines that Employee is no longer
disabled (as defined herein), Company, in its sole discretion, may discontinue
the deferred compensation benefits provided for in this Paragraph 1 until the
Employee attains the age of sixty (60) years, dies or the Employee is again
determined to be disabled, whichever shall first occur. If the Company
terminates the deferred compensation benefits under the provisions of this
Paragraph 1(c), the number of any prior payments made to Employee under this
Paragraph l shall reduce the aggregate total number of payments to which
Employee may be entitled under this Paragraph 1.
2. Early Termination. If Employee voluntarily or involuntarily
-----------------
terminates his employment with the Company prior to reaching the age of sixty
(60) years, for reasons other than death or disability as provided in Paragraph
1 hereof, whether said termination is by the act of the Company or Employee and
whether for or without cause, Employee shall receive from Company in one lump
sum cash payment in lieu of all other payments or benefits to which he may be
entitled hereunder, the amount set out below opposite the year in which such,
termination occurs:
<TABLE>
<CAPTION>
Year in which Termination Amount to be Received
of Employment Occurs By Employee
------------------------- ---------------------
<S> <C>
1 $ 3,496
2 6,911
3 10,183
4 13,284
5 16,213
6 18,969
7 21,603
8 24,116
9 26,504
10 28,771
11 30,903
12 32,905
13 34,775
14 36,509
15 38,103
16 39,554
17 40,854
18 42,008
</TABLE>
-2-
<PAGE>
3. Payment Upon Termination of Employment. It is agreed and understood
--------------------------------------
that the Company may terminate the employment of Employee at any time subsequent
to the date hereof, whether for or without cause, by giving at least thirty (30)
days' written notice to Employee prior to the date of termination set forth in
the notice. It is specifically understood and agreed that if Employee's
employment with the Company is terminated for any reason other than disability,
death or attaining the age of sixty (60) years, Employee shall be entitled to no
deferred compensation pursuant to this Agreement whatsoever and shall only be
entitled to receive the lump sum payment provided for in Paragraph 2 above.
4. Status of Agreement. The benefits or payments made under this
-------------------
Agreement shall be independent of, and in addition to, those under any other
agreement which may be in force between the parties hereto, or any other
compensation payable to Employee or his designee by the Company, and nothing
contained herein shall be deemed to exclude Employee from any supplemental
compensation, bonus, pension, profit-sharing, insurance, severance pay or other
benefits to which he otherwise might be or become entitled, as an employee of
Company, except as may otherwise be provided by agreement or law. This Agreement
shall not be construed as a contract of employment between the parties hereto
nor shall any provision hereof restrict the right of the Company to discharge
Employee for or without cause or restrict the right of Employee to terminate his
employment with the Company.
5. Life Insurance and Funding. In order to fund the benefits provided
--------------------------
for in this Agreement, the Company may, at its discretion, apply for and procure
as owner and for its own benefit a whole-life insurance policy or policies on
the life of the Employee in the amount of $270,158.00. Employee shall have no
right, title or interest whatsoever in any such policy or policies and hereby
expressly disclaims any incidents of ownership in any such policy or policies,
but at the request of the Company, Employee shall submit to medical examina-
-3-
<PAGE>
tions and supply such information and execute such documents as may be required
by the insurance company or companies to whom Company has applied for insurance.
The rights of Employees, or his designated beneficiary or beneficiaries, or
his estate, to benefits or payments under this Agreement shall be solely those
of an unsecured creditor of the Company. Any insurance policy or policies or
other assets acquired or held by the Company in connection with the liabilities
assumed by it pursuant to this Agreement shall not be deemed to be held under
any trust for the benefit of Employee, any designated beneficiary or
beneficiaries of Employee or his estate, or to be security for the performance
of the obligations of the Company but shall be, and remain a general, unpledged
and unrestricted asset of the Company.
6. Sale of Company. It is expressly agreed and understood by the parties
---------------
hereto that in the event of the (i) sale of all or substantially all of the
property and assets of the Company, or (ii) merger or consolidation of the
Company with some other business entity, or (iii) sale of all or any portion of
the outstanding common stock of the Company, the Company shall use its best
efforts to cause this Agreement to be assumed and continued but it is agreed and
understood that there shall be no legal obligation on the part of the Company
or any other person or legal entity to continue or assume this Agreement and the
Company or any other person or legal entity who is the successor to the Company
or its assets and property shall have the right to terminate this Agreement at
any time subject to the Employee's right to receive the lump sum cash payment
provided for in Paragraph 2 hereof.
7. Non-Alienability of Benefit. None of the benefits or payments
---------------------------
provided for herein shall be subject in any manner to antici-
-4-
<PAGE>
pation, alienation, sale, transfer, assignment, pledge, encumbrance or charge
and any attempt to anticipate, alienate, sell, transfer, assign, pledge,
encumber or charge the same shall be void.
8. Relationship of Parties. Nothing contained in this Agreement and no
-----------------------
action taken pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind or a fiduciary relationship between the
Company and the Employee, his designated beneficiary or beneficiaries, his
estate or any other person. Any funds which may be invested under the
provisions of this Agreement shall continue for all purposes to be a part of
the general funds of the Company and no person other than the Company shall, by
virtue of the provisions of this Agreement, have any interest in such funds. To
the extent that any person acquires a right to receive payments from the Company
under this Agreement, such right shall be no greater than the right of any
unsecured general creditor of the Company.
9. Designation of Beneficiary. For the purposes of designating a
--------------------------
beneficiary or beneficiaries to receive the benefits set forth in Paragraph 5
hereof, the employee shall, from time to time during the term of this Agreement,
designate in writing a beneficiary or beneficiaries to receive such benefits.
Such designation or designations shall be made in writing and filed with the
Company on a form prepared by the Company. If no beneficiary or beneficiaries
has been so designated by the Employee, or if no designated beneficiary shall
survive the Employee, any benefits to which Employee shall be entitled pursuant
to Paragraph 1 hereof shall be paid to Employee's estate.
10. Forfeiture of Deferred Compensation. Anything in this Agreement to
-----------------------------------
the contrary notwithstanding, Employee agrees that, after qualifying for
deferred compensation benefits by reason of disability as provided in Paragraph
1 hereof, no payment of any then unpaid installments of such benefits shall be
made and all rights under this Agreement of the Employee, his designated
beneficiary or beneficiaries, his
-5-
<PAGE>
estate, the executors or administrators of his estate, or any other person to
receive the payments thereof shall be forfeited if any or all of the following
events shall occur:
(a) the Employee shall engage in any activity or conduct which, in
the opinion of the Board of Directors of the Company, is inimical to the best
interests of the Company; or
(b) Employee, directly or indirectly through one or more
intermediaries, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director or in any other individual or
representative capacity, without the prior written consent of the Company,
engages in or participates in competition with the Company respecting one or
more of the Company's business activities.
The parties hereto agree that one of the essential considerations for the
deferred compensation benefits provided Employee hereunder is to protect and
preserve the goodwill of the Company and its respective enterprises, and that
said goodwill would be substantially diminished in value if Employee were to
enter into competition with the Company or were to engage in any activity or
conduct which was inimical to the best interests of the Company while entitled
to receive installments of deferred compensation. As business activities of the
Company are national in scope, the prohibition against competition provided for
herein relates to any principal competitor wherever it may be located within the
United States.
11. Purchase of Insurance by Employee. In the event Employee's employment
---------------------------------
with the Company is terminated for any reason prior to his attaining the age of
sixty (60) years, other than by death or disability, Employee shall have the
option to purchase from the Company the policy or policies of insurance on his
life in the event the Company shall have in force and effect such policy or
policies. Such option shall be exercised by written notice delivered to the
president of the Company within thirty (30) days after the date of the
Employee's termination of employment with the Company. The purchase price shall
-6-
<PAGE>
be the interpolated terminal reserve value of the policy or policies) as of the
date of termination of Employee's employment with the Company, reduced by any
existing indebtedness against the policy or policies, and increased by the
portion, if any, of the premium or premiums paid before the date of termination
that covers a period beyond said date of termination. The Employee may exercise
this option with regard to certain policies selected by him and shall not be
required to purchase all the policies on his life owned by the Company. The
Company may dispose of any policy or policies not purchased by the Employee as
it sees fit.
12. Continuation of Employment with Company. Nothing contained herein
---------------------------------------
shall be construed as conferring upon the Employee the right to continue in the
employ of the Company as an executive or in other capacity.
13. Treatment of Deferred Compensation. Any deferred compensation payable
-----------------------------------
under this Agreement shall not be deemed salary or other compensation to the
Employee for the purpose of computing benefits to which he may be entitled under
any pension or profit-sharing plan or other arrangement of the Company for the
benefit of its employees, unless otherwise required to do so by some other
agreement or by law.
14. Interpretation and Construction of Agreement. The Board of Directors
--------------------------------------------
of the Company shall have full power and authority to interpret, construe and
administer this Agreement and the Board of Directors' interpretations and
construction thereof, and actions thereunder, shall be binding and conclusive on
all persons for all purposes. No member of the Board of Directors of the Company
shall be liable to any person for any action taken or omitted in connection with
the interpretation and administration of this Agreement unless attributable to
his own willful misconduct or lack of good faith.
15. Miscellaneous Provisions. (a) Any and all notices or other
------------------------
communications provided for herein shall be given in writing addressed to the
parties at the addresses set forth below. Such notices or other
-7-
<PAGE>
communications shall be deemed received when personally delivered or if mailed,
when deposited in the United States Mails, postage prepaid, sent registered or
certified mail, return receipt requested. The addresses set forth below may only
be changed by giving written notice of such change of address by registered or
certified mail, return receipt requested, to the other parties hereto but such
change of address shall only be considered received when actually received.
(b) This Agreement shall be subject to and governed by the laws of
the State of Texas.
(c) The captions used herein are for administrative and convenience
purposes only and shall not be construed in interpreting this Agreement.
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 this Agreement shall be held invalid or inoperative, then so far as
reasonable and possible:
(i) the remainder of this Agreement shall be considered valid
and operative; and
(ii) effect shall be given to the intent manifested by the
portion held invalid or inoperative.
(d) This Agreement may be amended from time to time by an instrument
in writing signed by all those who are parties to this Agreement at the time of
such amendment, such instrument being designate on its face as an "amendment" to
this Agreement.
(e) The failure of the parties to insist in one or more instance upon
the performance of any of the terms or conditions of this Agreement shall not be
construed as a waiver or relinquishment of any right granted hereunder or of the
future performance of any such term or condition, but the obligations of any
party with respect thereto shall continue in full force and effect.
(f) This Agreement may be executed in several counterparts, each of
which shall be deemed an original but all of which together shall constitute one
instrument.
-8-
<PAGE>
(g) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, their respective successors, assigns, heirs, executors,
administrators, receivers, trustees and other legal representatives.
(h) This Agreement contains the entire agreement between the parties
hereto and supersedes any and all prior agreements, whether written or oral,
between the parties with respect to the within subject matter.
IN WITNESS WHEREOF, this Agreement is executed in multiple copies on the
day and year first above written.
COMPANY:
KEVCO, INC.
By /s/ Billy T. Everett
---------------------------------
Its President
303 Morrow Building
235 Loop 820, N.E.
Hurst, Texas 76053
EMPLOYEE:
/s/ Clyde A. Reed
-----------------------------------
Clyde A Reed
6 Country Club Court
Arlington, Texas 76013
-9-
<PAGE>
EXHIBIT 10.29
Paine Webber Standardized 401(k) Profit-Sharing Adoption Agreement (No. 005) (To
Be Used with Basic Plan Document No. 03 Only)
SECTION I: EMPLOYER INFORMATION:
Name of Employer: Kevco, Inc.
---------------------------------------------------------------
Employer Tax Identification Number: 75 - 1456023
-- -------
Employer's Fiscal Year:
[X] Calendar Year or
[_] 12-month period beginning on ___________ and ending on ____________
Month/Day Month/Day
Plan Year: Same as the Employer's Fiscal Year, unless otherwise indicated below:
[_] Calendar Year or
[_] 12-month period beginning on _____________ and ending on the last day
Month/Day
of _____________
Month
IMPORTANT: You must fill out this Adoption Agreement completely. If you fail to
complete certain Sections, some options are automatically presumed, and you
should be certain that these are the options you want. Failure to complete the
Adoption Agreement properly may result in Plan disqualification.
SECTION II: EFFECTIVE DATES (Check Option 1 or 2):
[_] Option 1: This is the initial adoption of a 401(k) profit-sharing plan by
the Employer:
The Effective Date of this Plan will be the first day of the Plan
Year in which this Adoption Agreement is signed unless otherwise
indicated below:
[_] The Effective Date of this Plan is __________ ,19 _____
[X] Option 2: This is an amendment and restatement of an existing 401(k)
profit-sharing plan (a "Prior Plan").
The Effective Date of the Prior Plan was 12/20, 1976.
------- --
The Effective Date of this amendment and restatement will be the
first day of the Plan Year in which this Adoption Agreement is
signed unless otherwise indicated below:
The Effective Date of this amendment and restatement is 1/1,
----
1993.
--
SECTION III: ELIGIBILITY REQUIREMENTS AND SERVICE CREDITING RULES
(Complete a through j):
Each Employee becomes eligible to participate in this Plan as follows:
(a) At age 21 unless otherwise indicated below:
18 (Fill in only if minimum age is to be younger than age 21).
----
Age
(b) Union Employees will be excluded from the Plan unless otherwise indicated
below:
[_] Union Employees will be included.
(c) Nonresident Aliens having no U.S. earned income will be excluded from the
Plan unless otherwise indicated below:
[_] Nonresident Aliens will be included.
(d) After completing 1 Year of Eligibility Service, unless otherwise indicated
below:
[_] After completing 2 Years of Eligibility Service, except that Elective
Deferrals may be made after completing 1 Year of Eligibility Service.
[_] After completing _________ months of eligibility service, but no later
than after 1 Year of Eligibility Service for making Elective
Deferrals. (Enter months from 0 to 23 months.)
[_] After completing _________ months of eligibility service, but
eligibility upon date of hire for making Election Deferrals. (Enter
months from 0 to 23 months.)
1
<PAGE>
[_] Immediate eligibility for Employees as of (Enter date) _________ , and
after completing _________ (not more than 2) Years of Eligibility
Service for new hires.
NOTE: USING A 2-YEAR ELIGIBILITY REQUIREMENT OR REQUIRING MORE THAN 12 MONTHS OF
ELIGIBILITY SERVICE AUTOMATICALLY REQUIRES USE OF THE 100% FULL AND IMMEDIATE
VESTING OPTION IN SECTION IV (OPTION I).
(e) The Entry Dates of the Plan are semi-annual - on the first day of the Plan
Year and the first day of the 7th month of the Plan Year (i.e. Jan 1/July 1
for calendar year plans), unless otherwise indicated below:
[_] Quarterly Entry Dates: 1/1; 4/1; 7/1; and 10/1 for salary deferral
-----------------------
contributions 6/30 and 12/31 for profit sharing contributions
--------------
Month/Day
[_] Monthly Entry Dates on the first day of each month.
[_] Annual Entry Date: _________________
Month/Day
NOTE: AN ANNUAL ENTRY DATE MAY NOT BE USED WHERE MORE THAN 6 MONTHS OF
ELIGIBILITY SERVICE ARE REQUIRED FOR AN EMPLOYEE TO BECOME ELIGIBLE TO
PARTICIPATE IN THE PLAN. ALSO, AN ANNUAL ENTRY DATE MAY NOT BE USED WHEN THE
MINIMUM ELIGIBILITY AGE IS OVER 20-1/2 YEARS.
(f) Counting Service - Service is counted on the basis of the Hours of Service
for which an Employee is actually paid or entitled to payment, unless
otherwise indicated below:
[_] Determined on the basis of days worked, by crediting the Employee with
10 Hours of Service for each day for which he or she would be credited
with at least 1 Hour of Service under Section 1.20 of the Plan.
[_] Determined on the basis of weeks worked, by crediting the Employee
with 45 Hours of Service for each week for which he or she would be
credited with at least 1 Hour of Service under Section 1.20 of the
Plan.
[_] Determined on the basis of semi-monthly payroll periods worked, by
crediting the Employee with 95 Hours of Service for each semi-monthly
payroll period for which he or she would be credited with at least 1
Hour of Service under Section 1.20 of the Plan.
[X] Determined on the basis of months worked, by crediting the Employee
with 190 Hours of Service for each month for which he or she would be
credited with at least 1 Hour of Service under Section 1.20 of the
Plan.
[_] Determined on the basis of 12 consecutive months worked (i.e., elapsed
time), by crediting the Employee with 1 Year of Eligibility Service or
1 Year of Vesting Service, as applicable, for each 12 consecutive-
month period of work.
(g) Both Year of Eligibility Service and Year of Vesting Service mean 1000
Hours of Service unless otherwise indicated below:
[_] _____ Hours for a Year of Eligibility Service (enter a number of Hours
less than 1000).
[_] _____ Hours for a Year of Vesting Service (enter a number of Hours
less than 1000).
[_] A 12 consecutive-month period (beginning on the Employee's first day
of work for the Employer) for a Year of Eligibility Service.
[_] A 12 consecutive-month period (beginning on _____________ of each
year) for a Year of Vesting Service. Month/Day
(h) Service with Predecessor Employer - Service with the following predecessor
employer(s):
Service Supply Systems, Inc.
---------------------------------------------------------------------------
Is counted for purposes of:
[X] Eligibility
[X] Vesting
(i) Years of Eligibility Service and Years of Vesting Service will not include
any period during which the Employer did not maintain the Plan or any
"predecessor plan" under the applicable Treasury Regulations, unless
otherwise indicated below:
[X] Years of Eligibility Service and Years of Vesting Service will include
periods prior to maintaining the Plan.
(j) Breaks in Service will be considered under the Plan, except as otherwise
indicated below:
[X] Breaks in Service will not be considered.
2
<PAGE>
SECTION IV: VESTING (Choose only 1 option):
A Participant becomes Vested in his or her Individual Account attributable to
Employer Contributions and Forfeitures as follows or, if earlier, at Normal
Retirement Age:
<TABLE>
<CAPTION>
[X] Option 6 with
[_] Option 5 with Option 3 (1-4)
Completed [_] Option_(1-4) ---
Year of Vesting [_] [_] [_] Option 4 In Top- In Top-
Service Option 1 Option 2 Option 3 (Complete if Chosen) Heavy Year Heavy Year
<S> <C> <C> <C> <C> <C> <C>
1 100% 0% 0% ___% 0% 0%
- ----------------------------------------------------------------------------------------------------------------------
2 100% 0% 20% ___% 0% 0%
(not less than 20%)
- ----------------------------------------------------------------------------------------------------------------------
3 100% 100% 40% ___% 0% 20%
(not less than 40%)
- ----------------------------------------------------------------------------------------------------------------------
4 100% 100% 60% ___% 0% 40%
(not less than 60%)
- ----------------------------------------------------------------------------------------------------------------------
5 100% 100% 80% ___% 100% 60%
(not less than 80%)
- ----------------------------------------------------------------------------------------------------------------------
6 100% 100% 100% 100% 100% 80%
- ----------------------------------------------------------------------------------------------------------------------
7 100% 100% 100% 100% 100% 100%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SECTION V: INCLUDED COMPENSATION (Complete a through d):
(a) Compensation is determined for the Plan Year, unless otherwise indicated
below:
[_] Compensation is determined for the calendar year ending within the
Plan Year.
(b) Compensation includes amounts paid prior to the date the Employee became a
Participant, unless otherwise indicated below:
[_] Compensation does not include pre-participation earnings.
(c) Compensation means all of a Participant's W-2 Earnings, generally, unless
otherwise indicated below:
[_] Compensation means "Section 3401(a) wages" as defined in Section 1.07
of the Plan.
[_] Compensation means "415 safe harbor compensation" as defined in
Section 1.07 of the Plan.
For sole proprietors and partners, Compensation means "compensation," as
that term is defined under Section 415(c)(3) of the Code.
(d) Compensation includes Employer Contributions made under a salary reduction
agreement under the following types of plans: Sections 125, 401(k),
408(k), 403(b), unless otherwise indicated below:
[_] Compensation does not include Employer Contributions made under salary
reduction agreement.
SECTION VI: NORMAL RETIREMENT AGE:
Normal Retirement Age means age 65 unless otherwise indicated below:
[_] The later of age _____ (not to exceed 65) or the _____ (0 to 5th)
anniversary of the Participant's participation commencement date. The
Participant's participation commencement date is the first day of the first
Plan Year in which the Participant commenced participation in the Plan.
SECTION VII: PROFIT-SHARING CONTRIBUTIONS (Complete a and b):
(a) Employer Contributions -
Contributions Not Limited to Profits - Employer Contributions to the Plan
are not limited to current and accumulated profits of the Employer's
business, unless otherwise indicated below:
[_] Employer Contributions, other than Elective Deferrals, are limited to
the current and accumulated profits of the Employer's business.
3
<PAGE>
Method of Allocation:
[_] Non-Integrated - The Employer Profit-Sharing Contribution to the Plan
for each Plan Year will be divided among Participants' Individual
Accounts in the ratio which each Participants Compensation bears to
the Compensation of all Participants.
[_] Allocation under the Social Security Integration (permitted disparity)
rules described in Section 3.01(B)(3) of the Plan - Under this option,
a larger percentage of the Employer Profit-Sharing Contribution is
allocated to each Participant's Compensation in excess of the
Integration Level selected (that is, the "Excess Compensation"). This
option is not available to an Employer with another integrated plan
benefiting the same participants. Excess Compensation means the
portion of Compensation that exceeds the Social Security Taxable Wage
Base in effect as of the beginning of the Plan Year, unless a
different Integration Level is selected below:
[_] $ ____ (enter a dollar amount lesser than the Taxable Wage Base.)
[_] ____ % of the Taxable Wage Base (not to exceed 100%).
Forfeitures - Forfeitures in each Plan Year will be applied to reduce the
Employer ContrIbution for that Plan Year, unless otherwise indicated below:
[X] Forfeitures will be allocated to the Individual Account of each
Participant eligible to receive an Employer Contribution in the same
manner as that chosen for the allocation of Employer Contributions.
NOTE: IF YOU HAVE SELECTED ALLOCATION UNDER THE SOCIAL SECURITY INTEGRATION
RULES FORFEITURES WILL BE ALLOCATED TO THE INDIVIDUAL ACCOUNTS OF ELIGIBLE
PARTICIPANTS.
Allocation Requirements - A Participant will share in the Employer Contribution
for a Plan Year as provided in Section 3.01(B)(2)(a) of the Plan, except as
indicated below:
[_] A Participant who has less than 501 Hours of Service during the Plan
Year must be employed by the Employer on the last day of the Plan Year
to share in the Employer Contribution for that Plan Year.
[X] A Participant who has less than 501 Hours of Service during the Plan
Year must be employed by the Employer on the last day of the Plan Year
to share in the Employer Contribution for that Plan Year unless the
Participant's employment with the Employer terminated in that Plan
Year after he or she attained Normal Retirement Age or because of his
or her death or Disability.
(b) Employee Contributions -
Rollover contributions [X] will [_] will not be permitted.
Direct plan-to-plan transfers [X] will [_] will not be permitted.
After-Tax Employee contributions will not be permitted unless otherwise
elected below :
[_] After-Tax Employee contributions will be permitted up to ___% of
Compensation or $___ in each payroll period.
SECTION VIII: 401(k) FEATURES (Complete a through h):
(a) Participant 401(k) Elective Deferral Contributions:
(1) Each Participant's 401(k) Elective Deferrals are limited by an annual
dollar amount set under Section 402(g) of the Code. Subject to that
limit, each Participant may make Elective Deferrals in an amount up
to:
[X] 15% of the Participant's Compensation.
--
[X] $ ____ for each payroll period.
(2) Participants may begin making Elective Deferrals, or change their
Elective Deferral election amounts, as of:
[_] begin [_] change
the first business day of each month
[X] begin [X] change *
the first business day of the first, fourth, seventh and tenth months
of the Plan Year
[_] begin [_] change
the first business day of the first and seventh months of the Plan
Year
[_] begin [_] change
the first business day of the Plan Year
[_] begin [_] change
Other:__________________________________________ (Specify)
* Contributions may be stopped at anytime after 15 days' advance notice.
4
<PAGE>
(3) A Participant's Elective Deferrals will apply to the Participant's cash
bonuses, unless otherwise indicated below:
[_] Elective Deferrals will not be made from cash bonuses.
[_] Participants will be given the option of making Elective
Deferrals from cash bonuses.
[_] The Employer will decide annually whether to permit Elective
Deferrals from cash bonuses for that Plan Year.
(b) Employer Matching Contributions:
(1)(A) The Employer will make Matching Contributions to the Plan on behalf
of all Participants who make Elective Deferrals in the amount of:
[_] ______ % of that Plan Year's Elective Deferrals.
[_] The sum of _______ % of the portion of the Elective Deferrals
not in excess of _______ of the Participant's Compensation,
plus _______ % of the portion of the Elective Deferrals in
excess of _______ % of the Participant's Compensation, but not
greater than ______ % of the Participant's Compensation.
[_] The Employer will not match Elective Deferrals above $_______
or above _______ % of the Participant's Compensation.
[X] An amount determined by the Employer for each Plan Year.
(B) The Employer will make Matching Contributions to the Plan on behalf
of all Participants who make After-Tax Employee contributions in
the amount of:
[_] ______ % of that Plan Year's After-Tax Employee contributions.
[_] The sum of _______% of the portion of the After-Tax Employee
contributions not in excess of _______ % of the Participant's
Compensation, plus ______ % of the portion of the After-Tax
Employee contributions in excess of ______ % of the
Participant's Compensation, but not greater than _____ % of
the Participant's Compensation.
[_] The Employer will not match After-Tax Employee contributions
above $ ______ or above _______ % of the Participant's
Compensation.
[_] An amount determined by the Employer for each Plan Year.
(C) The Employer will make Matching Contributions to the Plan on behalf
of all Participants (as provided under (A) or (B) above), unless
otherwise indicated below:
[_] Matching Contributions will only be made on behalf of
Participants who are not Highly Compensated Employees.
NOTE: IF THE SECOND OPTION UNDER SECTION VIII(b)(1)(A) OR (B) IS SELECTED, THE
PERCENTAGE SPECIFIED IN THE THIRD BLANK SPACE MUST NOT EXCEED THE PERCENTAGE
SPECIFIED IN THE FIRST BLANK SPACE. IF THE FORTH OPTION UNDER SECTION
VIII(b)(1)(A) OR (B) IS SELECTED, ANY EMPLOYER CONTRIBUTION MADE TO THE PLAN
MUST FIRST BE ALLOCATED TO SATISFY THE DISCRETIONARY MATCHING CONTRIBUTION AND
THEN TO SATISFY ANY DISCRETIONARY PROFIT-SHARING CONTRIBUTION.
(2) Matching Contributions will be subject to Vesting under the schedule
selected in Section IV, unless otherwise indicated below:
[_] Matching Contributions are fully Vested when made.
(3) Allocation Requirements - A Participant who makes Elective Deferrals
or After-Tax Employee contributions, as applicable, will share in any
applicable Matching Contributions for his or her Elective Deferrals or
After-Tax Employee contributions made, respectively, in a Plan Year as
indicated below:
[_] A Participant who makes Elective Deferrals this or After-Tax
Employee contributions, as applicable, is not required to be
employed by the Employer on the last day of the Plan Year to
receive Matching Contributions for his or her Elective Deferrals
or After-Tax Employee contributions made, respectively, in that
Plan Year.
[_] A Participant who has less than 501 Hours of Service during the
Plan Year and who makes Elective Deferrals or After-Tax Employee
contributions, as applicable, must be employed by the Employer on
the last day of the Plan Year to receive Matching Contributions
for his or her Elective Deferrals or After-Tax Employee
contributions made, respectively, in that Plan Year.
[_] A Participant who has less than 501 Hours of Service during the
Plan Year and who makes Elective Deferrals or After-Tax Employee
contributions, as applicable, must be employed by the Employer on
the last day of the Plan Year to receive Matching Contributions
for his or her Elective Deferrals or After-Tax Employee
contributions made, respectively, in that Plan Year, unless the
Participant's employment with the Employer terminated in that
Plan Year after attaining his or her Normal Retirement Age or
because of his or her death or Disability.
5
<PAGE>
(4) Forfeited Matching Contributions will be used by the Employer to make
the Matching Contributions in (1)(A) or (B) above, as applicable,
unless otherwise indicated below:
[_] Forfeited Matching Contributions will be allocated among
Participants' Accounts as if they were additional Matching
Contributions.
(c) Qualified Nonelective Contributions-These are fully Vested Employer
Contributions used, to the extent needed, to enable the Plan to satisfy the
nondiscrimination tests under Section 401(k) of The Code. (See also
paragraph (d) below, which may be elected with or without an election being
made under this paragraph.)
(1) Qualified Nonelective Contributions will be allocated to the
Individual Accounts of only Participants who are not Highly
Compensated Employees, unless otherwise elected below:
[_] Qualified Nonelective Contributions will be allocated to the
Individual Accounts of all Participants.
(2) The Employer will make Qualified Nonelective Contributions to the
Plan for each Plan Year in an amount determined by the Employer
from Plan Year to Plan Year, unless a percentage contribution is
elected below:
[_] Qualified Nonelective Contributions will be made in an amount
equal to ______ % (not more than 15%) of the Compensation of all
Participants eligible to share in the Qualified Nonelective
Contribution.
[_] Qualified Nonelective Contributions will be made in an amount
equal to ______ % of the current and accumulated profits of the
Employer's business, but not more than $ _______ for any Plan
Year.
(3) Qualified Nonelective Contributions will be divided among
Participants' Individual Accounts in the ratio which each
Participant's Compensation bears to the Compensation of all
Participants, unless the following option is selected:
[_] Allocated according to the ratio that each Participants
Compensation not greater than $ _____ for the Plan Year, bears to
the total Compensation of all Participants not greater than
$ _____ for the Plan Year.
(d) Qualified Matching Contributions - These are fully Vested Employer Matching
Contributions used, to the extent needed, to enable the Plan to satisfy the
nondiscrimination tests under Section 401(m) of the Code. (See also
paragraph (c) above, which may be elected with or without an election being
made under this paragraph.)
(1) The Employer will make Qualified Matching Contributions to the Plan on
behalf of all Participants who are not Highly Compensated Employees
and who make Elective Deferrals, unless otherwise elected below:
[_] Qualified Matching Contributions will be made on behalf of all
Participants who make Elective Deferrals.
(2) The amount of Qualified Matching Contributions made on behalf of each
Participant will be:
[_] _______ % of his or her Elective Deferrals for that Plan
Year.
[_] The sum of_______ % of the portion of the Elective Deferrals not
greater than _______ % of the Participant's Compensation, plus
_______ % of the portion of the Elective Deferrals in excess of
_______ % of the Participant's Compensation, but not over ______%
of the Participant's Compensation.
[_] The Employer will not match Elective Deferrals above $ _______ or
above _______ % of the Participant's Compensation.
[X] An amount determined by the Employer for each Plan Year.
NOTE: IF THE SECOND OPTION UNDER SECTION VIII(d)(2) IS SELECTED, THE PERCENTAGE
SPECIFIED IN THE THIRD BLANK SPACE MUST NOT EXCEED THE PERCENTAGE SPECIFIED IN
THE FIRST BLANK SPACE. IF THE FOURTH OPTION UNDER SECTION VIII (d)(2) IS
SELECTED, ANY EMPLOYER CONTRIBUTION MADE TO THE PLAN MUST FIRST BE ALLOCATED TO
SATISFY THE DISCRETIONARY MATCHING CONTRIBUTION AND THEN TO SATISFY ANY
DISCRETIONARY PROFIT-SHARING CONTRIBUTION.
(e) Passing the ADP Test - Qualified Matching Contributions and Qualified
Nonelective Contributions may be taken into account as Elective Deferrals
for purposes of passing the "ADP" test under Section 401(k) of the Code. In
determining Elective Deferrals for the ADP test, the Employer will include,
to the extent needed to pass the test:
[_] Qualified Matching Contributions.
[_] Qualified Nonelective Contributions under this Plan or any other
Employer plan.
[_] Both Qualified Matching Contributions and Qualified Nonelective
Contributions.
6
<PAGE>
(f) Passing the ACP Test - Qualified Nonelective Contributions and Elective
Deferrals may be taken into account for purposes of passing the "ACP" test
under Section 401(m) of The Code. In determining contributions for the ACP
test, the Employer will include, to the extent necessary to pass the test
[_] Qualified Nonelective Contributions.
[_] Elective Deferrals.
[_] Both Qualified Nonelective Contributions and Elective Deferrals.
(g) Excess Elective Deferrals - All of a Participant's Excess Elective
Deferrals, whether under this Plan another Employer plan, or any other
plan, will be assigned to this Plan if the Participant notifies the Plan
Administrator in writing by 3/1 (any date before April 15).
---
If no date is selected, the Employee's written notice must be submitted by
at least ten business days before April 15.
(h) Treatment of "Stub Period" Earnings or Losses - Earnings or Losses
occurring between the last annual Valuation Date and the date of
distribution of Excess Elective Deferrals, Excess Aggregate Contributions
and Excess Contributions will be disregarded under the Plan, unless
otherwise indicated below:
[_] Stub period earnings will be distributed along with any Excess
Elective Deferrals, Excess Contributions or Excess Aggregate
Contributions in accordance with the method prescribed in Article XI
of the Plan.
Section IX: OTHER OPTIONS (Complete a through d):
(a) Individual account investments will be directed as follows:
[X] Investment of Employee contributions will be participant-directed.
[X] Investment of Employer Contributions will be participant-directed.
[_] Investment of Employee contributions will be directed by:
__________________________________________________________ (Specify)
[_] Investment of Employer Contributions will be directed by:
__________________________________________________________ (Specify)
If no box is checked, the Employer directs all account investments.
(b) Participant loans [_] will [X] will not be permitted.
(c) In-service withdrawals of Employer Contributions and their investment
earnings [_] will [X] will not be permitted under Section 6.01(A)(3) of the
Plan.
If in-service withdrawals of Employer Contributions and their investment
earnings are permitted, they will be allowed [_] to the extent Vested or
[_] only after all Employer Contributions have Vested, and, unless the
Participant has 5 or more years of Plan participation, only from Employer
Contributions that have been in the Plan for at least 2 years, as follows
(Choose 1):
[_] At any time.
[_] At or after attaining age 59-1/2.
[_] Upon hardship under Section 6.04 only.
[_] At or after attaining age 59-1/2 or upon hardship under Section 6.04.
(d) In-service withdrawals of nondeductible or deductible Employee
contributions and their investment earnings [_] will [_] will not be
permitted under Section 3.02 and/or 6.04 of the Plan.
If rollover contributions and/or direct plan-to-plan transfers are
permitted, in-service withdrawals of these contributions and transfers and
their investment earnings [X] will [_] will not be permitted under Section
3.03, 3.04 and/or 6.04 of the Plan.
If in-service withdrawals of Employee contributions and their investment
earnings are permitted they will be allowed as indicated below (Choose 1):
[X] At any time.
[_] At or after attaining age 59-1/2 only.
[_] Upon hardship under Section 6.04 only.
[_] At or after attaining age 59-1/2 or upon hardship under Section 6.04.
(e) In-service withdrawals of Elective Deferrals [X] will [_] will not be
permitted under Section 11.05(C) of the Plan. * Provided that the
participant signs a written representation [as set forth in Treas. Reg.
