<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 (NAME AND ADDRESS, INCLUDING ZIP
TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING
CODE, OF REGISTRANT'S PRINCIPAL AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
----------------
COPIES TO:
RICHARD S. TUCKER 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
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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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE (2) OFFERING PRICE (1)(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,415,000 shares $13.00 $31,395,000 $10,826
</TABLE>
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(1) Includes 315,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a).
----------------
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 AUGUST 30, 1996
2,100,000 SHARES
[LOGO](TM) 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."
Application has been made for the inclusion of the Common Stock in the Nasdaq
National Market, under the symbol "KVCO."
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)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
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Total(2)..................................... $ $ $
</TABLE>
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(1) Before deducting estimated expenses of $ 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., its subsidiaries and their
predecessors. See "Business--History."
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 is a leading
manufacturer of 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 meeting minimum
lead time and purchase order sizes that enable 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 product 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, Coastal and Nibco plumbing
products, State water heaters, Owens-Corning Fiberglas insulation and shingles,
Delta, Moen and Phoenix faucets, CertainTeed 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 success in such
efforts is exemplified by its achievement of an order-fill rate in excess of
91% for the six months ended June 30, 1996. Orders not filled within the time
period specified by the customer are typically satisfied the next day. The
Company's sales representatives, who have an average of 9.5 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 services
approximately 75% of all manufactured housing and RV manufacturing 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), consisting of approximately 340,000 homes (or
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. Recent industry
growth primarily reflects greater consumer acceptance of manufactured housing,
greater availability of financing for manufactured housing consumers and steady
employment growth. New RV sales 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 ten largest producers of manufactured homes reportedly accounted for
approximately 66.4% of total manufactured home shipments in 1995. 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 benefited 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 leading wood products
manufacturer in the southeast and southwest 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 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 a weighted average exercise price
of $10.58 per share under the Company's stock option plans and 214,194
shares reserved 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 Company's principal executive offices are located at University Centre I,
1300 S. University Drive, Suite 200, Fort Worth, Texas 76107. The Company's
telephone number is (817) 332-2758.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
PRO FORMA
1991 1992 1993 1994 1995(1) 1995(2) 1995 1996(1)
------- ------- ------- ------- -------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $47,782 $61,169 $80,257 $99,279 $182,519 $241,846 $56,301 $135,598
Gross profit............ 8,350 10,550 13,170 15,654 26,642 33,997 8,652 20,351
Operating income........ 636 2,293 3,902 4,829 8,413 12,424 2,281 8,108
Income before income
taxes.................. 98 1,959 3,560 5,348 7,076 10,323 2,121 7,050
Net income.............. 98 1,959 3,560 5,297 7,031 10,278 2,101 7,025
SUPPLEMENTAL INCOME
STATEMENT DATA(3):
Net income ............. $ 4,316 $ 6,297 $ 4,300
Earnings per share (4).. $ .87 $ 1.27 $ .90
Weighted average shares
outstanding (4)........ 4,946 4,946 4,778
As adjusted earnings per
share (5).............. $ 1.12 $ .73
<CAPTION>
JUNE 30, 1996
-------------------
AS FURTHER
ACTUAL ADJUSTED(6)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $15,434 $ 15,434
Total assets............ 58,395 58,395
Total debt.............. 27,827 8,645
Stockholders' equity.... 7,936 27,118
</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 (i) the elimination of certain executive
compensation that would not have been paid under the compensation plan
adopted by the Company upon consummation of this offering and (ii) 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 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 an S corporation distribution in an amount
equal to undistributed earnings previously taxed at the shareholder level
existing at June 30, 1996 and to reflect 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 consummation of this offering,
which will be taxed at the shareholder level. Such amount will be
distributed as part of the S Corporation Distribution in the form of the
Future S Corporation Earnings Note. See "Prior S Corporation Status."
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider the following factors in evaluating the
Company and its business before purchasing any of the shares of the Common
Stock offered hereby. This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ from those
discussed in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus.
COMPETITION
The wholesale distribution industry relating to producers of manufactured
homes and RVs is highly competitive, and the barriers to entry are relatively
low. Competition exists in terms of price, product quality and features,
service, warranty terms and distribution facility location. The manufactured
roof truss industry is also highly competitive. There are numerous companies,
both public and private, that are in direct competition with the Company, and
many of these competitors have been operating longer and have substantially
greater financial and other resources than the Company. A downturn in the
manufactured housing or RV industry 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 interest rates, availability and terms of financing and
general economic conditions, as well as gasoline prices. The Company may be
adversely affected by these economic trends. 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 acquisitions 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 acquisitions, and there can
be no assurance such consents will be granted any time they are required. As a
result, there can be no assurance that Kevco will be able to successfully
implement its acquisition strategy. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation--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. Although the Company has an
ongoing supply relationship with this customer, it does not have a formal
supply contract with this customer or most of its other customers. The
Company's business could be adversely affected if this customer, or other
major customers, substantially reduced or discontinued purchases from the
Company. See "Business--Sales and Marketing."
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."
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 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. These provisions may inhibit a change
of control of the Company. In addition, the Company's Articles of
Incorporation contain certain provisions that may be deemed to 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--Board of Directors" and
"Description of Capital Stock--Certain Anti-Takeover Provisions."
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
8
<PAGE>
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, 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, and options exercisable 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. 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. As a
result, shares of Common Stock issued upon exercise of options generally will
be freely tradable by non-affiliates in the public market without restriction
under the Securities Act. The Company, its executive officers, 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. 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 application has been made for the
inclusion of the Common Stock for quotation on the Nasdaq National Market,
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 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. As such, 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 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.
9
<PAGE>
PRIOR S CORPORATION STATUS
Prior to this offering, the Company had elected to be treated as an S
corporation under the provisions of Subchapter S of the Internal Revenue Code.
As an S corporation, the Company was not subject to federal and certain state
income taxes. As a result, the Company's earnings have been (and, until the
termination of the Company's S corporation status immediately prior to the
consummation of this offering, will be) taxed directly to the Company's
shareholders, rather than to the Company, for federal and certain state income
tax purposes.
The Company has historically made distributions to its shareholders in
amounts equal to at least the shareholders' tax liabilities attributable to
the Company's earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." As of
June 30, 1996, the amount of the Company's previously taxed but undistributed
S corporation earnings was approximately $3.7 million. The Company intends to
make a distribution equal to this amount, which will be paid in the form of a
promissory note (the "Prior S Corporation Earnings Note"). The Company also
intends to distribute an amount equal to its earnings from July 1, 1996
through the consummation of this offering, which will also be paid in the form
of a promissory note (the "Future S Corporation Earnings Note"). Both notes
will bear interest at the applicable federal rate on the date of the notes.
The Company estimates that the aggregate original principal amount of both
notes will be between $7.0 and $10.0 million (collectively, 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 immediately following
consummation of this offering and to pay the Future S Corporation Earnings
Note out of earnings generated from operations for the period from July 1,
1996 through the consummation of the offering. 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.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 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).