Section 1.401 (k)-1(d)(2)(iii) (B)] that the amount requested is necessary
to satisfy a financial hardship.
7
<PAGE>
(f) Distribution options - The following distribution options will be available
under the Plan (Choose at least 1):
[X] Lump sum payment.
[_] In (Choose 1) [_] monthly, [_] quarterly, [_] semi-annual or [_]
annual installments for a period not to exceed (Choose 1) [_] the life
expectancy of the Participant or [_] the joint and last survivor life
expectancy of the Participant and his or her Beneficiary.
[_] The purchase of an annuity contract.
(g) Highly Compensated Employees shall include both Highly compensated active
employees and highly compensated former employees, unless otherwise
indicated below:
[X] Highly Compensated Employees shall be determined under the
"simplified method" described in Section 1.19 of the Plan.
[_] Highly Compensated Employees shall be determined under the
"simplified snapshot method" described in Section 1.19 of the Plan.
The snapshot day will be ___________.
(The date selected must be a single day during the Plan Year that is
reasonably representative of the Employer's workforce and the Plan's
coverage throughout the Plan Year. In addition, if the Employer uses a
snapshot day in substantiating compliance with the nondiscrimination
requirements, the same snapshot day must be used.)
SECTION X: LIMITS ON ANNUAL ADDITIONS/TOP-HEAVY (Complete a through e):
(a) Defined Contribution Plan Coordination - If any Participant is covered
under another qualified defined contribution plan maintained by the
Employer other than a master or prototype plan, the provisions of Section
3.05(B) of the Plan will apply as if the other plan were a master or
prototype plan, unless otherwise indicated below:
[_] The total Annual Additions will be limited to the Maximum Permissible
Amount and excess amounts will be reduced in a manner that precludes
Employer discretion, as follows:
___________________________________________________________________________
___________________________________________________________________________
(b) Defined Benefit Plan Coordination - If any Participant is or has ever been
a participant in 1 or more qualIfied defined benefit plans maintained by
the Employer, the benefit under the plans will be limIted by reducing
benefits under the defined benefit plans, to the extent possible, before
reducing Annual Additions under this Plan, unless a different method that
precludes Employer discretion is otherwise indicated below:
___________________________________________________________________________
___________________________________________________________________________
(c) Limitation Year - The Limitation Year for purposes of limiting benefits to
the extent required by Section 415 of the Code will be the Plan Year,
unless a different 12-month period (e.g., calendar year, fiscal year) is
indicated below:
___________________________________________________________________________
(d) Minimum Contribution For Top-Heavy Plan - If the Employer maintains 1 or
more defined benefit plans in which a Participant participates in addition
to this Plan and does not maintain any other defined contribution plan in
which the Participant participates, the minimum benefit requirement that
applies to Top-Heavy Plans will be provided under this Plan, and the
additional minimum benefit will also be provided under this Plan, unless
otherwise indicated below:
[_] The additional minimum benefit will not be provided under this Plan.
(e) Top-Heavy Aggregation Assumptions - If the Employer maintains plans that
are required to be aggregated for "top-heavy" purposes, an interest rate
and mortality table must be indicated below. If none is indicated and only
a defined benefit plan is required to be aggregated, the defined benefit
plan's interest rate and mortality table will apply.
[_] Specify interest rate ____________________________
[_] Specify mortality table __________________________
SECTION XI: APPOINTMENT OF TRUSTEE (Choose and complete only 1):
IMPORTANT REMINDER: The PaineWebber Standard Form Trust Agreement is a part of
this Plan.
8
<PAGE>
[X] Option 1: PW Trust Company as Trustee (see instructions for services
provided and related fees). Signature of PW Trust Company
Authorized Representative:
___________________________________
[ ] Option 2: Individual Trustee(s)
Trustee Name: ____________________ Signature: ___________________
Trustee Name: ____________________ Signature: ___________________
Trustee Name: ____________________ Signature: ___________________
[ ] Option 3: Other Trust Company
Name of Trust Company: __________________________________________
Signature of Authorized Representative: _________________________
SECTION XII: EMPLOYER SIGNATURE:
I am an authorized representative of the Employer and certify the following:
. I acknowledge that I relied on my own attorney and/or tax adviser
for the completion of this Adoption Agreement and with respect to
the legal and tax implications of adopting this Plan.
. I understand that if the Employer makes any changes to the
prototype Adoption Agreement or Plan and Trust document, other than
by adoption of any amendment made by PaineWebber Incorporated, the
sponsoring organization of this prototype, the Plan will no longer
be a prototype plan and the rules and procedures of the Internal
Revenue Service that apply to individually-designed plans will
apply.
. I understand that PaineWebber Incorporated, the sponsoring
organization of this prototype, will inform the adopting Employer
of any amendments made to the prototype or of the discontinuance or
abandonment of the prototype, provided that the Employer keeps
PaineWebber informed of the Employer's current address.
. I have received and read a copy of the Plan and Trust document
corresponding to this Adoption Agreement.
. I certify that all applicable affiliates (i.e., all members of a
controlled group of corporations, commonly controlled group of
trades or businesses, or an affiliated service group) have adopted
this Plan.
. I understand that an Employer who has ever maintained or who later
adopts any plan (including a welfare benefit fund, as defined in
Section 419(e) of the Code, which provides post-retirement medical
benefits allocated to separate accounts for key employees, as
defined in Section 419A(d)(3) of The Code, or an individual medical
account, as defined in Section 415(l) (2) of the Code) in addition
to this Plan (other than a paired plan designated below) may not
rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified
under Section 401 of the Internal Revenue Code. If the Employer
who adopts or maintains multiple plans wishes to obtain reliance
that his or her plan(s) are qualified, application for a
determination letter should be made to the appropriate Key District
Director of Internal Revenue.
The Employer may not rely on the opinion letter issued by the
National Office of The Internal Revenue Service as evidence that
this Plan is qualified under Section 401 of The Code unless the
terms of the Plan, as herein adopted or amended, that pertain to
the requirements of Sections 401(a)(4), 401(a)(17), 401(1),
401(a)(5), 410(b) and 414(s) of The Code as amended by the Tax
Reform Act of 1986 or later laws, (a) are made effective
retroactively to the first day of the first Plan Year beginning
after December 31,1988 (or such other date on which these
requirements first become effective with respect to this Plan); or
(b) are made effective no later than the first day on which the
Employer is no longer entitled, under regulations, to rely on a
reasonable, good faith interpretation of these requirements, and
the prior provisions of the Plan constitute such an interpretation.
This Adoption Agreement may be used only in conjunction with Basic
Plan Document #03.
An Employer may rely on the National Office opinion letters if, in
addition to this Plan, it has only maintained the following paired
plans:
Basic Plan Document 03, Adoption Agreement 001, 002 or 008 (only
one)
Basic Plan Document 05, Adoption Agreement 001 or 003 (only one)
9
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Signature of Employer /s/ Allen McGehee, Controller Date Signed: May 24, 1996
----------------------------- ------
Type or print name: ALLEN MCGEHEE Title: CONTROLLER OF KEVCO, INC.
------------- ------------------------
Adopting Employers may make inquiries at their local PaineWebber branch office
or at:
PaineWebber Incorporated
Business Retirement Plans
1200 Harbor Boulevard
Weehawken, New Jersey 07087
(201) 902-3095
PaineWebber will inform any adopting Employer of any amendments made to the Plan
or of the discontinuance or abandonment of the Plan, provided that the Employer
keeps PaineWebber informed of the Employer's current address.
10
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PAINEWEBBER INCORPORATED
DEFINED CONTRIBUTION PLAN
<PAGE>
PAINEWEBBER INCORPORATED
DEFINED CONTRIBUTION PLAN
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS.....................................................................1
1.01 ADOPTION AGREEMENT.........................................................1
1.02 BASIC PLAN DOCUMENTS.......................................................1
1.03 BENEFICIARY................................................................1
1.04 BREAK IN ELIGIBILITY SERVICE...............................................1
1.05 BREAK IN VESTING SERVICE...................................................2
1.06 CODE.......................................................................2
1.07 COMPENSATION...............................................................2
1.08 DISABILITY.................................................................3
1.09 EARNED INCOME..............................................................4
1.10 EFFECTIVE DATE.............................................................4
1.11 ELIGIBILITY TESTING PERIOD.................................................4
1.12 EMPLOYEE...................................................................4
1.13 EMPLOYER...................................................................4
1.14 EMPLOYER CONTRIBUTION......................................................5
1.15 ENTRY DATES................................................................5
1.16 ERISA......................................................................5
1.17 FORFEITURE.................................................................5
1.18 FUND.......................................................................5
1.19 HIGHLY COMPENSATED EMPLOYEE................................................5
1.20 HOURS OF SERVICE...........................................................7
1.21 INDIVIDUAL ACCOUNT.........................................................9
1.22 INVESTMENT FUND............................................................9
1.23 KEY EMPLOYEE...............................................................9
1.24 LEASED EMPLOYEE............................................................9
1.25 NORMAL RETIREMENT AGE......................................................9
1.26 OWNER-EMPLOYEE.............................................................9
1.27 PARTICIPANT...............................................................10
1.28 PLAN......................................................................10
1.29 PLAN ADMINISTRATOR........................................................10
1.30 PLAN YEAR.................................................................10
1.31 PRIOR PLAN................................................................10
1.32 PROTOTYPE SPONSOR.........................................................10
1.33 SELF-EMPLOYED INDIVIDUAL..................................................10
1.34 SEPARATE FUND.............................................................10
1.35 TAXABLE WAGE BASE.........................................................11
1.36 TERMINATION OF EMPLOYMENT.................................................11
1.37 TOP-HEAVY PLAN............................................................11
1.38 TRUST AGREEMENT...........................................................11
1.39 TRUSTEE...................................................................11
1.40 VALUATION DATE............................................................11
1.41 VESTED....................................................................11
1.42 YEAR OF ELIGIBILITY SERVICE...............................................11
1.43 YEAR OF VESTING SERVICE...................................................12
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
2. ELIGIBILITY AND PARTICIPATION..................................................13
2.01 ELIGIBILITY TO PARTICIPATE................................................13
2.02 PLAN ENTRY................................................................13
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS......................................14
2.04 RETURNING AFTER BREAK IN ELIGIBILITY SERVICE..............................14
3. CONTRIBUTIONS..................................................................16
3.01 EMPLOYER CONTRIBUTIONS....................................................16
3.02 EMPLOYEE CONTRIBUTIONS....................................................23
3.03 ROLLOVER CONTRIBUTIONS....................................................24
3.04 TRANSFER CONTRIBUTIONS....................................................24
3.05 LIMITATION ON ALLOCATIONS.................................................25
4. INDIVIDUAL ACCOUNTS AND VALUATION..............................................36
4.01 INDIVIDUAL ACCOUNTS.......................................................36
4.02 VALUATION OF FUND.........................................................36
4.03 VALUATION OF INDIVIDUAL ACCOUNTS..........................................36
4.04 SEGREGATION OF ASSETS.....................................................38
4.05 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS....................38
5. TRUST FUND.....................................................................39
5.01 CREATION OF FUND..........................................................39
5.02 INVESTMENT AUTHORITY......................................................39
5.03 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE..........................39
5.04 LIFE INSURANCE PURCHASES..................................................40
5.05 PARTICIPANTS' DIRECTION OF INVESTMENTS....................................41
6. VESTING AND DISTRIBUTION.......................................................43
6.01 DISTRIBUTION TO PARTICIPANT...............................................43
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT.....................................49
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT.............................52
6.04 FINANCIAL HARDSHIP WITHDRAWALS............................................54
6.05 FORM OF DISTRIBUTION TO BENEFICIARY.......................................55
6.06 JOINT AND SURVIVOR ANNUITY REQUIREMENTS...................................55
6.07 DISTRIBUTION REQUIREMENTS.................................................63
6.08 ANNUITY CONTRACTS.........................................................72
6.09 LOANS TO PARTICIPANTS.....................................................72
6.10 DIRECT ROLLOVERS..........................................................74
7. CLAIMS PROCEDURE...............................................................77
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS.....................................77
7.02 DENIAL OF CLAIM...........................................................77
7.03 REQUEST FOR REVIEW........................................................77
8. PLAN ADMINISTRATOR.............................................................78
8.01 EMPLOYER IS THE PLAN ADMINISTRATOR........................................78
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR...............................78
8.03 EXPENSES AND COMPENSATION.................................................80
8.04 INFORMATION FROM EMPLOYER.................................................80
</TABLE>
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<TABLE>
<S> <C> <C>
9. AMENDMENT AND TERMINATION......................................................81
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN..............................81
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN.......................................81
9.03 LIMITATION ON POWER TO AMEND..............................................82
9.04 AMENDMENT OF VESTING SCHEDULE.............................................82
9.05 PERMANENCY................................................................83
9.06 PLAN TERMINATION PROCEDURES...............................................83
9.07 PLAN CONTINUED BY SUCCESSOR EMPLOYER......................................83
9.08 FAILURE OF PLAN QUALIFICATION.............................................83
10. MISCELLANEOUS..................................................................85
10.01 STATE COMMUNITY PROPERTY LAWS............................................85
10.02 HEADINGS.................................................................85
10.03 GENDER AND NUMBER........................................................85
10.04 PLAN MERGER OR CONSOLIDATION.............................................85
10.05 TERMS OF EMPLOYMENT......................................................85
10.06 AGREEMENT BINDS HEIRS, ETC...............................................85
10.07 DETERMINATION OF TOP-HEAVY STATUS........................................86
10.08 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES..................................90
10.09 INALIENABILITY OF BENEFITS...............................................91
10.10 NO DUTIES OR RESPONSIBILITIES OF
PROTOTYPE SPONSOR........................................................91
10.11 GOVERNING LAW............................................................91
11. 401(k) PROVISIONS..............................................................92
11.01 DEFINITIONS..............................................................92
11.02 PARTICIPATION............................................................96
11.03 CONTRIBUTIONS............................................................98
11.04 NONDISCRIMINATION TESTING................................................99
11.05 DISTRIBUTION PROVISIONS.................................................105
11.06 VESTING.................................................................114
11.07 EFFECTIVE TIME..........................................................114
12. TARGET BENEFIT PROVISIONS.....................................................115
12.01 DEFINITIONS.............................................................115
12.02 EMPLOYER CONTRIBUTIONS..................................................118
12.03 EMPLOYEE CONTRIBUTIONS..................................................120
12.04 FORFEITURES.............................................................121
12.05 TABLES..................................................................121
</TABLE>
<PAGE>
Paine Webber Incorporated
Qualified Retirement Plan
Defined Contribution Basic Plan Document 03
ARTICLE ONE-DEFINITIONS
Capitalized words and phrases in this Plan have the following
meanings unless the context clearly indicates otherwise:
1.01 ADOPTION AGREEMENT
The document executed by the Employer by which it adopts this Plan and
Trust and agrees to be bound by their terms and conditions.
1.02 BASIC PLAN DOCUMENTS
This Plan, together with the Trust Agreement.
1.03 BENEFICIARY
The person or entity designated by the Participant, subject to the
requirements of Section 6.06, to receive any death benefits payable under
the Plan on account of the death of the Participant. If no designation is
in effect on the date of the Participant's death or if no designated
Beneficiary is alive on that date, the Participant's Beneficiary will be
his or her estate.
1.04 BREAK IN ELIGIBILITY SERVICE
If Years of Eligibility Service have been selected in the Adoption
Agreement to be determined on the basis of an Employee's number of Hours
of Service, an Eligibility Testing Period in which an Employee does not
complete at least 501 Hours of Service (or any lesser number of Hours of
Service selected in the Adoption Agreement).
If Years of Eligibility Service have been selected in the Adoption
Agreement to be determined on the basis of an Employee's working for the
Employer for a 12 consecutive month period beginning on his or her
employment commencement date with the Employer, a 12-consecutive month
period commencing on the date of an Employee's interruption of his or her
employment with the Employer during which the Employee does not complete
at least 1 Hour of Service.
If selected in the Adoption Agreement, no Breaks in Service will be
considered under the Plan.
1.05 BREAK IN VESTING SERVICE
If Years of Vesting Service have been selected in the Adoption Agreement
to be determined on the basis of an Employee's number of Hours of
Service, a Plan Year during which an Employee does not complete at least
501 Hours of Service (or any lesser number of Hours of Service selected
in the Adoption Agreement).
If Years of Vesting Service have been selected in the Adoption Agreement
to be determined on the basis of an Employee's working for the Employer
for a 12 consecutive month period beginning on his or her employment
commencement date with the Employer, a 12-consecutive month period
commencing on the date of an Employee's interruption of his or her
employment with the Employer during which the Employee does not complete
at least 1 Hour of Service.
If selected in the Adoption Agreement, no Breaks in Service will be
considered under the Plan.
1.06 CODE
The Internal Revenue Code of 1986, including amendments.
1.07 COMPENSATION
Restated Plans - Plan Years Beginning Before January 1, 1989:
If this Plan is adopted as an amendment and restatement to bring a Prior
Plan into compliance with the Tax Reform Act of 1986, that Prior Plan's
definition of Compensation continues to apply for Plan Years beginning
before January 1, 1989:
Plan Years beginning on or after January 1, 1989:
Unless another definition of Compensation is selected in the Adoption
Agreement, Compensation means a Participant's W-2 earnings from his or
her Employer or, if the Participant is a Self-Employed individual, his or
her Earned Income. Alternative definitions of Compensation selected in
the Adoption Agreement may include "section 3401(a) wages" and "415 safe
harbor Compensation." "Section 3401(a) wages" means wages within the
meaning of Section 3401(a) of the Code for the purposes of income tax
withholding at the source but determined without regard to any rules that
limit the remuneration included in wages based on the nature or location
of the employment or the services performed. "415 safe harbor
Compensation" is defined under Section 3.05(E)(2) of the Plan. Unless
otherwise selected in the Adoption Agreement, Compensation also includes
any amount which is contributed by the Employer under a salary reduction
agreement and which is not includable in the Employee's gross income
under Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code.
Compensation only includes amounts actually paid to the Participant
during the Plan Year (or any other determination period selected in the
Adoption Agreement).
This Plan does not count any Participant's annual Compensation above
$200,000, as adjusted for increases in the cost-of-living by the federal
government under Section 401(a)(17) of the Code for any Plan Year (above
$150,000 for Plan Years beginning after 1993, as so adjusted), subject to
any "grandfather" rules that may be permitted under applicable law, which
are incorporated in this definition by reference). The cost-of-living
adjustment in effect for a calendar year applies to any Plan Year (or
determination period) beginning in that calendar year.
If a Plan Year (or determination period) consists of fewer than 12
months, the annual Compensation limit is the dollar amount described in
the preceding paragraph, multiplied by a fraction, the numerator of which
is the number of months in the Plan Year and the denominator of which is
12. In calculating this Compensation limit for a Participant, the rules
for treating certain family members as one person under Section 414(q)(6)
of the Code apply, except that the term "family" includes only the spouse
of the Participant and any lineal descendants of the Participant who do
not attain age 19 before the end of the year over which Compensation is
measured. If the adjusted $200,000 (or, after 1993, $150,000) limit is
exceeded, then (except for determining the portion of Compensation up to
the integration level under Section 3.01(B)(3)), the limit is apportioned
among the affected individuals in proportion to each individual's
Compensation determined under this Section 1.07 before application of
this limit.
Unless otherwise indicated in the Adoption Agreement, if an Employee
becomes a Participant on an Entry Date other than the first Entry Date in a
Plan Year, his or her Compensation includes all earnings paid to him or her
during the entire year over which Compensation is measured.
1.08 DISABILITY
The inability to engage in any substantial, gainful activity by
1
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reason of any medically determinable physical or mental impairment that
can be expected to result in death or that has lasted or can be expected
to last for a continuous period of not less than 12 months. The
permanence and degree of the impairment must be supported by medical
evidence.
1.09 EARNED INCOME
The net earnings from self-employment in the trade or business with
respect to which the Plan is established, but excluding items not
included in gross income and the deductions allocable to those items. Net
earnings are also reduced by (i) the Participant's Employer contributions
to a qualified plan to the extent deductible under Section 404 of the
Code and (ii) the deduction allowed to the taxpayer under Section 164(f)
of the Code for taxable years beginning after December 31, 1989.
1.10 EFFECTIVE DATE
The date the Plan becomes effective as indicated on the Adoption
Agreement. However, if a different effective date is stated for a
particular Plan provision, that date applies to that provision.
1.11 ELIGIBILITY TESTING PERIOD
An Employee's first Eligibility Testing Period is the 12 consecutive-
month period beginning with the date the Employee first performs an Hour
of Service (that is, his or her employment commencement date). The
Employee's subsequent Eligibility Testing Periods are the 12 consecutive-
month periods beginning on the anniversaries of his or her employment
commencement date; but, if under the Adoption Agreement, an Employee is
required to complete one or fewer Years of Eligibility Service to become
a Participant, then his or her future Eligibility Testing Periods are the
Plan Years starting with the Plan Year beginning during the first
Eligibility Testing Period.
1.12 EMPLOYEE
Any person employed by the Employer or anyone else required to be
aggregated with the Employer under Sections 414(b), (c), (m) or (o) of
the Code, and any Leased Employee required to be treated as an Employee
under Sections 414(n) or (o) of the Code.
1.13 EMPLOYER
Any corporation, partnership, sole-proprietorship or other entity named
in the Adoption Agreement and any successor who by merger, consolidation,
purchase or otherwise assumes the obligations of the Plan. A partnership
is the Employer of each of its partners and a sole-proprietorship is the
Employer of its sole proprietor.
1.14 EMPLOYER CONTRIBUTION
The amount contributed to the Plan by the Employer for any Plan Year.
1.15 ENTRY DATES
The first day of the Plan Year and the first day of the seventh month of
the Plan Year (unless different dates are selected in the Adoption
Agreement).
1.16 ERISA
The Employee Retirement Income Security Act of 1974, including
amendments.
1.17 FORFEITURE
The portion of a Participant's Individual Account derived from Employer
Contributions in which he or she has not become Vested, as described in
Section 6.01(D).
1.18 FUND
The Plan assets held by the Trustee, in trust, for the Participants'
exclusive benefit.
1.19 HIGHLY COMPENSATED EMPLOYEE
Unless otherwise selected in the Adoption Agreement, the term Highly
Compensated Employee includes "highly compensated active employees" and
"highly compensated former employees."
Highly Compensated Active Employee: A "highly compensated active
employee" is any Employee who performs service for the Employer during
the Plan Year and who, during the previous year: (a) received
Compensation from the Employer in excess of $75,000 (as adjusted for
inflation under Section 415(d) of the Code); (b)received Compensation
from the Employer in excess of $50,000 (as adjusted for inflation under
Section 415(d) of the Code) and was a member of the top-paid group for
that year; or (c) was an officer of the Employer and received
Compensation during that year greater than 50% of the applicable dollar
limit under Section 415(b)(1)(A) of the Code. The term Highly Compensated
Employee also includes (i) Employees described in any of clauses (a), (b)
or (c) above during the current Plan Year, rather than the previous year,
but only if they are among the 100 Employees with the highest
Compensation for that Plan Year and (ii) Employees who are 5% Owners at
any time during the Plan Year or the previous year.
If no officer meets the Compensation requirement of clause (c) above
during the Plan Year or the previous year, the highest-paid officer for
that year is treated as a Highly Compensated Employee.
Highly Compensated Former Employee: A "highly compensated former
employee" is any former Employee who separated from service (or was
treated as if he or she had separated from service) before the Plan Year,
performed no service for the Employer during the Plan Year and was a
highly compensated active employee either for his or her separation year
or in any Plan Year ending on or after his or her 55th birthday.
The Plan Administrator may elect, in lieu of the foregoing method, to
make the previous year calculation for a Plan Year on the basis of the
calendar year ending with or within the applicable Plan Year (or, for a
Plan Year that is shorter than 12 months, the calendar year ending with
or within the 12-month period ending with the applicable Plan Year). This
determination is to be made in accordance with the procedure outlined in
Treasury Regulation Section 1.414(q)-1T, Q&A-14(b). If this method is
used and the Plan Year is the calendar year, then a separate calculation
for the previous year is not required. If this option is elected for any
plan of the Employer, it must apply to all of the Employer's plans.
If the "simplified/snapshot method" for determining Highly Compensated
Employees is selected in Adoption Agreement No. 005 or 006, a Highly
Compensated Employee includes any Employee who is employed by the
Employer on the snapshot day and who (a) was a 5% owner on the snapshot
day, (b)received Compensation for the Plan Year in excess of $75,000 (as
adjusted for inflation under Section 415(d) of the Code), (c) received
Compensation for the Plan Year in excess of $50,000 (as adjusted for
inflation under Section 415(d) of the Code) and was a member of the top-
paid group for that year, or (d) was an officer on the snapshot day and
received Compensation during the Plan Year that is greater than 50% of
the dollar limitation in effect under Section 415(b)(1)(A) of the Code.
If no officer satisfies the
2
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Compensation requirement of (d) above, the highest paid officer for such
Plan Year shall be treated as a Highly Compensated Employee.
Under the "simplified/snapshot method," a Highly Compensated Employee
will also include any Employee who during the Plan Year: (a) terminated
employment prior to the snapshot day and was a Highly Compensated
Employee in the prior Plan Year; (b) terminated employment prior to the
snapshot day and (i) was a 5% owner or (ii) has Compensation for the Plan
Year which is greater than or equal to the Compensation of any Employee
who is treated as a Highly Compensated Employee on the snapshot day
(except for Employees who are Highly Compensated Employees solely because
they are 5% owners or officers), or (iii) was an officer and has
Compensation greater than or equal to the Compensation of any other
officer who is a Highly Compensated Employee on the snapshot day solely
because that person is an officer; or (c) becomes employed subsequent to
the snapshot day during the Plan year and (i) is a 5% owner, or (ii) has
Compensation for the Plan Year which is greater than or equal to the
Compensation of any Employee who is treated as a Highly Compensated
Employee on the snapshot day (except for Employees who are Highly
Compensated Employees solely because they are 5% owners or officers), or
(iii) is an officer and has Compensation greater than or equal to the
Compensation of any other officer who is a Highly Compensated Employee on
the snapshot day solely because that person is an officer.
If the "simplified method" for determining Highly Compensated Employees
is selected in Adoption Agreement No. 005 or 006, a Highly Compensated
Employee includes any Employee who during the Plan Year performs services
for the Employer and who (a) was a 5% owner, (b)received Compensation for
the Plan Year in excess of $75,000 (as adjusted for inflation under
Section 415(d) of the Code), (c) received Compensation for the Plan Year
in excess of $50,000 (as adjusted for inflation under Section 415(d) of
the Code) and was a member of the top paid group for that year, or (d)
was an officer and received Compensation during the Plan Year that is
greater than 50% of the dollar limitation in effect under Section
415(b)(1)(A) of the Code. If no officer satisfies the Compensation
requirement of (d) above, the highest paid officer for such Plan Year
shall be treated as a Highly Compensated Employee.
Under any method of determining Highly Compensated Employees, if an
Employee is a family member of either (i) a 5% Owner who is an active or
former Employee or (ii) a Highly Compensated Employee who is one of the
10 most Highly Compensated Employees (on the basis of Employer
Compensation paid during that year), then the family member and the 5%
Owner or top 10 Highly Compensated Employee are treated as if they were a
single Employee receiving Compensation and Plan contributions or benefits
equal to the sum of such Compensation and contributions or benefits of
the family member and the 5% Owner or top 10 Highly Compensated Employee.
For this purpose, family members are the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of those
ascendants and descendants. The determination of who is a Highly
Compensated Employee, including the determinations of the number and
identity of Employees in the top-paid group, the top 100 Employees, the
number of Employees treated as officers and the Compensation that is
considered, are made in accordance with Section 414(q) of the Code and
applicable Treasury Regulations to the extent they are not inconsistent
with the methods described above.
1.20 HOURS OF SERVICE
A. Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours are
credited to the Employee for the Eligibility Testing Period or
Plan Year, as applicable, in which the duties are performed;
B. Each hour for which an Employee is paid, or entitled to payment,
by the Employer for an Eligibility Testing Period or Plan Year,
as applicable, during which no duties are performed (regardless
of whether his or her employment terminated) due to vacation,
holiday, illness, incapacity (including Disability), layoff, jury
duty, military duty or leave of absence. No more than 501 Hours
of Service will be credited under this paragraph for any single
continuous period (whether or not that period occurs in a single
Eligibility Testing Period or Plan Year, as applicable). Hours
under this paragraph will be calculated and credited as required
under Department of Labor Regulation Section 2530.200b-2, which
Section is incorporated in this paragraph by this reference; and
C. Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same
Hours of Service will not be credited both under paragraph (A) or
paragraph (B), as the case may be, and under this paragraph (C).
These hours are credited to the Employee for the Eligibility
Testing Period or Plan Year, as applicable, to which the award or
agreement pertains, rather than the Eligibility Testing Period or
Plan Year, as applicable, in which the award, agreement, or
payment is made.
D. In determining whether a Break in Eligibility Service or a Break
in Vesting Service has occurred in an Eligibility Testing Period
or Plan Year, as applicable, an Employee who is absent from work
for maternity or paternity reasons will receive credit for the
Hours of Service that would otherwise have been credited to him
or her, if not for that absence, or if those hours cannot be
determined, 8 Hours of Service per day of that absence, in either
case, up to a maximum of 501 Hours of Service. An absence from
work for maternity or paternity reasons means an absence (1) by
reason of the pregnancy of the Employee, (2) by reason of the
birth of a child of the Employee, (3) by reason of the placement
of a child with the Employee in connection with the Employee's
adoption of the child, or (4) for purposes of caring for that
child for a period beginning immediately following the child's
birth or placement. The Hours of Service credited under this
paragraph will be credited to the Eligibility Testing Period or
Plan Year in which the absence begins, if the crediting is
necessary to prevent a Break in Eligibility Service or a Break in
Vesting Service in the applicable Eligibility Testing Period or
Plan Year, or in all other cases, in the following Eligibility
Testing Period or Plan Year.
E. Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m) of
the Code), a controlled group of corporations (under Section
414(b) of the Code), or a group of trades or businesses under
common control (under Section 414(c) of the Code) of which the
Employer is a member, and any other entity required to be
aggregated with the Employer under Section 414(o) of the Code and
its applicable Treasury Regulations.
3
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Hours of Service will also be credited for any individual
considered an Employee under Sections 414(n) or 414(o) of the
Code and any applicable Treasury Regulations.
F. If an Employer maintains the plan of a predecessor employer,
service for that predecessor employer is treated as service for
the Employer; to the extent selected in the Adoption Agreement.
G. Service will be determined on the basis of the method selected in
the Adoption Agreement.
1.21 INDIVIDUAL ACCOUNT
The bookkeeping account established and maintained under this Plan for
each Participant under Section 4.01.
1.22 INVESTMENT FUND
A subdivision of the Fund established under the Trust Agreement.
1.23 KEY EMPLOYEE
Any person who is a Key Employee under Section 10.07(B).
1.24 LEASED EMPLOYEE
Any person (other than an employee of an Employer) who performed services
for the Employer (or for the Employer and related persons, determined in
accordance with Section 414(n)(6) of the Code) under an agreement between
the Employer and any other person (the "leasing organization") on a
substantially full time basis for a period of at least one year, if those
services are of a type historically performed by employees in the
business field of the Employer. Contributions or benefits provided to a
Leased Employee by the leasing organization which are attributable to
services performed for the Employer are treated as provided by the
Employer.
A Leased Employee is not considered an Employee of the Employer if: (1)
the Leased Employee is covered by a money purchase pension plan
providing: (a) a nonintegrated employer contribution rate of at least 10%
of "compensation," as defined in Section 415(c)(3) of the Code, but
including amounts contributed under a salary reduction agreement which
are excludible from the Leased Employee's gross income under Section 125,
Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code,
(b) immediate participation and (c) full and immediate vesting; and (2)
Leased Employees do not constitute more than 20% of the Employer's non-
highly compensated work force.
1.25 NORMAL RETIREMENT AGE
The age selected in the Adoption Agreement, but if none is selected, age
65.
1.26 OWNER-EMPLOYEE
An individual who is a sole proprietor, or who is a partner owning more
than 10% of either the capital or profits interest of the partnership.
1.27 PARTICIPANT
Any Employee or former Employee of the Employer who has met the Plan's
eligibility requirements, has entered the Plan and who is or may become
eligible to receive a benefit of any type from this Plan or whose
Beneficiary may be eligible to receive any Plan benefit. As of the date
an individual's benefits under the Plan have been fully distributed, that
individual will cease to be a Participant.
A Participant is treated as benefiting under the Plan for any Plan Year
during which the Participant received or is deemed to receive an allocation
in accordance with Treasury Regulation Section 1.410(b)-3(a).
1.28 PLAN
The prototype defined contribution plan adopted by the Employer. The Plan
consists of the Basic Plan Documents plus the corresponding Adoption
Agreement as completed and signed by the Employer.
1.29 PLAN ADMINISTRATOR
The person or persons described in Section 8.01.
1.30 PLAN YEAR
The Employer's fiscal year or any other 12 consecutive-month period
selected in the Adoption Agreement.
1.31 PRIOR PLAN
A plan which was amended or replaced by adoption of this Plan document,
as indicated in the Adoption Agreement.
1.32 PROTOTYPE SPONSOR
PaineWebber Incorporated, a Delaware corporation, and any successor
corporation by merger, consolidation or liquidation, as well as any other
entity to which PaineWebber Incorporated has transferred all or a
substantial portion of its retail brokerage business. Each Prototype
Sponsor must meet the definition of a sponsoring organization set forth
in Section 3.07 of Revenue Procedure 89-9 or any future definition
required by the Internal Revenue Service.
1.33 SELF-EMPLOYED INDIVIDUAL
An individual who has Earned Income for the taxable year from the trade
or business for which the Plan is established (and an individual who
would have had Earned Income but for the fact that the trade or business
had no net profits for the taxable year).
1.34 SEPARATE FUND
A subdivision of the Fund held in the name of a particular Participant
representing certain assets held for that Participant. The assets which
comprise a Participant's Separate Fund are those assets earmarked for him
and those assets subject to the Participant's individual direction under
the terms of the Trust Agreement and Article 5.
1.35 TAXABLE WAGE BASE
The contribution and benefit base in effect under Section
230 of the Social Security Act at the beginning of the Plan Year.
1.36 TERMINATION OF EMPLOYMENT
An individual ceases to be an Employee of an Employer for any reason
other than his or her death. An Employee who does not return to work for
the Employer before the expiration of an authorized leave of absence
incurs a Termination of Employment when that leave ends.
1.37 TOP-HEAVY PLAN
The determination of whether this Plan is a TOP-Heavy Plan for any Plan
Year is made under Section 10.07.
1.38 TRUST AGREEMENT
The PaineWebber Standard Form Trust Agreement.
1.39 TRUSTEE
An individual, individuals or corporation named in the Adoption Agreement
as Trustee or any successor under the terms of the Trust Agreement.
1.40 VALUATION DATE
The last day of the Plan Year and each other date selected by the Plan
Administrator, in a uniform and nondiscriminatory manner, for determining
the fair market value of the Fund's assets.
4
<PAGE>
1.41 VESTED
Nonforfeitable; an interest that is unconditional and legally enforceable
against the Plan in all or a portion of an immediate or deferred Plan
benefit which arises from completion of Years of Vesting Service or the
other events described in Section 6.01(B).