Approximately $19.2 million of the net proceeds will be used to reduce
indebtedness incurred in 1995 in connection with the acquisition of Service
Supply. 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. The maximum aggregate principal amount that can be
outstanding under the revolving credit facility is currently $20.0 million.
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 Operation--Liquidity and Capital Resources."
The Company will use $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 immediately following
consummation of this offering. See "Prior S Corporation Status."
10
<PAGE>
DIVIDEND POLICY
Except for the S Corporation Distribution and a previously declared $0.3
million distribution (representing a portion of 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 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.
DILUTION
The net tangible book value of the Company as of June 30, 1996, was $0.00
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 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 $2.96 per share. This represents an
immediate increase in the net tangible book value of $2.96 per share to
existing shareholders and an immediate dilution to new investors purchasing
Common Stock in this offering of $9.04 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...... $0.00
Decrease attributable to the Prior S Corporation Earnings
Note...................................................... .85
-----
Net tangible book value per share before this offering..... (.85)
Increase per share attributable to new investors........... 3.81
-----
Net tangible book value per share after this offering...... 2.96
------
Dilution per share to new investors........................ $ 9.04
======
</TABLE>
- --------
(1) Before deducting estimated underwriting discount and estimated expenses of
the offering payable by the Company.
All of the calculations above exclude an aggregate of 418,426 shares of
Common Stock issuable upon exercise of stock options outstanding at a weighted
average exercise price of $10.58 per share under the Company's stock option
plans and 214,194 shares reserved for future issuance under the Company's 1995
Stock Option Plan. See "Management--Stock Option Plans."
11
<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) 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 INFORMATION)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term
debt........................ $ 2,288 $ 2,288 $ 2,288
Prior S Corporation Earnings
Note........................ -- 3,733 --
------------- ------------- -------------
Total short-term debt...... $ 2,288 $ 6,021 $ 2,288
============= ============= =============
Long-term debt:
Long-term debt, net of
current portion............. $25,539 $25,539 $ 6,357
Stockholders' equity:
Common Stock, $.01 par value,
100,000,000 shares
authorized; 4,700,000 shares
issued (including 305,500
shares held in treasury);
4,394,500 shares issued and
outstanding as adjusted;
6,494,500 shares issued and
outstanding as further
adjusted(2)................. 47 44 65
Additional paid-in capital... 480 4,159 27,053
Retained earnings(3)......... 8,157 -- --
Treasury stock............... (748) -- --
------------- ------------- -------------
Total stockholders'
equity.................... 7,936 4,203 27,118
------------- ------------- -------------
Total capitalization....... $33,475 $29,742 $33,475
============= ============= =============
</TABLE>
- --------
(1) Reflects the issuance of the $3.7 million Prior S Corporation Earnings
Note, which represents the amount of undistributed earnings of the Company
previously taxed at the shareholder level existing at June 30, 1996. See
"Prior S Corporation Status." Additionally, the amounts have been adjusted
for (i) the reclassification as additional paid-in capital of the portion
of the Company's retained earnings that will not be distributed to
shareholders through the S Corporation Distribution, and (ii) the
retirement of the Company's treasury stock.
(2) Excludes shares of Common Stock issuable upon exercise of stock options
under the Company's stock option plans. See "Management--Stock Option
Plans."
(3) No adjustment has been made to give effect to the distribution to the
Company's shareholders of the Future S Corporation Earnings Note in the
amount of any S corporation earnings of the Company for the period from
July 1, 1996 through the consummation of this offering, which will be
taxed at the shareholder level. Such amount will be distributed as part of
the S Corporation Distribution in the form of the Future S Corporation
Earnings Note.
12
<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 period. Results for the six months ended
June 30, 1996 are not necessarily indicative of the results that may be
expected for the full year. The selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -----------------
PRO FORMA
1991 1992 1993 1994 1995(1) 1995(2) 1995 1996(1)
------- ------- ------- ------- -------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $47,782 $61,169 $80,257 $99,279 $182,519 $241,846 $56,301 $135,598
Cost of sales........... 39,432 50,619 67,087 83,625 155,877 207,849 47,649 115,247
------- ------- ------- ------- -------- -------- ------- --------
Gross profit............ 8,350 10,550 13,170 15,654 26,642 33,997 8,652 20,351
Commission income....... 993 1,234 1,274 1,066 2,610 3,993 512 2,700
------- ------- ------- ------- -------- -------- ------- --------
9,343 11,784 14,444 16,720 29,252 37,990 9,164 23,051
Selling, general and
administrative
expenses............... 8,707 9,491 10,542 11,891 20,839 25,566 6,883 14,943
------- ------- ------- ------- -------- -------- ------- --------
Operating income........ 636 2,293 3,902 4,829 8,413 12,424 2,281 8,108
Other income............ -- -- -- 800 -- -- -- --
Interest income......... -- -- 83 346 355 356 186 141
Interest expense........ (313) (334) (425) (627) (1,692) (2,457) (346) (1,199)
------- ------- ------- ------- -------- -------- ------- --------
Income before income
taxes and accounting
change................. 323 1,959 3,560 5,348 7,076 10,323 2,121 7,050
Accounting change....... 225 -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- ------- --------
Income before income
taxes.................. 98 1,959 3,560 5,348 7,076 10,323 2,121 7,050
State income taxes...... -- -- -- 51 45 45 20 25
------- ------- ------- ------- -------- -------- ------- --------
Net income.............. $ 98 $ 1,959 $ 3,560 $ 5,297 $ 7,031 $ 10,278 $ 2,101 $ 7,025
======= ======= ======= ======= ======== ======== ======= ========
SUPPLEMENTAL INCOME
STATEMENT DATA (3):
Net income.............. $ 4,316 $ 6,297 $ 4,300
Earnings per share (4).. $ .87 $ 1.27 $ .90
Weighted average shares
outstanding (4)........ 4,946 4,946 4,778
As adjusted earnings per
share (5).............. $ 1.12 $ .73
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------------------- -------------------
AS
1991 1992 1993 1994 1995(1) ACTUAL ADJUSTED(6)
------ ------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $4,077 $ 4,531 $ 3,436 $ 3,882 $18,312 $15,434 $15,434
Total assets............ 9,197 10,898 12,420 14,903 52,319 58,395 58,395
Total debt.............. 1,868 1,815 5,547 6,385 31,263 27,827 8,645
Stockholders' equity.... 4,483 5,060 905 2,930 6,206 7,936 27,118
</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 (i) the elimination of certain executive
compensation that would not have been paid under the compensation plan
adopted by the Company upon consummation of this offering and (ii) 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 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 an S corporation distribution in an amount
equal to undistributed earnings previously taxed at the shareholder level
existing at June 30, 1996 and to reflect 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 consummation of this
offering, which will be taxed at the shareholder level. Such amount will
be distributed as part of the S Corporation Distribution in the form of
the Future S Corporation Earnings Note. See "Prior S Corporation Status."
13
<PAGE>
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 facilities, 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
facilities. 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 than traditional
sales. To the extent items warehoused and shipped under commission
arrangements increase faster or slower than items related to traditional
sales, changes in net sales may not be representative of actual shipment
volume increases or decreases.
ACQUISITION OF SERVICE SUPPLY
The acquisition of Service Supply enabled Kevco to achieve its primary
strategic objective at that time of becoming a national distributor 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 then served by the Company. 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 leading
wood products manufacturer 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 margins, 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.
14
<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 periods. Such summary financial data
should be read in conjunction with the consolidated financial statements of
Service Supply Systems, Inc. and Subsidiary and 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 significant growth of the Company related to the Service
Supply acquisition, the Company's historical results of operations and period-
to-period comparisons of such results and certain financial data may not be
meaningful or indicative of future results.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Statements of Income data as a percentage of Kevco's net sales.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE
DECEMBER 31, 30,
------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 83.6 84.2 85.4 84.6 85.0
----- ----- ----- ----- -----
Gross profit................................. 16.4 15.8 14.6 15.4 15.0
Commission income............................ 1.6 1.1 1.4 0.9 2.0
----- ----- ----- ----- -----
18.0 16.9 16.0 16.3 17.0
Selling, general and administrative.......... 13.1 12.0 11.4 12.2 11.0
----- ----- ----- ----- -----
Operating income............................. 4.9 4.9 4.6 4.1 6.0
Other income................................. 0.0 0.8 0.0 0.0 0.0
Interest income.............................. 0.1 0.3 0.2 0.3 0.1
Interest expense............................. (0.5) (0.6) (0.9) (0.6) (0.9)
----- ----- ----- ----- -----
Income before income taxes................. 4.5% 5.4% 3.9% 3.8% 5.2%
===== ===== ===== ===== =====
</TABLE>
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 successful negotiation of
national plumbing commitments from customers, sales of Kevco product lines to
existing Service Supply customers (as well as sales
15
<PAGE>
of Service Supply products to existing Kevco customers) and improved customer
demand. The increase in net sales compared favorably to the 9.5% 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 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. Management believes this
increase was a result of the Company's ability to take advantage of purchasing
opportunities following the acquisition of Service Supply.
Commission income increased by $2.2 million, or 440.0%, to $2.7 million for
the first six months of 1996 from $0.5 million for the comparable 1995 period.
Although a portion of the increase was attributable to the acquisition of
Service Supply, the most significant factor in the increase was that the
Company entered into commission based distribution arrangements with two
manufacturers of component products.
Selling, general and administrative expenses increased by $8.0 million, or
115.9%, to $14.9 million for the first six months of 1996 from $6.9 million
for the comparable 1995 period. The increase was primarily attributable to the
acquisition of Service Supply and, to a lesser extent, increased sales volume.
Selling, general and administrative expenses, as a percent of sales, decreased
to 11.0% for the first six months of 1996 from 12.2% for the comparable 1995
period. The decrease was primarily a result of reducing redundant overhead and
warehousing costs associated with Service Supply and, generally, management's
ability to increase sales without a proportionate increase in such 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 on January 1, 1994, also increased
in 1995 to $241.9 million from $200.2 million in 1994, an increase of 20.8%.
The increase in net sales on such a combined basis primarily resulted from an
increase in the volume and variety of products sold. Management believes the
increase in the volume and variety of products sold was primarily the result
of successful negotiation of national plumbing commitments from customers,
sales of Kevco product lines to existing Service Supply customers (as well as
sales of Service Supply product lines to existing Kevco customers) and
improved customer demand. The increase in net sales, on such a combined basis,
was in excess of the 11.8% increase in reported manufactured home shipments in
1995 compared to 1994 (approximately 340,000 homes reported shipped in 1995
compared to approximately 304,000 homes reported shipped in 1994). Sales to
the manufactured housing industry represented approximately 85% of the
Company's net sales in 1995.
16
<PAGE>
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 resulted primarily from an overall increase in the volume of net
sales. Actual gross profit, as a percent of actual sales, decreased to 14.6%
in 1995 from 15.8% in 1994. This decrease was primarily the result of lower
margins associated with Service Supply's sales. Gross profit, as a percent of
sales, on a combined basis as if the acquisition of Service Supply had
occurred on January 1, 1994, decreased to 14.1% in 1995 from 14.3% in 1994, a
decrease which management believes was primarily the result of competition
from other suppliers attempting to increase their market shares.
Commission income increased by $1.5 million, or 136.4%, to $2.6 million in
1995 from $1.1 million in 1994. A significant amount of the increase resulted
from the inclusion of six months of commission income from the Service Supply
facilities in 1995. An additional significant factor in this increase was the
increase in sales volume for which the Company is compensated on a commission
basis.
Selling, general and administrative expenses increased by $8.9 million, or
74.8%, to $20.8 million in 1995 from $11.9 million in 1994. The increase was
primarily related to the inclusion of six months of selling, general and
administrative expenses from the Service Supply facilities in 1995 and, to a
lesser extent, the increased expenses related to the overall net sales
increase. Selling, general and administrative expenses, as a percent of sales,
decreased to 11.4% in 1995 from 12.0% in 1994, reflecting the reduction of
redundant overhead and warehousing costs associated with Service Supply and,
generally, the Company's ability to increase sales without a proportionate
increase in such operating expenses.
Net income increased by $1.7 million, or 32.1%, to $7.0 million in 1995 from
$5.3 million in 1994. Excluding insurance proceeds of $0.8 million recognized
as income in 1994 related to a former officer's disability, the increase in
net income from 1994 to 1995 would have been 55.6%. The increase was primarily
a result of the inclusion of six months of gross profit from the Service
Supply facilities in 1995, and the remainder of the increase was attributable
to the increase in net sales without a proportional 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 19.5%
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.
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.
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Selling, general and administrative expenses increased by $1.4 million, or
13.3%, to $11.9 million in 1994 from $10.5 million in 1993. The increase was
primarily attributable to increased sales volume. Selling, general and
administrative expenses, as a percent of sales, decreased to 12.0% in 1994
from 13.1% in 1993. The decrease was primarily a result of the Company's
ability to increase sales without a proportionate increase in such operating
expenses.
Net income increased by $1.7 million, or 47.2%, to $5.3 million in 1994 from
$3.6 million in 1993. Excluding insurance proceeds of $0.8 million recognized
as income in 1994 related to a former officer's disability, the increase in
net income from 1993 to 1994 would have been 25.0%. The increase was primarily
attributable to the increase in net sales without a proportionate increase in
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's growth has been financed through cash flow from
operations, borrowings under its bank credit facilities and the expansion of
trade credit. Net cash provided by operating activities was $8.4 million for
the six months ended June 30, 1996, and increased to $8.4 million in 1995 from
$3.1 million in 1994. The Company's capital expenditures were $0.9 million for
the six months ended June 30, 1996 and $2.8 million and $0.4 million in 1995
and 1994, respectively. The Company 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 term loan and revolving credit facility are secured by
substantially all of the Company's assets. 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 and distributions to
shareholders.