1.42 YEAR OF ELIGIBILITY SERVICE
If Years of Eligibility Service have been selected in the Adoption
Agreement to be determined on the basis of an Employee's number of Hours
of Service, an Eligibility Testing Period during which an Employee
completes at least 1,000 Hours of Service (or a lesser number of Hours of
Service selected in the Adoption Agreement).
If Years of Eligibility Service have been selected in the Adoption
Agreement to be determined on the basis of an Employee's working for the
Employer for a 12 consecutive-month period beginning on his or her
employment or reemployment commencement date with the Employer, each 12
consecutive-month period of employment for the Employer (or faction
thereof) during which the Employee does not have a Break in Eligibility
Service. An Employee's employment or reemployment commencement date is
the first day the Employee performs an Hour of Service. Fractional
periods of a year will be expressed in terms of days.
Years of Eligibility Service (1) include certain specified periods of
service with predecessor employers and (2) do not include excluded
periods of time, in each case, as selected in the Adoption Agreement. If
the Employer is maintaining this Plan as a plan of a predecessor employer
(as defined in Section 411 of the Code), Years of Eligibility Service
include periods of service with that predecessor employer.
If the period of eligibility service selected in the Adoption Agreement
is or includes a fractional year, an Employee will not be required to
complete any specified number of Hours of Service to receive credit for
such fractional year.
1.43 YEAR OF VESTING SERVICE
If Years of Vesting Service have been selected in the Adoption Agreement
to be determined on the basis of an Employee's number of Hours of
Service, a Plan Year during which an Employee completes at least 1,000
Hours of Service (or a lesser number of Hours of Service selected in the
Adoption Agreement).
If Years of Vesting Service have been selected in the Adoption Agreement
to be determined on the basis of an Employee's working for the Employer
for a each 12 consecutive-month period beginning on his or her employment
or reemployment commencement date with the Employer, 12 consecutive-month
period of employment for the Employer (or fraction thereof) during which
the Employee does not have a Break in Vesting Service. An Employee's
employment or reemployment commencement date is the first day the
Employee performs an Hour of Service. Fractional periods of a year will
be expressed in terms of days.
Years of Vesting Service (1) include certain specified periods of service
with predecessor employers and (2) do not include excluded periods of time,
in each case, as selected in the Adoption Agreement. If the Employer is
maintaining this Plan as a plan of a predecessor employer (as defined in
Section 411 of the Code), Years of Vesting Service include periods of
service with that predecessor employer.
5
<PAGE>
ARTICLE TWO--ELIGIBILITY AND
PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE
All Employees of the Employer, except those excluded from participation
under the Adoption Agreement, are eligible to participate in this Plan
after satisfying the age and Years of Eligibility Service requirements
selected in the Adoption Agreement. Union Employees and Nonresident
Aliens are excluded from Plan participation, unless otherwise selected in
the Adoption Agreement.
As used in the Adoption Agreement, the terms "Union Employees" and Non-
resident Aliens" refer to the following:
Union Employees: Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and Employee
representatives, if retirement benefits were the subject of good faith
bargaining and if two percent or less of the Employees who are covered
pursuant to that agreement are professionals as defined in Treasury
Regulation Section 1.410(b)-9. For this purpose, the term "employee
representatives" does not include any organization more than half of
whose members are Employees who are owners, officers, or executives of
the Employer.
Nonresident Aliens: Employees who are nonresident aliens (within the
meaning of Section 7701(b)(1)(B) of the Code) and who receive no earned
income (within the meaning of Section 911(d)(2) of the Code) from the
Employer which constitutes income from sources within the United States
(within the meaning of Section 861(a)(3) of the Code).
2.02 PLAN ENTRY
A. If this Plan replaces a Prior Plan, each Employee of the Employer
who participated in the Prior Plan on the day immediately before
the Effective Date continues to be a Participant in this Plan.
B. An Employee becomes a Participant as of the Effective Date if he
or she has met the requirements of Section 2.01 as of that Date.
After the Effective Date, each Employee becomes a Participant on
the first Entry Date after satisfying the eligibility
requirements of Section 2.01.
C. The Plan Administrator must notify each Employee who becomes
eligible to become a Participant under this Plan and furnish him
or her with whatever enrollment forms, other documents are
required of Participants and furnish him or her with whatever
notices and documents are required by applicable law to be
provided to eligible Employees and/or Participants, including but
not limited to summary plan descriptions. Prior to becoming a
Participant, the eligible Employee must execute those forms or
documents and make available whatever information is reasonably
required for the administration of the Plan, including his or her
investment elections pursuant to Section 5.05, if applicable. If
this is a "standardized plan," and the Employee does not provide
the required information, the Employer shall provide the
necessary information from its best available records.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
A Participant who becomes ineligible to partIcipate in this Plan because
he or she is no longer a member of an eligible class of Employees,
participates immediately upon his or her return to an eligible class of
Employees if he or she has not had a Break in Eligibility Service. If the
Employee had a Break in Eligibility Service, his or her eligibility to
participate is determined under Section 2.04.
An Employee who is not a member of the eligible class of Employees
becomes a Participant on becoming a member of the eligible class, if the
Employee has satisfied the age and Years of Eligibility Service
requirements. If the Employee has not satisfied the age and Years of
Eligibility Service requirements as of the date he or she becomes a
member of the eligible class, he or she becomes a Participant on the
first Entry Date after satisfying those requirements.
2.04 RETURNING AFTER BREAK IN ELIGIBILITY SERVICE
A. Before Becoming Eligible - If an Employee has a Break in
Eligibility Service before he or she meets the Plan's eligibility
requirements, his or her Years of Eligibility Service before the
Break in Eligibility Service will not count under the Plan. This
paragraph applies only if the Employee is 100% Vested upon
meeting the eligibility requirements.
B. Before Becoming Vested - If a Participant has a Break in
Eligibility Service at a time when he or she is not at least
partially Vested in the portion of his or her Individual Account
derived from Employer Contributions, his or her Years of
Eligibility Service before a period of consecutive Breaks in
Eligibility Service will not count for eligibility purposes if
the number of consecutive Breaks in Eligibility Service in that
period equals or exceeds the greater of 5 or the aggregate number
of Years of Eligibility Service before that Break. The aggregate
number of Years of Eligibility Service does not include any Years
of Eligibility Service that are not counted under the preceding
sentence because of earlier Breaks.
If a Participant's Years of Eligibility Service are not counted
under the Plan because of the previous paragraph, he or she is
treated as a new Employee for eligibility purposes.
C. After Becoming Vested - A Participant who has a Break in
Eligibility Service after having a Vested interest in at least
part of his or her Individual Account derived from Employer
Contributions continues to participate in the Plan, or, if he or
she is not employed by the Employer, participates when reemployed
by the Employer.
6
<PAGE>
ARTICLE THREE--CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. Obligation to Contribute - The Employer makes contributions to
the Plan according to the contribution formula selected in the
Adoption Agreement. If this Plan is a profit-sharing plan, the
amount of the Employer Contribution is determined in the
Employer's sole discretion, and the Employer, in its sole
discretion, may make contributions whether or not it has current
or accumulated earnings or profits (unless otherwise provided in
the Adoption Agreement). Neither the Trustee nor the Prototype
Sponsor has any duty to question the correctness of a
contribution, or to collect any amount that the Employer fails to
pay.
B. Allocation Formula and the Right to Share in the Employer
Contribution -
1. General - The Employer Contribution for a Plan Year is
allocated to the Individual Accounts of qualifying
Participants according to the formula selected in the
Adoption Agreement. The Employer Contribution for any
Plan Year is allocated to each Participant's Individual
Account as of the last day of that Plan Year.
2. Qualifying Participants - A Participant is a qualifying
Participant and is entitled to share in the Employer
Contribution for any Plan Year (a) if he or she was a
Participant on at least 1 day during the Plan Year,
(b)if selected in the Adoption Agreement, and only if
the Plan is "nonstandardized" (that is, Adoption
Agreement No. 003, 004, 006 or 007 was used by the
Employer to adopt the Plan), he or she completes the
required number of Hours of Service specified in the
Adoption Agreement during the Plan Year and (c) if
selected in the Adoption Agreement, he or she is an
Employee on the last day of the Plan Year (unless the
exception for the Participant's death, Disability or
Termination of Employment after attaining Normal
Retirement Age has been selected in the Adoption
Agreement). The determination of whether a Participant
is entitled to share in the Employer Contribution is
made as of the last day of each Plan Year.
3. Special Rules for Integrated Plans - If the Employer
selected an integrated contribution or allocation
formula in the Adoption Agreement, then the amount by
which the "Excess Contribution Percentage" exceeds the
"Base Contribution Percentage" cannot be larger than the
maximum disparity rate under the following table
(depending on the type of plan):
As used above:
(a) The "Excess Contribution Percentage" is the
percentage of Compensation which is contributed
under the Plan for the portion of each
Participant's Compensation which is greater than
the Integration Level selected in the Adoption
Agreement.
(b) The "Base Contribution Percentage" is the
percentage of Compensation contributed under the
Plan for the portion of each Participant's
Compensation which is not greater than the
Integration Level selected in the Adoption
Agreement.
(c) The "Integration Level" is the Taxable Wage Base
or a lesser amount selected in the Adoption
Agreement. The Integration Level cannot be
greater than the contribution and benefit base in
effect under Section 230 of the Social Security
Act for the Plan Year.
The Employer Contributions and Forfeitures are
allocated to Participants' Individual Accounts in four
(4) steps as follows (only Steps 3 and 4 are required
if the Plan is not a Top-Heavy Plan):
Step 1 Employer Contributions and Forfeitures are
allocated, up to the first 3% of each qualifying
Participant's Compensation, based on the ratio
that his or her Compensation for the Plan Year
bears to the total Compensation of all qualifying
Participants for the Plan Year.
Step 2 Any remaining Employer Contributions and
Forfeitures are then allocated, up to 3% of each
qualifying Participant's Compensation, based on
the ratio that his or her Excess Compensation for
the Plan Year bears to all qualifying
Participants' Excess Compensation. For purposes of
this Step 2, in the case of any Participant who
has exceeded the "cumulative permitted disparity
limit" described below, that Participant's total
Compensation for the Plan Year will be taken into
account.
Step 3 Employer Contributions and Forfeitures
remaining after Step 2 (or, in the case of a non-
Top-Heavy Plan, all Employer Contributions and
Forfeitures) are allocated to each qualifying
Participant, based on the ratio that the sum of
that Participant's Compensation and Excess
Compensation for the Plan Year bears to the sum of
all qualifying Participants' Compensation and
Excess Compensation for the Plan Year. For
________________________________________________________________________________
MAXIMUM DISPARITY RATE
----------------------
<TABLE>
<CAPTION>
Standardized and Nonstandardized
Top-Heavy and Non-Top-
Nonstandardized Heavy
Integration Level Money Purchase Profit-Sharing Profit-Sharing
<S> <C> <C> <C>
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $50 but not more than 20% of TWB/*/ 5.7% 2.7% 5.7%
More than 20% of TWB/*/ but not more than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but not more than TWB 5.4% 2.4% 5.4%
</TABLE>
* If 20% of TWB is less than $10,000, substitute $10,000 for "20% of TWB."
7
<PAGE>
purposes of this Step 3, in the case of any Participant
who has exceeded the "cumulative permitted disparity
limit" described below, 200% of such Participant's
total Compensation for the Plan Year will be taken into
account.
Step 4 Employer Contributions and Forfeitures remaining
after Step 3 are allocated as described in Step 1,
without the 3% Compensation limit.
Overall Permitted Disparity Limits:
Annual Overall Permitted Disparity Limit - Notwithstanding the
preceding paragraphs, for any Plan Year for which this Plan benefits
any Participant who benefits under another qualified plan or
simplified employee pension (as defined in Section 408(k) of the
Code), maintained by the Employer and which provides for permitted
disparity (or imputes disparity), Employer Contributions and
Forfeitures will be allocated to the Individual Account of each
Participant who either completes more than 500 Hours of Service
during the Plan Year or who is employed on the last day of the Plan
Year in the ratio of that Participant's total Compensation to the
total Compensation of all Participants.
Cumulative Permitted Disparity Limit - Effective for Plan Years
beginning on or after January 1, 1995, the cumulative permitted
disparity limit for a Participant is 35 "total cumulative permitted
disparity years." "Total cumulative permitted disparity years" means
the number of years credited to the Participant for allocation or
accrual purposes under this Plan, any other qualified plan or
simplified employee pension plan (whether or not terminated) ever
maintained by the Employer. For purposes of determining the
Participant's cumulative permitted disparity limit, all Plan Years
ending in the same calendar year are treated as the same Plan Year.
If the Participant has not received, and not been deemed to have
received, an allocation (In accordance with Treasury Regulation
Section 1.410(b)-3(a)) under a defined benefit plan or target benefit
plan for any Plan Year beginning on or after January 1, 1994, the
Participant has no cumulative permitted disparity limit.
C. Allocation of Forfeitures - Forfeitures for a Plan Year that
arise as a result of the application of Section 6.01(D) are
allocated as follows:
Forfeitures reduce Employer Contributions to the Plan, unless
otherwise provided in the Adoption Agreement. However, if it is
provided in the Adoption Agreement that Forfeitures are allocated to
the Individual Accounts of Participants, then Forfeitures are
allocated as if they were Employer Contributions under Section 3.01
(B) to the Individual Accounts of Participants who are entitled to
share in the Employer Contributions for that Plan Year.
D. Timing of Employer Contribution - The Employer Contribution for
each Plan Year must be delivered to the Trustee by the due date
including extensions, for filing the Employer's income tax return
for its fiscal year in which the Plan Year ends.
E. Minimum Allocation for Top-Heavy Plans - The contribution and
allocation provisions of this Section 3.01(E) apply in any Plan
Year in which this Plan is a Top-Heavy Plan.
1. Except as otherwise provided in (2) below, the Employer
Contributions and Forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than
the lesser of (a) 3% of such Participant's Compensation or
(b) the largest percentage of Employer Contributions and
Forfeitures, as a percentage of Key Employee's Compensation,
as limited by Section 401(a)(17) of the Code, allocated on
behalf of any Key Employee for that year. Subsection (b)
shall not apply if the Employer has a defined benefit plan
which it uses to satisfy the requirements of Section
401(a)(4) or 410 of the Code. The minimum allocation is
determined without regard to any Social Security
contribution. The minimum allocation shall be made even
though, under other Plan provisions, the Participant would
not otherwise be entitled to receive an allocation, or would
have received a lesser allocation for the year because of
(a) the Participant's failure to complete 1,000 Hours of
Service (or any equivalent provided in the Plan), or (b) the
Participant's failure to make mandatory Employee
contributions to the Plan, or (c) the Participant's
Compensation is less than a stated amount.
2. The provision in (1) above does not apply to any Participant
(a) who was not employed by the Employer on the last day of
the Plan Year or (b) to the extent the Participant is
covered under any other plan or plans of the Employer and
the Employer has provided in the Adoption Agreement that the
minimum allocation or benefit requirement applicable to Top-
Heavy Plans will be met under the other plan or plans.
3. The minimum allocation required under this Section 3.01(E)
and Section 3.01(F)(1) (to the extent required to be
nonforfeitable under Section 416(b) of the Code) is
not forfeitable under Section 411(a)(3)(B) or 411(a)(3)(D)
of the Code.
4. For purposes of computing the minimum allocation,
Compensation shall mean the definition of Compensation
selected in the Adoption Agreement as limited by Section
401(a)(17) of the Code.
F. Special Requirements for Paired Plans - The Employer maintains
paired plans if the Employer has adopted either a combination of
two defined contribution standardized plans or a combination of one
or two defined contribution standardized plans and one defined
benefit standardized plan.
1. Paired Plans - Paired plans may be maintained by the
Employer only under one of the following circumstances:
(a) When the paired plans are Top-Heavy, the Top-Heavy
minimum contribution is provided in all paired plans;
or
(b) Each Paired plan benefits the same Participants.
2. Minimum Allocation Under 3.01(F)(1)(b) - In the case of
Section 3.01(F)(1)(b) above, when the paired plans are Top-
Heavy, the Employer is required to provide a minimum
contribution equal to 3% of Compensation for each non-Key
Employee who is entitled to a minimum contribution. That
minimum contribution will only be made under one of the
plans. If an Employee is a Participant in only one of the
plans, the mini-
8
<PAGE>
mum contribution is made to that plan. If the Employee is a
Participant in both plans, the minimum contribution is made
to the money purchase pension plan.
3. Only One Plan can be Integrated - If the Employer maintains
paired plans, only one of the plans may utilize the
disparity in contributions or benefits permitted under
Section 401(1) of the Code. If both Adoption Agreements
provide for integration, permitted disparity is allowed only
(i) under the other plan if it is a defined contribution
plan or (ii) under this Plan if the other plan is a defined
benefit plan.
G. Return of Employer Contribution to the Employer Under Special
Circumstances - If the Employer makes a contribution by reason of
a mistake of fact, the Employer is entitled to recover that
contribution provided that the recovery occurs within 1 year of
the date on which the contribution was made.
If the Commissioner of Internal Revenue determines that the Plan
is not initially qualified under the Code, any contributions that
were conditioned on the initial qualification of the Plan may be
returned to the Employer provided that those contributions must
be returned to the Employer within 1 year after the date on which
the initial qualification is denied.
If a contribution made by the Employer is conditioned on its
deductibility under Section 404 of the Code and the deduction is
fully or partially disallowed, the contribution may be returned
to the Employer, to the extent of the amount disallowed, provided
that it is returned to the Employer within 1 year of the date on
which the deduction is disallowed. All Employer Contributions are
declared to be conditioned on their deductibility.
3.02 EMPLOYEE CONTRIBUTIONS
Except as provided under Section 11.03(D), if applicable, this Plan does
not accept nondeductible Employee contributions for Plan Years beginning
after the Plan Year in which this Plan is adopted by the Employer.
Nondeductible Employee contributions (and any related matching
contributions) made by a Participant before they were not accepted under
this Plan are maintained in a fully Vested sub-account under that
Participant's Individual Account. If and as selected in the Adoption
Agreement, a Participant may, upon a written request submitted to the
Plan Administrator and subject to the requirements of Section 6.06 (if
applicable), withdraw any part of his or her nondeductible Employee
contribution sub-account; in all other respects, a Participant's
nondeductible Employee contribution sub-account is subject to the Plan's
regular distribution provisions.
This Plan does not accept deductible Employee contributions made for a
taxable year beginning after December 31, 1986. Deductible Employee
contributions made by a Participant before that date are maintained in a
fully Vested sub-account under that Participant's Individual Account. No
part of the deductible Employee contribution sub-account may be used to
purchase life insurance. If and as selected in the Adoption Agreement, a
Participant may, upon a written request submitted to the Plan
Administrator and subject to the requirements of Section 6.06 (if
applicable), withdraw any part of his or her deductible Employee
contribution sub-account; in all other respects, a Participant's
deductible Employee contribution sub-account is subject to the Plan's
regular distribution provisions.
Employee contributions for Plan Years beginning after December 31, 1986,
together with any matching contributions (as defined in Section 401(m) of
the Code), are limited to meet the nondiscrimination test of Section
401(m) of the Code.
No Forfeiture occurs as a result of an a Participant's withdrawal of
Employee contributions.
3.03 ROLLOVER CONTRIBUTIONS
If this option is selected in the Adoption Agreement, and if permitted by
the Plan Administrator on a uniform and nondiscriminatory basis, a
Participant or an Employee who is eligible to participate in the Plan or
who is in an eligible class of Employees who, upon satisfaction of any
applicable age and/or service requirements, will become eligible to
participate in the Plan, may contribute a "rollover contribution" (as
defined below) to the Plan, but only if the Employee submits a written
certification satisfactory to the Plan Administrator, that the
contribution qualifies as a rollover contribution.
A Participant's rollover contributions are maintained in a fully Vested
sub-account under the Participant's Individual Account. If and as
selected in the Adoption Agreement, a Participant may, upon a written
request submitted to the Plan Administrator and subject to the
requirements of Section 6.06 (if applicable), withdraw any part of his or
her rollover contribution sub-account; in all other respects, a
Participant's rollover contribution sub-account is subject to the Plan's
regular distribution provisions.
For purposes of this Section 3.03, a "rollover contribution" is a
contribution described in Section 402(c)(4), 403(a)(4) or 408(d)(3) of
the Code or in any other provision that may be added to the Code
authorizing rollovers to qualified plans.
3.04 TRANSFER CONTRIBUTIONS
If this option is selected in the Adoption Agreement, and if permitted by
the Plan Administrator on a uniform and nondiscriminatory basis, the
Trustee may receive any amounts transferred to it from the trustee of
another plan qualified under Section 401(a) of the Code on behalf of any
Participant or Employee who is eligible to participate in the Plan or who
is in the class of Employees who, upon satisfaction of any applicable age
and/or service requirements, will become eligible to participate in the
Plan. A Participant's transfer contributions are maintained in a fully
Vested sub-account under the Participant's Individual Account. If and as
selected in the Adoption Agreement, a Participant may, upon a written
request submitted to the Plan Administrator and subject to the
requirements of Section 6.06 (if applicable), withdraw any part of his or
her transfer contribution sub-account; in all other respects, a
Participant's transfer contribution sub-account is subject to the Plan's
regular distribution provisions.
3.05 LIMITATION ON ALLOCATIONS
A. No Other Plan - If the Participant has never participated in another
qualified plan, "welfare benefit fund" (as defined in Section 419(e)
of the Code), "individual medical account" (as defined in Section
415(l)(2) of the Code) or "simplified employee pension" (as defined in
Section 408(k) of the Code), maintained by the Employer and which
provided an "Annual Addition" (as defined in Section 3.05(E)(1)), the
following rules apply:
1. The amount of Annual Additions credited to the Participant's
Individual Account for any "Limitation Year" (as defined in
Section 3.05(E)(9)) cannot exceed the lesser of the
"Maximum Permissible Amount" (as defined in
9
<PAGE>
Section 3.05(E)(11)) or any other limitation contained in
this Plan. Employer Contributions contributed or allocated
to a Participant's Individual Account must be reduced, if
necessary, so that the Annual Additions for the Limitation
Year do not exceed the Maximum Permissible Amount.
2. Before determining the Participant's actual "Compensation"
(as defined in Section 3.05(E)(2)) for the Limitation Year,
the Employer may determine the Maximum Permissible Amount
for a Participant on the basis of a reasonable estimate of
the Participant's Compensation for the Limitation Year,
uniformly determined for all similarly situated
Participants.
3. Then, as soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount for
the Limitation Year is determined based on the Participant's
actual Compensation for the Limitation Year.
4. If under Section 3.05(A)(3) or as a result of the allocation
of Forfeitures, there is an "Excess Amount" (as defined in
Section 3.05(E)(7)), the Excess Amount is eliminated as
follows:
(a) Any nondeductible voluntary Employee contributions, to
the extent they would reduce the Excess Amount, are
returned to the Participant;
(b) If an Excess Amount still exists after (a), and the
Participant is covered by the Plan at the end of the
Limitation Year, the Excess Amount in the Participant's
Individual Account is used to reduce Employer
Contributions (including any allocation of Forfeitures)
for that Participant in the next Limitation Year, and
each future Limitation Year if necessary.
(c) If an Excess Amount still exists after application of
paragraph (a) and the Participant is not covered by the
Plan at the end of a Limitation Year, the Excess Amount
is held unlocated in a suspense account. The suspense
account is applied to reduce future Employer
Contributions (including allocation of any Forfeitures)
for all other Participants in the next Limitation Year,
and each succeeding Limitation Year if necessary.
(d) If a suspense account exists under this Section 3.05 at
any time during a Limitation Year, that account (i)
will not participate in the allocation of the Fund's
investment gains and losses and (ii) must be allocated
and reallocated to Participants' Individual Accounts
before any Employer Contributions or any Employee
contributions may be made to the Plan for that
Limitation Year. Excess Amounts may not be distributed
to Participants or former Participants.
B. If a Participant is covered under this Plan and another qualified
defined contribution Master or Prototype Plan, "welfare benefit fund"
(as defined in Section 419(e) of the Code), "individual medical
account" (as defined in Section 415(1)(2) of the Code) or "simplified
employee pension" (as defined in Section 408(k) of the Code),
maintained by the Employer and which provides an Annual Addition
during any Limitation Year, the following rules apply:
1. The Annual Additions which may be credited to a
Participant's Individual Account under this Plan for any
such Limitation Year cannot exceed the Maximum Permissible
Amount reduced by the Annual Additions credited to a
Participant's Individual Account under the other plans and
welfare benefit funds for the Same Limitation Year. If the
Annual Additions with respect to the Participant under other
qualified defined contribution Master or Prototype Plans,
welfare benefit funds, individual medical accounts and
simplified employee pensions maintained by the Employer are
less than the Maximum Permissible Amount and the Employer
Contribution that would have been contributed or allocated
to the Participant's Individual Account under this Plan
would cause the Annual Additions for the Limitation Year to
exceed this limit, the amount contributed or allocated is
reduced until the Annual Additions under all those plans and
funds for the Limitation Year equal the Maximum Permissible
Amount. If the Annual Additions with respect to the
Participant under those other qualified defined contribution
Master or Prototype Plans, welfare benefit funds, individual
medical accounts and simplified employee pensions in the
aggregate are equal to or greater than the Maximum
Permissible Amount, no amount is contributed or allocated to
the Participant's Individual Account under this Plan for the
Limitation Year.
2. Before determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant as described in Section
3.05(A)(2).
3. Then, as soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount for
the Limitation Year is determined on the basis of the
Participant's actual Compensation for the Limitation Year.
4. If, under Section 3.05(B)(3) or as a result of the
allocation of Forfeitures, a Participant's Annual Additions
under this Plan and other plans would result in an Excess
Amount for a Limitation Year, the Excess Amount is treated
as if it were all from the last allocated Annual Additions,
except that Annual Additions attributable to a simplified
employee pension are treated as having been allocated first,
followed by Annual Additions to a welfare benefit fund or
individual medical account, regardless of the actual
allocation date.
5. If an Excess Amount is allocated to a Participant on an
allocation date of this Plan coinciding with an allocation
date of another plan, the Excess Amount attributed to this
Plan is the product of:
(a) The total Excess Amount allocated as of that date,
multiplied by
(b) The ratio of (i) the Annual Additions allocated to the
Participant for the Limitation Year as of that date
under this Plan to (ii) the total Annual Additions
allocated to the Participant for the Limitation Year as
of that
10
<PAGE>
date under this Plan and all other qualified
master or prototype defined contribution plans.
6. Any Excess Amount attributed to this Plan is then eliminated
as described in Section 3.05(A)(4).
C. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, which is not a
Master or Prototype Plan, the Annual Additions credited to the
Participant's Individual Account under this Plan for any
limitation Year are limited under Sections 3.05(B)(1) through
3.05(B)(6), as if the other plan were a master or prototype plan,
unless other limits were selected in the Adoption Agreement.
D. If the Employer has ever maintained a qualified defined benefit
plan (other than a paired plan as shown in the Adoption Agreement)
covering any Participant in this Plan, the sum of the
Participant's "Defined Benefit Plan Fraction" (as defined in
Section 3.05(E)(3)) and "Defined Contribution Plan Fraction" (as
defined in Section 3.05(E)(5)) cannot exceed 1.0 in any Limitation
Year. The Annual Additions that may be credited to the
Participant's Individual Account under this Plan for any
Limitation Year are limited under the Adoption Agreement.
E. The terms below have the following meanings when used in this
Section 3.05:
1. Annual Additions: The sum of the following amounts credited
to a Participant's Individual Account for the Limitation
Year:
(a) Employer Contributions;
(b) Employee contributions;
(c) Forfeitures;
(d) Amounts allocated, after March 31, 1984, to an
"individual medical account (as defined in Section
415(l)(2) of the Code), which is part of a pension or
annuity plan maintained by the Employer are treated as
Annual Additions to a defined contribution plan. Also
amounts derived from contributions paid or accrued
after December 31, 1985, in taxable years ending after
that date, which relate to post-retirement medical
benefits allocated to the separate account of a "key
employee" (as defined in Section 419A(d)(3) of the
Code) under a "welfare benefit fund" (as defined in
Section 419(e) of the Code) maintained by the Employer
are treated as Annual Additions to a defined
contribution plan; and
(e) Allocations under a "simplified employee pension" (as
defined in Section 408(k) of the Code) maintained by
the Employee.
For this purpose, any Excess Amount applied under Section
3.05(A)(4) or 3.05(B)(6) in the Limitation Year to reduce
Employer Contributions are considered Annual Additions for
that Limitation Year.
2. Compensation: Compensation is defined as wages, salaries,
and fees for professional services and other amounts
received (without regard to whether or not an amount is paid
in cash) for personal services actually rendered in the
course of employment with the Employer maintaining the Plan
to the extent that the amounts are included in gross income
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, fringe benefits,
tips, bonuses and reimbursements or other expense allowances
under a nonaccountable plan (as described in Treasury
Regulation Section 1.62-2(c)), and excluding the following:
(a) Employer contributions to a plan of deferred
compensation which are not includible in the Employee's
gross income for the taxable year in which contributed,
or Employer contributions under a simplified employee
pension plan, or any distributions from a plan of
deferred compensation;
(b) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely transferable
or is no longer subject to a substantial risk of
forfeiture;
(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(d) Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity described in Section 403(b) of
the Code (whether or not the amounts are actually
excludible from the gross income of the Employee).
For any self-employed individual, Compensation means Earned
Income.
For Limitation Years beginning after December 31, 1991, for
purposes of applyIng the limits of this Section 3.05,
Compensation for a Limitation Year is the Compensation
actually paid or includible in gross income during that
Limitation Year.
However, Compensation for a Participant in a defined
contribution plan who is permanently and totally disabled
(as defined in Section 22(e)(3) of the Code) is the
Compensation that Participant would have received for the
Limitation Year if the Participant had been paid at his or
her Compensation rate immediately before becoming
permanently and totally disabled; provided that imputed
Compensation for the disabled Participant is taken into
account only if the Participant is not a Highly Compensated
Employee and contributions made on behalf of the Participant
are fully Vested when made.
3. Defined Benefit Plan Fraction: A fraction, the numerator of
which is the sum of the Participant's projected annual
benefits under all defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator
of which is the lesser of 125% of the dollar limitation
determined for the Limitation Year under Section 415(b) and
(d) of the Code or 140% of the "Highest Average
Compensation" (as
11
<PAGE>
defined in Section 3.05(E)(8)), including any adjustments
under Section 415(b) of the Code.
However, if the Participant was a participant as of the first day
of the first Limitation Year beginning after December 31, 1986,
in one or more defined benefit plans maintained by the Employer
which existed on May 6, 1986, the denominator of this Fraction is
not less than 125% of the sum of the annual benefits under those
plans which the Participant had accrued as of the close of the
last Limitation Year beginning before January 1, 1987, ignoring
any changes in the terms and conditions of the plan after May
5,1986, but only if the defined benefit plans individually and
together satisfied the requirements of Section 415 of the Code
for all Limitation Years beginning before January 1, 1987.
4. Defined Contribution Plan Dollar Limit: $30,000 or, if
greater, one-fourth of the defined benefit dollar limit
under Section 415(b)(1) of the Code, which is in effect for
the Limitation Year.
5. Defined Contribution Plan Fraction: A fraction, the
numerator of which is the sum of the Annual Additions to
the Participant's accounts under all defined contribution
plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years
(including the Annual Additions from (i) the Participant's
nondeductible employee contributions to all defined benefit
plans (whether or not terminated), (ii) "welfare benefit
funds" (as defined in Section 419(e) of the Code)
maintained by the Employer, (iii) "individual medical
accounts" (as defined in Section 415(1)(2) of the Code)
maintained by the Employer and (iv) "simplified employee
pensions" (as defined in Section 408(k) of the Code)
maintained by the Employer, and the denominator of which is
the sum of the maximum aggregate amounts for the current
and all prior Limitation Years of service with the Employer
(regardless of whether the Employer maintained a defined
contribution plan). The maximum aggregate amount in any
Limitation Year is the lesser of 125% of the dollar limit
under Section 415(b) and (d) of the Code in effect under
Section 415(c)(1)(A) of the Code or 35% of the
Participant's Compensation for that Year.
If the Employee was a Participant as of the end of the first day
of the first Limitation Year beginning after December 31, 1986,
in one or more defined contribution plans maintained by the
Employer which existed on May 6, 1986, the numerator of this
Fraction is adjusted if the sum of this Fraction and the Defined
Benefit Plan Fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the Fractions over 1.0,
multiplied by (2) the denominator of this Fraction, is
permanently subtracted from the numerator of this Fraction. The
adjustment is calculated using the Fractions as they would be
computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms
and conditions of the Plan made after May 5, 1986, but using the
limit under Section 415 of the Code that applied on the first
Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before
January 1, 1987, is not recomputed to treat all Employee
contributions as Annual Additions.
6. Employer: The Employer that adopts this Plan, and all
members of a "controlled group of corporations" (as defined
in Section 414(b) of the Code as modified by Section
415(h)), all "commonly controlled trades or businesses" (as
defined in Section 414(c) of the Code as modified by
Section 415(h)) or "affiliated service groups" (as defined
in Section 414(m) of the Code) of which the adopting
Employer is a part, and any other entity required to be
aggregated with the Employer under the Treasury Regulations
under Section 414(o) of the Code.
7. Excess Amount: The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum
Permissible Amount.
8. Highest Average Compensation: The average Compensation for
the 3 consecutive Years of Vesting Service with the
Employer that produces the highest average.
9. Limitation Year: A calendar year, or the 12 consecutive-
month period selected for this purpose in the Adoption
Agreement. All qualified plans maintained by the Employer
must use the same Limitation Year. If the Limitation Year
is amended to a different 12 consecutive-month period, the
new Limitation Year must begin on a date within the
Limitation Year in which the amendment is made.
10. Master or Prototype Plan: A plan the form of which is the
subject of a favorable opinion letter from the Internal
Revenue Service.
11. Maximum Permissible Amount: The maximum Annual Addition
that may be contributed or allocated to a Participant's
Individual Account under the Plan for any Limitation Year
is the lesser of:
(a) The Defined Contribution Plan Dollar Limit; or
(b) 25% of the Participant's Compensation for the
Limitation Year.
The Compensation limit referred to in (b) does not apply to any
contribution for medical benefits (within the meaning of Section
401(h) or Section 419A(f)(2) of the Code) which is otherwise
treated as an Annual Addition under Section 415(l)(1) or
419A(d)(2) of the Code.
If a Short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive-month
period, the Maximum Permissible Amount must not exceed the
Defined Contribution Dollar Limit multiplied by the following
fraction:
Number of months in the short Limitation Year 12
12. Projected Annual Benefit: The annual retirement benefit
(adjusted to an actuarially equivalent straight life
annuity if that benefit is stated other than as a straight
life annuity qualified joint and survivor annuity) to which
the Participant would be entitled under the terms of the
Plan assuming:
12
<PAGE>
(a) The Participant continues employment until Normal Retirement
Age (or current age, if later); and
(b) The Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine
benefits under the Plan remain constant for all future
Limitation Years.
The term "straight life annuity" shall have the meaning set forth in
Section 12.01(I).
13
<PAGE>
ARTICLE FOUR--INDIVIDUAL ACCOUNTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator must establish and maintain an Individual
Account in the name of each Participant to reflect the total
value of his or her interest in the Fund. Each Individual
Account is made up of whatever sub-accounts may be needed for
each Participant, including:
1. A sub-account to reflect a Participant's Employer
Contributions and Forfeitures;
2. A subaccount to reflect a Participant's rollover
contributions;
3. A sub-account to reflect a Participant's transfer
contributions;
4. A sub-account to reflect a Participant's nondeductible
Employee contributions; and
5. A sub-account to reflect a Participant's deductible Employee
contributions.
These sub-accounts are only for accounting purposes and do not
require a segregation of the Fund.
B. The Plan Administrator is authorized to establish any other
accounts it believes are appropriate for the proper
administration of the Plan.
4.02 VALUATION OF FUND
The Fund is valued each Valuation Date at fair market value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. If a Participant's Individual Account assets are completely or
partly invested in a Separate Fund, then the value of that
portion of the Participant's Individual Account at any relevant
time is the sum of the fair market values of the assets in that
Separate Fund, reduced by any applicable charges and penalties.
B. The fair market value of the other portions of each Individual
Account is determined follows:
1. First, the portion of the Individual Account invested in
each investment Fund as of the most recent Valuation Date is
determined. Then, that portion is (a) reduced by (i) any
withdrawals made from the applicable Investment Fund to or
for the benefit of a Participant or his or her Beneficiary,
(ii) any Forfeitures by the Participant under Section
6.01(D) and (iii) any transfer to another Investment Fund
since the most recent Valuation Date, and (b) increased by
any amount transferred from another Investment Fund since
the most recent Valuation Date. The resulting amounts are
the net Individual Account portions invested in the
Investment Funds.
2. Second, the net Individual Account portions invested in each
Investment Fund are increased or decreased (based on the
ratio that each net Individual Account portion bears to the
sum of all net Individual Account portions), so that the sum
of all the net Individual Account portions invested in an
Investment Fund equals the then fair market value of the
Investment Fund. However, for the first Plan Year only, the
net Individual Account portions are the sum of all
contributions made to each Participant's Individual Account
during the Plan Year.
3. Third, any contributions to the Plan and Forfeitures are
allocated as described in Article 3. Under Article 4,
contributions made by the Employer for any Plan Year, but
after that Plan Year, are considered to have been made on
the last day of that Plan Year regardless of when they are
paid to the Trustee.
Amounts contributed between Valuation Dates are credited
with investment gains or losses until the next Valuation
Date.
4. Fourth, the portions of the Individual Account invested in
each Investment Fund determined under (1), (2) and (3) above
are added.
4.04 SEGREGATION OF ASSETS
If a Participant elects a distribution other than in a lump sum, the Plan
Administrator may place the Participant's account balance in a segregated
Investment Fund for the purpose of having sufficient liquidity to provide
benefit installments.
4.05 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS
The Plan Administrator is authorized to establish other procedures (in a
uniform and nondiscriminatory manner) for determining the fair market
value of the Individual Accounts, if the Plan Administrator believes it
would be necessary or appropriate to do so.
14
<PAGE>
ARTICLE FIVE--TRUST FUND
5.01 CREATION OF FUND
By adopting this Plan, the Employer is establishing the Fund consisting
of the assets of the Plan held by the Trustee under the Trust Agreement.
Assets within the Fund may be pooled on behalf of all Participants,
earmarked on behalf of each Participant or be a combination of pooled and
earmarked. To the extent that assets are earmarked for a particular
Participant, they are held in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used for, or diverted
to, purposes other than for the exclusive benefit of Participants and
their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in the Adoption Agreement (relating to Participant-
directed investments) or the Trust Agreement, the Employer has the
exclusive authority to determine who will exercise exclusive management
and control over the investment of the Fund. The Employer is a "named
fiduciary" of the Plan within the meaning of Section 402(a) of ERISA.
5.03 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE
Regardless of any other Plan provision, to the fullest extent permitted
by applicable law, the Employer agrees to indemnify and hold harmless the
Trustee and the Prototype Sponsor, and each of their officers, directors,
employees and agents (collectively, the "Indemnified Parties") from and
against any and all claims, liabilities, damages, judgements,
settlements, losses, costs, charges, or expenses (including legal fees
and disbursements) asserted against any Indemnified Party at any time as
a result of, arising out of or based upon the adoption, maintenance,
administration, operation or termination of this Plan, or any action
taken by those parties in the performance of their duties with respect to
this Plan, unless there is a final adjudication against them of gross
negligence or willful misconduct in the performance of those duties.
Further, to the fullest extent permitted by applicable law, the Employer
agrees to indemnify the Indemnified Parties from any loss, liability,
cost, damage, claim or expense (including legal fees and disbursements)
which the Trustee and/or the Prototype Sponsor incurs by reason of or
which results, in whole or in part, from the Trustee's or Prototype
Sponsor's reliance on the facts and other directions and elections the
Employer communicates or fails to communicate.
5.04 LIFE INSURANCE PURCHASES
A. If any life insurance policy is purchased for a Participant, the
total premiums are limited as follows:
1. Ordinary Life Insurance - If ordinary life insurance contracts
(that is, contracts with both nondecreasing death benefits and
nonincreasing premiums) are purchased, less than 50% of the total
Employer Contributions and Forfeitures allocated to any
Participant's Individual Account may be used to pay their
premiums.
2. Term and Universal Life Insurance - No more than 25% of the total
Employer Contributions and Forfeitures allocated to any
Participant's Individual Account may be used to pay the premiums
on term life insurance contracts, universal life insurance
contracts, and all other life insurance contracts that are not
ordinary life.
3. Combination - The sum of 50% of the ordinary life insurance
premiums and all other life insurance premiums must not be
greater than 25% of the aggregate Employer Contributions and
Forfeitures allocated to any Participant's Individual Account.
B. Dividends or credits earned on insurance contracts for a
Participant are allocated to his or her Individual Account.
C. Subject to the joint and survivor annuity requirements contained
in Section 6.06, the contracts on a Participant's life are
converted to cash converted into an annuity or distributed to
him or her when his or her benefits start.
D. The Trustee applies for and is the owner of any insurance
contract(s) purchased under this Plan. The insurance contract(s)
must provide that proceeds are payable to the Trustee, however,
the Trustee is required to pay over all proceeds of the
contract(s) to the Participant's designated Beneficiary in
accordance with the distribution provisions of this Plan. A
Participant's spouse automatically is the designated Beneficiary
of the proceeds if the joint and survivor annuity rules contained
in Section 6.06 are applicable. Under no circumstances may the
Fund retain any part of the proceeds. If the terms of this Plan
and the terms of any purchased insurance contract conflict, the
Plan provisions control.
E. The Employer may direct the Trustee to sell and distribute
insurance or annuity contracts to a Participant (or any other
permitted party) to the extent permitted by applicable law.
5.05 PARTICIPANTS' DIRECTION OF INVESTMENTS
If selected in the Adoption Agreement by the Employer, each Participant
may direct the Trustee regarding the investment of part or all of his or
her Individual Account. To the extent of that direction, the Employer,
Plan Administrator, Trustee and all other fiduciaries are relieved of
their fiduciary responsibility under Section 404 of ERISA, and this Plan
is intended to be a Plan described in Section 404(c) of ERISA.
The Employer will cause a Separate Fund to be established in the name of
each Participant who directs the investment of part or all of his or her
Individual Account. Each Separate Fund is charged or credited (as
appropriate) with the earnings, gains, losses and/or expenses relating to
that Separate Fund. No fiduciary is liable for any loss resulting from a
Participant's individual investment direction. The assets subject to
individual direction cannot be invested (1) in "collectibles" as that
term is defined in Section 408(m) of the Code, (2) in any investment that
would constitute a non-exempt "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Code or (3) in any
investment which would result in the failure to satisfy the requirements
of Section 404(c) of ERISA.
The Plan Administrator is authorized and directed to establish uniform
and nondiscriminatory rules relating to individual direction which it
determines to be necessary or advisable including, but not limited to,
rules describing (1) which portions of a Participant's Individual Account
can be so directed; (2) the frequency of investment changes; (3) the
forms and procedures for making investment changes; and (4) the effect of
a Participant's failure to make a valid direction.
The Plan Administrator may, in a uniform and non-discriminatory manner,
limit the available investments for Participants' direction to certain
specified investment options (including, but not limited to, certain
mutual funds, investment contracts, deposit accounts and group trusts).
15
<PAGE>
The Plan Administrator may permit, in a uniform and nondiscriminatory
manner, a Beneficiary of a deceased Participant to direct investments
under this Section 5.05.
16
<PAGE>
ARTICLE SIX--VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. When Distributable-
1. Entitlement to Distribution - The Vested portion of a
Participant's Individual Account is distributable to
him or her as of the earliest to occur of any of the
following:
(a) His or her Termination of Employment;
(b) He or she attains Normal Retirement Age (if
selected in the Adoption Agreement);
(c) His or her Disability; or
(d) The termination of the Plan.
2. Written Request: When Distributed - A Participant
entitled to distribution and who wishes to receive a
distribution must submit a written request to the Plan
Administrator on a form provided by the Plan
Administrator. After receiving a valid request
accompanied by any consent required by this Article
Six, the Plan Administrator must direct the Trustee to
begin the distribution no later than 90 days after the
later of:
(a) The last day of the Plan Year in which the event
happens after the Participant becomes entitled to
a distribution; or
(b) The last day of the Plan Year in which the request
is received.
3. Special Rules For In-Service Withdrawals of Employer
Contributions - If the Plan is a profit sharing plan
and if selected in the Adoption Agreement, a
Participant who is not entitled to a distribution under
Section 6.01(A)(1) may, subject to the requirements of
Section 6.06 (if applicable), elect to receive a
distribution of all or a part of the Vested portion of
his or her Individual Account attributable to Employer
Contributions, as follows:
(a) Participant for 5 or more Years - An Employee who
has been a Participant in the Plan for 5 or more
years may withdraw Vested Employer Contributions
and their investment earnings.
(b) Participant for Less than 5 Years - An Employee
who has been a Participant in the Plan for less
than 5 years may withdraw Vested Employer
Contributions that have been in his or her
Individual Account for at least 2 full Plan Years
and their earnings.
(c) After Attaining Age 59-1/2 - A Participant who has
attained age 59-1/2 may withdraw Employer
Contributions and their investment earnings.
However, if the distribution is because of "hardship,"
the Participant may under Section 6.04 withdraw all
Employer Contributions and their investment earnings.
4. Commencement of Benefits - Notwithstanding the time
limitations set forth in Section 6.01(A)(2), unless the
Participant makes another election, distribution of
benefits must begin no later than 60 days after the
latest of the last day of the Plan Year in which:
(a) He or she attains Normal Retirement Age;
(b) The 10th anniversary of the beginning of his or
her Plan participation occurs; or
(c) He or she has a Termination of Employment.
However, if the Participant and his or her spouse fail
to consent to a distribution while a benefit is
"immediately distributable" (as defined in Section
6.02(B)), their failure to elect is treated as an
election to defer the start of payment of any benefit,
and the requirements of this Section 6.01(A)(4) are
satisfied.
B. Determining the Vested Portion - In determining the Vested
portion of a Participant's Individual Account, the following
rules apply:
1. Employer Contributions and Forfeitures - The Vested
portion of a Participant's Individual Account derived
from Employer Contributions and Forfeitures is set by
the vesting schedule selected in the Adoption
Agreement (or the vesting schedule described in
Section 6.01(C) if the Plan is a Top-Heavy Plan).
2. Rollover and Transfer Contributions - A Participant is
fully Vested in his or her rollover contributions,
transfer contributions and the investment earnings on
these contributions.
3. Fully Vested Under Certain Circumstances - A
Participant is fully Vested in all funds in his or her
Individual Account if any of the following happens:
(a) He or she attains Normal Retirement Age;
(b) His or her Disability;
(c) He or she dies;
(d) The Plan is terminated or, to the extent of the
partial termination, partially terminated and in
the case of a partial termination, the Participant
is affected by that partial termination; or
(e) A total discontinuance of Plan contributions (if
this Plan is a profit-sharing plan).
4. Employee Contributions - Employee contributions and
earnings thereon will be nonforfeitable at all times.
C. Minimum Vesting Schedule for Top-Heavy Plans - The following
vesting provisions apply for any Plan Year in which this
Plan is a Top-Heavy Plan. (This Section 6.01(C) does not
apply to the Individual Account of any Employee who does not
have an Hour of Service after the Plan first becomes a Top-
Heavy Plan.)
Regardless of the other vesting rules of this Section 6.01
or the vesting schedule selected in the Adoption Agreement
(unless those provisions or that schedule provide faster
vesting), the Vested portion of a Participant's Individual
Account derived from Employer Contributions and Forfeitures
is determined from this minimum vesting schedule:
17
<PAGE>
<TABLE>
<CAPTION>
Years of
Vesting
Service Vested Percentage
<S> <C>
1 0
2 20
3 40
4 60
5 80
6 100
</TABLE>
This minimum vesting schedule applies to all benefits
(within the meaning of Section 411(a)(7) of the Code),
except benefits derived from Employee contributions. A
Participant's Vested percentage does not decrease if the
Plan's status as a Top-Heavy Plan subsequently changes for
any Plan Year.
If the Plan stops being a Top-Heavy Plan, the vesting
schedule selected in the Adoption Agreement applies again,
subject to the restrictions above. If the vesting schedule
under the Plan shifts in or out of Top-Heavy Plan status,
that shift is an amendment to the vesting schedule and the
election in Section 9.04 applies.
D. Break in Vesting Service and Forfeitures
1. Cash-out of Certain Participants - If the value of the
Vested portion of the Participant's Individual Account
is not (and never was prior to any Plan distribution)
greater than $3,500, he or she receives a distribution
of the entire Vested portion of his or her Individual
Account and the portion which is not Vested is treated
as a Forfeiture. For purposes of this Section
6.01(D)(1), if the value of the Vested portion of a
Participant's Individual Account is zero, the
Participant is treated as if he or she had received a
distribution of that Vested Individual Account. A
Participant's Vested Individual Account balance does
not include accumulated deductible Employee
contributions within the meting of Section 72(o)(5)(B)
of the Code for Plan Years beginning before January 1,
1989.
2. Participants Who Elect to Receive Distributions. If a
Participant elects to receive a distribution under
Section 6.02(B) of the value of the Vested portion of
his or her Individual Account derived from Employee and
Employer Contributions, the portion which is not Vested
is a Forfeiture.
3. Re-employed Participants - If a Participant receives or
is treated as if he or she received a distribution
under Section 6.01(D)(1) or (2) above and the
Participant resumes employment covered under this Plan,
the Participant's Employer-derived Individual Account
balance is restored to the amount on the date of
distribution if he or she repays the Plan the full
amount of the distribution derived from Employer
Contributions before the earlier of: (i) 5 years after
the first date on which he or she again becomes an
Employee or (ii) the date he or she incurs 5
consecutive Breaks in Vesting Service after the date of
the distribution.
4. Regardless of anything in this Section 6.01(D) to the
contrary, a Participant who does not receive or is not
treated as receiving a distribution under Section
6.01(D)(1) or (2) above, and who has 5 consecutive
Breaks in Vesting Service, shall have a Forfeiture of
the portion of his or her Individual Account that is
not Vested.
E. Distribution Prior to Full Vesting -If a distribution is
made to a Participant who was not fully Vested in his or her
Individual Account derived from Employer Contributions, and
that Participant could increase the percentage in which he
or she is Vested (for example by timely returning to the
Employer's employ or by continuing in the Employer's
employment) then the following rules apply:
1. A separate account is established for the Participant's
interest in the Plan as of the time of the
distribution, and
2. At any relevant time the Participant's Vested portion
of the separate account equals an amount ("X"),
determined by the formula: X=P (AB + (R x D))-(R x D)
where "P" is the Vested percentage at the relevant
time, "AB" is the separate account balance at the
relevant time; "D" is the amount of the distribution;
and "R" is the ratio of the separate account balance at
the relevant time to the separate account balance after
distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. Value of Individual Account Is Not Greater Than $3,500 - If
the value of the Vested part of a Participant's Individual
Account coming from Employee and Employer Contributions as
of the most recent Valuation Date is not (and never was
prior to any Plan distribution) greater than $3,500, a
single lump sum distribution is made to the Participant from
the Plan.
B. Value of Individual Account Is Greater Than $3,500
1. If the value of the Vested part of a Participant's
Individual Account coming from Employee and Employer
Contributions as of the most recent Valuation Date is
greater than (or at the time of any prior Plan
distribution was greater than) $3,500, and the
Individual Account is "immediately distributable" (as
defined later in this Section 6.02(B)(1)), the
Participant and the Participant's spouse (or where
either the Participant or the spouse died, the
survivor) must consent to any distribution. The consent
of the Participant and the Participant's spouse must be
in writing, must be witnessed by a Plan representative
or a notary public, must acknowledge its effect and
must be given within the 90-day period ending on the
"annuity starting date." The "annuity starting date" is
the first day of the first period for which an amount
is payable under the Plan as an annuity or any other
form. The Plan Administrator must notify the
Participant and the Participant's spouse of the right
to defer any distribution until the Participant's
Individual Account is no longer immediately
distributable. The notification must include a general
description of the important features, and an
explanation of the relative values, of the optional
forms of benefit available under the Plan (as described
in Section 417(a)(3) of the Code), and must be provided
no less than 30 days and no more than 90 days before
the annuity starting date. However, distribution may
commence less than 30 days after the notice described
in the preceding sentence is given, provided that the
distribution is one to which Sections 401(a)(11) and
417
18
<PAGE>
of the Code do not apply, the Plan Administrator
clearly informs the Participant that the Participant
has a right to a period of at least 30 days after
receiving the notice to consider the decision of
whether or not to elect a distribution (and, if
applicable, a particular distribution option), and the
Participant, after receiving the notice, affirmatively
elects a distribution.
However, only the Participant has to consent to the
start of a distribution in the form of a qualified
joint and survivor annuity while the Individual Account
is immediately distributable. (Furthermore, if payment
in the form of a qualified joint and survivor annuity
is not required with respect to the Participant
pursuant to Section 6.06(G) of the Plan, only the
Participant need consent to a distribution while the
Individual Account is immediately distributable.) No
one's consent is needed for a distribution that is
required to satisfy Section 401(a)(9) or Section 415 of
the Code. In addition, if the Plan is terminated and
the Plan does not offer an annuity option (purchased
from a commercial provider), a Participant's Individual
Account may be distributed to him or her or transferred
to another defined contribution plan (other than an
employee stock ownership plan as defined in Section
4975(e)(7) of the Code) in the same controlled group
without his or her consent.
An Individual Account is "immediately distributable" if
any part could be distributed to the Participant (or
surviving spouse) before the Participant attains or
would have attained (if he or she had not died) the
later of Normal Retirement Age or age 62.
2. For distributions before the first day of the first
Plan Year beginning after December 31, 1988, the Vested
portion of a Participant's Individual Account does not
include amounts derived from "accumulated deductible
employee contributions" under Section 72(o)(5)(B) of
the Code.
C. Other Forms of Distribution to Participant -
1. Profit-Sharing Plan or 401(k) Profit-Sharing Plan-If
this Plan is a "Profit Sharing Plan" or a "401(k)
Profit Sharing Plan" (that is, Adoption Agreement No.
002, No. 004, No. 005 or No. 006 was used by the
Employer to adopt the Plan), and if the value of the
Vested portion of a Participant's Individual Account is
greater than $3,500, and (a) the Participant's spouse
is his or her Beneficiary, or (b) the Participant's
spouse has consented to the Participant's designation
of someone else as his or her Beneficiary under Section
6.03(A), the Vested portion of the Participant's
Individual Account will be paid in a lump sum, unless
the Participant requests in writing that the Vested
portion of his or her Individual Account be paid in one
or more of the following forms of payment selected in
the Adoption Agreement (except for option 3): (1) in
installment payments for a period not to exceed the
life expectancy of the Participant or the joint and
last survivor life expectancy of the Participant and
his or her designated Beneficiary; (2) applied to the
purchase of an annuity contract; or (3) for
distributions beginning after December 31, 1992, in a
direct transfer to the trustee or custodian of an
"eligible retirement plan" (as defined in Section
402(c)(8)(B) of the Code) for his or her benefit, in
the manner described in Section 401(a)(31) of the Code
and the related Treasury Regulations. Distribution
option (3) above is intended only to comply with the
requirements of Section 401(a)(31) of the Code, and
that option (A) will automatically apply without any
specific selection in the Adoption Agreement, and (B)
will no longer be available under this Plan, without
any amendment, if that Code requirement ceases to
apply.
2. Money Purchase Plan or Target Benefit Plan - If this
Plan is a "Money Purchase Plan" or a "Target Benefit
Plan" (that is, Adoption Agreement No. 001, 003, 007 or
008 was used by the Employer to adopt the Plan), and if
the value of the Vested portion of a Participant's
Individual Account is greater than $3,500 and the
Participant has waived the joint and survivor annuity
as described in this Section 6.02, the Participant may
request in writing that the Vested portion of his or
her Individual Account be paid in one or more of the
following forms of payment selected in the Adoption
Agreement (except for option 4): (1) in a lump sum; (2)
in installment payments for a period not to exceed the
life expectancy of the Participant or the joint and
last survivor life expectancy of the Participant and
his or her designated Beneficiary; (3) applied to the
purchase of an annuity contract; or (4) for
distributions beginning after December 31, 1992, in a
direct transfer to the trustee or custodian of an
"eligible retirement plan" (as defined in Section
402(c)(8)(B) of the Code) for his or her benefit, in
the manner described in Section 401(a)(31) of the Code
and the related Treasury Regulations. Distribution
option (4) above is intended only to comply with the
requirements of Section 401(a)(31) of the Code, and
that option (A) will automatically apply without any
specific selection in the Adoption Agreement, and (B)
will no longer be available under this Plan, without
any amendment, if that Code requirement ceases to
apply.
D. Distribution in Kind - The Plan Administrator may cause any
distribution under this Plan to be made either in the form
actually held in the Fund, or in cash by converting Fund
assets into cash, or in any combination.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. Naming a Beneficiary - Spousal Consent - Each Participant
may designate, on a form provided by the Plan Administrator,
one or more Beneficiaries to receive all or a specified part
of his or her Individual Account upon his or her death. A
Participant changes or revokes Beneficiary designations by
completing and delivering a properly completed Beneficiary
designation form to the Plan Administrator.
If a Participant wishes to name a primary Beneficiary who is
not his or her spouse, the spouse must consent to that
designation in writing, and the spouse's consent must
acknowledge its effect and be witnessed by a Plan
representative or notary public. However, if the Participant
establishes to the satisfaction of the Plan Administrator
that a written consent may not be
19
<PAGE>
obtained because there is no spouse or the spouse cannot be
located, no consent is required. Any change of Beneficiary
requires a new spousal consent, unless in the existing
consent the spouse expressly waived the right to consent to
all future Beneficiary designations.
B. Payment to Beneficiary - If a Participant dies before his or
her entire Individual Account has been paid out, the
Individual Account becomes payable to any surviving
designated Beneficiary. If no Beneficiary survives the
Participant, the Participant's Beneficiary will be the
Participant's estate.
C. Beneficiary Requests for Distribution - A Beneficiary of a
deceased Participant who is entitled to a Plan distribution
and who wishes to receive a distribution must submit a
written request to the Plan Administrator on a form provided
by the Plan Administrator and accompanied by those documents
the Plan Administrator may require. After a valid request,
the Plan Administrator will direct the Trustee to start
distribution no later than 90 days after the later of:
1. The last day of the Plan Year in which the Participant
dies; or
2. The last day of the Plan Year in which request is
received.
D. Unlocated Participant or Beneficiary - If all or any portion
of the Plan distribution payable to a Participant or his or
her Beneficiary remains unpaid for more than 2 years because
the Plan Administrator has not been able to locate the
Participant or Beneficiary, as the case may be, after
sending a certified letter, return receipt requested, to his
or her last known address, and after further diligent
effort, the amount distributable becomes a Forfeiture.
However, if the Participant or Beneficiary is later located
that benefit is restored; except that any amount lost by
reason of escheat or required payment to a governmental
authority under State or any Federal law is not restored.
6.04 FINANCIAL HARDSHIP WITHDRAWALS
If this Plan is a profit-sharing plan (other than a profit-sharing
plan which includes a cash or deferred arrangement described in
Section 401(k) of the Code - that is, Adoption Agreement No. 002 or
004 was used by the Employer to adopt the Plan), if this option is
selected in the Adoption Agreement, in-service withdrawals may be made
by a Participant of any Vested portion of his Individual Account on
account of financial hardship which cannot be met from the
Participant's other available resources. The Plan Administrator, in a
uniform and nondiscriminatory manner consistent with applicable Code
requirements, will establish written guidelines for such hardship
withdrawals. The Plan Administrator may require appropriate
documentation to substantiate any such financial need as a condition
for such a withdrawal and may establish any limitations on such
withdrawal as he or she believes are necessary or appropriate for
effective administration of the Plan.
If this Plan is a profit-sharing plan which includes a cash or
deferred arrangement described in Section 401(k) of the Code (that is,
Adoption Agreement No. 005 or 006 was used by the Employer to adopt
the Plan), if this option is selected in the Adoption Agreement, in-
service financial hardship withdrawals will be limited to a
Participant's rollover contribution sub-account and/or transfer
contribution sub-account.
6.05 FORM OF DISTRIBUTION TO BENEFICIARY
A. Value of Individual Account Not Larger Than $3,500. If the
value of the Participant's individual Account as of the most
recent Valuation Date is not (and never was prior to any
Plan distribution) greater than $3,500, a single lump sum
distribution is made to the Beneficiary from the Plan.
B. Value of Individual Account Larger Than $3,500 - If the
value of a Participant's Individual Account as of the most
recent Valuation Date is (or ever was prior to any Plan
distribution) greater than $3,500, the joint and survivor
annuity requirements of Section 6.06 apply unless waived as
described in that Section.
C. Other Forms of Distribution to Beneficiary - If the value of
a Participant's Individual Account as of the most recent
Valuation Date is (or ever was prior to any Plan
distribution) greater than $3,500, and the Participant has
waived the preretirement survivor annuity as described in
Section 6.06, the Beneficiary may, subject to the applicable
requirements contained in Section 6.07, request in writing
that the Participant's Individual Account be paid to him or
her either: (1) in a lump sum or (2) in installment payments
over a period not to exceed the Beneficiary's life
expectancy.
6.06 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A Only if the Plan is described in Section 401(a)(11)(B) of
the Code will the requirements of this Section 6.06 apply to
the Plan. If Section 6.06 does apply to the Plan, then these
requirements will apply to any Participant who had at least
one Hour of Service on or after AugUst 23, 1984, and any
other Participants to the extent provided in Section
6.06(F).
B. Qualified Joint and Survivor Annuity - Unless an optional
form of benefit was selected by a Qualified Election during
the 90-day period ending on the Annuity Starting Date, a
married Participant's Vested account balance is paid in the
form of a "Qualified Joint and Survivor Annuity" (as defined
in Section 6.06(D)(4)) and an unmarried Participant's Vested
account balance is paid in the form of a life annuity. The
Participant may elect to have payment of the annuity
commence when he or she attains the "Earliest Retirement
Age" (as defined in Section 6.06(D)(2)) under the Plan.
C. Qualified Preretirement Survivor Annuity - Unless an
optional form of benefit was selected pursuant to a
Qualified Election during the "Election Period" (as defined
in Section 6.06(D)(1)), a married Participant who dies
before the annuity starting date has his or her Vested
account balance applied to purchase an annuity for the life
of his or her "Surviving Spouse" (as defined in Section
6.06(D)(5)) (a "Qualified Preretirement Survivor
Annuity"). The Surviving Spouse may elect to have payment
of that annuity start within a reasonable period after the
Participant's death.
D. Definitions -
1. Election Period: The period starting on the first day
of the Plan Year in which the Participant attains age
35 and ending on the date of his or her death. If a
Participant separates from service before the first day
of the Plan Year in which he or she attains age 35, the
Election Period with respect to the account balance (as
of the date of
20
<PAGE>
separation) begins on the date of separation.
Pre-Age 35 Waiver - A Participant who will not attain
age 35 by the end of any given Plan Year may make a
special "Qualified Election" (as defined in Section
6.06(D)(3)) to waive the Qualified Preretirement
Survivor Annuity for the period starting on the date of
that election and ending on the first day of the Plan
Year in which the Participant will attain age 35. That
election is not valid unless the Participant receives a
written explanation of the qualified preretirement
survivor annuity in terms that are comparable to the
explanation required under Section 6.06(E)(1).
Qualified Preretirement Survivor Annuity coverage
starts again automatically as of the first day of the
Plan Year in which the Participant attains age 35. Any
new waiver on or after that date is subject to the full
requirements of this Section 6.06.
2. Earliest Retirement Age: The earliest date on which,
under the Plan, the Participant could elect to receive
retirement benefits.
3. Qualified Election: An election not to receive (i.e., a
waiver of) a Qualified Joint and Survivor Annuity or a
Qualified Preretirement Survivor Annuity. Any waiver
of a Qualified Joint and Survivor Annuity or a
Qualified Preretirement Survivor Annuity is not
effective unless: (a) the Participant's Spouse consents
in writing to the election, (b) the election names a
specific Beneficiary, including any class of
Beneficiaries or any contingent Beneficiaries, which
may not be changed without spousal consent (or the
Spouse expressly permits the Participant to make
changes without any further spousal consent); (c) the
Spouse's consent acknowledges the effect of the
election; and (d) the Spouse's consent is witnessed by
a Plan representative or a notary public. A
Participant's waiver of the Qualified Joint and
Survivor Annuity is not effective unless the election
designates a form of benefit payment that cannot be
changed without spousal consent (or the Spouse
expressly permits designations by the Participant
without any further spousal consent). If it is
established to the satisfaction of the Plan
Administrator that there is no Spouse or that the
Spouse cannot be located, a waiver is treated as a
Qualified Election.
Any spousal consent under this provision (or
establishment that spousal consent cannot be obtained)
is effective only for that Spouse. A consent that
permits future designations by the Participant without
any requirement of additional consent by the Spouse
must acknowledge that the Spouse has the right to limit
consent to a specific Beneficiary, and a specific form
of benefit where applicable, and that the Spouse
voluntarily elects to give up either or both of those
rights. A revocation of a prior waiver may be made by a
Participant without spousal consent at any time before
the benefits begin. The number of revocations is not
limited. No consent obtained under this provision is
valid unless the Participant receives the notice
described in Section 6.06(E).
4. Qualified Joint and Survivor Annuity: An immediate
annuity for the life of the Participant with a survivor
annuity for the life of the Spouse which is not less
than 50% and not more than 100% of the amount of the
annuity payable during the joint lives of the
Participant and the Spouse and which is the amount of
benefit that can be purchased with the Participant's
Vested Individual Account. The percentage of the
survivor annuity under the Plan is 50%.
5. Spouse (Surviving Spouse): The spouse or surviving
spouse of the Participant to whom the Participant was
married throughout the 1-year period ending on his or
her Annuity Starting Date or date or death, as
applicable, except to the extent that a former spouse
is treated as the spouse or surviving spouse and a
current spouse is not treated as the spouse or
surviving spouse under a qualified domestic relations
order as described in Section 414(p) of the Code.
6. Annuity Starting Date: The first day of the first
period for which an amount is payable from the Plan as
an annuity or in any other form.
7. Vested Account Balance: The aggregate value of the
Participant's Vested account balances derived from
Employer Contributions and Employee contributions
(including rollovers), whether Vested before or upon
death, including the proceeds of insurance contracts,
if any, on the Participant's life. The provisions of
this Section shall apply to a Participant who is Vested
in amounts attributable to Employer Contributions,
Employee contributions (or both) at the time of death
or distribution.
E. Notice Requirements -
1. For a Qualified Joint and Survivor Annuity, the Plan
Administrator must, at least 30 days and not more than
90 days before the Annuity Starting Date, provide each
Participant with a written explanation of: (a) the
terms and conditions of a Qualified Joint and Survivor
Annuity; (b)the Participant's right to waive and the
effect of waiving the Qualified Joint and Survivor
Annuity form of benefit; (c) the rights of a
Participant's Spouse; and (d) the right to revoke and
the effect of revoking an earlier waiver of the
Qualified Joint and Survivor Annuity.
2. For a Qualified Preretirement Survivor Annuity, the
Plan Administrator must provide each Participant within
his or her "Applicable Period" (as defined in the
following paragraph) a written explanation of the
Qualified Preretirement Survivor Annuity in terms that
are comparable to the explanation required under
Section 6.06(E)(1) for a Qualified Joint and Survivor
Annuity.
The "Applicable Period" for a Participant is whichever
of the following periods ends last: (a) the period
stating with the first day of the Plan Year in which
the Participant attains age 32 and ending with the last
day of the Plan Year before the Plan Year in which the
Participant attains age 35; (b) a reasonable period
endIng after the individual becomes a Participant; (c)
a reasonable period ending after Section 6.06(E)(3)
ceases to apply to the Participant; or (d) a reasonable
per-
21
<PAGE>
iod ending after this section 6.06 first applies to the
Participant. However, notice must be provided within a
reasonable period ending after separation from service
in the case of a Participant who separates from service
before attaining age 35.
For purposes of applying the immediately preceding
paragraph, a reasonable period ending after the events
described in (b), (c) and (d) is the end of the two-
year period starting one year before the date the
applicable event occurs, and ending one year after that
date. If a Participant separates from service before
the Plan Year in which he or she attains age 35, notice
must be provided in the two-year period beginning one
year before separation and ending one year after
separation. If the Participant returns to employment
with the Employer, the Applicable Period for that
Participant is redetermined.
3. The notices required by this Section 6.05(E), do not
have to be given to a Participant if (a) the Plan
"fully subsidizes" the costs of a Qualified Joint and
Survivor Annuity or Qualified Preretirement Survivor
Annuity, and (b)the Plan does not allow the Participant
to waive the Qualified Joint and Survivor Annuity or
Qualified Preretirement Survivor Annuity and does not
allow a married Participant to designate a Beneficiary
other than his or her Spouse. For this purpose, a plan
fully subsidizes the costs of a benefit if no increase
in cost, or decrease in benefits to the Participant may
result from the Participant's failure to elect another
benefit.
F. Transitional Rules -
1. Any living Participant who separated from employment
with at least 10 Years of Vesting Service, but who was
not receiving benefits on August 23, 1984 and would not
have been covered by the previous subsections of this
Section 6.06 must be given the opportunity to elect to
have these subsections apply if the Participant is
credited with at least one Hour of Service under this
Plan or a predecessor plan in a Plan Year starting on
or after January 1, 1976.
2. Any living Participant who was not receiving benefits
on August 23, 1984, but who had at least one Hour of
Service under this Plan or a predecessor plan on or
after September 2, 1974, and who is not otherwise
credited with any service in a Plan Year beginning on
or after January 1, 1976, must be given the opportunity
to have his or her benefits paid in accordance with
Section 6.06(F)(4).
3. The opportunities to elect (as described in Section
6.06(F)(1) and (2) above) must be given to the
appropriate Participants during the period starting on
August 23, 1984, and ending on the date when Plan
benefits could otherwise begin to be paid to them.