During 1993, the Company's current majority shareholder borrowed $5.0
million from the Company to purchase Company stock from a former shareholder.
The balance of the note receivable of approximately $3.0 million was
eliminated in a non-cash transaction effective June 30, 1996. 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
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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 recreational vehicle 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 arrangement, 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 acquisitions. 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 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
32 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 selling prices have closely
followed increases in materials costs.
19
<PAGE>
QUARTERLY RESULTS
The following table represents certain unaudited financial information for
the quarters indicated.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30,
1996(1):
Net sales.................... $64,234 $71,364
Operating income............. 3,569 4,539
Income before income taxes... 3,022 4,028
Supplemental net income(2)... 1,843 2,457
Supplemental earnings per
share(2)(3)................. .39 .51
YEAR ENDED DECEMBER 31,
1995(1):
Net sales.................... $27,567 $28,734 $62,714 $63,504
Operating income............. 1,210 1,069 2,838 3,296
Income before income taxes... 1,163 956 2,185 2,772
Supplemental net income(2)... 709 583 1,333 1,691
Supplemental earnings per
share(2)(3)................. .14 .12 .27 .34
YEAR ENDED DECEMBER 31, 1994:
Net sales.................... $22,311 $24,837 $26,399 $25,732
Operating income............. 1,262 1,202 1,493 872
Income before income taxes... 1,194 1,135 2,221 798
</TABLE>
- --------
(1) The Company acquired Service Supply on June 30, 1995. The acquisition was
accounted for as a purchase and, accordingly, the operating results of
Service Supply have been included in the operating results of the Company
since June 30, 1995. See "--Acquisition of Service Supply".
(2) Prior to this offering, the Company had elected to be treated as an S
corporation under the provisions of Subchapter S of the Internal Revenue
Code. As an S corporation, the Company was not subject to federal and
certain state income taxes. The supplemental data give effect to the
income taxes that would have been recorded had the Company been taxed as a
C corporation.
(3) Reflects the assumed issuance of 502,379 and 334,488 shares of Common
Stock at the assumed initial public offering price of $12.00 per share,
less underwriting discount, to generate sufficient funds to pay an
S corporation distribution in an amount equal to undistributed earnings
previously taxed at the shareholder level existing at December 31, 1995
and June 30, 1996, respectively. See "Prior S Corporation Status."
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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 is a
leading manufacturer of 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 meeting minimum lead time and purchase order sizes that enable 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 product
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,
Coastal and Nibco plumbing products, State water heaters, Owens-Corning
Fiberglas insulation and shingles, Delta, Moen and Phoenix faucets,
CertainTeed vinyl siding and Capri bath products. The Company's wood products
division 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 1994 the average cost per square foot was $22.03 for a single-section
manufactured home and $27.41 for a multi-section manufactured home, as
compared to an average cost of $58.65 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), consisting of approximately
340,000 homes (or 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.
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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 consistent 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 largest manufacturers reportedly accounted for approximately 66.4%
of total manufactured home shipments in 1995. 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 sales
reportedly totaled approximately $12.1 billion (at retail) in 1995. Although
reported RV shipments declined 8.4% in 1995, the RV industry has experienced
reported compound annual growth in 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 its
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
success in such efforts is exemplified by its achievement of an order-fill
rate in excess of 91% for the six months ended June 30, 1996. Orders not
filled within the time period specified by the customer are typically
satisfied the next day. The Company's sales representatives, who have an
average of 9.5 years of experience with the Company, play an important role in
training its customers in 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
services approximately 75% of all manufactured housing and RV manufacturing
plants in the United States with one or more product lines. This
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<PAGE>
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; the
achievement of such goal is exemplified by the Company's order-fill rate in
excess of 91% for the six months ended June 30, 1996. 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 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 on the proper installation of its 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 its 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 SKUs they use in production in 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.
23
<PAGE>
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 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 executive office and all 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 stock-keeping units ("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 everything necessary to carry water into and out of a
manufactured home or RV. Principal brands of plumbing products include Eljer,
Crane, Coastal and Nibco plumbing products, Delta, Moen and Phoenix faucets
and Capri bath products. Plumbing products typically account for approximately
$700 to $900, or 2.5% to 5.0%, of the cost to produce a manufactured home.
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 insulation and shingles,
CertainTeed 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, the knowledge and
expertise of its sales representatives, just-in-time delivery capabilities,
regular calling program, dedication to Total Quality Management and
competitive pricing.
As of June 30, 1996, Kevco marketed its products through 66 direct sales
representatives consisting of 54 Kevco sales representatives and 12 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
24
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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 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, its IDC
Limited division in Elkhart, Indiana, distributes only non-plumbing building
products. Kevco intends to use the supplier relationships and product
knowledge developed by the 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 anywhere in the United
States. 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. 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 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
inventories under the LIFO method.
Kevco sells products on a delivered basis, either by Company truck or common
carrier. Delivery is a key component of Kevco's dedication to customer service
and is a competitive requirement. For the six months ended June 30, 1996, the
Company achieved an order-fill rate in excess of 91%. Typically, orders that
are not filled within the time period specified by the customer are filled the
next day. By utilizing its computerized inventory management system, the
Company is able to accurately predict inventory turns in order to minimize
inventory levels for each item.
25
<PAGE>
In most cases, the Company warehouses products before distributing them to
customers. 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 ever 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 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 its list of products. While the loss of a
major vendor 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 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
its 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 construction standards require that roof trusses
sold in certain regions meet increased strength benchmarks. In addition, 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. For the six months ended June 30, 1996,
approximately 85% of Kevco's wood product sales were to manufactured housing
producers. Kevco's wood products are sold through twelve sales associates who
are technically trained in lumber and roof truss
26
<PAGE>
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 an
unwritten 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 a product's
nonwarranty return, 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.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET FUNCTION
-------- ----------- -------------
<S> <C> <C>
Alabama
Haleyville.......................... 86,000 Distribution
Spruce Pine*(1)..................... 70,000 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
Georgia
Ashburn*(1)......................... 121,500 Manufacturing
Cordele*............................ 60,000 Distribution
Idaho
Caldwell............................ 15,000 Distribution
Indiana
Elkhart............................. 61,000 Distribution
Elkhart............................. 105,000 Distribution
Kansas
Newton.............................. 38,000 Distribution
Minnesota
Round Lake.......................... 11,000 Distribution
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET FUNCTION
-------- ----------- -------------
<S> <C> <C>
North Carolina
Albemarle........................... 63,000 Distribution
Oregon
Tigard.............................. 23,000 Distribution
Pennsylvania
Leola............................... 26,000 Distribution
Tennessee
Cooksville.......................... 30,000 Distribution
Texas
Waco................................ 82,000 Distribution
Waco(1)............................. 142,500 Manufacturing
</TABLE>
- --------
* Company owned facility.
(1) Sunbelt facility.
HISTORY
The Company's operations have historically been conducted through a Texas
corporation that was incorporated in 1975 (the "Operating Company") as the
successor to a business founded in 1964. The Operating Company, which is
currently named Kevco Texas, Inc., will be renamed Kevco Delaware, Inc. and
reincorporated by merger in Delaware prior to consummation of this offering.
In June 1995, the Operating Company acquired Service Supply and its
subsidiaries in a merger transaction. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisition of
Service Supply." Effective upon consummation of this offering, a new Texas
corporation (the "Holding Company") incorporated in August 1996 (the
registrant in this offering) will be the parent holding company of the
Operating Company and the Operating Company's wholly-owned Delaware
subsidiary, Sunbelt Wood Components, Inc. 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 referred to above and their predecessors and
such references assume the consummation of the 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 a 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 covers, as of June 30,
1996, 12 employees at one of the Company's facilities in
28
<PAGE>
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.
29
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the Company's
directors, certain officers, certain key employees and nominees. Each person
nominated (as indicated below) as a director or officer has agreed to become a
director or officer of the Company upon the consummation of this offering.
Inclusion in this list as an officer or officer nominee is not intended to act
as an admission that such individual is or will become subject to Section 16
under the Exchange Act.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Jerry E. Kimmel...... 59 Chairman of the Board, President, Chief Executive
Officer, Treasurer and Secretary
Clyde A. Reed, Jr. .. 61 Executive Vice President, Chief Operating Officer
and Director*
Ellis L. McKinley, 44 Vice President, Chief Financial Officer, Treasurer*
Jr. ................ and Director*
Richard S. Tucker.... 52 Secretary* and Director
Martin C. Bowen...... 53 Director*
Richard Nevins....... 49 Director*
C. Lee Denham........ 48 Vice President, Sunbelt
Don R. Felten........ 41 Vice President, Western Region
Dan R. Hardin........ 37 Vice President of Sales, Service Supply division
C. Monroe Hunt....... 52 President, Service Supply division
Gregory G. Kimmel.... 28 Vice President
Tom G. Parish........ 47 President, IDC Limited division
Mark J. Walker....... 40 Vice President Purchasing
</TABLE>
- --------
* Nominee
Jerry E. Kimmel is a founder of the Company and has spent his entire career
in this industry. Mr. Kimmel has served as President of Kevco since 1968 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 and Chief Operating Officer since 1993. From 1991 to 1993, Mr. Reed
served as Vice President and General Manager 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 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 for
Renters Choice, Inc. From 1976 until 1994, Mr. McKinley was employed with
Grant Thornton, a public accounting firm in Dallas, Texas serving 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 1975 and an
assistant secretary of the Company since 1987. Since 1995, Mr. Tucker has been
a partner in the law firm of Jackson & Walker, L.L.P., the Company's outside
legal counsel. From 1984 to 1995, Mr. Tucker was a member of the law firm of
Simon, Anisman, Doby, & Wilson, a Professional Corporation, located in Fort
Worth, Texas. Mr. Tucker received his 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.
30
<PAGE>
Martin C. Bowen will serve as 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 Team Bank/Fort Worth. 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 serve as a director of the Company upon consummation of
this offering. Mr. Nevins has served as director of Fruehauf Trailer
Corporation since 1995. 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 Managing
Director of Smith Barney Harris Upham & Co. Mr. Nevins received his B.A. in
Econonmics 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 IDC Limited, a division of Kevco,
since August 1996. From 1995 to 1996, Mr. Parrish was President of Champion
Homebuilders--a fully owned subsidiary of Champion 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 with 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
The Board of Directors will be divided into three classes with two directors
in each class. The term of one class will expire at the annual meeting of
shareholders in each year, commencing 1997. At each annual meeting
31
<PAGE>
of shareholders, directors of the class the term of which then expires will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring. 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 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 the Board of
Directors meeting and $500 for each 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 expenses incurred in
their capacity as directors of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth 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 $400,400 $249,600 -- $19,463(1)
Chairman of the Board,
President and Chief
Executive Officer
Clyde A. Reed, Jr. ....... 1995 $179,737 $110,000 7,097 $26,440(2)
Executive Vice President
and Chief Operating
Officer
C. Lee Denham............. 1995 $154,007 $ 39,000 -- $ 4,292(3)
Vice President, Sunbelt
Roger J. Kollat(5)........ 1995 $140,358 $ 81,500 -- $ 3,535(4)
</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
individuals 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 individuals 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 individuals
401(k) Plan account.
(4) Consists of $484, representing personal use of a Company supplied car and
$3,051, representing the Company's contribution to such individuals 401(k)
Plan account.
(5) Mr. Kollat is no longer an employee of the Company.
32
<PAGE>
OPTION GRANTS DURING 1995
The following table presents information regarding grants of stock options
to purchase shares of Common Stock during the year ended December 31, 1995 for
each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
------------------------------------------------- RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE EXPIRATION -------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jerry E. Kimmel......... -- -- -- -- -- --
Clyde A. Reed, Jr. ..... 7,097(2) 14.8% $5.6366(3) 6/19/04 $ 22,054 $ 54,319
C. Lee Denham........... -- -- -- -- -- --
Roger J. Kollat......... 3,548 7.4% $5.6366(3) 6/19/04(4) $ 11,026 $ 27,157
</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 for 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) -- $39,270
C. Lee Denham............... -- -- -- --
Roger J. Kollat............. -- -- -- --
</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.
33
<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,
Mr. Kimmel, through his employment agreement, is eligible for a bonus equal to
2.4% of the Company's income before income taxes provided that income before
income taxes is at least $5 million. Such agreement 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 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 $20,000 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 $3,000 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"). The purpose of the
1995 Plan is to provide employees 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 may not exceed
258,500 shares.
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. 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.
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 non-qualified stock option, the optionee realizes short-term or
long-term
34
<PAGE>
capital gain or loss, depending on the length of the holding period, but the
Company is not entitled to any tax deduction in connection with such sale.
An optionee will not be subject to federal income taxation upon the exercise
of ISOs granted under the 1995 Plan, and the Company will not be entitled to a
federal income tax deduction by reason of such exercise. A sale of shares of
Common Stock acquired upon exercise of an ISO that does not occur within one
year after the exercise or within two years after the grant of the option
generally will result in the recognition of long-term capital gain or loss by
the optionee in the amount of the difference between the amount realized on
the sale and the exercise price, and the Company is not entitled to any tax
deduction in connection therewith. If a sale of shares of Common Stock
acquired upon exercise of an ISO occurs within one year from the date of
exercise of the option or within two years from the date of the option grant
(a "disqualifying disposition"), the optionee generally will recognize
ordinary income equal to the lesser of (i) the excess of the fair market value
of the shares on the date of exercise of the options over the exercise price
or (ii) the excess of the amount realized on the sale of the shares over the
exercise price. Any amount realized on a disqualifying disposition in excess
of the amount treated as ordinary income will be long-term or short-term
capital gain, depending upon the length of time the shares were held. The
Company generally will be entitled to a tax deduction on a disqualifying
disposition corresponding to the ordinary income recognized by the optionee.