4 Any Participant who has elected under Section
6.06(F)(2) and any Participant who does not elect under
Section 6.05(E)(1) or who meets the requirements of
Section 6.06(F)(1) except that the Participant does not
have at least 10 Years of Vesting Service when he or
she separates from service, shall have his or her
benefits distributed in accordance with all of the
following requirements if benefits would have been
payable in the form of a life annuity:
(a) Automatic Joint and Survivor Annuity - If benefits
in the form of a life annuity become payable to a
married Participant who:
(1) Begins to receive payments under the Plan on
or after Normal Retirement Age; or
(2) Dies on or after Normal Retirement Age while
still working for the Employer; or
(3) Begins to receive payments on or after the
"Qualified Early Retirement Age" (as defined
in Section 6.06(F)(4)(C)(1)); or
(4) Separates from service on or after attaining
Normal Retirement Age (or the qualified early
retirement age) and after satisfying the
eligibility requirements for the payment of
benefits under the Plan and then dies before
beginning to receive those benefits;
then those benefits will be received under
this Plan in the form of a Qualified Joint
and Survivor Annuity, unless the Participant
has elected otherwise during the Election
Period. The Election Period must begin at
least 6 months before the Participant attains
Qualified Early Retirement Age and ends not
more than 90 days before the commencement of
benefits. Any election hereunder will be in
writing and may be changed by the Participant
at any time.
(b) Election of Early Survivor Annuity - A Participant who is
employed after attaining the Qualified Early Retirement Age
will be given the opportunity to elect, during the Election
Period, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under that
annuity must not be less than the payments which would have
been made to the Spouse under the Qualified Joint and
Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision
will be in writing and may be changed by the Participant at
any time. The election period begins on the later of (1) the
90th day before the Participant attains Qualified Early
Retirement Age, or (2) the date on which Plan participation
begins, and ends on the date the Participant terminates
employment with the Employer.
(c) For purposes of Section 6.06(F)(4):
(1) Qualified Early Retirement Age is the latest of:
a. The earliest date, under the Plan, on which the Participant
may elect or receive retirement benefits;
b. The first day of the 120th month beginning before the
Participant attains Normal Retirement Age; or
c. The date the Participant begins participation in the Plan.
(2) Qualified Joint and Survivor Annuity is
22
<PAGE>
an annuity for the life of the Participant with a
survivor annuity for life of the spouse as described in
Section 6.06(D) (4) of this Article.
5. Neither the consent of the Participant nor the
Participant's Spouse is required to the extent that a
distribution is required to satisfy Section 401(a)(9)
or Section 415 of the Code.
G. Safe Harbor Rules
1. This Section shall apply to a Participant in a profit-
sharing plan, and to any distribution, made on or after
the first day of the first Plan Year beginning after
December 31, 1988, from or under a separate account
attributable solely to "accumulated deductible employee
contributions," as defined in Section 72(o)(5)(B) of
the Code, and maintained on behalf of a Participant in
a money purchase pension plan, (including a target
benefit plan) if the following conditions are
satisfied: (1) the Participant does not or cannot elect
payments in the form of a life annuity; and (2) on the
death of a Participant, the Participant's Vested
account balance will be paid to the Participant's
surviving spouse, but if there is no surviving spouse,
or if the surviving spouse has consented in a manner
conforming to a qualified election, then to the
Participant's Beneficiary. The surviving spouse may
elect to have distribution of the Vested account
balance commence within the 90-day period following the
date of the Participant's death. The account balance
shall be adjusted for gains or losses occurring after
the Participant's death in accordance with the
provisions of the Plan governing the adjustment of
account balances for other types of distributions. This
Section shall not be operative with respect to a
Participant in a profit-sharing plan if the plan is a
direct or indirect transferee of a defined benefit
plan, money purchase plan, a target benefit plan, stock
bonus, or profit-sharing plan which is subject to the
survivor annuity requirements of Section 401(a)(11) and
Section 417 of the Code. If this Section is operative,
then the other provisions of Section 6.06, other than
Section 6.06(F), shall be inoperative.
2. The Participant may waive the spousal death benefit
described in this Section at any time provided that no
such waiver shall be effective unless it satisfies the
conditions of subsection 6.06(D)(3) (other than the
notification requirement referred to therein) that
would apply to the Participant's waiver of the
qualified preretirement survivor annuity.
3. For purposes of this Section 6.06(G), "Vested account
balance" shall mean, in the case of a money purchase
pension plan or a target benefit plan, the
Participant's separate account balance attributable
solely to accumulated deductible employee contributions
within the meaning of Section 72(o)(5)(B) of the Code.
In the case of a profit-sharing plan, "Vested account
balance" shall have the same meaning as provided in
sub-section 6.06(D)(7).
6.07 DISTRIBUTION REQUIREMENTS
A. General Rules -
1. The requirements of this Section 6.07 apply to any
distribution of a Participant's interest in the Plan
and control over any inconsistent provisions of this
Plan. Unless otherwise indicated, the provisions of
this Section 6.07 apply to calendar years beginning
after December 31, 1984.
2. All distributions required under this Section 6.07 are
determined and made accordIng to the requirements of
Section 401(a)(9) of the Code and any applicable
Treasury Regulations. These requirements are
incorporated into this Plan by reference, to the extent
not fully reflected below.
B. Required Beginning Date - The entire interest of a
Participant must be distributed or begin to be distributed
no later than the Participant's "Required Beginning Date"
(as defined in Section 6.07(F)(5)).
C. Limits on Distribution Periods - As of the first
distribution calendar year, distributions, if not made in a
single sum, may only be made over one (or a combination) of
the following periods:
1. The life of the Participant;
2. The life of the Participant and his or her Beneficiary;
3. A specified period not longer than the "Life
Expectancy" (as defined in Section 6.07('P)(3)) of the
Participant; or
4. A specified period certain not longer than the joint
and last survivor expectancy of the Participant and his
or her Beneficiary.
D. Determination of Amount to be Distributed Each Year -If the
Participant's interest in the Plan is not being distributed
in a single sum, the following minimum distribution rules
apply on or after the Required Beginning Date:
1. Individual Account. -
(a) If a "Participant's Benefit" (as defined in
Section 6.07(F)(4)) is to be distributed over (1)
a period not longer than his or her life
Expectancy or the joint life and last survivor
expectancy of the Participant and his or her
Beneficiary or (2) a period not longer than the
Life Expectancy of the Beneficiary, the amount
required to be distributed for each calendar year,
beginning with distributions for the first
"Distribution Calendar Year", (as defined in
Section 6.07(F)(2)), must be at least equal to the
amount determined by dividing the balance credited
to his or her Individual Account by the
"Applicable Life Expectancy" (as defined in
Section 6.07(F)(1)).
(b) For calendar years beginning before January 1,
1989, if the Participant's Spouse is not the
designated Beneficiary, the method of distribution
selected must ensure that at least 50% of the
present value of the amount available for
distribution is paid within the life expectancy of
the Participant.
(c) For calendar years beginning after December
31,1988, the amount to be distributed each year,
beginning with distributions for the first
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Distribution Calendar Year must not be less than
the amount determined by dividing the
Participant's Benefit by the lesser of (1) the
Applicable Life Expectancy or (2) if his or her
Spouse is not the Beneficiary, the appropriate
divisor from the table contained in Proposed
Treasury Regulation Section 1.401(a)(9)-2, Q&A-4.
Distributions after the death of the Participant
are distributed using the Applicable Life
Expectancy in Section 6.07(D)(1)(a) as the
relevant divisor without regard to the Proposed
Treasury Regulation.
(d) The minimum distribution required for the
Participant's first Distribution Calendar Year
must be made on or before the Participant's
Required Beginning Date. The minimum distribution
for other calendar years, including the minimum
distribution for the Distribution Calendar Year in
which the Employee's Required Beginning Date
falls, must be made on or before December 31 of
that Distribution Calendar Year.
2. Other Forms - If the Participant's Benefit is
distributed in the form of an annuity purchased from an
insurance company, distributions are made according to
the requirements of Section 401(a)(9) of the Code.
E. Death Distribution Provisions -
1. Distribution Beginning Before Death - If the
Participant dies after distribution of his or her Plan
interest has commenced, the remaining portion of that
interest must continue to be distributed at least as
rapidly as under the method of distribution being used
before the Participant's death.
2. Distribution Beginning After Death - If the Participant
dies before distribution of his or her Plan interest
begins, distribution of the Participant's entire Plan
interest must be completed by December 31 of the
calendar year containing the fifth anniversary of his
or her death, except to the extent that an election is
made to receive distributions under (a) or (b) below:
(a) If any portion of the Participant's interest is
payable to a Beneficiary, distributions may be
made over the life or over a period certain not
greater than the life expectancy of the
Beneficiary beginning by December 31 of the
calendar year immediately following the calendar
year in which the Participant died;
(b) If the Beneficiary is the Participant's surviving
spouse, distributions are not required to begin
under (a) above earlier than the later of (1)
December 31 of the calendar year immediately
following the calendar year in which the
Participant dies or (2) December 31 of the
calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made an election under this
Section 6.07(E)(2) by the time of his or her death, the
Beneficiary must elect the method of distribution no
later than the earlier of (1) December 31 of the
calendar year in which distributions are to begin under
this Section 6.07(E)(2), or (2) December 31 of the
calendar year which contains the fifth anniversary of
the Participant's date of death. If the Participant has
no Beneficiary, or if that Beneficiary does not elect a
method of distribution, the distribution of the
Participant's entire Plan interest must be completed by
December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
3. For purposes of Section 6.07(E)(2), if the surviving
spouse dies after the Participant, but before payments
to that spouse begin, the provisions of Section
6.07(E)(2), with the exception of paragraph (b), apply
as if the surviving spouse were the Participant.
4. For purposes of this Section 6.07(E), distribution of a
Participant's Plan interest is considered to begin on
the Participant's Required Beginning Date (or, if
Section 6.07(E)(3) above is applicable, the date
distribution is required to begin to the surviving
spouse under Section 6.07(E)(2)). If a Participant
begins receiving an irrevocable distribution in the
form of an annuity before the Required Beginning Date,
the date that the distribution is considered to begin
is the date the distribution actually commences.
F. Definitions -
1. Applicable Life Expectancy: The life expectancy (or
joint and last survivor expectancy) calculated using
the age of the Participant (or Beneficiary), as of the
Participant's (or Beneficiary's) birthday in the
applicable calendar year, reduced by one for each
calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is
being recalculated, the Applicable Life Expectancy is
the recalculated life expectancy. The "Applicable
Calendar Year" is the first Distribution Calendar Year,
and if life expectancy is being recalculated, the
following calendar year.
2. Distribution Calendar Year: A calendar year for which a
minimum distribution is required. For distributions
commencing before the Participant's death, the first
"Distribution Calendar Year" is the calendar year
immediately preceding the calendar year containing the
Participant's Required Beginning Date. For
distributions commencing after the Participant's death,
the first "Distribution Calendar Year" is the calendar
year in which distributions are required to commence
under Section 6.07(E).
3. Life Expectancy: Life expectancy and joint and last
survivor expectancy are computed using the expected
return multiples in Tables V and VI of Treasury
Regulation Section 1.72-9.
Unless the Participant (or spouse, under Section
6.07(E)(2)(b)) otherwise elects by the time
distributions are required to commence, life
expectancies are recalculated annually. That election
is irrevocable for the Participant (or spouse) and
applies to all subsequent years. The life expectancy of
a nonspouse Beneficiary may not be recalculated.
4. Participant's Benefit:
(a) The account balance as of the last Valuation Date
in the valuation calendar year (that is, the
calendar year before the Distribution Calendar
Year), increased by the amount of
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any contributions or Forfeitures allocated to the
Participant's account balance as of dates in the
valuation calendar year after the valuation date
and decreased by distributions made in the
valuation calendar year after the Valuation Date.
(b) Exception For Second Distribution Calendar Year -
For purposes of paragraph (a) above, if any
portion of the minimum distribution for the first
Distribution Calendar Year is made in the second
Distribution Calendar Year on or before the
Required Beginning Date, the amount of the minimum
distribution made in the second Distribution
Calendar Year is treated as if it had been made in
the previous Distribution Calendar Year.
5. Required Beginning Date:
(a) General Rule - The "Required Beginning Date" of a
Participant is the April 1 of the calendar year
next following the calendar year in which the
Participant attains age 70-1/2.
(b) Transition Rules - The Required Beginning Date of
a Participant who attains age 70-1/2 before
January 1, 1988, is determined as follows:
(1) Non 5% Owners - The Required Beginning Date
of a Participant who is not a "5% Owner" (as
defined in Section 6.07(F)(5)(c)) is the
April 1 of the calendar year next following
the calendar year in which he or she retires
or attains age 70-1/2; whichever is later.
(2) 5% Owners - The Required Beginning Date of a
Participant who is a 5% Owner during any year
beginning after December 31,1979, is the
April 1 next following the later of:
a. The calendar year in which the
Participant attains age 70-1/2; or
b. The earlier of (i) the calendar year
with or within which ends the Plan Year
in which the Participant becomes a 5%
Owner or (ii) the calendar year in which
the Participant retires.
The Required Beginning Date of a Participant who
is not a 5% Owner, who attains age 70-1/2 during
1988 and who has not retired as of January 1,
1989, is April 1, 1990.
(c) 5% Owner - A Participant is treated as a 5% Owner
for purposes of this Section 6.07(F)(5) if he or
she is a "5% Owner" as defined in Section
416(i)(1)(B)(i) of the Code (without regard to
whether the Plan is a Top-Heavy Plan) at any time
during the Plan Year ending with or within the
calendar year in which the Participant attains age
66-1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5% Owner under
this Section 6.07(F)(5) they must continue to be
distributed, even if the Participant ceases to be
a 5% Owner in a subsequent Plan Year.
G. Pre-1984 Elections
1. Regardless of the other requirements of this Section
6.07, a Plan distribution on behalf of any Participant,
including a Participant who is a 5% Owner; may be
deferred if the following requirements are met:
(a) The distribution by the Plan is one which would
not have disqualified the Plan under Section
401(a)(9) of the Code as in effect prior to
amendment by the Deficit Reduction Act of 1984;
(b) The distribution follows a method of distribution
designated by the Participant whose interest in
the Plan is being distributed or, if the
Participant is deceased, by the Participant's
Beneficiary;
(c) That designation was in writing, signed by the
Participant or the Beneficiary, and made before
January 1, 1984;
(d) The Participant had accrued a benefit under the
Plan as of December 31, 1983; and
(e) The method of distribution designated by the
Participant or the Beneficiary specifies the time
at which distribution begins, the period over
which distributions will be made, and, in the case
of any distribution to be made upon the
Participant's death, lists the Beneficiaries of
the Participant in order of priority.
2. A distribution upon the Participant's death will not be
covered by this transitional rule unless the
information in the designation contains the required
information described above for distributions to be
made upon the death of the Participant.
3. For any distribution beginning before January 1, 1984,
but continuing after December 31, 1983, the
Participant, or the Beneficiary to whom the
distribution is being made, is presumed to have
designated the method of distribution under which the
distribution is being made if the method of
distribution was specified in writing and the
distribution satisfies the requirements in Sections
6.07(G)(1)(a) and (e).
4. If a designation is revoked, any subsequent
distribution must satisfy the requirements of Section
401(a)(9) of the Code. If a designation is revoked
after the date distributions are required to begin, the
Plan must distribute, by the end of the calendar year
after the calendar year in which the revocation occurs,
the total amount not yet distributed that would have
been distributed to satisfy Section 401(a)(9) of the
Code if not for the pre-1984 designation. For calendar
years beginning after December 31, 1988, these
distributions must meet the minimum distribution
incidental benefit requirements under Proposed Treasury
Regulation Section 1.401(a)(9)-2. Any changes in the
designation will generally be considered to revoke the
designation. However, a mere substitution or addition
of another Beneficiary (not named in the designation)
under the designation will not be considered a
revocation of the designation, if the substitution or
addition does not change the period
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<PAGE>
over which distributions are to be made under the
designation, directly or indirectly (for example, by
changing the relevant measuring life). If an amount is
transferred or rolled over from one plan to another
plan, the rules under Proposed Treasury Regulation
Section 1.401(a)(9)-2, Q&A J-2 and Q&A J-3 will apply.
H. Distributions Pursuant to QDRO's - Notwithstanding any other
provision of this Plan to the contrary, Plan benefits
awarded to an "alternate payee" (as defined in Section
414(p)(8) of the Code) under a "domestic relations order"
(as defined in Section 414(p)(1)(B) of the Code) determined
by the Plan Administrator to be a "qualified domestic
relations order" (as defined in Section 414(p)(1)(A) of the
Code) may be distributed to the alternate payee at any time
under the qualified domestic relations order without regard
to any limitation in the Plan as to the time when these
benefits would otherwise have been distributable.
6.08 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted or
required by this Article 6) must be nontransferable. The terms of any
annuity contract purchased and distributed by the Plan to a
Participant or spouse must comply with the requirements of the Plan.
6.09 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive a
loan from the Fund, under the following rules:
A. Loans are made available to all Participants and
Beneficiaries on a reasonably equivalent basis;
B. Loans are not to be made available to Highly Compensated
Employees in amounts greater than the amounts made available
to other Employees;
C. Loans must be adequately secured and bear interest at a rate
consistent with that which would be charged by commercial
lenders for loans to unrelated parties made for similar
purposes;
D. A Participant must obtain the consent of his or her spouse,
if any, to the use of the Participant's Individual Account
as security for the loan. The spouse's consent must be
obtained no earlier than 90 days before the date on which
the loan is to be so secured. The consent must be in
writing, must acknowledge the effect of the loan, and must
be witnessed by a Plan representative or notary public. The
consent is binding on the consenting spouse and on any
future spouse with respect to that loan. A new consent is
required if the Participant's Individual Account is used for
renegotiation, extension, renewal, or other revision of the
loan;
E. If there is a default on the loan, foreclosure on the note
and attachment of security will not occur until a
distributable event occurs under the Plan;
F. No loans will be made to any shareholder-employee or Owner-
Employee. (A shareholder-employee is an employee or officer
of an electing small business (Subchapter S) corporation who
owns (or is considered as owning within the meaning of
Section 319(a)(1) of the Code), on any day during the
taxable year of that corporation, more than 5% of the out-
standing stock of the corporation); and
G. Loans are not made to any individuals who are not "parties
in interest" (as defined in ERISA) with respect to the
Employer, unless provided otherwise in the Adoption
Agreement.
If the loan was obtained with spousal consent as described in (E)
above, then the portion of the Participant's Vested Individual Account
used as a security interest for that loan reduces the amount of the
balance to the Individual Account payable at the time of death or
distribution, but only if the reduction is used as repayment of the
loan. If less than 100% of the Participant's Vested Individual Account
(ignoring the preceding sentence) is payable to the Participant's
surviving spouse upon the Participant's death, then the balance to the
Individual Account is adjusted by first reducing the Vested balance to
the Individual Account by the amount of the security used as repayment
for the loan, and then determining the benefit payable to the
surviving spouse.
No amount can be loaned to a Participant from the Plan if that amount
when added to the Participant's outstanding balance of all other
Employer qualified plan loans to the Participant would be greater than
the lesser of (a) $50,000 reduced by the excess (if any) of the
highest outstanding balance of Employer qualified plan loans during
the one-year period ending on the day before the loan is made, over
the Participant's outstanding balance of Employer qualified plan loans
on the date the loan from the Plan is made, or (b) the greater of one-
half of the value of the Vested Individual Account of the Participant
or $10,000. For this purpose, all loans from all qualified plans of
the Employer and other members of a group of employers described in
Sections 414(b), 414(c) and 414(m) of the Code are aggregated. The
loan terms must require that the loan repayment (principal and
interest) be amortized in level payments, at least quarterly, over a
period not longer than 5 years from the date on which the loan is
made, unless the loan is used to acquire a dwelling unit which, within
a reasonable time (determined at the time the loan is made) will be
used as the Participant's principal residence, in which case the loan
must be amortized in level payments, at least quarterly, over a period
which is longer than 5 years, as determined by the Plan Administrator
on a uniform and nondiscriminatory basis. An assignment or pledge of
any portion of the Participant's interest in the Plan and a loan,
pledge, or assignment with respect to any insurance contract purchased
under the Plan, is treated as a loan under this paragraph.
The Plan Administrator administers the loan program in accordance with
uniform and nondiscriminatory rules and regulations.
6.10 DIRECT ROLLOVERS
A. This Section 6.10 applies to Plan distributions made on or
after January 1, 1993. Notwithstanding any Plan provision to
the contrary that would limit a "Distributee's" (as defined
in Section 6.10(B)(3)) distribution election under the Plan,
a Distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of
an "Eligible Rollover Distribution" (as defined in Section
6.10(B)(1)) of at least $500 paid directly to an "Eligible
Retirement Plan" (as defined in Section 6.10(B)(2))
specified by the Distributee in a "Direct Rollover" (as
defined in Section 6.10(B)(4)).
B. Definitions -
1. Eligible Rollover Distribution: Any distribution of all
or any portion of the balance under the Plan to the
credit of the Distributee, except that an Eligible
Rollover Distribution does not include:
(a) Any distribution that is one of a series of
substantially equal periodic payments (not
26
<PAGE>
less frequently than annually) made for the life
(or life expectancy) of the Distributee or the
joint lives (or joint life expectancies) of the
Distributee and the Distributee's Beneficiary, or
for a specified period of 10 years or more;
(b) Any distribution to the extent required under
Section 401(a)(9) of the Code;
(c) The portion of any other distribution(s) that is
not includible in gross income (determined without
regard to the exclusion for net unrealized
appreciation with respect to Employer securities);
and
(d) Any other distribution(s) that is reasonably
expected to total less than $200 per year.
2. Eligible Retirement Plan:
(a) An individual retirement account described in
Section 408(a) of the Code or an individual
retirement annuity described in Section 408(b) of
the Code;
(b) An individual annuity plan described in Section
403(a) of the Code; or
(c) A qualified plan described in Section 401(a) of
the Code; that accepts the Distributee's Eligible
Rollover distribution. For an Eligible Rollover
Distribution to a Participant's surviving spouse,
an "Eligible Retirement Plan" is limited to an
individual retirement account or individual
retirement annuity only.
3. Distributee: A Distributee includes an Employee or
former Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the
alternate payee under a "qualified domestic relations
order" (as defined in Section 414(p) of the Code") are
Distributees with regard to the interest of the spouse
or former spouse.
4. Direct Rollover: A payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
27
<PAGE>
ARTICLE SEVEN--CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
A Participant or Beneficiary must make a claim for a distribution of
(or loan from) the Vested portion of his or her Individual Account and
any benefits to which he or she believes he or she is entitled under
the Plan by filing a written request with the Plan Administrator on a
form to be furnished by the Plan Administrator for that purpose. The
written request must specify the basis of the claim. The Plan
Administrator is authorized to conduct any examinations it reasonably
believes are necessary or appropriate to examine the claim.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution (or loan) by any Participant
or Beneficiary is completely or partly denied, the Plan Administrator
must furnish a written notice of the denial to the Participant or
Beneficiary within 60 days of the original filing date of the claim.
This notice must include the specific reasons for the denial, specific
reference to the Plan provisions on which the denial is based, a
description of any additional information or material needed to
perfect the claim, an explanation of why additional information or
material is necessary and an explanation of the procedures for appeal.
If the Plan Administrator fails to respond to a claim within 90 days
after its receipt, for purposes of Section 7.03 the claim will be
deemed to have been denied.
7.03 REQUEST FOR REVIEW
Any Participant or Beneficiary whose claim under Section 7.02 has been
denied has 60 days from receipt of the denial notice to file a written
application for review by the Employer's managing body. The
Participant or Beneficiary may request that the review be in the
nature of a hearing. The Participant or Beneficiary has the right to
representation, to review the relevant documents and to submit
comments in writing. The Employer's managing body must issue a final
decision on that review within 60 days after receipt of the written
application for review.
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<PAGE>
ARTICLE EIGHT--PLAN ADMINISTRATOR
8.01 EMPLOYER IS THE PLAN ADMINISTRATOR
A. The Employer is the Plan Administrator unless the Employer
properly names a person or persons other than the Employer
as the Plan Administrator and notifies the Trustee. The
Employer is also the Plan Administrator if the named person
or persons cease to be the Plan Administrator or refuse to
perform the functions of the Plan Administrator. The Plan
Administrator is a "named fiduciary" of the Plan (within the
meaning of Section 402(a) of ERISA) with respect to the
administration of the Plan.
B. If the Employer names a person or persons other than the
Employer as Plan Administrator, that person or persons
serves at the pleasure of the Employer and under whatever
procedures are set by the Employer's managing body. Each
Plan Administrator must be bonded, to the extent required by
law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate the
duties of the Plan Administrator among several individuals
or entities, but those appointments are not effective until
the designated party accepts the appointment in writing.
B. The Plan Administrator has the exclusive authority to
control and manage the operation and administration of the
Plan. The Plan Administrator must administer the Plan for
the exclusive benefit of the Participants and their
Beneficiaries in accordance with the specific terms of the
Plan.
C. The Plan Administrator is charged with the duties of
the general administration of the Plan, including, but
not limited to, the following:
1. To determine all questions of interpretation or policy
in a manner consistent with the Plan's documents, and
the Plan Administrator's good faith construction or
determination is conclusive and binding on all persons.
Any interpretation or construction must be
nondiscriminatory and consistent with the intent that
the Plan should be a qualified plan under Section
401(a) of the Code, and must comply with ERISA;
2. To determine all questions relating to the eligibility
of Employees to become or remain Participants;
3. To compute the amounts necessary or desirable to be
contributed to the Plan;
4. To compute the amount and kind of benefits to which a
Participant or Beneficiary is entitled under the Plan
and to direct the Trustee with respect to all
disbursements under the Plan, and when requested by the
Trustee, to furnish the Trustee with instructions, in
writing, on matters pertaining to the Plan and the
Trustee may rely and act thereon;
5. To maintain all records necessary for the
administration of the Plan;
6. To be responsible for preparing and filing any
disclosure and tax forms as may be required from time-
to-time under the Code, ERISA or other applicable law
by the Secretary of Labor or the Secretary of the
Treasury with respect to the Plan; and
7. To furnish each Employee, Participant or Beneficiary
any notice, information and report under any
circumstance required under the Code, ERISA or other
applicable law.
D. The Plan Administrator has all of the powers necessary or
appropriate to accomplish its duties under the Plan,
including, but not limited to, the following:
1. To appoint and retain any persons as may be necessary
or appropriate to carry out the functions of the Plan
Administrator;
2. To appoint and retain counsel, specialists or other
persons that the Plan Administrator deems necessary or
advisable in the administration of the Plan;
3. To resolve all questions relating to the administration
of the Plan;
4. To establish any uniform and nondiscriminatory rules
which the Plan Administrator deems necessary to carry
out the terms of the Plan;
5. To make any adjustments in a uniform and
nondiscriminatory manner which the Plan Administrator
deems necessary to correct any arithmetical or
accounting errors which may have been made for any Plan
Year; and
6. To correct any defect or omission or reconcile any
inconsistency in any manner and to any extent that the
Plan Administrator deems necessary or appropriate to
carry out the purposes of the Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of Plan administration including, but not
limited to, those involved in retaining necessary professional
assistance may be paid from the assets of the Fund. Alternatively, the
Employer may, in its discretion, pay those expenses. The Employer will
furnish the Plan Administrator with any clerical and other assistance
as the Plan Administrator may need in the performance of its duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform its duties, full and
timely information must be provided to the Plan Administrator (or its
designated agents) on all matters relating to the Compensation of
Participants, their regular employment, retirement, death, Disability
or Termination of Employment, and any other pertinent facts as the
Plan Administrator (or its agents) may require. The Plan Administrator
will advise the Trustee of any of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Plan
Administrator (or its agents) is entitled to rely on any information
supplied by the Employer and will have no duty or responsibility to
verify that information.
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<PAGE>
ARTICLE NINE--AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, has delegated to the
Prototype Sponsor the power, but not the duty, to amend the
Plan without any further action or consent of the Employer.
Specifically, Plan amendments may be made unilaterally by
the Prototype Sponsor. However, the Prototype Sponsor has no
obligation to amend the Plan documents and the Employer
expressly waives any rights or claims against the Prototype
Sponsor for not exercising this power to amend. Each
Employer has an obligation, and agrees, to keep the
Prototype Sponsor informed as to its current address, and
any Employer who ceases using the services or facilities of
the Prototype Sponsor in connection with the investment of
the assets of its Plan will be deemed to have abandoned this
Plan.
B. The Prototype Sponsor may amend the Plan by giving written
notice to the Employer of the amendment to be made, which
notice can be given in any form and by any methods, such as
by mail or by including a notice in materials regularly
distributed by the Prototype Sponsor to customers generally.
The notice must include the text of the amendment and the
date the amendment is to be effective. The amendment is
effective after that written notice, unless within the 30-
day period after the notice is provided, or within any
shorter period that the notice may specify, the Employer
gives the Prototype Sponsor written notice of its refusal to
consent to the amendment. That written notice of its refusal
has the effect of withdrawing the Plan as a prototype plan
and causes the Plan to be considered an individually-
designed plan. The right of the Prototype Sponsor to cause
the Plan to be amended terminates if the Plan ceases to be a
prototype plan as provided in this or any other Plan
Section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when
that language is necessary to satisfy Section 415 or Section 416 of
the Code because of the required aggregation of multiple plans, and
(3) add any model amendments published by the Internal Revenue Service
that specifically provide that their adoption will not cause the Plan
to be treated as individually-designed. An Employer that amends the
Plan for any other reason, including a waiver of the minimum funding
requirement under Section 412(d) of the Code, will no longer
participate in this prototype plan and will be considered to have an
individually-designed plan. The Employer amends this Plan by action of
its managing body sufficient to be the binding act of the Employer
under applicable State law.
An Employer that wishes to amend the Plan to change the options it has
chosen in the Adoption Agreement must complete a new Adoption
Agreement. That amendment becomes effective upon execution by the
Employer.
The Employer further reserves the right to replace the Plan in its
entirety by adopting a replacement plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan may have the effect of decreasing a
Participant's accrued benefit. However, a Participant's Individual
Account may be reduced to the extent permitted under Section 412(c)(8)
of the Code. Any Plan amendment which has the effect of decreasing a
Participant's Individual Account or eliminating an optional form of
benefit (relating to service before the amendment) is treated as
reducing an accrued benefit. If the Plan's vesting schedule is
amended, in the case of an Employee who is a Participant as of the
later of the date the amendment is adopted or the date it becomes
effective, the Vested percentage (determined as of that date) of the
Participant's Individual Account derived from Employer Contributions
will not be less than the percentage computed under the Plan without
regard to the amendment.
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the
Participant's Vested percentage, or if the Plan is treated as if it
were amended by an automatic change to or from a top-heavy vesting
schedule, each Participant with at least 3 Years of Vesting Service
may elect, within the time identified below, to have his or her Vested
percentage computed under the Plan as if the amendment had not been
adopted.
For Participants who do not have at least 1 Hour of Service in any
Plan Year beginning after December 31, 1988, the preceding sentence is
applied by substituting "5 Years of Vesting Service" for "3 Years of
Vesting Service" where that language appears.
The period during which the election may be made begins with the date
the amendment is adopted or deemed to be made and ends at the latest
of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of
the amendment by the Employer or Plan Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the necessary
contributions to it indefinitely, but reserves the right to terminate
the Plan or any of its features.
9.06 PLAN TERMINATION PROCEDURES
The Employer may terminate the Plan at any time by appropriate action
of its managing body. The termination becomes effective on the date
specified by the Employer. Until all of the assets have been
distributed from the Fund, the Employer must keep the Plan in
compliance with current laws and regulations by (a) making appropriate
amendments to the Plan and (b) taking other measures that may be
required.
9.07 PLAN CONTINUED BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the
Employer may continue the Plan and be substituted in the place of the
present Employer. The successor and the present Employer (or, if
deceased, the executor of the estate of a deceased Self-Employed
Individual who was the Employer) must execute a written instrument
authorizing that substitution and the successor must complete and sign
a new Adoption Agreement.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to satisfy the qualification requirements under
Section 401(a) of the Code, the Plan will no longer be considered to
be part of a prototype plan, and the Employer may no longer
participate under this prototype. If that happens, the Plan will be
considered an individually-designed plan.
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ARTICLE TEN-MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS
The terms and conditions of this Plan apply without regard to the
community property laws of any State.
10.02 HEADINGS
The headings of the Plan are only for convenience and are to be
ignored in any construction of the Plan's terms.
10.03 GENDER AND NUMBER
Words used in the masculine gender should be read as if they were also
used in the feminine gender in all cases, except where the context
clearly indicates otherwise, and words used in the singular form
should be read as if they were also used in the plural form, except
where the context clearly indicates otherwise.
10.04 PLAN MERGER OR CONSOLIDATION
If there is a merger or consolidation of the Plan with, or transfer of
assets or liabilities of the Plan to, any other plan, each Participant
must be entitled to receive benefits immediately after the merger,
consolidation, or transfer (as if the Plan had then terminated) equal
to or greater than the benefits he or she would have been entitled to
receive immediately before the merger, consolidation, or transfer (if
the Plan had then terminated). The Trustee has the authority to enter
into merger agreements or agreements to transfer directly the assets
of this Plan but only if those agreements are in accordance with the
terms and provisions of this Plan and made with trustees or custodians
of other retirement plans described in Section 401(a) of the Code.
10.05 TERMS OF EMPLOYMENT
Nothing in this Plan gives an Employee, whether or not a Participant,
any right to be employed by the Employer or to continue employment
with the Employer, and nothing in this Plan limits the Employer's
right to discharge an Employee.
10.06 AGREEMENT BINDS HEIRS, ETC.
This Plan binds the heirs, executors, administrators, successors and
assigns, as those terms apply to any and all Plan parties, present and
future.
10.07 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31, 1983, this
Plan is a Top-Heavy Plan if any of the following conditions
exist:
1. If the "Top-Heavy Ratio" (as defined in Section
10.07(C)) for this Plan exceeds 60% and this Plan is
not part of any "Required Aggregation Group" (as
defined in Section 10.07(D)(1)) or "Permissive
Aggregation Group" (as defined in Section 10.07(D)(2));
2. If this Plan is part of a Required Aggregation Group
but not part of a Permissive Aggregation Group and the
Top-Heavy Ratio for the Required Aggregation Group
exceeds 60%; or
3. If this Plan is a part of a Required Aggregation Group
and part of a Permissive Aggregation Group and the Top-
Heavy Ratio for the Permissive Aggregation Group
exceeds 60%.
B. Key Employee - Any Employee or former Employee (and the
Beneficiaries of that Employee) who at any time during the
"determination period" (as defined below) was an officer of
an Employer if that individual's "annual compensation" (as
defined below) exceeds 50% of the dollar limit under Section
415(b)(1)(A) of the Code, an owner (or considered an owner
under Section 318 of the Code) of one of the 10 largest
interests in the Employer if the individual's compensation
exceeds 100% of the dollar limitation under Section
415(c)(1)(A) of the Code, a 5% Owner of the Employer, or a
1% owner of the Employer who has annual compensation in
excess of $150,000. "Annual compensation" means
"compensation," within the meaning of Section 3.05(E)(2) of
the Plan, but including amounts contributed by the Employer
under a salary reduction agreement which are excludible from
the Employee's gross income under Section 125, Section
402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the
Code. The "determination period" is the Plan Year containing
the "Determination Date" (as defined in Section 10.07(D)(3))
and the 4 preceding Plan Years.
The determination of who is a Key Employee is made under
Section 416(i)(1) of the Code and its Treasury Regulations.
C. Top-Heavy Ratio -
1. If the Employer maintains one or more defined
contribution plans (including any simplified employee
pension plan) and the Employer has not maintained any
defined benefit plan which during the 5-year period
ending on the Determination Date(s) has or has had
accrued benefits, the Top-Heavy Ratio for this Plan
alone or for the Required or Permissive Aggregation
Group (as appropriate) is a fraction, the numerator of
which is the sum of the account balances of all Key
Employees as of the Determination Date(s) (including
any part of any account balance distributed in the 5-
year period ending on the Determination Date(s)), and
the denominator of which is the sum of all account
balances (including any part of any account balance
distributed in the 5-year period ending on the
Determination Date(s)), both computed in accordance
with Section 416 of the Code and its Treasury
Regulations. Both the numerator and the denominator of
the Top-Heavy Ratio are increased to reflect any
contribution not actually made as of the Determination
Date, but which is required to be taken into account on
that Date under Section 416 of the Code and its
Treasury Regulations.
2. If the Employer maintains one or more defined
contribution plans (including any simplified employee
pension plan) and the Employer maintains or has
maintained one or more defined benefit plans which
during the 5-year period ending on the Determination
Date(s) has or has had any accrued benefits, the Top-
Heavy Ratio for any Required or Permissive Aggregation
Group (as appropriate) is a fraction, the numerator of
which is the sum of the account balances under the
aggregated defined contribution plan or plans for all
Key Employees, determined in accordance with (1) above,
and the "Present Value" (as defined in Section
10.07(D)(5)) of accrued benefits under the aggregated
defined benefit plan or plans for all Key Employees as
of the Determination Date(s), and the denominator of
which is the sum of the account balances under the
aggregated defined contribution plan or plans for all
Participants, determined in accor-
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dance with (1) above, and the present value of accrued
benefits under the defined benefit plan or plans for
all Participants as of the Determination Date(s), all
determined in accordance with Section 416 of the Code
and its Treasury Regulations. The accrued benefits
under a defined benefit plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for
any distribution of an accrued benefit made in the 5-
year period ending on the Determination Date.
3. For purposes of (1) and (2) above, the value of account
balances and the present value of accrued benefits are
determined as of the most recent valuation date that
falls in or ends with the 12-month period ending on the
Determination Date, except as provided in Section 416
of the Code and its Treasury Regulations for the first
and second plan years of a defined benefit plan. The
account balances and accrued benefits of a participant
(a) who is not a Key Employee but who was a Key
Employee in a prior year, or (b) who has not been
credited with at least one Hour of Service with any
employer maintaining the plan at any time during the 5-
year period ending on the Determination Date will be
disregarded. The calculation of the Top-Heavy Ratio,
and the extent to which distributions, rollovers, and
transfers are taken into account are made under Section
416 of the Code and its Treasury Regulations.
Deductible Employee contributions are not taken into
account in computing the Top-Heavy Ratio. When
aggregating plans the value of account balances and
accrued benefits is calculated with reference to the
Determination Dates that fall in the same calendar
year.
The accrued benefit of a participant other than a Key Employee is
determined under (a) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the
Employer, or (b) if there is no uniform method, as if the benefit
accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C) of the Code.
D. Definitions -
1. Required Aggregation Group: (a) Each qualified plan of
the Employer in which at least one Key Employee
participates or participated at any time during the
determination period (regardless of whether the Plan
has terminated), and (b) any other qualified plan of
the Employer which enables a plan described in (a) to
meet the requirements of Sections 401(a)(4) or 410 of
the Code.
2. Permissive Aggregation Group: The Required Aggregation
Group and any other plan or plans of the Employer
which, when considered as a group with the Required
Aggregation Group, would continue to satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
3. Determination Date: For any Plan Year after the first
Plan Year, the last day of the preceding Plan Year. For
the first Plan Year of the Plan, the last day of that
Year.
4. Valuation Date: For purposes of calculating the Top-
Heavy Ratio, the Valuation Date is the last day of each
Plan Year.
5. Present Value: Present Value shall be based on the
interest and mortality rates specified in the Adoption
Agreement.
10.08 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or more Owner-
Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and
the plan established for other trades or businesses must, when
considered a single plan, satisfy Sections 401(a) and (d) of the Code
for the employees of those trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-
Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies Sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for Owner-
Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trade or business
which is controlled must be as favorable as those provided for him
under the most favorable plan of the trade or business which is not
controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or
business if the Owner-Employee, or two or more Owner-Employees,
together:
A. Own the entire interest in an unincorporated trade or
business; or
B. In the case of a partnership, own more than 50% of either
the capital interest or the profits interest in the
partnership.
For purposes of the immediately preceding sentence, an Owner-Employee
or two or more Owner-Employees, are treated as owning any interest in
a partnership which is owned, directly or indirectly, by a partnership
which is considered to be under the control of that Owner-Employee or
those two or more Owner-Employees, under the preceding sentence.
10.09 INALIENABILITY OF BENEFITS
No benefit or interest available under this Plan is subject to
alienation, anticipation, assignment, charge, encumbrance, pledge,
sale or transfer, either voluntarily or involuntarily. This
prohibition against alienation or assignment applies to any attempt to
obtain any portion of a Participant's Plan benefits under a domestic
relations order, unless that order is determined to be a qualified
domestic relations order under Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified domestic
relations order until January 1, 1985. However, if a domestic
relations order was entered before that date, the Plan Administrator:
1. Will treat the order as a qualified domestic relations
order if the Plan Administrator is paying benefits
under that order on that date, and
2. May treat any other domestic relations order entered
before that date as a qualified domestic relations
order, even if the order does not meet the requirements
of Section 414(p) of the Code.
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10.10 NO DUTIES OR RESPONSIBILITIES OF PROTOTYPE SPONSOR
The Prototype Sponsor has no duties or responsibilities with respect
to the adoption, operation or termination of this Plan or with respect
to its administration, all of which are the sole responsibility of the
Employer. Furthermore, no duties or responsibilities with respect to
the Plan will be presumed or implied by reason of any services or
facilities provided to the Plan, the Employer, the Trustee (whether or
not an affiliate of the Prototype Sponsor) or any Participant by the
Prototype Sponsor or any of its affiliates.
10.11 GOVERNING LAW
This Plan is interpreted and governed under the laws of the State of
New York applicable to contracts to be performed entirely in that
State, except to the extent ERISA supersedes the application of State
law.
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ARTICLE ELEVEN--401(k) PROVISIONS
In addition to Articles 1 through 10, the provisions of this ARTICLE
11 apply if the Employer establishes a 401(k) cash or deferred
arrangement ("CODA") by completing and signing the appropriate
Adoption Agreement.
11.01 DEFINITIONS
Capitalized words and phrases in this Article 11 have the following
meanings unless previously defined in Article 1 or where the context
clearly indicates otherwise:
A. Actual Deferral Percentage ("ADP"): For any specified group
of Participants for a Plan Year, the average of the ratios
(calculated separately for each Participant in the group) of
(1) the amount of Employer Contributions actually paid over
to the Fund on behalf of each Participant for the Plan Year
to (2) that Participant's "compensation" (using any
permissible measure of compensation under Section 414(s) of
the Code and applicable Treasury Regulations) for that Plan
Year (regardless of whether he or she was a Participant for
the entire Plan Year). In calculating the ADP, Employer
Contributions include: (1) any Elective Deferrals made under
the Participant's deferral election, including Excess
Elective Deferrals of Highly Compensated Employees, but
excluding (a) Excess Elective Deferrals of Participants who
are not Highly Compensated Employees that arise solely from
Elective Deferrals made under the Plan or plans of the
Employer, and (b) Elective Deferrals that are taken into
account in the Average Contribution Percentage test (so long
as the ADP test is satisfied both with and without including
these Elective Deferrals), and (2) at the election of the
Employer, Qualified Nonelective Contributions and Qualified
Matching Contributions. In determining the Actual Deferral
Percentages, an Employee who would be a Participant but for
the failure to make Elective Deferrals is treated as a
Participant on whose behalf no Elective Deferrals are made.
B. After-Tax Employee Contribution: Any contribution made to
the Plan by or on behalf of a Participant that is included
in the Participant's gross income in the year in which made
and that is maintained under a separate account to which
earnings and losses are allocated.
C. Aggregate Limit: The sum of (1) 125% of the greater of (a)
the ADP of Participants who are not Highly Compensated
Employees for the Plan Year or (b) the ACP of Participants
who are not Highly Compensated Employees under the Plan
subject to Section 401(m) of the Code for the Plan Year
beginning with or within the Plan Year of the CODA and (2)
the lesser of (x) 200% or (y) 2 plus the lesser of that ADP
or ACP. "Lesser" is substituted for "greater" in (1), above,
and "greater" is substituted for "lesser" in (2)(y), above,
if those substitutions would increase the Aggregate Limit.
D. Average Contribution Percentage ("ACP"): The average of the
Contribution Percentages of the Eligible Participants in a
group.
E. Contributing Participant: A Participant who has enrolled as
a Contributing Participant under Section 11.02 and on whose
behalf the Employer is contributing Elective Deferrals to
the Plan.
F. Contribution Percentage: The ratio (expressed as a
percentage) of a Participant's Contribution Percentage
Amounts to his or her Compensation for the Plan Year
(regardless of whether he or she was a Participant for the
entire Plan Year).
G. Contribution Percentage Amounts: The sum of the After-Tax
Employee Contributions, Matching Contributions, and
Qualified Matching Contributions (to the extent not counted
for passing the ADP test) made under the Plan on behalf of
the Participant for the Plan Year. Contribution Percentage
Amounts do not include Matching Contributions forfeited
either to correct Excess Aggregate Contributions or because
the contributions to which they relate are Excess Deferrals,
Excess Contributions or Excess Aggregate Contributions. If
selected in the Adoption Agreement, the Employer may include
Qualified Nonelective Contributions in the Contribution
Percentage Amounts. The Employer also may elect to use
Elective Deferrals in the Contribution Percentage Amounts so
long as the ADP test is passed before the Elective Deferrals
are used in the ACP test and continues to be passed after
excluding those Elective Deferrals that are used to meet the
ACP test.
H. Elective Deferrals: Any Employer Contributions made to the
Plan at the election of the Participant, instead of cash
compensation, including Contributions made under a salary
reduction agreement or other deferral mechanism. For any
taxable year, a Participant's Elective Deferral is the sum
of all Employer contributions made on behalf of the
Participant under an election to defer under any qualified
CODA (as described in Section 401(k) of the Code), any
simplified employee pension cash or deferred arrangement (as
described in Section 402(h)(1)(B) of the Code), any eligible
deferred compensation plan under Section 457 of the Code,
any plan described under Section 501(c)(18) of the Code, and
any Employer contributions made on the behalf of a
Participant for the purchase of an annuity contract under
Section 403(b) of the Code (or such Employer contributions
to a custodial account under Section 403(b)(7) of the Code)
under a salary reduction agreement Elective Deferrals do not
include any deferrals distributed as excess annual
additions.
A Participant's Elective Deferrals under this Plan and any
other qualified plan maintained by the Employer, during any
taxable year, cannot exceed the dollar limit of Section
402(g) of the Code in effect at the beginning of that
taxable year.
Elective Deferrals do not count to satisfy the Top-Heavy
Plan minimum allocation requirement of Section 3.01(E).
I. Eligible Participant: Any Employee who is eligible to make
an After-Tax Employee Contribution or an Elective Deferral
(if the Employer takes those contributions into account in
the calculation of the Contribution Percentage), or to
receive a Matching Contribution (including any Forfeitures)
or a Qualified Matching Contribution. If an After-Tax
Employee Contribution is required as a condition of
participation in the Plan, any Employee who would be a
Participant in the Plan if he or she made an After-Tax
Employee Contribution is treated as an Eligible Participant
on behalf of whom no After-Tax Employee Contributions are
made.
An Employee's eligibility to make Elective Deferrals under a
CODA may not be conditioned upon the com-
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<PAGE>
pletion of more than one (1) Year of Eligibility Service or
the attainment of more than age twenty-one (21). An
Employee's eligibility to receive Matching Contributions,
Qualified Matching Contributions, or Qualified Nonelective
Contributions may be conditioned upon the completion of up
to two (2) Years of Eligibility Service. No contributions or
benefits (other than Matching Contributions or Qualified
Matching Contributions) may be conditioned upon an
Employee's Elective Deferrals.
J. Excess Aggregate Contributions: For any Plan Year, the
excess of:
1. The total Contribution Percentage Amounts counted in
computing the numerator of the Contribution Percentage
actually made on behalf of Highly Compensated Employees
for the Plan Year, less
2. The maximum Contribution Percentage Amounts permitted
by the ACP test (determined by reducing contributions
made on behalf of Highly Compensated Employees in order
of their Contribution Percentages, beginning with the
Highly Compensated Employees with the largest
Contribution Percentages).
Excess Aggregate Contributions are determined only after
determining Excess Elective Deferrals under Section 11.01(L)
and then determining Excess Contributions under Section
10.01(K).
K. Excess Contributions: For any Plan Year, the excess of:
1. The total amount of Employer Contributions taken into
account in computing the ADP of Highly Compensated
Employees for that Plan Year, less
2. The maximum amount of Employer Contributions permitted
by the ADP test (determined by reducing contributions
made on behalf of Highly Compensated Employees,
beginning with the Highly Compensated Employees with
the highest ADP's).
L. Excess Elective Deferrals: Any Elective Deferrals that are
includible in a Participant's gross income under Section
402(g) of the Code to the extent such Participant's Elective
Deferrals for a taxable year exceed the dollar limit under
that Code section. A Participant's Excess Elective
Deferrals are treated as annual additions under the Plan
unless such amounts are distributed no later than the first
April 15 following the close of the Participant's taxable
year.
M. Matching Contribution: An Employer contribution made to this
Plan or to any other defined contribution plan on behalf of
a Participant on account of an After-Tax Employee
Contribution made by the Participant, or on account of a
Participant's Elective Deferrals, under a plan maintained by
the Employer.
Neither Elective Deferrals nor Matching Contributions count
to satisfy the Top-Heavy Plan minimum allocation requirement
described in Section 3.01(E) except as permissible under
applicable Treasury Regulations.
N. Qualified Nonelective Contributions: Contributions (other
than Matching Contributions or Qualified Matching
Contributions) made by the Employer and allocated to
Participants' Individual Accounts that (i) the Participants
may not elect to receive in cash until distributed from the
Plan, (ii) are nonforfeitable when made and (iii) are
distributable only under the distribution provisions that
apply to Elective Deferrals and Qualified Matching
Contributions.
O. Qualified Matching Contributions: Matching Contributions
subject to the distribution and nonforfeitability
requirements under Section 401(k) of the Code when made.
11.02 PARTICIPATION
A. Enrolling As A Participant -
1. Each Employee who becomes a Participant may enroll as a
Contributing Participant. A Participant is eligible to
enroll as a Contributing Participant on the Entry Date
as of which he or she enters the Plan. If a Participant
does not enroll at that time, he or she may enroll on
the first day of any later Plan Year, or, if the Plan
Administrator permits in a uniform and
nondiscriminatory manner, on any later Entry Date. A
Participant who wishes to enroll as a Contributing
Participant must complete, sign and file a salary
reduction agreement with the Plan Administrator.
2. In addition to the times specified in Section
11.02(A)(1), the Plan Administrator has the authority
to designate, in a nondiscriminatory manner, other
enrollment times during the 12-month period beginning
on the Effective Date so that an orderly first
enrollment can be completed. If selected in the
Adoption Agreement that Elective Deferrals may be based
on cash bonuses, then Participants will be given a
reasonable period of time before the payment of those
bonuses to elect to defer part or all of those bonuses
under the Plan.
B. Changing A Salary Reduction Agreement -
A Contributing Participant may change his or her salary
reduction agreement to increase or decrease (within the
limits placed on Elective Deferrals in the Adoption
Agreement) the amount of his or her Compensation deferred
under the Plan. A change may only be made as of the first
day of a Plan Year, or as of any other more frequent date(s)
selected in the Adoption Agreement for changes to Elective
Deferrals. A Contributing Participant must complete, sign
and file a new salary reduction agreement with the Plan
Administrator within a reasonable time prescribed by the
Plan Administrator before the change is to become effective.
C. Withdrawal As A Contributing Participant -
A Participant may withdraw as a Contributing Participant as
of the last day preceding any Entry Date (or as of any other
date if the Plan Administrator so permits in a uniform and
nondiscriminatory manner) by revoking his or her
authorization to the Employer to make Elective Deferrals on
his or her behalf. A Participant who wishes to withdraw as a
Contributing Participant must give a written notice of
withdrawal to the Plan Administrator at least 30 days (or
any shorter period of days as the Plan Administrator permits
in a uniform and nondiscriminatory manner) before the
effective date of withdrawal. A Participant stops being a
Contributing Participant on his or her Termination of
Employment or on termination of the Plan.
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D. Return As A Contributing Participant After Withdrawal -
A Participant who has withdrawn as a Contributing
Participant under Section 11.02(C) may not again become a
Contributing Participant until the first day of the first
Plan Year after the effective date of his or her withdrawal
as a Contributing Participant or as of any other date if the
Plan Administrator permits it, in a uniform and
nondiscriminatory manner.
11.03 CONTRIBUTIONS
A. Employer Contributions -
Any contribution made by the Employer must follow the
formula selected in the Adoption Agreement.
B Qualified Nonelective Contributions -
The Employer may elect to make Qualified Nonelective
Contributions under the Plan on behalf of Participants as
provided in the Adoption Agreement.
In addition, instead of distributing Excess Contributions
under Section 11.05(E), or Excess Aggregate Contributions
under Section 11.05(F), to the extent selected in the
Adoption Agreement, the Employer may make Qualified
Nonelective Contributions on behalf of Participants who are
not Highly Compensated Employees in sufficient amounts to
satisfy either the Actual Deferral Percentage test or the
Average Contribution Percentage test, or both, according to
applicable Treasury Regulations.
C. Qualified Matching Contributions -
The Employer may elect to make Qualified Matching
Contributions under the Plan on behalf of Participants as
provided in the Adoption Agreement.
D. After-Tax Employee Contributions -
If selected in the Adoption Agreement, a Participant may
contribute After-Tax Employee Contributions to the Plan,
without regard to Section 3.02.
After-Tax Employee Contributions made by a Participant are
maintained in a separate fully Vested sub-account under that
Participant's Individual Account.
If and as selected in the Adoption Agreement, a Participant
may, upon a written request submitted to the Plan
Administrator and subject to there requirements of Section
6.06 (if applicable), withdraw any part of his or her After-
Tax Employee Contribution sub-account; in all other
respects, a Participant's After-Tax Employee Contribution
sub-account is subject to the Plan's regular distribution
provisions. No Forfeiture occurs as a result of a
Participant's After-Tax Employee Contributions.
11.04 NONDISCRIMINATION TESTING
A. Actual Deferral Percentage Test -
1. Limits on Highly Compensated Employees -The ADP
for Participants who are Highly Compensated
Employees for each Plan Year and the ADP for
Participants who are not Highly Compensated
Employees for the same Plan Year must satisfy one
of the following tests:
(a) The ADP for Participants who are Highly
Compensated Employees for the Plan Year must
not be greater than the ADP for Participants
who are not Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
(b) The ADP for Participants who are Highly
Compensated Employees for the Plan Year must
not be greater than the ADP for Participants
who are not Highly Compensated Employees for
the same Plan Year multiplied by 2 and the
ADP for Participants who are Highly
Compensated Employees is not more than 2
percentage points greater than the ADP for
Participants who are not Highly Compensated
Employees.
2. Special Rules -
(a) The ADP for any Participant who is a Highly
Compensated Employee for the Plan Year and
who is eligible to have Elective Deferrals
(and Qualified Nonelective Contributions, or
Qualified Matching Contributions, or both, if
treated as Elective Deferrals for purposes of
the ADP test) allocated to his or her
accounts under two or more Employer
maintained arrangements described in Section
401(k) of the Code is determined as if the
Elective Deferrals (and, if applicable, the
Qualified Nonelective Contributions or
Qualified Matching Contributions, or both)
were made under a single arrangement. If a
Highly Compensated Employee participates in
two or more cash or deferred arrangements
that have different Plan Years, all cash or
deferred arrangements ending with or within
the same calendar year are treated as a
single arrangement; however, certain plans
are required to be treated as separate if
they are mandatorily disaggregated under
Treasury Regulations under Section 401(m) of
the Code.
(b) If this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the
Code only when considered together with one
or more other plans, or if one or more other
plans satisfy the requirements of those Code
sections only when considered together with
this Plan, then Section 11.04(A)(2) is
applied by determining the ADP of Employees
as if all the plans were one plan. For Plan
Years beginning after December 31, 1989,
plans may be aggregated in order to satisfy
Section 401(k) of the Code only if they have
the same Plan Year.
(c) For purposes of determining the ADP of a
Participant who is a 5% Owner or one of the
10 most highly-paid Highly Compensated
Employees, the Elective Deferrals (and
Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, if
treated as Elective Deferrals for purposes of
the ADP test) and Compensation of that
Participant include the Elective Deferrals
(and, if applicable, Qualified Nonelective
Contributions and Qualified Matching
Contributions, or both) and "compensation"
(using any permissible measure of
compensation under Section 414(s) of the Code
and applicable Treasury Regulations) for the
Plan Year of "family members" (as defined in
Section 414(o) (6) of the Code). Family
mem-
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bers of Highly Compensated Employees are
disregarded as separate Employees in
determining the ADP both for Participants who
are not Highly Compensated Employees and for
Participants who are Highly Compensated
Employees.
(d) In order to count for the ADP test, Elective
Deferrals, Qualified Nonelective
Contributions and Qualified Matching
Contributions must be made before the last
day of the 12-month period immediately
following the Plan Year to which the
contributions relate.
(e) The Employer must maintain records to
demonstrate satisfaction of the ADP test and
the amount of Qualified Nonelective
Contributions or Qualified Matching
Contributions, or both, used in the test.
(f) The determination and treatment of the ADP
amounts of any Participant must satisfy any
other requirements prescribed by the
Secretary of the Treasury.
(g) If selected in the Adoption Agreement that
Qualified Matching Contributions are to be
counted as Elective Deferrals for purposes of
the ADP test, then (subject to any other
requirements prescribed by the Secretary of
the Treasury) only the Qualified Matching
Contributions that are needed to satisfy the
ADP test are taken into account.
(h) If the Plan Administrator determines that it
is not likely that the ADP test will be
satisfied for a particular Plan Year unless
certain steps are taken prior to the end of
the Plan Year; the Plan Administrator may
require Contributing Participants who are
Highly Compensated Employees to reduce their
Elective Deferrals for the Plan Year in order
to pass the test. The Plan Administrator may
take similar actions if it anticipates that
the Employer will not be able to deduct all
Employer Contributions for Federal income tax
purposes.
B. Limits on After-Tax Employee Contributions and Matching
Contributions-
1. Limits on Highly Compensated Employees -The Average
Contribution Percentage ("ACP"') for Participants who
are Highly Compensated Employees for each Plan Year and
the ACP for Participants who are not Highly Compensated
Employees for the same Plan Year must satisfy one of
the following tests:
(a) The ACP for Participants who are Highly
Compensated Employees for the Plan Year must not
be greater than the ACP for Participants who are
not Highly Compensated Employees for the same Plan
Year multiplied by 1.25; or
(b) The ACP for Participants who are Highly
Compensated Employees for the Plan Year must not
be greater than the ACP for Participants who are
not Highly Compensated Employees for the same Plan
Year multiplied by 2, and the ACP for Participants
who are Highly Compensated Employees must not be
more than 2 percentage points greater than the ACP
for Participants who are not Highly Compensated
Employees.
2. Special Rules
(a) Multiple Use - If one or more Highly Compensated
Employees participate in both a CODA and an
Employer plan subject to the ACP test and the sum
of the ADP and ACP of those Highly Compensated
Employees subject to either or both tests exceeds
the Aggregate Limit, then the ACP of the Highly
Compensated Employees who also participate in a
CODA are reduced (beginning with the Highly
Compensated Employee whose ACP is the highest)
until the limit is not exceeded. The amount by
which each Highly Compensated Employee's
Contribution Percentage Amounts is reduced is
treated as an Excess Aggregate Contribution. The
ADP and ACP of the Highly Compensated Employees
are determined after any corrections required to
meet the ADP and ACP tests, The Aggregate Limit
will not apply if either the ADP or ACP of the
Highly Compensated Employees does not exceed 1.25
multiplied by the ADP and ACP of the Participants
who are not Highly Compensated Employees.
(b) For purposes of this Section 11.04(B), the
Contribution Percentage for any Participant who is
a Highly Compensated Employee and who is eligible
to have Contribution Percentage Amounts allocated
to his or her Individual Account under 2 or more
plans described in Section 401(a) of the Code, or
arrangements described in Section 401(k) of the
Code that are maintained by the Employer, is
determined as if all those Contribution Percentage
Amounts were made under each plan. If a Highly
Compensated Employee participates in 2 or more
cash or deferred arrangements that have different
plan years, all cash or deferred arrangements
ending with or within the same calendar year are
treated as a single arrangement; however, certain
plans are required to be treated as separate if
they are mandatorily disaggregated under Treasury
Regulations under Section 401(m) of the Code.
(c) If this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code
only when considered together with one or more
other plans, or if one or more other plans satisfy
the requirements of those Code Sections only if
considered together with this Plan, then this
Section 11.04(B) is applied by determining the
Contribution Percentage of Employees as if all the
plans were only one plan. For Plan Years beginning
after December 31, 1989, plans may be aggregated
in order to satisfy Section 401(m) of the Code
only if they have the same Plan Year.
(d) For purposes of determining the Contribution
Percentage of a Participant who is a 5% Owner or
one of the 10 most
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highly-aid Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation
of the Participant include the Contribution
Percentage Amounts and Compensation for the Plan
Year of "family members" (as defined in Section
414(q) (6) of the Code). FamIly members of Highly
Compensated Employees are disregarded as separate
Employees in determining the Contribution
Percentage both for Participants who are not
Highly Compensated Employees and for Participants
who are Highly Compensated Employees.
(e) In determining the Contribution Percentage, After-
Tax Employee Contributions are considered to have
been made in the Plan Year in which they are
contributed to the Fund Matching Contributions and
Qualified Nonelective Contributions are considered
made for a Plan Year as long as they are made by
the end of the 12-month period beginning on the
day after the close of the Plan Year.
(f) The Employer must maintain records to demonstrate
satisfaction of the ACP test and the amount of
Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in the test.
(g) The determination and treatment of the
Contribution Percentage of any Participant must
satisfy any other requirements prescribed by the
Secretary of the Treasury.
(h) If selected in the Adoption Agreement that
Qualified Nonelective Contributions are to be
counted in the Contribution Percentages for the
ACP test, then (subject to any other requirements
prescribed by the Secretary of the Treasury) only
the Qualified Nonelective Contributions that are
needed to satisfy the ACP test will be counted.
(i) If the Employer elected in the Adoption Agreement
to count Elective Deferrals in the Contribution
Percentages for the ACP test, then only the
Elective Deferrals that are needed to pass the ACP
test will be counted.
11.05 DISTRIBUTION PROVISIONS
A. General Rule -
Distributions from the Plan are subject to the provisions of
Article 6 and the provisions of this Article 11. If there is
a conflict between the provisions of Article 6 and Article
11, the provisions of this Article 11 will control.
B. Distribution Requirements -
Elective Deferrals, Qualified Nonelective Contributions, and
Qualified Matching Contributions, and income allocable to
each are not distributable to a Participant or his or her
Beneficiary or Beneficiaries, in accordance with that
Participant's or Beneficiary or Beneficiaries' election,
earlier than upon the Participant's separation from service,
death, or disability.
These amounts may also be distributed after:
1. Termination of the Plan without the establishment of
another defined contribution plan by the Employer,
other than an "employee stock ownership plan" (as
defined in Section 4975(e) or Section 409 of the Code)
or a "simplified employee pension" (as defined in
Section 408(k) of the Code;
2. The disposition by a corporation to an unrelated
corporation of substantially all of the assets (within
the meaning of Section 409(d) (2) of the Code) used in
a trade or business of that corporation, if it
continues to maintain this Plan after the disposition,
but only with respect to Employees who continue
employment with the corporation acquiring the assets;
3. The disposition by a corporation to an unrelated entity
of that corporation's interest in a subsidiary (within
the meaning of Section 409(d)(3) of the Code), if it
continues to maintain this Plan, but only with respect
to Employees who continue employment with that
subsidiary;
4. The attainment of age 59-1/2, in the case of a profit-
sharing plan; or
5. If selected in the Adoption Agreement, the hardship of
the Participant as described in Section 11.05(C).
Each of these distributions is subject to any applicable
spousal and Participant consent requirements of Sections
401(a)(11) and 417 of the Code. In addition, distributions
after March 31, 1988 which are triggered by any of the
events described in items 1, 2 or 3 of this Section 11.05(B)
must be made in the form of a lump sum.
C. Hardship Distribution -
1. General - If selected in the Adoption Agreement,
distribution of Elective Deferrals (and their earnings
accrued as of December 31,1988) may be made to a
Participant in the event that the Participant needs the
distribution to meet a financial "hardship" and
provides the written representation to the Plan
Administrator described in Section 11.05(C) (3). For
this purpose, "hardship" is an immediate and heavy
financial need of the Participant for which the
Participant lacks other available resources (or where
the "hardship" involves the Participant's spouse or
dependents, for which the spouse or dependents lack
other available resources).
2. Special Rules.
(a) The only financial needs considered to be
immediate and heavy are: deductible medical
expenses (within the meaning of Section 213(d) of
the Code) incurred or necessary for the care of
the Participant or the Participant's spouse,
children or dependents; the purchase (excluding
mortgage payments) of a principal residence for
the Participant; payment of tuition and related
educational fees for the next 12 months of post-
secondary education for the Participant or the
Participant's spouse, children or dependents; or
the need to prevent the eviction of the
Participant from, or a foreclosure on the mortgage
on, the Participant's principal residence.
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<PAGE>
(b) A distribution will be considered necessary to
satisfy an immediate and heavy financial need of
the Participant only if:
(1) The Participant has received all
distributions, other than hardship
distributions, and all nontaxable loans under
all Employer plans;
(2) All Employer plans provide that the
Participant's Elective Deferrals (and After-
Tax Employee Contributions) will be suspended
for 12 months after the hardship
distribution;
(3) The amount of the distribution is not greater
than the amount of the immediate and heavy
financial need (including amounts necessary
to pay any Federal, state or local income
taxes or penalties reasonably anticipated to
result from the distribution); and
(4) All Employer plans prohibit the Participant
from making Elective Deferrals for the
Participant's taxable year immediately
following the Participant's taxable year in
which the hardship distribution occurred in
excess of (i) the limit under Section 402(g)
of the Code for that taxable year less
(ii)the amount of the Participant's Elective
Deferrals for the Participant's taxable year
in which the hardship distribution occurred.
3. Written Representation - The Participant's written
representation made to the Plan Administrator (and
referred to in Section 11.05(C)(1)) will be relied on
by the Plan Administrator in its determination that the
Participant has suffered a "hardship" entitling the
Participant to a distribution (unless the Plan
Administrator actually knows otherwise). The
Participant's written representation must notify the
Plan Administrator that the Participant's "hardship"
cannot reasonably be met:
(a) Through reimbursement or compensation by insurance
or otherwise;
(b) By liquidation of the Participant's assets;
(c) By other distributions, withdrawals or non-taxable
loans from plans maintained by the Employer; or
(d) By borrowing from commercial sources on reasonable
commercial terms in an amount sufficient to
satisfy the need.
D. Distribution of Excess Elective Deferrals -
1. General Rule - A Participant may assign to the Plan any
Excess Elective Deferrals made during a taxable year of
the Participant by notifying the Plan Administrator by
the date specified in the Adoption Agreement of the
amount of the Excess Elective Deferrals to be assigned
to the Plan. The Participant will be treated as if he
or she had notified the Plan Administrator of any
Excess Elective Deferrals arising only from Elective
Deferrals under this Plan and other Employer plans.
Regardless of any other Plan provision, Excess Elective
Deferrals, as adjusted for earnings and losses, will be
distributed on or before April 15 to any Participant to whose
Individual Account Excess Elective Deferrals were assigned for
the prior year and who claims Excess Elective Deferrals for that
taxable year.
2. Determination of Income or Loss - Excess Elective
Deferrals are adjusted for earnings and losses only
until the end of the taxable year preceding or
coinciding with the date of distribution, unless it has
been selected in the Adoption Agreement to have them
adjusted for earnings and losses through the date of
distribution. The income or loss allocable to Excess
Elective Deferrals is: (1) income or loss allocable to
the Participant's Elective Deferral account for the
taxable year multiplied by a fraction, the numerator of
which is the Participant's Excess Elective Deferrals
for the year and the denominator of which is the
Participant's Individual Account balance attributable
to Elective Deferrals, regardless of any income or
loss occurring during that taxable year; plus (2) if
crediting earnings and losses through the date of
distribution is selected in the Adoption Agreement, 10%
of the amount determined under (1) multiplied by the
number of whole calendar months between the end of the
Participant's taxable year and the date of
distribution, counting the month of distribution if the
distribution occurs after the 15th of that month.
E. Distribution of Excess Contributions -
1. General Rule - Regardless of any other Plan provision,
Excess Contributions, as adjusted for earnings and
losses, will be distributed on or before the last day
of each Plan Year to Participants to whose Individual
Accounts those Excess Contributions were allocated for
the preceding Plan Year. If those Excess Amounts are
distributed more than 2-1/2 months after the last day
of the Plan Year in which the Excess Amounts arose, a
10% excise tax is imposed on the Employer maintaining
the Plan based on those amounts. These distributions
are made to Highly Compensated Employees on the basis
of their respective portions of the Excess
Contributions. Excess Contributions are allocated to
Participants who are subject to the family member
aggregation rules of Section 414(q) (6) of the Code in
proportion to the combined Elective Deferrals (and
amounts treated as Elective Deferrals) of each family
member that are combined to determine the combined ADP.
Excess Contributions (including the amounts
recharacterized) are treated as "annual additions"
under the Plan.
2. Determination of Income or Loss - Excess Contributions
are adjusted for earnings and losses only until the end
of the Plan Year preceding or coinciding with the date
of distribution, unless selected in the Adoption
Agreement that they will be adjusted for earnings and
losses through the date of distribution. The income or
loss allocable to Excess Contributions is: (1) income
or loss allocable to the Participant's Elective
Deferral account (and, if applicable, the Qualified
Nonelective Contribution account or
39
<PAGE>
the Qualified Matching Contributions account or both)
for the Plan Year multiplied by a fraction, the
numerator of which is the Participant's Excess
Contributions for the year and the denominator of which
is the Participant's Individual Account balance
attributable to Elective Deferrals (and Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both, if any of those contributions
are included in the ADP test), without regard to any
income or loss occurring during that Plan Year; plus,
(2) if crediting earnings and losses through the date
of distribution is selected in the Adoption Agreement,
10% of the amount determined under (1) multiplied by
the number of whole calendar months between the end of
the Plan Year and the date of distribution, counting
the month of distribution if distribution occurs after
the 15th of that month.
3. Accounting for Excess Contributions - Excess
Contributions are distributed from the Participant's
Elective Deferral account and Qualified Matching
Contribution account (if applicable) in proportion to
the Participant's Elective Deferrals and Qualified
Matching Contributions (to the extent used in the ADP
test) for the Plan Year. Excess Contributions are
distributed from the Participant's Qualified
Nonelective Contribution account only to the extent
that they exceed the balance in the Participant's
Elective Deferral account and Qualified Matching
Contribution account.