The Company anticipates that upon the consummation of this offering it will
have (i) outstanding options to purchase a total of approximately 44,306
shares of Common Stock under the 1995 Plan and 374,120 under the 1996 Plan,
all of which will be immediately exercisable, (ii) options to purchase 214,194
additional shares available for grant under the 1995 Plan and (iii) no
additional options issuable under the 1996 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the Company has not had a Compensation Committee and
executive compensation has been set by the Company's Board of Directors. Jerry
E. Kimmel is Chairman of the Board of Directors.
Prior S Corporation Status and Distributions to Shareholders
In 1986, the Company elected to be treated as an S corporation under
Subchapter S of the Internal Revenue Code and comparable provisions of various
state income tax laws for the years beginning after December 31, 1986. As a
result, earnings prior to the termination of the Company's S corporation
status are taxed for federal 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,
Chairman, Chief Executive Officer and President, were $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 $4.7 million was,
and $257,000 will be, distributed to Mr. Kimmel. On June 30, 1996, the Company
also distributed a note payable to its shareholders. 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
85.5% of such distribution.
Certain Business Relationships
The Company leases three of its warehouse locations from two affiliated
partnerships (K&E Land & Leasing, a Texas general partnership of which Mr.
Kimmel is a managing partner, and 1741 Conant Partnership, a Texas general
partnership of which K&E Land & Leasing is the managing general partner). The
Company also
35
<PAGE>
leases computer equipment from K&E Land & Leasing. Expenditures under such
leases in 1993, 1994 and 1995 were approximately $672,000, $672,000 and
$432,000, respectively. It is anticipated that expenditures under such leases
during 1996 will be $432,000. Two of the leased warehouses were financed
through economic development and industrial revenue bonds totaling $975,000,
of which the Company is comaker.
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% 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.
36
<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 85.5% 57.9%
Clyde A. Reed, Jr. ........................ 28,514(2) * *
Ellis L. McKinley, Jr ..................... 16,450(3) * *
Richard S. Tucker.......................... 0 * *
Martin C. Bowen............................ 0 * *
Richard Nevins............................. 0 * *
C. Lee Denham.............................. 9,400(4) * *
Roger J. Kollat(5)......................... 0 * *
All directors and executive officers as a
group (5 persons)......................... 3,813,560(6) 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) Includes options to acquire 18,847 shares of Common Stock that will be
exercisable upon consummation of this offering.
(3) Consists of options to acquire 16,450 shares of Common Stock that will be
exercisable upon consummation of this offering.
(4) Consists of options to acquire 9,400 shares of Common Stock that will be
exercisable upon consummation of this offering.
(5) Mr. Kollat is no longer an employee of the Company.
(6) Includes options to acquire 44,697 shares of Common Stock that will be
exercisable upon consummation of this offering.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of August 30, 1996, the authorized capital stock of the Company consisted
of 100,000,000 shares of Common Stock, par value $.01 per share, and there
were 4,394,500 shares of Common Stock outstanding held by six shareholders of
record.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share in the
election of directors and for all other purposes. There are no cumulative
voting or preemptive rights applicable to any shares of Common Stock. Under
the terms of the Company's Articles of Incorporation, directors are elected by
a plurality of the votes cast at a meeting of shareholders at which a quorum
is present. Matters for which the affirmative vote of a specified portion of
shares entitled to vote is specified by the Texas Business Corporation Act
(the "TBCA"), are determined by the affirmative vote of the holders of at
least a majority of the shares entitled to vote on the matter. Certain matters
relating to business combinations with Affiliated Shareholders (as defined
below) are determined by the affirmative vote of two-thirds of the shares of
Common Stock issued and outstanding (excluding such Affiliated Shareholder's
shares). See "--Certain Anti-Takeover Provisions." All other matters are
determined by the affirmative vote of at least a majority of the shares
entitled to vote on, and voted for or against, such matter. All shares of
Common Stock are entitled to participate pro rata in such distributions and
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Notwithstanding the foregoing, purchasers of shares of
Common Stock in this offering will not be entitled to receive any portion of
the S Corporation Distribution. Subject to the prior rights of creditors, all
shares of Common Stock are entitled in the event of liquidation to participate
ratably in the distribution of all the remaining assets of the Company. The
outstanding shares of Common Stock are, and the shares offered hereby will be
upon issuance and sale as described herein, fully paid and nonassessable.
LIMITATIONS ON DIRECTOR LIABILITY
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 breach of fiduciary duty 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 or that involve
intentional misconduct or a knowing violation of law, (iii) any transaction
from which such director receives an improper personal 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 provide that the Company will indemnify,
to the fullest extent permissible, persons named or threatened to be named in
a proceeding resulting from their status as a director 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 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 20% or
38
<PAGE>
more of the shares 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 time 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 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. These provisions may inhibit a change in control
of the Company.
TRANSFER AGENT AND REGISTRAR
Upon consummation of the offering, the transfer agent and registrar for the
Common Stock will be Chemical Mellon 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 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 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 30, 1996, options to purchase an aggregate of 418,426 shares of
Common Stock were outstanding under the Company's 1995 Plan and 1996 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
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 intends
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.
39
<PAGE>
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.
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."
40
<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
41
<PAGE>
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.
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
Subsidiary 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 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 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 of Rylander,
Clay & Opitz, L.L.P., independent auditors, given on the authority of that
firm as experts in auditing and accounting. 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
including the exhibits and schedules thereto. 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 other 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.
42
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
KEVCO, INC. AND SUBSIDIARY
Report of Independent Accountants.......................................... F-2
Independent Auditors Report................................................ F-3
Consolidated Financial Statements:
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Income........................................ F-5
Consolidated Statements of Stockholders' Equity.......................... F-6
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-9
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
Report of Independent Auditors............................................. F-18
Consolidated Financial Statements:
Consolidated Statements of Income........................................ F-19
Consolidated Statements of Cash Flows.................................... F-20
Notes to Consolidated Financial Statements............................... F-21
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
Unaudited Pro Forma Consolidated Statements of Income.................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Kevco, Inc. and Subsidiary
Fort Worth, Texas
We have audited the accompanying consolidated balance sheet of Kevco, Inc.
and Subsidiary 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. and Subsidiary as of December 31, 1995, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
April 15, 1996 except for Note 1 and 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.