F. Distribution of Excess Aggregate Contributions -
1. General Rule -Regardless of any other Plan provision,
Excess Aggregate Contributions, as adjusted for
earnings and losses, are forfeited, if forfeitable, or
if not forfeitable, distributed no later than the last
day of each Plan Year to Participants to whose accounts
those Excess Aggregate Contributions were allocated for
the preceding Plan Year. Excess Aggregate Contributions
of Participants who are subject to the family member
aggregation rules of Section 414(q)(6) of the Code are
allocated to those family members in proportion to the
Employee and Matching Contributions (or amounts treated
as Matching Contributions) of each family member
combined to determine the combined ACP. If those Excess
Aggregate Contributions are distributed more than 2-1/2
months after the last day of the Plan Year in which
they arose, a 10% excise tax is imposed on the Employer
maintaining the Plan based on those amounts.
Excess Aggregate Contributions are treated as "annual
additions" under the Plan.
2. Determination of Income or Loss - Excess Aggregate
Contributions are adjusted for earnings and losses only
until the end of the Plan Year preceding or coinciding
with the date of distribution, unless selected in the
Adoption Agreement that they will be adjusted through
the date of distribution. The income or loss allocable
to Excess Aggregate Contributions is: (1) income or
loss allocable to the Participant's After-Tax Employee
Contribution account, Matching Contribution account,
Qualified Matching Contribution account (if any, and if
all of these amounts are not used in the ADP test) and,
if applicable, Qualified Nonelective Contribution
account and Elective Deferral account for the Plan Year
multiplied by a fraction, the numerator of which is the
Participant's Excess Aggregate Contributions for the
year and the denominator of which is the Participant's
Individual Account balance(s) attributable to
Contribution Percentage Amounts without regard to any
income or loss occurring during the Plan Year, plus,
(2) if crediting earnings and losses through the date
of distribution is selected on the Adoption Agreement,
10% of the amount determined under (1) multiplied by
the number of whole calendar months between the end of
the Plan Year and the date of distribution counting the
month of distribution if distribution occurs after the
15th of the month.
3. Forfeitures of Excess Aggregate Contributions -
Forfeitures of Excess Aggregate Contributions are
either reallocated to the accounts of Contributing
Participants who are not Highly Compensated Employees
or applied to reduce Employer Contributions, as
selected in the Adoption Agreement.
4. Accounting for Excess Aggregate Contributions -Excess
Aggregate Contributions are forfeited, if forfeitable,
or distributed ratably from the Participant's After-Tax
Employee Contribution account, Matching Contribution
account, and Qualified Matching Contribution account
(and, if applicable, the Participant's Qualified
Nonelective Contribution account or Elective Deferral
account, or both).
G. Recharacterization -
A Participant may treat his or her Excess Contributions as
an amount distributed to the Participant and then
contributed by the Participant to the Plan. These
recharacterized amounts remain Vested and subject to the
same distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly Compensated
Employee to the extent that those amounts in combination
with other After-Tax Employee Contributions made by that
Highly Compensated Employee would exceed any stated Plan
limit on After-Tax Employee Contributions.
Recharacterization must occur no later than 2-1/2 months
after the last day of the Plan Year in which the Excess
Contributions arose and is treated as if it had occurred no
earlier than the date the last Highly Compensated Employee
was informed in writing of the amount recharacterized and
the consequences of that recharacterization. Recharacterized
amounts will be taxable to the Participant for the
Participant's taxable year in which the Participant would
have received them in cash.
11.06 VESTING
A. Certain Contributions are 100% Vested -
The Participant's accrued benefit attributable to Elective
Deferrals, Qualified Nonelective Contributions, After-Tax
Employee Contributions, and Qualified Matching Contributions
is 100% Vested Separate accounts for Elective Deferrals,
Qualified Nonelective Contributions, After-Tax Employee
Contributions, MatIng Contributions, and Qualified Matching
Contributions are maintained for each
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<PAGE>
Participant. Each account is created with its applicable
contributions, earnings and losses.
B. Forfeitures and Vesting Of Matching Contributions -
Matching Contributions become Vested according to the
vesting schedule selected for Matching Contributions in the
Adoption Agreement. Matching Contributions always become
fully Vested at Normal Retirement Age, upon the complete or
partial termination of the Plan (only with respect to
affected Participants, in the case of a partial
termination), or upon the total discontinuance of Employer
Contributions.
Forfeitures of Matching Contributions, other than Excess
Aggregate Contributions, are treated in the manner described
in Section 6.01(D).
11.07 EFFECTIVE TIME
The provisions of the CODA may be made effective as of the first day
of the Plan Year in which the CODA is adopted. However, under no
circumstances may a salary reduction agreement or other deferral
mechanism be adopted retroactively.
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ARTICLE TWELVE--
TARGET BENEFIT PROVISIONS
In addition to Articles 1 through 11, the provisions of this ARTICLE 12 apply if
the Employer adopts the Plan in the form of a "Target Benefit Plan" by
completing and signing the appropriate Adoption Agreement.
12.01 DEFINITIONS
Capitalized words and phrases in this Article 12 have the following
meanings unless previously defined in Article 1 or where the context
clearly indicates otherwise:
A. Avenge Compensation: Average Compensation means, the
average of a Participant's annual Compensation over the
three consecutive Plan Year periods ending in the current
year or in any prior year that produces the highest
average. If the Participant has less than three years of
participation in this Plan, Compensation is averaged over
the Participant's total period of participation.
B. Benefitting: A Participant is treated as Benefitting under
the Plan for any Plan Year during which he or she is deemed
to receive an allocation under Treasury Regulation Section
1.401(a)(4)-12.
C. Covered Compensation: The average (without indexing) of the
Target Benefit Taxable Wage Bases in effect for each
calendar year during the 35-year period ending with the
last day of the calendar year in which the Participant
attains or will attain his or her Social Security
Retirement Age. In determining a Participant's Covered
Compensation for a Plan Year, the Target Benefit Taxable
Wage Base in effect for the current Plan Year and any
subsequent Plan Year will be assumed to be the same as the
Target Benefit Taxable Wage Base in effect as of the
beginning of the Plan Year for which the determination is
being made. Covered Compensation will be determined on the
basis of the year selected in Section VII of the Adoption
Agreement. A Participant's Covered Compensation for a Plan
Year before the 35-year period ending with the last day of
the calendar year in which the Participant attains his or
her Social Security Retirement Age is the Target Benefit
Taxable Wage Base in effect as of the beginning of the Plan
Year. A Participant's Covered Compensation for a Plan Year
after such 35-year period is the Participant's Covered
Compensation for the Plan Year in which the 35-year period
ends.
D. Current Target Benefit: For each Participant, the product
of (1) multiplied by (2), where (1) is the amount derived
from the benefit formula selected in the Adoption Agreement
and (2) is a fraction, the numerator of which is the
Participant's number of Years of Participation in the Plan
for benefit accrual purposes since the most recent Fresh-
Start Date, if any, through and including the later of the
year in which the Participant attains Normal Retirement Age
or the current Plan Year, and the denominator of which is
the Participant's "total years of projected participation"
under the Plan. If there has been no Fresh-Start Date under
the Plan, the fraction will be 1.0 for all Participants. In
addition, the fraction will be 1.0 for any Participant
first entering the Plan after the most recent Fresh-Start
Date. A Participant's "total years of projected
participation" under the Plan refers only to those years in
which the Plan satisfies the requirements of Treasury
Regulation Section 1.401(a)(4)-8(b)(3) (or any other
applicable prior target benefit plan safe harbor) projected
through the later of the end of the Plan Year in which the
Participant attains Normal Retirement Age or the current
Plan Year.
E. Final Average Compensation: The average of a Participant's
Compensation for the 3-consecutive Plan Year period ending
with or within the Plan Year. If a Participant's entire
period of employment with the Employer is less than 3
consecutive Plan Years, his or her Compensation is averaged
over the Participant's entire period of employment with the
Employer. Compensation for any Plan Year in excess of the
Target Benefit Taxable Wage Base in effect at the beginning
of that Year will not be taken into account.
F. Fresh-Start Date: The last day of a Plan Year preceding a
Plan Year for which provisions that would affect the amount
of the Current Target Benefit are amended.
G. Frozen Accrued Target Benefit: The benefit determined as of
the Plan's most recent Fresh-Start Date as if the
Participant terminated employment with the Employer as of
that Date, without regard to any amendment made to the Plan
after that Date. This Benefit is equal to the amount of the
Current Target Benefit accrued by the Participant as of the
most recent Fresh-Start Date, assuming that the Current
Target Benefit accrues ratably from the later of the year
in which the Participant first participated in the Plan or
the most recent Fresh-Start Date, if any, through the Plan
Year in which the Participant attains Normal Retirement
Age, and is determined by multiplying the Current Target
Benefit formula under the Plan by a fraction, the numerator
of which is the Participant's number of Years of
Participation in the Plan from the later of the
Participant's first Year of Participation in the Plan or
the most recent Fresh-Start Date, if any, through the year
in which the most recent Fresh-Start Date, if any,
occurred, and the denominator of which is the Participant's
number of Years of Participation in the Plan from the later
of the Participant's first Year of Participation in the
Plan or the most recent Fresh-Start Date, if any, through
the later of the year in which the Participant attains
Normal Retirement Age or the current Plan Year. If in the
immediately preceding Plan Year, the Plan did not satisfy
the requirements of Treasury Regulation Section
1.401(a)(4)-8(b)(3) (or any other applicable prior target
benefit plan safe harbor), the Frozen Accrued Target
Benefit for any Participant, as determined for the next
Plan Year during which the requirements of Treasury
Regulation Section 1.401(a)(4)-8(b)(3) are satisfied until
the year following the year containing the next Fresh-
Start Date, if any, will be zero.
H. Social Security Retirement Age: Age 65 with respect to a
Participant born before January 1, 1938; age 66 with
respect to a Participant born after December 31, 1937 and
prior to January 1, 1955; and age 67 with respect to a
Participant born after December 31, 1954.
L. Straight Life Annuity: A retirement benefit payable under
the Plan in the form of an annuity payable in equal monthly
installments for the duration of the Participant's life and
which terminates at the Participant's death.
J. Target Benefit: The benefit payable in the form of a
Straight Life AnnuIty commencing at the Participant's
retirement at or after his or her attainment of Normal
Retirement Age and which is the sum of the Participant's
Frozen Accrued and Current Target
42
<PAGE>
Benefits, but which may be greater or less than the Plan
benefit actually available for distribution from the Plan to
a Participant or Beneficiary.
K. Target Benefit Taxable Wage Base: The contribution and
benefit base in effect at the beginning of the Plan Year
under Section 230 of the Social Security Act.
L. Year of Participation: Each year for which Plan benefits
are accruing for a Participant.
M. Years of Projected Participation: The sum of (1) and (2),
where (1) is the number of years during which the
Participant Benefitted under the Plan beginning with the
latest of (a) the first Plan Year in which the Participant
Benefitted under the Plan, (b) the first Plan Year taken
into account in the Target Benefit formula and (c) any Plan
Year immediately following a Plan Year in which the Plan did
not satisfy the requirements of Treasury Regulation Section
1.401(a)(4)-8(b)(3), and ending with the last day of the
current Plan Year, and (2) is the number of years, if any,
after the current Plan Year through the end of the Plan Year
in which the Participant will attain his or her Normal
Retirement Age.
For purposes of this definition, if this Plan is a "prior
safe harbor plan" (as defined below), the Plan is deemed to
satisfy the safe harbor for target benefit plans in Treasury
Regulation Section 1.401(a)(4)-8(b)(3) and a Participant is
treated as benefiting under the Plan in any Plan Year
beginning prior to January 1, 1994.
A "prior safe harbor plan" is a plan that (1) was adopted
and in effect on September 19,1991, (2) which on that date
contained a stated benefit formula that took into account
service prior to that date, and (3) satisfied the applicable
nondiscrimination requirements for target benefit plans for
those prior years. For purposes of determining whether the
Plan satisfies the applicable nondiscrimination requirements
for target benefit plans for Plan Years beginning before
January 1, 1994, no amendments after September 19, 1991,
other than amendments necessary to satisfy Section 401(1) of
the Code, will be taken into account.
12.02 EMPLOYER CONTRIBUTIONS
The Employer will contribute annually the amount necessary to fund each
Participant's Target Benefit, determined each year as follows:
First: Determination of Present Value of Target Benefit -
A. If the Participant has not yet attained Normal Retirement
Age, the present value of his or her Target Benefit is
determined by multiplying the Target Benefit selected in the
Adoption Agreement by the product of (1) the applicable
factor in Table I (if the Participant has not attained age
65) or Table IA (if the Participant has attained an age
which is equal to or greater than age 65), by (2) the
applicable factor in Table III.
B. If the participant has attained an age which is equal to or
greater than Normal Retirement Age, the present value of his
or her Target Benefit is determined by multiplying the
Target Benefit by the applicable factor in Table IV.
Second: Calculation of Theoretical Reserve -
For purposes of this Section, the theoretical reserve is determined
according to (A) and (B) below:
A. Initial theoretical reserve. A Participant's theoretical
reserve as of the last day of the Participant's first year
of projected participation (year 1) is zero. However, if
this Plan is a prior safe harbor plan with a Target Benefit
formula that takes into account Plan Years prior to the
first Plan Year this Plan satisfies the safe harbor in
Treasury Regulation Section 1.401(a)(4)-8(b)(3)(c), the
initial theoretical reserve is determined as follows:
1. Calculate as of the last day of the Plan Year
immediately preceding year 1 the present value of the
Target Benefit, using the actuarial assumptions, the
provisions of the Plan, and the Participant's
Compensation as of such date. For a Participant who is
beyond Normal Retirement Age during year 1, the Target
Benefit will be determined using the actuarial
assumptions, the provisions of the Plan, and the
Participant's Compensation as of such date, except that
the straight life annuity factor used in that
determination will be the factor applicable for the
Participant's Normal Retirement Age.
2. Calculate as of the last day of the Plan Year
immediately preceding year 1 the present value of
future Employer Contributions, i.e, the contributions
due each Plan Year using the actuarial assumptions, the
provisions of the Plan, (disregarding those provisions
of the Plan providing for the limitations of Section
415 of the Code or the minimum contributions under
Section 416), and the Participant's Compensation as of
such date, beginning with year 1 through the end of the
Plan Year in which the Participant attains Normal
Retirement Age.
3. Subtract the amount determined in (2) from the amount
determined in (1).
B. Accumulate the initial theoretical reserve determined in (A)
and the Employer Contribution (as limited by Section 415 of
the Code, but without regard to any required minimum
contributions under Section 416) for each Plan Year
beginning in year 1 up through the last day of the current
Plan Year (excluding contribution(s) (if any) for the
current Plan Year) using the Plan's interest assumption in
effect for each such year. In any Plan Year following the
Plan Year in which the Participant attains Normal Retirement
Age, the accumulation is calculated assuming an interest
rate of 0%.
For purposes of determining the level of annual Employer
Contribution necessary to fund the Target Benefit, the
calculations in (A) and (B) above will be made as of the
last day of each Plan Year, on the basis of the
Participant's age on the Participant's last birthday, using
the interest rate in effect on the last day of the prior
Plan Year.
Third: Calculate the excess, if any, of the present value of the Target
Benefit determined under paragraph First over the theoretical reserve
determined under paragraph Second.
Fourth: Amortize the result obtained under paragraph Third by multiplying
the amount determined under paragraph Third by the applicable factor in
Table II. (For the Plan Year in which the Participant attains Normal
Retirement Age and for subsequent Plan Years the applicable factor is 1.0.)
This is the amount of the Employer's required contribution for the current
Plan Year (subject, however, to the limitations under Section 3.05 and
without regard to any minimum Employer Contribution required under Section
3.01(E)) to fund the
43
<PAGE>
Participant's Target Benefit.
12.03 EMPLOYEE CONTRIBUTIONS
No Employee contributions will be required or permitted to fund the Target
Benefit.
12.04 FORFEITURES
All Forfeitures under the Plan will be used to reduce Employer
Contributions required under the Plan.
12.05 TABLES
TABLE I: PRESENT VALUE FACTORS (SEE * BELOW)
<TABLE>
<CAPTION>
Number of years
from attained
age to age 65 Interest Rate
------------- -------------
<S> <C> <C> <C>
7.50% 8.00% 8.50%
1 7.868 7.589 7.326
2 7.319 7.027 6.752
3 6.808 6.506 6.223
4 6.333 6.024 5.736
5 5.891 5.578 5.286
6 5.480 5.165 4.872
7 5.098 4.782 4.491
8 4.742 4.428 4.139
9 4.412 4.100 3.815
10 4.104 3.796 3.516
11 3.817 3.515 3.240
12 3.551 3.255 2.986
13 3.303 3.014 2.752
14 3.073 2.790 2.537
15 2.859 2.584 2.338
16 2.659 2.392 2.155
17 2.474 2.215 1.986
18 2.301 2.051 1.831
19 2.140 1.899 1.687
20 1.991 1.758 1.555
21 1.852 1.628 1.433
22 1.723 1.508 1.321
23 1.603 1.396 1.217
24 1.491 1.293 1.122
25 1.387 1.197 1.034
26 1.290 1.108 0.953
27 1.200 1.026 0.878
28 1.116 0.950 0.810
29 1.039 0.880 0.746
30 0.966 0.814 0.688
31 0.899 0.754 0.634
32 0.836 0.698 0.584
33 0.778 0.647 0.538
34 0.723 0.599 0.496
35 0.673 0.554 0.457
36 0.626 0.513 0.422
37 0.582 0.475 0.389
38 0.542 0.440 0.358
39 0.504 0.407 0.330
40 0.469 0.377 0.304
41 0.436 0.349 0.280
42 0.406 0.323 0.258
43 0.377 0.299 0.228
44 0.351 0.277 0.219
45 0.327 0.257 0.202
</TABLE>
* If a Participant's attained age is at or above 65 but still below
Normal Retirement Age, use Table IA. Note: These factors are based on the
UP-1984 Mortality Table.
TABLE IA: PRESENT VALUE FACTORS FOR PARTICIPANTS YOUNGER THAN NORMAL
RETIREMENT AGE (TO BE USED ONLY WHEN ATTAINED AGE IS GREATER THAN OR EQUAL
TO 65)
<TABLE>
<CAPTION>
Number of years
from age 65
to attained age Interest Rate
--------------- -------------
<S> <C> <C> <C>
7.50% 8.00% 8.50%
0 8.458 8.196 7.949
1 9.092 8.852 8.625
2 9.774 9.560 9.358
3 10.507 10.325 10.153
4 11.295 11.151 11.016
5 12.143 12.043 11.953
6 13.053 13.006 12.969
7 14.032 14.047 14.071
8 15.085 15.170 15.267
9 16.216 16.384 16.565
10 17.432 17.695 17.973
11 18.740 19.110 19.500
12 20.145 20.639 21.158
13 21.656 22.290 22.956
14 23.280 24.073 24.907
15 25.026 25.999 27.025
</TABLE>
Note: These factors are based on the UP-1984 Mortality Table.
<PAGE>
TABLE II: AMORTIZATION FACTORS
<TABLE>
<CAPTION>
Number of years from
attained age to
Normal Retirement Age Interest Rate
--------------------- -------------
<S> <C> <C> <C>
7.50% 8.00% 8.50%
1 0.5181 0.5192 0.5204
2 0.3577 0.3593 0.3609
3 0.2777 0.2796 0.2814
4 0.2299 0.2319 0.2339
5 0.1982 0.2003 0.2024
6 0.1756 0.1778 0.1801
7 0.1588 0.1611 0.1634
8 0.1458 0.1482 0.1506
9 0.1355 0.1380 0.1405
10 0.1272 0.1297 0.1323
11 0.1203 0.1229 0.1255
12 0.1145 0.1171 0.1198
13 0.1096 0.1123 0.1151
14 0.1054 0.1082 0.1110
15 0.1018 0.1046 0.1075
16 0.0986 0.1015 0.1044
17 0.0958 0.0988 0.1018
18 0.0934 0.0964 0.0994
19 0.0912 0.0943 0.0974
20 0.0893 0.0924 0.0956
21 0.0876 0.0908 0.0940
22 0.0861 0.0893 0.0925
23 0.0847 0.0879 0.0912
24 0.0835 0.0867 0.0901
25 0.0823 0.0857 0.0890
26 0.0813 0.0847 0.0881
27 0.0804 0.0838 0.0872
28 0.0795 0.0830 0.0865
29 0.0788 0.0822 0.0858
30 0.0781 0.0816 0.0851
31 0.0774 0.0810 0.0846
32 0.0768 0.0804 0.0840
33 0.0763 0.0799 0.0836
34 0.0758 0.0794 0.0831
35 0.0753 0.0790 0.0827
36 0.0749 0.0786 0.0824
37 0.0745 0.0783 0.0820
38 0.0742 0.0779 0.0817
39 0.0739 0.0776 0.0815
40 0.0736 0.0774 0.0812
41 0.0733 0.0771 0.0810
42 0.0730 0.0769 0.0808
43 0.0728 0.0767 0.0806
44 0.0726 0.0765 0.0804
45 0.0724 0.0763 0.0802
</TABLE>
TABLE III: FACTORS TO BE MULTIPLIED BY THOSE IN TABLE I.
<TABLE>
<CAPTION>
Normal
Retirement Age Interest Rate
-------------- -------------
<S> <C> <C> <C>
7.50% 8.00% 8.50%
80 0.206 0.194 0.184
79 0.231 0.219 0.207
78 0.258 0.246 0.234
77 0.289 0.276 0.263
76 0.322 0.309 0.296
75 0.359 0.346 0.333
74 0.400 0.387 0.347
73 0.446 0.432 0.419
72 0.495 0.482 0.469
71 0.549 0.537 0.525
70 0.609 0.597 0.586
69 0.674 0.664 0.653
68 0.745 0.736 0.728
67 0.822 0.816 0.810
66 0.907 0.904 0.900
65 1.000 1.000 1.000
64 1.101 1.106 1.110
63 1.212 1.221 1.231
62 1.332 1.348 1.363
61 1.464 1.486 1.509
60 1.606 1.637 1.669
59 1.761 1.802 1.844
58 1.929 1.982 2.036
57 2.111 2.177 2.246
56 2.309 2.390 2.475
55 2.523 2.622 2.726
</TABLE>
Note: These factors are based on the UP-1984 Mortality Table.
45
<PAGE>
TABLE IV: FACTORS FOR PARTICIPANTS WHO ARE AT OR OLDER THAN NORMAL
RETIREMENT AGE.
<TABLE>
<CAPTION>
Normal
Retirement Age Interest Rate
-------------- --------------
<S> <C> <C> <C>
7.50% 8.00% 8.50%
80 5.151 5.053 4.959
79 5.370 5.264 5.162
78 5.591 5.476 5.366
77 5.814 5.690 5.572
76 6.039 5.905 5.777
75 6.266 6.122 5.985
74 6.494 6.339 6.192
73 6.721 6.556 6.398
72 6.947 6.771 6.603
71 7.171 6.983 6.804
70 7.392 7.192 7.003
69 7.610 7.399 7.198
68 7.825 7.601 7.389
67 8.037 7.801 7.577
66 8.248 7.999 7.764
65 8.458 8.196 7.949
64 8.666 8.390 8.131
63 8.870 8.581 8.311
62 9.072 8.770 8.485
61 9.270 8.954 8.657
60 9.463 9.133 8.825
59 9.651 9.307 8.986
58 9.834 9.477 9.143
57 10.012 9.641 9.295
56 10.186 9.801 9.442
55 10.354 9.955 9.585
</TABLE>
Note: These factors are based on the UP-1984 Mortality Table.
46
<PAGE>
EXHIBIT 10.33
TAX INDEMNIFICATION AND DISTRIBUTION AGREEMENT
THIS TAX INDEMNIFICATION AND DISTRIBUTION AGREEMENT ("Agreement"), dated as
of the _____ day of _______________________________, 1996, is by and between
Kevco, Inc., a Texas corporation ("New Kevco"), Kevco Texas, Inc., a Texas
corporation and its successors (collectively "Old Kevco"), and Gerald E. Kimmel,
Christine S. Pearce, Amy L. Mueller, Gregory G. Kimmel, James W. Kimmel and
Clyde A. Reed, Jr. (collectively, the "Shareholders").
R E C I T A L S:
---------------
1. Old Kevco is an S corporation within the meaning of Code Section
1361(a)(1). The Shareholders own all of the outstanding shares of common stock
of Old Kevco.
2. The Shareholders have agreed to transfer all of their Old Kevco shares
of common stock to New Kevco in exchange for shares of New Kevco common stock.
3. The transfer of all of Old Kevco's shares of common stock to New Kevco
will terminate Old Kevco's S election.
4. Old Kevco, New Kevco and the Shareholders desire to set forth their
rights and obligations with respect to certain matters related to the
termination of Old Kevco's S election.
NOW, THEREFORE, in consideration of the transfer by the Shareholders of all
of their Old Kevco shares to New Kevco and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, New
Kevco, Old Kevco and the Shareholders agree as follows:
ARTICLE ONE
DEFINITIONS
-----------
SECTION 1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings specified below:
(a) "1996 DISTRIBUTIONS" shall have the meaning set forth in Section
3.3(d).
(b) "ACCUMULATED ADJUSTMENTS ACCOUNT" shall have the meaning set forth
in Code Section 1368(e)(1).
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "FINAL ACCUMULATED ADJUSTMENTS ACCOUNT AVAILABLE FOR DISTRIBUTION"
shall have the meaning set forth in Section 3.3(c).
(e) "FINAL S CORPORATION DATE" shall mean the day preceding the date
on which Old Kevco's S corporation election terminates.
<PAGE>
(f) "FUTURE S CORPORATION EARNINGS NOTE" shall have the meaning
ascribed to such term in the Registration Statement on Form S-1 filed by
New Kevco with the Securities and Exchange Commission (Registration
No. 333- 11173) on the date such Registration Statement is declared
effective by the Securities and Exchange Commission.
(g) "PRIOR S CORPORATION EARNINGS NOTE" shall have the meaning
ascribed to such term in the Registration Statement on Form S-1 filed by
New Kevco with the Securities and Exchange Commission (Registration No.
333-11173) on the date such Registration Statement is declared effective by
the Securities and Exchange Commission.
(h) "TAX" or "TAXES" shall mean any state, local, foreign or federal
tax that is measured by, based upon or imposed in respect of, the income or
receipts of Old Kevco or any predecessor of Old Kevco, and all interest,
penalties and additions to tax incurred in respect thereof.
(i) "TAX RETURN" shall mean any return (including any information
return), statement or report required to be filed or that may be filed with
any governmental authority in connection with any Tax.
ARTICLE TWO
TAX PAYMENTS, RETURNS AND INFORMATION
-------------------------------------
SECTION 2.1 PAYMENT OF TAXES. Old Kevco and each Shareholder shall be
responsible for the timely payment of all Taxes required by law to be paid by
any of them. Old Kevco shall indemnify and hold harmless each Shareholder from
and against any costs, expenses (including costs and expenses of attorneys and
accountants), interest and penalties incurred by the Shareholder as a result of
any failure on the part of Old Kevco to timely furnish the Shareholder with any
information required by the Shareholder to determine the correct amount of any
Tax.
SECTION 2.2 FILING OF TAX RETURNS. Old Kevco shall timely file all Tax
Returns required to be filed by Old Kevco for periods ending on or before the
Final S Corporation Date and shall timely furnish to each Shareholder a copy
thereof together with all other information required by applicable law to be
furnished to each Shareholder in respect thereof. Each Shareholder shall be
provided a reasonable period of time to review and comment on all Tax Returns
required to be filed by Old Kevco for periods ending on or before the Final S
Corporation Date. To the extent permitted by applicable law, Old Kevco's items
of income, loss, deduction and credit shall be allocated among periods ending
before, on or after the date on which Old Kevco's S election terminates by
closing the books of Old Kevco as of the end of the day on the Final S
Corporation Date.
SECTION 2.3 ACCESS TO INFORMATION. Old Kevco shall provide each
Shareholder access to the books and records in its possession and to its
employees and shall permit each Shareholder, at Old Kevco's expense, to make
copies and extracts of relevant portions of its books and records to the extent
reasonably required by the Shareholder in connection with any audit, claim for
refund or other proceeding relating to Taxes for periods ending on or before the
Final S Corporation Date.
2
<PAGE>
ARTICLE THREE
TAX RETURN ADJUSTMENTS OR AMENDMENTS
------------------------------------
SECTION 3.1 NOTICE OF ADJUSTMENTS OR AMENDMENTS. Old Kevco shall
promptly notify each Shareholder of any proposed adjustment, final adjustment or
amendment of any amounts shown on any Tax Return of Old Kevco for any taxable
year or period ending on or before the Final S Corporation Date.
SECTION 3.2 DISTRIBUTIONS WITH RESPECT TO ADJUSTMENTS OR AMENDMENTS.
(a) Subject to Section 3.3(b) below, if any final adjustment or
amendment of any Federal Income Tax Return filed by Old Kevco for any
taxable year or period commencing on or after January 1, 1995 and ending on
or before the Final S Corporation Date shall have the net effect of
increasing the Accumulated Adjustments Account of Old Kevco as shown on the
Tax Return subject to such final adjustment or amendment, Old Kevco shall
immediately distribute to each Shareholder an amount in cash equal to such
net increase in proportion to the Shareholder's ownership interest in Old
Kevco during the period subject to the final adjustment or amendment. In
addition, Old Kevco shall indemnify and hold harmless each Shareholder for
any fees, costs and expenses (including fees and expenses of attorneys and
accountants), interest and penalties incurred by the Shareholder that
relate to any underpayment of Tax by the Shareholder as a result of such
final adjustment or amendment.
(b) Notwithstanding the foregoing provisions of Section 3.2(a), no
such distribution or indemnity amount shall be made or payable with respect
to any increase to the Accumulated Adjustments Account of Old Kevco (nor
any such fees, costs, expenses, interest and penalties that relate to any
underpayment of Tax as a result of such final adjustment or amendment) that
is attributable to any distribution of property made by Old Kevco to the
Shareholders.
SECTION 3.3 OTHER DISTRIBUTIONS.
(a) If the Final Accumulated Adjustments Account Available for
Distribution exceeds the 1996 Distributions, then, no later than the
original filing of the 1996 Return, Old Kevco shall immediately distribute
to each Shareholder an amount in cash equal to such excess in proportion to
the Shareholder's ownership interest in Old Kevco for the period commencing
January 1, 1996 and ending on the Final S Corporation Date.
(b) If the 1996 Distributions exceed the Final Accumulated Adjustments
Account Available for Distribution, as determined at the time of the filing
of the 1996 Return, then, at the time of such filing, each Shareholder
shall return to Old Kevco an amount in cash equal to such excess in
proportion to the Shareholder's ownership interest in Old Kevco for the
period commencing January 1, 1996 and ending on the Final S Corporation
Date.
(c) The term "FINAL ACCUMULATED ADJUSTMENTS ACCOUNT AVAILABLE FOR
DISTRIBUTION" shall mean the sum of the following:
3
<PAGE>
(i) the Accumulated Adjustments Account of Old Kevco as of
December 31, 1995 as shown on the Federal Income Tax Return originally
filed by Old Kevco for the period commencing January 1, 1995 and
ending on December 31, 1995; and
(ii) the net increase or decrease to the Accumulated Adjustments
Account of Old Kevco (prior to taking into account the 1996
Distributions) for the period commencing January 1, 1996 and ending on
the Final S Corporation Date as shown on the Federal Income Tax Return
originally filed by Old Kevco for such period (the "1996 Return").
(d) The term "1996 DISTRIBUTIONS" shall mean the sum of the following:
(i) all cash distributions declared or made by Old Kevco to the
Shareholders during the period commencing January 1, 1996 and ending
on the Final S Corporation Date;
(ii) the principal amount of the Prior S Corporation Earnings
Note;
(iii) the principal amount of the Future S Corporation Earnings
Note; and
(iv) the amount of any other distributions of property declared
or made by Old Kevco to the Shareholders during the period commencing
January 1, 1996 and ending on the Final S Corporation Date and
including without limitation the distribution of that certain
promissory note in the original principal amount of $5.0 million dated
October 26, 1993, executed by Gerald E. Kimmel and payable to Old
Kevco.
SECTION 3.4 NEGOTIATION AND PREPARATION. Old Kevco shall:
(a) negotiate any final adjustment and prepare any amendment referred
to in Section 3.2;
(b) prepare its Federal Income Tax Return for the period commencing
January 1, 1996 and ending on the Final S Corporation Date; and
(c) determine the earnings of Old Kevco for the period commencing July
1, 1996 and ending on the Final S Corporation Date, for purposes of
determining the principal amount of the Future S Corporation Earnings Note;
in a good faith manner consistent with its past practices and accounting
methods.
4
<PAGE>
ARTICLE FOUR
GUARANTY
--------
New Kevco joins in executing this Agreement for the sole purpose of
guaranteeing the prompt payment and performance by Old Kevco of its obligations
under this Agreement.
ARTICLE FIVE
MISCELLANEOUS
-------------
SECTION 5.1 ADDRESS FOR NOTICE. Any notice, demand, claim or other
communication required by this Agreement shall be in writing and shall be
addressed to a party at the address set forth in this Agreement or at such other
address notice of which has been given as provided in this Agreement.
SECTION 5.2 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties, and supersedes all prior agreements
and understandings between them in respect of the subject matter hereof.
SECTION 5.3 AMENDMENT AND MODIFICATION. This Agreement may not be
amended, and no waiver of any provision of this Agreement shall be effective
unless set forth in a written instrument signed by the party intended to be
bound thereby.
SECTION 5.4 BINDING EFFECT. This Agreement shall be binding upon and
inure only to the benefit of the parties hereto and their respective successors
and assigns. This Agreement is not intended to benefit any person other than
the parties hereto, their successors and assigns. Neither Old Kevco nor New
Kevco may assign its obligation under this Agreement.
SECTION 5.5 GOVERNING LAW. This Agreement and the obligations of the
parties under this Agreement shall be construed and enforced in accordance with
the laws of the State of Texas, excluding any conflicts of law principles that
might refer such construction to the laws of another jurisdiction.
SECTION 5.6 ENFORCEABILITY. The invalidity or unenforceability of
any provision hereof in any jurisdiction shall not affect the validity or
enforceability of the remainder hereof.
SECTION 5.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date set forth above.
KEVCO, INC.
1300 South University Drive, Suite 200
Fort Worth, Texas 76107
By:__________________________________
Its: Chairman of the Board and President
KEVCO TEXAS, INC.
1300 South University Drive, Suite 200
Fort Worth, Texas 76107
By:__________________________________
Its: Chairman of the Board and President
_____________________________________
Gerald E. Kimmel
1300 South University Drive, Suite 200
Fort Worth, Texas 76107
_____________________________________
Christine Sue Pearce
P.O. Box 79170
Fort Worth, Texas 76179
_____________________________________
Amy Llewella Mueller
709 Evergreen
Hurst, Texas 76054
6
<PAGE>
_____________________________________
Gregory Gerald Kimmel
1300 South University Drive, Suite 200
Fort Worth, Texas 76107
_____________________________________
Clyde A. Reed, Jr.
1300 South University Drive, Suite 200
Fort Worth, Texas 76107
_____________________________________
James W. Kimmel
1616 E. Cindy Lane
Chandler, Arizona 85225
7
<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 day immediately preceding the day on
which an initial public offering of the $.01 par value common stock of Kevco,
Inc., a Texas corporation, is consummated, net of cash distributions declared
and paid during such period, 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 10.36
ASSIGNMENT
THIS ASSIGNMENT (the "Assignment") is executed and delivered this 27th day
of August, 1996 by KEVCO, INC., a Texas Corporation ("Assignor") to the
shareholders of Assignor identified on Exhibit "A" attached hereto (collectively
the "Assignees");
WITNESSETH:
WHEREAS, on October 26, 1993, Gerald E. Kimmel ("Kimmel") executed and
delivered to Assignor a promissory note (the "Note") in the original principal
amount of $5,000,000 to evidence a loan made to Kimmel by Assignor; and
WHEREAS, the board of directors of Assignor have heretofore determined that
it is in the best interest of Assignor that the Note should be distributed to
its shareholders, such distribution to be effective as of June 30, 1996 (the
"Effective Date");
NOW, THEREFORE, IN CONSIDERATION of the premises, Assignor does hereby
transfer, convey, assign, deliver and set over, and by these presents does
hereby transfer, convey, assign, deliver and set over, unto Assignees, 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 Note. A substitute Note shall be issued to
each of Assignees for the Percentage Amount of the outstanding principal amount
of the Note as of the Effective Date against and upon receipt by Kimmel of the
original Note. As used herein, the term "Percentage Amount" means the amount
shown opposite the name of each of Assignees on Exhibit "A" hereto.
TO HAVE AND TO HOLD the Note with all the appurtenances thereto unto
Assignees, their respective successors, assigns, heirs, executors,
administrators, receivers, trustees, and legal representatives forever, to their
own use and benefit forever.
ASSIGNMENT - Page 1
<PAGE>
Executed and delivered as of the day first above written, effective the
Effective Date.
ASSIGNOR:
KEVCO, INC.
By:
-----------------------------------
Its
-------------------------------
ASSIGNMENT - Page 2
<PAGE>
EXHIBIT "A"
to
Assignment
Name of Assignee 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
ASSIGNMENT - Page 3
<PAGE>
EXHIBIT 10.41
EXHIBIT H
PARENT PLEDGE AGREEMENT
-----------------------
THIS PARENT PLEDGE AGREEMENT (this "Agreement") is made as of
________________, 1996, by Kevco, Inc., a Texas corporation ("Pledgor"), in
favor of NationsBank of Texas, N.A., a national banking association, as
Administrative Lender ("Administrative Lender") for NationsBank of Texas, N.A.,
and each other lender a party to the Credit Agreement described below (singly, a
"Secured Party" and collectively, the "Secured Parties").
A. AGREEMENT
1. Pledge. Upon the terms hereof, for value received, Pledgor hereby
------
irrevocably and unconditionally pledges, grants, assigns, hypothecates and
transfers to the Administrative Lender, for the ratable benefit of the
Administrative Lender and Secured Parties to secure the Obligation (as defined
herein), a first and prior pledge and security interest in (a) all shares of
stock of the Borrower (as defined herein), whether common, preferred or
otherwise, whether now or hereafter owned beneficially or of record by Pledgor,
including, but not limited to, the stock interests described on Exhibit A
attached hereto (collectively, the "Pledged Stock"), (b) all rights to acquire
any such shares, whether by purchase, exercise of any type of option, conversion
of debt or otherwise, and (c) all proceeds thereof, and all distributions,
dividends, increases and profits received therefrom (collectively, the
"Collateral"). Unless otherwise defined in this Agreement, terms used herein
shall have the meanings set forth in the Credit Agreement, dated as of June 30,
1995, among Kevco Delaware, Inc. a Delaware corporation (the "Borrower"), the
Administrative Lender, and the Secured Parties (as amended, modified,
supplemented, renewed, extended or restated from time to time, the "Credit
Agreement").
B. OBLIGATION
1. Description of Obligation. The following obligations (collectively,
-------------------------
the "Obligation") are secured by this Agreement:
a. All debt, obligations, liabilities and agreements of any nature of
Pledgor and the Borrower to the Secured Parties or any Secured Party,
whether matured or unmatured, fixed or contingent, including all future
advances, now or hereafter existing, in each case arising pursuant to or in
connection with (i) this Agreement; (ii) the Credit Agreement; (iii) all
other Loan Documents; and (iv) all amendments, modifications, renewals,
extensions, increases, substitutions or rearrangements of any of the
foregoing.
<PAGE>
b. All reasonable out-of-pocket costs incurred by the Administrative
Lender or any Secured Party necessary to obtain, preserve, perfect and
enforce this Agreement, the other Loan Documents, and the pledge and
security interest granted hereby, collect the Obligation, and maintain,
preserve, collect and enforce the Collateral, including without limitation
taxes, assessments, reasonable attorneys' fees and reasonable legal
expenses, and reasonable expenses of sale.
c. Interest on the above amounts as agreed between the Borrower and
the Secured Parties, including, without limitation, interest, reasonable
fees and other charges that would accrue or become owing both prior to and
subsequent to and but for the commencement of any proceeding against or
with respect to Borrower under any chapter of the Bankruptcy Code of 1978,
11 U.S.C. (S) 101 et seq. whether or not a claim is allowed for the same in
-- ---
any such proceeding.
C. COVENANTS, REPRESENTATIONS AND WARRANTIES
1. Representations and Warranties. Pledgor represents and warrants that
------------------------------
(a) it has full power, authority and legal right to execute, deliver and perform
this Agreement; (b) the Pledged Stock described on Exhibit A constitutes 100% of
the issued and outstanding stock of the Borrower; (c) the Pledged Stock was duly
authorized, validly issued and fully paid and is nonassessable; (d) the pledge,
assignment and delivery of the Collateral create a valid, and so long as the
Administrative Lender retains physical possession of the Collateral, first and
prior perfected security interest in the Collateral, and no other security
agreement covering the Collateral, or any part thereof, has been made, and no
pledge or security interest, other than the one herein created, has attached or
been perfected in the Collateral or in any part thereof; and (e) no dispute,
right of setoff, counterclaim or defense exists with respect to any part of the
Collateral. The delivery at any time by the Pledgor to the Administrative
Lender of Collateral shall constitute a representation and warranty by the
Pledgor under this Agreement that, with respect to such Collateral, and each
item thereof, the Pledgor is the sole legal and beneficial owner of, with good
title to, the Collateral; and the matters warranted in this paragraph are true
and correct.
2. Covenants.
---------
a. Affirmative Covenants. Pledgor covenants and agrees (i) promptly
---------------------
to deliver to the Administrative Lender all instruments, certificates,
documents or agreements evidencing any of the Collateral; (ii) from time to
time promptly to execute and deliver to the Administrative Lender all such
other assignments, certificates, supplemental writings and financing
statements, and do all other acts or things, as the Administrative Lender
or any Secured Party may reasonably request in order more fully to evidence
and perfect the security interest and pledge herein created or to effect
the purposes of this Agreement; and (iii) promptly to notify the
Administrative Lender of any claim, action or proceeding materially
adversely affecting title to the Collateral, or any part thereof, or the
security interest therein.
- 2 -
<PAGE>
b. Negative Covenants. Pledgor covenants and agrees that each Pledgor
------------------
will not (i) sell, assign or transfer any of Pledgor's rights in the
Collateral; (ii) create any other security interest or pledge in, mortgage
or otherwise encumber the Collateral or any part thereof; (iii) cause or
permit the Borrower to issue any stock or rights to acquire any such stock
to Pledgor that are not concurrently delivered to the Administrative
Lender; or (iv) agree to amend or modify the certificate of incorporation,
by-laws, or other agreement or document for the Borrower (or otherwise
agree or obligate Pledgor) in such a manner as to reduce the percentage of
shareholder interests of the Borrower owned by Pledgor or otherwise
adversely affect the rights of the Administrative Lender and the Lenders in
the Collateral.
D. RIGHTS OF SECURED PARTIES
1. Rights to Dividends, Distributions, and Payments. With respect to
------------------------------------------------
such instruments which are certificates, bonds or other securities, the
Administrative Lender may demand of the Borrower, and may receive and receipt
for, any and all dividends and other distributions (other than cash dividends)
payable in respect thereof, whether ordinary or extraordinary, other than those
distributions permitted by the Credit Agreement. The Administrative Lender
shall have the authority, following the occurrence and during the continuance of
an Event of Default and upon written notice to Pledgor to do so, to have such
certificates, bonds or other securities registered either in the Administrative
Lender's name or in the name of a nominee. If, while this Agreement is in
effect, Pledgor shall become entitled to receive or shall receive any
certificate (including, without limitation, any certificate representing a
dividend or a distribution in connection with any reclassification, increase or
reduction of capital, or issued in connection with any reorganization), option
or rights, whether as an addition to, in substitution of, as a conversion of or
in exchange for any of the Collateral, or otherwise, Pledgor agrees to accept
the same as the Administrative Lender's agent and to hold the same in trust on
behalf of and for the benefit of the Administrative Lender, and to deliver the
same forthwith to the Administrative Lender in the exact form received, with
appropriate undated stock powers, duly executed in blank, to be held by the
Administrative Lender, subject to the terms hereof, as additional collateral
security for the Obligation. Until an Event of Default shall have occurred and
is continuing, Pledgor shall be entitled to receive all cash distributions paid
in respect of the Collateral. After the occurrence and during the continuance
of an Event of Default, the Administrative Lender shall be entitled to all cash
distributions, and to any sums paid upon or in respect of the Collateral upon
the liquidation, dissolution or reorganization of the issuer thereof which shall
be paid to the Administrative Lender to be held by it as additional collateral
security for the Obligation. In case any distribution shall be made on or in
respect of the Collateral pursuant to the reorganization, liquidation or
dissolution of the issuer thereof, the property so distributed shall be
delivered to the Administrative Lender to be held by it as additional collateral
security for the Obligation. After the occurrence and during the continuance of
an Event of Default, all sums of money and property so paid or distributed in
respect of the Collateral (other than proceeds of any liquidation or similar
proceeding) which are received by Pledgor shall, until paid or delivered to the
Administrative Lender, be held by Pledgor in trust as additional Collateral for
the Obligation.
- 3 -
<PAGE>
2. Preservation of Collateral. Neither the Administrative Lender nor any
--------------------------
Secured Party shall have any duty to fix or preserve rights against prior
parties to the Collateral, nor be liable for any delay in the collection of, or
failure to use diligence to collect on, the Obligation or any amount payable in
respect of the Collateral.
3. Performance by the Administrative Lender. Should any covenant, duty
----------------------------------------
or agreement of Pledgor fail to be performed in accordance with its terms
hereunder, the Administrative Lender may, but shall never be obligated to,
perform or attempt to perform such covenant, duty or agreement on behalf of
Pledgor, and any reasonable amount expended by the Administrative Lender in such
performance or attempted performance shall become a part of the Obligation,
shall be payable upon demand and shall bear interest at a per annum rate equal
to the lesser of the Highest Lawful Rate and the sum of the Prime Rate Basis
plus two percent.
4. Voting Rights. It is expressly understood and agreed that Pledgor
-------------
shall retain all voting rights to the Collateral until the occurrence and during
the continuance of an Event of Default, at which time such voting rights shall
transfer to the Administrative Lender, at its sole but reasonable discretion.
5. Power of Attorney. PLEDGOR HEREBY IRREVOCABLY GRANTS TO THE
-----------------
ADMINISTRATIVE LENDER PLEDGOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE
OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO VOTE ANY COLLATERAL AND APPOINTS
THE ADMINISTRATIVE LENDER PLEDGOR'S ATTORNEY-IN-FACT (EXERCISABLE FROM AND AFTER
THE OCCURRENCE OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO PERFORM ALL
OBLIGATIONS OF PLEDGOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF THE
ADMINISTRATIVE LENDER'S RIGHTS HEREUNDER. THE PROXY AND POWER OF ATTORNEY
HEREIN GRANTED, AND EACH STOCK POWER AND SIMILAR POWER NOW OR HEREAFTER GRANTED
(INCLUDING ANY EVIDENCED BY A SEPARATE WRITING) ARE COUPLED WITH AN INTEREST AND
ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATION.
E. DEFAULT
1. Rights and Remedies. Upon the occurrence and during the continuance
-------------------
of an Event of Default, in addition to any and all other rights and remedies
which the Administrative Lender or any Secured Party may then have hereunder,
under any other Loan Documents, under Applicable Law or otherwise, the
Administrative Lender at its option may, subject to any limitation or
restriction imposed by any applicable bankruptcy, insolvency or other law
relating to the relief of debtors, (a) obtain from any Person information
regarding Pledgor, any issuer of the Collateral, or any of their businesses,
which information any such Person may furnish without liability to Pledgor; (b)
require Pledgor to give possession or control of any of the Collateral to the
Administrative Lender; (c) unless earlier permitted hereunder, take control of
funds generated by the Collateral and any other proceeds (except any
distribution permitted
- 4 -
<PAGE>
under the Credit Agreement) and exercise all other rights which an owner of such
Collateral may exercise; (d) declare the entire unpaid balance of principal and
interest on the Obligation immediately due and payable, without notice, demand
or presentment, which are hereby expressly waived; (e) reduce its claim to
judgment, foreclose or otherwise enforce its security interest in all or any
part of the Collateral by any available judicial procedure; (f) after
notification, if any, provided for in this Agreement or any other Loan
Documents, sell or otherwise dispose of, at the office of the Administrative
Lender, all or any part of the Collateral, and any such sale or other
disposition shall be in accordance with Applicable Law, and may be as a unit or
in parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale of any part of the Collateral shall not
exhaust the Administrative Lender's power of sale, but sales may be made from
time to time until all of the Collateral has been sold or until the Obligation
has been paid in full), and at any such sale it shall not be necessary to
exhibit the Collateral; (g) at its discretion, retain the Collateral in
satisfaction of the Obligation whenever the circumstances are such that the
Administrative Lender is entitled to do so under Applicable Law; (h) apply by
appropriate judicial proceedings for appointment of a receiver for the
Collateral, or any part thereof, and Pledgor hereby consents to any appointment;
(i) buy the Collateral at any public sale; and (j) buy the Collateral at any
private sale, subject to any restrictions imposed by Applicable Law. Any
Secured Party may buy the Collateral at any public sale and buy the Collateral
at any private sale, subject to the restrictions imposed by Applicable Law and
this Agreement. Pledgor agrees that, if notice is required to be given by
Applicable Law, 10 days' advance written notice shall constitute reasonable
notice. The Administrative Lender shall apply the proceeds of any collection,
sale, disposition or other realization upon any Collateral as follows:
First, to the payment of the reasonable out-of-pocket costs and
-----
expenses of such collection, sale, disposition, or other realization,
including reasonable out-of-pocket costs and expenses of the Administrative
Lender and the reasonable fees and expenses of its agents and counsel;
Next, to the payment of the Obligation, equally and ratably to each
----
Secured Party in accordance with the respective amounts thereof due and
owing to each Secured Party; and
Finally, to the payment to Pledgor, or their respective successors or
-------
assigns, or as a court of competent jurisdiction may direct, of any surplus
then remaining.
If the proceeds of collection, sale, disposition, or other realization are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Obligation, Pledgor shall remain liable for any deficiency.
2. Transfer
--------
a. Pledgor recognizes that the Administrative Lender may be unable to
effect a public sale of any or all of the Collateral by reason of certain
prohibitions contained
- 5 -
<PAGE>
in the Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities laws, but may be compelled to resort to one or
more private sales thereof to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Collateral for their
own account for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges and agrees that any such private sale
conducted in the manner described herein may result in prices and other
terms less favorable to the seller than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any private sale shall
be made in a commercially reasonable manner. The Administrative Lender
shall be under no obligation to delay a sale of any of the Collateral for
the period of time necessary to permit the issuer of the Collateral to
register such Collateral for public sale under the Securities Act, or under
applicable state securities laws, even if the issuer of the Collateral
would agree to do so.
b. Pledgor agrees (i) that in the event the Administrative Lender
shall, upon any Event of Default which is continuing, sell the Collateral
or any portion thereof, at a private sale or sales, the Administrative
Lender shall have the right to rely upon the reasonable advice and opinion
of a member of a nationally recognized investment banking firm acceptable
to the Administrative Lender, as to the best price reasonably obtainable
upon such a private sale thereof, and (ii) in the absence of fraud, wilful
misconduct and gross negligence, that such reliance shall be conclusive
evidence that the Administrative Lender handled such matter in a
commercially reasonable manner under the UCC.
c. If Administrative Lender shall determine to exercise its right to
sell any or all of the Collateral, and if in the opinion of counsel for
Administrative Lender it is necessary, or if in the opinion of
Administrative Lender it is advisable, to have the Collateral or that
portion thereof to be sold, registered under the provisions of the
Securities Act, Pledgor will execute and deliver, and cause the directors
and officers of the Borrower, all at Pledgor's expense, and to do or cause
to be done all such other acts and things, as may be necessary or, in the
reasonable opinion of Administrative Lender, advisable to register the
Collateral or that portion thereof to be sold, under the provisions of the
Securities Act and to cause a registration statement of the Borrower
relating thereto to become effective and to remain effective for such
period as Administrative Lender may reasonably deem appropriate to
facilitate the sale or other disposition of such Collateral from the date
of the first public offering of the Collateral or that portion thereof to
be sold, and to cause the Borrower to make all amendments thereto and/or to
the related prospectus which, in the reasonable opinion of Administrative
Lender, are necessary or advisable, all in conformity with the requirements
of the Securities Act. Pledgor will cause the Borrower to comply with the
provisions of the securities or "blue sky" laws of any jurisdiction which
Administrative Lender shall designate and will cause the Borrower to make
available to its security holders, as soon as practicable, an earnings
statement which will satisfy the provisions of the Securities Act and
applicable "blue sky" laws.
- 6 -
<PAGE>
3. Notice. Notification of the time and place of any public sale of the
------
Collateral, or reasonable notification of the time after which any private sale
or other intended disposition of the Collateral is to be made, shall be sent to
Pledgor and to any other Person entitled under Applicable Law to notice.
F. GENERAL
1. Administrative Lender's Duties. The Secured Parties hereby appoint
------------------------------
NationsBank of Texas, N.A. as Administrative Lender to act as their agent as
provided herein. In the event the Administrative Lender is replaced pursuant to
Section 10.1(b) of the Credit Agreement, the successor Administrative Lender
appointed in accordance with Section 10.1(b) of the Credit Agreement shall be
the Administrative Lender hereunder. The powers conferred on the Administrative
Lender hereunder are solely to protect the Secured Parties' interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Lender shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders, or
other matters relative to any Collateral, whether or not the Administrative
Lender or any Secured Party has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Administrative Lender accords
its own property. Except as set forth herein, the Administrative Lender shall
not have any duty or liability to protect or preserve any Collateral or to
preserve rights pertaining thereto. Nothing contained in this Agreement shall
be construed as requiring or obligating the Administrative Lender, and the
Administrative Lender shall not be required or obligated, (a) to present or file
any claim or notice or take any action, with respect to any Collateral or in
connection therewith or (b) to notify Pledgor of any decline in the value of any
Collateral.
2. Cumulative Rights. All rights and remedies of the Administrative
-----------------
Lender and the Secured Parties hereunder are cumulative of each other and of
every other right or remedy which the Administrative Lender or the Secured
Parties may otherwise have at law or in equity or under any other contract or
other writing for the enforcement of the security interest herein or the
collection of the Obligation, and the exercise of one or more rights or remedies
shall not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies.
3. Waiver. Should any part of the Obligation be payable in installments,
------
the acceptance by any Secured Party at any time and from time to time of partial
payment of the aggregate amount of all installments then matured shall not be
deemed as a waiver of any Event of Default then existing. No waiver by the
Administrative Lender or any Secured Party of any Event of Default shall be
deemed to be a waiver of any other subsequent Event of Default, nor shall any
such waiver by the Administrative Lender or any Secured Party be deemed to be a
continuing waiver. No delay or omission by the Administrative Lender or any
Secured Party in exercising any right or power hereunder, or under any other
Loan Documents, shall impair
- 7 -
<PAGE>
any such right or power or be construed as a waiver thereof or an acquiescence
therein, nor shall any single or partial exercise of any such right or power
preclude other or further exercise thereof, or the exercise of any other right
or power of the Administrative Lender or any Secured Party hereunder or under
such other writings.
4. Interest; Limitation of Law. No provision herein or in any Loan
---------------------------
Documents shall require the payment or permit the collection of interest in
excess of the maximum permitted by Applicable Law. If, in any contingency
whatsoever, the Administrative Lender or any Secured Party shall receive
anything of value from Pledgor deemed interest under Applicable Law which would
exceed the maximum amount of interest permissible under Applicable Law, the
provisions of the Credit Agreement shall govern to the same extent as if Pledgor
were deemed to be the Borrower thereunder.
5. Parties Bound. This Agreement shall be binding on Pledgor and its
-------------
successors, assigns, administrators and legal representatives, and shall inure
to the benefit of the Administrative Lender and the Secured Parties, and their
successors, permitted assigns and legal representatives; provided, however, that
Pledgor may not assign its rights or obligations hereunder without the prior
written consent of the Administrative Lender. The rights, powers and interests
held by the Administrative Lender hereunder may be transferred and assigned by
the Administrative Lender, in whole or in part, at such time and upon such terms
as permitted by the Credit Agreement.
6. Notice; Waivers by Pledgor. All notices and other communications
--------------------------
provided for hereunder shall be in writing and mailed, telecopied or delivered
by reputable overnight delivery service or by hand, addressed to Pledgor at its
address specified on the signature pages hereof, if to the Administrative
Lender, addressed to it at his address specified in the Credit Agreement, or, as
to each party at such other address as shall be designated by such party in a
written notice to the other party complying as to delivery with the terms of
this Section 6. All such notices and other communications shall, when mailed,
telecopied, or delivered, be effective three days after being deposited in the
mails, when telecopied with confirmation of receipt, or when delivered by
reputable overnight delivery service or by hand to the addressee or its agent,
respectively. To the extent permitted by Applicable Law, Pledgor waives notices
of the creation, advance, increase, existence, extension or renewal of, and of
any indulgence with respect to, the Obligation; waives presentment, demand,
notice of dishonor and protest; waives notice of the amount of the Obligation
outstanding at any time, notice of any change in financial condition of any
Person liable for the Obligation or any part thereof, notice of any Event of
Default and all other notices respecting the Obligation; waives all rights of
redemption, appraisal, or valuation; and agrees that maturity of the Obligation
and any part thereof may be accelerated, increased, extended or renewed one or
more times by the Secured Parties in their discretion, without notice to
Pledgor.
7. Modifications. No provision hereof shall be modified or limited
-------------
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by the Administrative Lender and Pledgor.
- 8 -
<PAGE>
8. Control. Notwithstanding anything herein to the contrary, this
-------
Agreement and the transactions contemplated hereby do not and will not
constitute, create, or have the effect of constituting or creating, directly or
indirectly, actual or practical ownership of the issuer of the Collateral by the
Administrative Lender, or control, affirmative or negative, direct or indirect,
by the Administrative Lender or the Secured Parties, over the management or any
aspect of the day-to-day operation of the issuer of the Collateral, which
control remains in Pledgor and the issuer of the Collateral.
9. Obligations Not Affected. To the fullest extent permitted by
------------------------
Applicable Law, the pledge, assignment and security interest granted herein and
obligations of Pledgor under this Agreement shall remain in full force and
effect without regard to, and shall not be impaired or affected by:
a. any amendment or modification or addition or supplement to any
Loan Document, any instrument delivered in connection therewith or any
assignment or transfer thereof, including but not limited to any increase
in the Commitments;
b. any exercise, non-exercise, or waiver by the Administrative Lender
or any Secured Party of any right, remedy, power or privilege under or in
respect of, or any release of any guaranty, any collateral or the
Collateral or any part thereof provided pursuant to, this Agreement or any
other Loan Document;
c. any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any other Loan Document or any
assignment or transfer of any thereof; or
d. any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of the Borrower or any
other Person, whether or not Pledgor shall have notice or knowledge of any
of the foregoing.
10. Release of Collateral. Upon payment of the Obligation and termination
---------------------
of the Commitments under the Credit Agreement, the Administrative Lender shall,
upon the request of Pledgor and at Pledgor's sole cost and expense, release its
security interest in the Collateral granted hereunder and deliver the Collateral
to Pledgor. The Administrative Lender agrees that it will execute any documents
or instruments reasonably necessary to effect the release of the Collateral
under this Section 10.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, PLEDGOR AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED
IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION
HEREWITH.
- 9 -
<PAGE>
12. WAIVER OF JURY TRIAL. PLEDGOR AND THE ADMINISTRATIVE LENDER HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM
EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL
INDUCEMENT TO EACH LENDER ENTERING INTO THE CREDIT AGREEMENT.
13. ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN
----------------
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
============================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
============================================
- 10 -
<PAGE>
IN WITNESS WHEREOF, Pledgor have executed this Pledge Agreement as of
_________________, 1996.
KEVCO, INC.
Address of Pledgor:
University Centre I By:_____________________________
1300 South University, Suite 200 Name:________________________
Fort Worth, Texas 76107 Title:_______________________
Attn: Jerry E. Kimmel
NATIONSBANK OF TEXAS, N.A., as
Administrative Lender
By:___________________________
Name:______________________
Title:_____________________
- 11 -
<PAGE>
Exhibit A to Pledge Agreement
Stockholder Issuer Number of Shares
----------- ------ ----------------
Kevco, Inc. Kevco Delaware, Inc. 1,000
<PAGE>
EXHIBIT 10.42
CONSENT AND WAIVER
THIS CONSENT AND WAIVER (this "Consent") is entered into as of the _____
-------
day of October, 1996 (but effective as of August 29, 1996), by and among
NATIONSBANK OF TEXAS, N.A., THE SUMITOMO BANK, LTD. (such banks, and their
successors and assigns, are collectively referred to herein as the "Lenders"),
-------
KEVCO TEXAS, INC. (formerly known as Kevco, Inc.), a Texas corporation (the
"Borrower"), and NATIONSBANK OF TEXAS, N.A., as Administrative Lender for the
- ---------
Lenders (the "Administrative Lender").
---------------------
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Lender heretofore
entered into that certain Credit Agreement, dated as of June 30, 1995, as
amended by that certain First Amendment to Credit Agreement, dated as of
September 1, 1995, and that certain Second Amendment to Credit Agreement, dated
as of November 29, 1995 (said Credit Agreement, as amended, the "Credit
------
Agreement"; the terms defined in the Credit Agreement and not otherwise defined
- ---------
herein shall be used herein as defined in the Credit Agreement).
B. The Borrower has informed the Lenders that prior to or concurrently
with the consummation of a proposed stock offering (the "Offering") of
--------
approximately 2,415,000 shares of common capital stock of Kevco, Inc., a Texas
corporation ("New Kevco"), the following will occur or result therefrom (the
---------
matters set forth in 1 through 6 below being collectively the "Restructuring"):
-------------
1. The Borrower will be merged into Kevco Delaware, Inc., a Delaware
corporation ("Kevco Delaware"), and Kevco Delaware shall be the survivor
--------------
and shall assume all the liabilities and obligations of the Borrower,
including those liabilities arising pursuant to the Credit Agreement and
the other Loan Documents (the "Merger").
2. Prior to the consummation of the Offering, the current
shareholders of the Borrower will exchange on a share-for-share basis the
shares of common stock of the Borrower owned by them for a like number of
shares of common stock of New Kevco. As a result of such exchange,
immediately prior to the Merger, New Kevco will own 100% of the issued and
outstanding capital stock of the Borrower, and as a result of the Merger
New Kevco will own 100% of the issued and outstanding shares of capital
stock of Kevco Delaware.
3. Kevco Delaware will contribute all of its wood products division's
assets to Sunbelt Wood Components, Inc., a Delaware corporation
("Sunbelt"), in consideration for Sunbelt assuming such division's
-------
liability and issuing to Kevco Delaware 1,000 shares of its capital stock.
As a result thereof, Sunbelt will be a wholly-owned Subsidiary of Kevco
Delaware.
<PAGE>
4. Approximately $3,700,000 of the net proceeds of the Offering will
be used to fund a distribution to the Borrower's existing shareholders of
previously taxed, but undistributed, S corporation earnings of the Borrower
as of June 30, 1996 (the "Prior S Corporation Distribution"). The Prior S
--------------------------------
Corporation Distribution will be declared by the Borrower immediately prior
to the closing of the Offering and will be paid by the issuance of a short
term promissory note (the "Prior S Corporation Earnings Note") bearing
---------------------------------
interest at the applicable federal rate on the date of declaration of the
Prior S Corporation Distribution and payable on the first business day
following the consummation of the Offering. The Borrower will also,
immediately prior to the closing of the Offering, declare a distribution
(the "Future S Corporation Distribution") to its shareholders in the amount
---------------------------------
of the earnings of the Borrower for the period from July 1, 1996 through
the day immediately preceding consummation of the Offering. The Future S
Corporation Distribution will also be paid by the issuance of a promissory
note (the "Future S Corporation Earnings Note") bearing interest at the
----------------------------------
then applicable federal rate and payable on or before December 31, 1996,
provided that the payment of which will be contingent upon consummation of
the Offering. The Borrower estimates that the aggregate principal amount
of the Prior S Corporation Earnings Note and the Future S Corporation
Earnings Note shall be greater than $7,000,000, but not in excess of
$10,000,000; provided, however, in no event shall the aggregate principal
amount of the Prior S Corporation Earnings Note and the Future S
Corporation Earnings Note exceed $10,000,000.
5. New Kevco, Kevco Delaware and Sunbelt will be C corporations.
6. The outstanding Kimmel Note will be distributed to the existing
shareholders of the Borrower, effective as of June 30, 1996.
7. From the proceeds of the Offering and for the benefit of the
Borrower, New Kevco will pay (a) the Lenders approximately $19,200,000 and
(b) the Prior S Corporation Earnings Note, in consideration for which Kevco
Texas will execute an unsecured promissory note to New Kevco in the
original principal amount of $14,500,000, with the balance of approximately
$8,500,000 to be characterized as additional investment in Kevco Texas.
C. The Borrower has requested that the Lenders and the Administrative
Lender consent to the Restructuring.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Lender covenant and agree as follows:
1. CONSENT. Subject to satisfaction of the conditions of effectiveness
-------
set forth in Section 4 hereof, the Lenders hereby consent to the Offering and
the Restructuring.
- 2 -
<PAGE>
2. TERMINATION OF CONSENT. This Consent shall automatically terminate
----------------------
without the need for any action to be taken by the Administrative Lender or any
Lender immediately unless prior to or concurrently with the Restructuring the
Administrative Lender shall have received the following:
(a) a Guaranty, in form and substance satisfactory to the Lenders,
executed by New Kevco and Sunbelt;
(b) a pledge agreement, in form and substance satisfactory to the
Lenders, executed by New Kevco, together with stock certificates evidencing
100% of the issued and outstanding capital stock of Kevco Delaware, related
stock powers and financing statements;
(c) a pledge agreement, in form and substance satisfactory to the
Lenders, executed by Kevco Delaware, together with stock certificates
evidencing 100% of the issued and outstanding capital stock of Sunbelt,
related stock powers and financing statements;
(d) a security agreement, in form and substance satisfactory to the
Lenders, executed by Sunbelt, together with related financing statements;
(e) an amendment to the Credit Agreement, executed and delivered by
Kevco Delaware and the Lenders, which shall be in form and substance
satisfactory to the Lenders and Kevco Delaware to evidence and account for
the Restructuring, including the assumption by Kevco Delaware of all
obligations of the Borrower under the Loan Documents;
(f) Officer's Certificates of New Kevco, Kevco Delaware and Sunbelt,
together with certified certificates or articles of incorporation, bylaws,
resolutions, incumbency, certificates of existence and good standing;
(g) a subordination agreement, in form and substance satisfactory to
the Lenders, executed by Kevco Delaware and New Kevco, and
(h) an opinion of counsel to New Kevco, Kevco Delaware and Sunbelt, in
form and substance satisfactory to the Lenders.
3. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
--------------------------------------------------------
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the consent contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as made on and
as of such date; and
- 3 -
<PAGE>
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default.
4. CONDITIONS OF EFFECTIVENESS. This Consent shall be effective as of
---------------------------
the date first above written, subject to the following:
(a) the Administrative Lender shall have received counterparts of this
Consent executed by both Lenders;
(b) the Administrative Lender shall have received counterparts of this
Consent executed by the Borrower; and
(c) the Administrative Lender shall have received, in form and
substance satisfactory to the Administrative Lender and its counsel, such
other documents, certificates and instruments as the Administrative Lender
shall require.
5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
-------------------------
costs and expenses of the Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this Consent and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of counsel for the Administrative Lender with
respect thereto).
6. EXECUTION IN COUNTERPARTS. This Consent may be executed in any number
-------------------------
of counterparts and by different parties hereto in separate counterparts, each
which when so executed and delivered shall be deemed to be an original and all
of which when taken together shall constitute but one and the same instrument.
7. GOVERNING LAW; BINDING EFFECT. This Consent shall be governed by and
-----------------------------
construed in accordance with the laws of the State of Texas and shall be binding
upon the Borrower and each Lender and their respective successors and assigns.
8. HEADINGS. Section headings in this Consent are included herein for
--------
convenience of reference only and shall not constitute a part of this Consent
for any other purpose.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS HERETOFORE AFFECTED BY
----------------
THIS CONSENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR
- 4 -
<PAGE>
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL UNWRITTEN
AGREEMENTS BETWEEN THE PARTIES.
============================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
============================================
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the
date first above written.
BORROWER:
KEVCO TEXAS, INC.
By:__________________________
Name:_____________________
Title:____________________
BANKS:
NATIONSBANK OF TEXAS, N.A.
By:________________________
Name:___________________
Title:__________________
THE SUMITOMO BANK, LTD.
By:_______________________
Name:__________________
Title:_________________
By:_______________________
Name:__________________
Title:_________________
- 6 -
<PAGE>
ADMINISTRATIVE LENDER:
NATIONSBANK OF TEXAS, N.A.
By:_____________________
Name:________________
Title:_______________
- 7 -
<PAGE>
EXHIBIT 11.1
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.............. $4,286 $5,422 $6,287 $4,285 $4,733
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 $ 0.96 $ 0.90 $ 0.72
</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>
EXHIBIT 21.1
SUBSIDIARIES*
KEVCO DELAWARE, INC.,
A DELAWARE CORPORATION
SUNBELT WOOD COMPONENTS, INC.,
A DELAWARE CORPORATION
* Such entities will become direct or indirect wholly-owned subsidiaries of
Kevco, Inc., a Texas corporation, immediately prior to the consummation of
the offering that is the subject of the Registration Statement to which
this Exhibit forms a part.
<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 22, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
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 22, 1996
<PAGE>
EXHIBIT 23.4
LETTERHEAD OF RUMSEY & HUCKABY, P.C.
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 22, 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> 18,383 23,668
<CURRENT-ASSETS> 34,472 40,596
<PP&E> 13,964 14,844
<DEPRECIATION> 4,206 4,760
<TOTAL-ASSETS> 54,851 60,902
<CURRENT-LIABILITIES> 15,546 24,548
<BONDS> 0 0
0 0
0 0
<COMMON> 47 47
<OTHER-SE> 8,691 10,396
<TOTAL-LIABILITY-AND-EQUITY> 54,851 60,902
<SALES> 182,519 135,598
<TOTAL-REVENUES> 185,129 138,298
<CGS> 155,877 115,247
<TOTAL-COSTS> 178,148 131,298
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,692 1199
<INCOME-PRETAX> 7,026 7,025
<INCOME-TAX> 45 25
<INCOME-CONTINUING> 6,981 7,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,981 7,000
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