/s/ Rylander, Clay & Opitz L.L.P
Fort Worth, Texas
March 24, 1995
F-3
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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...................... 6,661 17,769 23,054 23,054
Prepaid expenses and other....... 384 343 399 399
------- ------- ------- -------
Total current assets........... 12,404 33,858 39,982 39,982
Property and equipment, net........ 2,142 9,758 10,084 10,084
Intangible assets, net............. -- 8,244 7,924 7,924
Other assets....................... 357 459 405 405
------- ------- ------- -------
Total assets................... $14,903 $52,319 $58,395 $58,395
======= ======= ======= =======
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....... 197 394 480 4,159
Loan to stockholder.............. (4,187) (3,437) -- --
Retained earnings................ 7,621 9,950 8,157 --
Treasury stock, 306 shares at
cost............................ (748) (748) (748) --
------- ------- ------- -------
Total stockholders' equity..... 2,930 6,206 7,936 4,203
------- ------- ------- -------
Total liabilities and
stockholders' equity.......... $14,903 $52,319 $58,395 $58,395
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
KEVCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- -----------------------------
1993 1994 1995 1995 1996
------- ------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $80,257 $99,279 $182,519 $ 56,301 $ 135,598
Cost of sales........... 67,087 83,625 155,877 47,649 115,247
------- ------- -------- ------------ -------------
Gross profit........ 13,170 15,654 26,642 8,652 20,351
Commission income....... 1,274 1,066 2,610 512 2,700
------- ------- -------- ------------ -------------
14,444 16,720 29,252 9,164 23,051
Selling, general and
administrative
expenses............... 10,542 11,891 20,839 6,883 14,943
------- ------- -------- ------------ -------------
Operating income.... 3,902 4,829 8,413 2,281 8,108
Other income............ -- 800 -- -- --
Interest income......... 83 346 355 186 141
Interest expense........ (425) (627) (1,692) (346) (1,199)
------- ------- -------- ------------ -------------
Income before income
taxes.............. 3,560 5,348 7,076 2,121 7,050
State income taxes...... -- 51 45 20 25
------- ------- -------- ------------ -------------
Net income.......... $ 3,560 $ 5,297 $ 7,031 $ 2,101 $ 7,025
======= ======= ======== ============ =============
Supplemental information
(unaudited) (Note 13):
Historical income
before income taxes.. $ 7,076 $ 7,050
Income tax expense
adjustments.......... 2,760 2,750
-------- -------------
Supplemental net
income............... $ 4,316 $ 4,300
======== =============
Supplemental earnings
per share............ $ .87 $ .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. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
------------- ----------------- PAID-IN LOAN TO RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER EARNINGS TOTAL
------ ------ ------- -------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... 4,700 $47 -- -- $197 -- $ 4,816 $ 5,060
Net income.............. -- -- -- -- -- -- 3,560 3,560
Distribution to
stockholders........... -- -- -- -- -- -- (2,030) (2,030)
Loan to stockholder..... -- -- -- -- -- $(5,000) -- (5,000)
Collections from
stockholder............ -- -- -- -- -- 63 -- 63
Purchase of treasury
stock.................. -- -- 306 $ (748) -- -- -- (748)
----- --- ------ -------- ---- ------- ------- -------
Balance at December 31,
1993................... 4,700 47 306 (748) 197 (4,937) 6,346 905
Net income.............. -- -- -- -- -- -- 5,297 5,297
Distribution to
stockholders........... -- -- -- -- -- -- (4,022) (4,022)
Collections from
stockholder............ -- -- -- -- -- 750 -- 750
----- --- ------ -------- ---- ------- ------- -------
Balance at December 31,
1994................... 4,700 47 306 (748) 197 (4,187) 7,621 2,930
Net income.............. -- -- -- -- -- -- 7,031 7,031
Distribution to
stockholders........... -- -- -- -- -- -- (4,702) (4,702)
Collections from
stockholder............ -- -- -- -- -- 750 -- 750
Contributed capital..... -- -- -- -- 197 -- -- 197
----- --- ------ -------- ---- ------- ------- -------
Balance at December 31,
1995................... 4,700 47 306 (748) 394 (3,437) 9,950 6,206
Net income (unaudited).. -- -- -- -- -- -- 7,025 7,025
Distribution to
stockholders
(unaudited)............ -- -- -- -- -- -- (5,756) (5,756)
Collections from
stockholder
(unaudited)............ -- -- -- -- -- 375 -- 375
Distribution of loan to
stockholder
(unaudited)............ -- -- -- -- -- 3,062 (3,062) --
Contributed capital
(unaudited)............ -- -- -- -- 86 -- -- 86
----- --- ------ -------- ---- ------- ------- -------
Balance at June 30,
1996................... 4,700 $47 306 $ (748) $480 $ -- $ 8,157 $ 7,936
===== === ====== ======== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
KEVCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- ----------------------------
1993 1994 1995 1995 1996
------- ------- ------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 3,560 $ 5,297 $ 7,031 $ 2,101 $ 7,025
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 309 349 991 208 878
Gain on sale of
assets.............. (9) (11) (16) (6) (3)
Deferred compensation
obligation.......... 2 (7) 28 10 11
Changes in assets and
liabilities, net of
effects from
purchase of Service
Supply Systems,
Inc.:
Trade receivables,
net............... (586) (835) (2,014) (1,663) (1,674)
Inventories........ (1,262) (1,335) (1,127) (1,488) (5,285)
Prepaid expenses
and other......... (31) (9) 71 73 (56)
Trade accounts
payable........... 1,650 (591) 3,650 3,399 6,901
Accrued
liabilities....... 293 218 (166) 64 570
------- ------- ------- ------------ ------------
Net cash provided by
operating
activities.......... 3,926 3,076 8,448 2,698 8,367
------- ------- ------- ------------ ------------
Cash flows from
investing activities:
Purchase of equipment.. (258) (432) (2,844) (262) (884)
Proceeds from sale of
assets................ 9 11 594 7 3
Decrease (increase) in
other assets.......... 377 (47) 180 (51) 54
Purchase of Service
Supply Systems, Inc.,
net of cash acquired.. -- -- (17,449) -- --
Loan origination fees.. -- -- (913) -- --
------- ------- ------- ------------ ------------
Net cash provided
(used) by investing
activities.......... 128 (468) (20,432) (306) (827)
------- ------- ------- ------------ ------------
Cash flows from
financing activities:
Proceeds (payment) of
line of credit, net... -- 2,400 (4,587) 1,000 --
Distributions paid..... (2,030) (4,022) (4,702) (3,880) (5,456)
Payments of long-term
debt.................. (177) (1,578) (1,900) (434) (29,336)
Capital contributions.. -- -- 197 107 86
Proceeds from long-term
debt.................. 3,000 -- 30,700 -- 25,900
Payment of acquired
debt.................. -- -- (8,124) -- --
Long-term loan to
stockholder........... (5,000) -- -- -- --
Collections on loan to
stockholder........... 63 750 750 375 375
------- ------- ------- ------------ ------------
Net cash (used)
provided by
financing
activities.......... (4,144) (2,450) 12,334 (2,832) (8,431)
------- ------- ------- ------------ ------------
Net (decrease) increase
in cash and cash
equivalents............ (90) 158 350 (440) (891)
Beginning cash and cash
equivalents............ 559 469 627 627 977
------- ------- ------- ------------ ------------
Ending cash and cash
equivalents............ $ 469 $ 627 $ 977 $ 187 $ 86
======= ======= ======= ============ ============
Supplemental cash flow
information:
Cash paid during the
period for:
Interest............. $ 404 $ 604 $ 1,471 $ 329 $ 1,192
======= ======= ======= ============ ============
</TABLE>
(Continued)
F-7
<PAGE>
KEVCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
Supplemental schedule of noncash investing and financing activities:
The Company acquired common stock held in the treasury in 1993 through the
issuance of a note payable of $748 to a former stockholder.
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. AND SUBSIDIARY
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"),
the Company will restructure and create an operating company with a
subsidiary. Accordingly, these financial statements refer to Kevco, Inc. and
Subsidiary (the "Company").
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 $1,872,000 and $1,376,000 at
December 31, 1995 and 1994, respectively and $1,872,000 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. AND SUBSIDIARY
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). 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.
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 7% 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.
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
F-10
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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)
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 it 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 provision for
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).
2. ACQUISITION:
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 the Company. The acquisition was
accounted for as a purchase and, accordingly, the operating results of Service
Supply have been
F-11
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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)
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 previous two fiscal years, after including the impact of
adjustments for amortization of intangibles, income taxes, non-recurring
compensation charges 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........................................ $ 7,361 $ 10,278
Earnings per share................................ $ 1.56 $ 2.08
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.
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................................ 6,661 14,324 19,040
------ ------- -------
$6,661 $17,769 $23,054
====== ======= =======
</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.
F-12
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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)
5. INTANGIBLE ASSETS:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Goodwill............................................... $7,087 $7,087
Loan origination fees.................................. 913 913
Non-compete agreements................................. 544 544
------ ------
8,544 8,544
Less accumulated amortization.......................... (300) (620)
------ ------
Intangible assets, net............................... $8,244 $7,924
====== ======
</TABLE>
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 payable
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 operating 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. In-
terest is paid at the bank's prime rate or LIBOR
rates based on pricing options selected by the
Company plus a margin determined 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 letter of credit in the amount of
$239, was available under the credit facility at
December 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, collateralized
by inventory, accounts receivable, property and
equipment, common stock of the Company and guar-
anty of majority stockholder..................... 2,187 -- --
</TABLE>
F-13
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
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. The related credit agreement
contains certain restrictions and conditions which include cash flow
requirements, limitations on acquisitions of property and equipment and
restrictions on distributions to stockholders.
The following are scheduled maturities of debt at December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996............................................................. $ 1,057
1997............................................................. 2,867
1998............................................................. 17,131
1999............................................................. 2,627
2000............................................................. 2,614
Thereafter....................................................... 4,967
-------
$31,263
=======
</TABLE>
In addition, the Company has entered into an interest rate hedge agreement
in the notional amount of $15.0 million, whereby the Company will receive
interest payments should LIBOR increase above 9.00% and, conversely, will make
interest payments should LIBOR decrease below 5.25%, the effect of which
limits the Company's interest expense within the range of 9.00% to 5.25% LIBOR
on $15.0 million of debt. Management intends to hold the interest rate hedge
until maturity on August 28, 1998. The Company has incurred no gain or loss
related to this interest rate hedge for the year ended December 31, 1995.
The fair value of long-term debt 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.
F-14
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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)
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
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.
Employment Agreements
The Company has entered into an employment agreement with its majority
shareholder 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 principal stockholder
of the Company. Two of the leased buildings were financed primarily through
economic development and industrial revenue bonds totaling $975,000 of which
the Company is co-maker. Lease payments for the facilities and equipment were
approximately $432,000, $672,000 and $672,000 in 1995, 1994 and 1993,
respectively and approximately $216,000 for the six months ended June 30,
1996. (See Note 6).
F-15
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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 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, 44,306 of these options were
still outstanding. The option price is $5.64 per share, exercisable over a
ten-year vesting period, expiring June 19, 2004 although immediately
exercisable as of the effective date of the common stock offering. No shares
have been exercised.
Effective January 1, 1996, the Company issued options to purchase 392,450
shares with an option price of $11.17 exercisable over a three-year vesting
period, expiring in seven years although immediately exercisable as of the
effective date of the common stock offering. As of June 30, 1996, 374,120 of
these options were still outstanding. No shares have been exercised.
11. STOCK SPLIT:
During 1994, the Company's board of directors authorized a 10,000-to-1 stock
split with $.01 par value common stock exchanged for cancellation of all $1.00
par value common stock previously issued. As a result, 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
F-16
<PAGE>
KEVCO, INC. AND SUBSIDIARY
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)
status. The unaudited supplemental income tax expense adjustment is presented
as if the Company had been a C corporation subject to federal and state income
taxes throughout the periods presented at an effective tax rate of 39%.
The supplemental information is presented for informational purposes only
and is not necessarily indicative of operating results that would have
occurred had the Company elected to terminate its Subchapter S corporation
status as of the beginning of each of the periods presented, nor are they
necessarily indicative of future operating results.
Unaudited Supplemental Earnings Per Share
Supplemental earnings per share has been computed by dividing supplemental
net income by the weighted average number of shares of common stock
outstanding during the period.
In accordance with a regulation of the Securities and Exchange Commission,
supplemental earnings per share data have been presented to reflect the effect
of the assumed issuance of that number of shares of common stock that would
generate sufficient cash to pay an S corporation distribution in an amount
equal to previously taxed but undistributed earnings at December 31, 1995 and
June 30, 1996.
Historical net income per common share is not presented because it is not
indicative of the ongoing entity.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Service Supply Systems, Inc.
We have audited the accompanying consolidated statements of income and cash
flows of Service Supply Systems, Inc. and Subsidiary for the years ended
December 31, 1994, 1993, and 1992. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Service Supply Systems, Inc. and Subsidiary for
the years ended December 31, 1994, 1993, and 1992 in conformity with generally
accepted accounting principles.
/s/ Rumsey & Huckaby, P.C.
Cordele, Georgia
February 28, 1995
F-18
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
-------------------------- ENDED
1992 1993 1994 JUNE 30, 1995
------- ------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................... $59,804 $73,625 $100,910 $59,327
Cost of sales....................... 51,493 63,234 88,029 51,972
------- ------- -------- -------
Gross profit...................... 8,311 10,391 12,881 7,355
Commission income................... 913 1,219 1,953 1,383
------- ------- -------- -------
9,224 11,610 14,834 8,738
Selling, general and administrative
expenses........................... 7,978 9,345 11,899 5,904
------- ------- -------- -------
Operating income.................. 1,246 2,265 2,935 2,834
Other income........................ 4 4 33 1
Interest income..................... 15 23 -- --
Interest expense.................... (372) (314) (582) (407)
------- ------- -------- -------
Income before income taxes........ 893 1,978 2,386 2,428
Provision for income taxes.......... 330 732 871 843
------- ------- -------- -------
Net income........................ $ 563 $ 1,246 $ 1,515 $ 1,585
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-19
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
---------------------------- ENDED
1992 1993 1994 JUNE 30, 1995
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income........................ $ 563 $ 1,246 $ 1,515 $ 1,585
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Depreciation and amortization.... 290 332 515 364
(Gain) loss on disposal of
assets......................... (5) 6 (33) (1)
Increase in deferred tax asset.. (3) (13) (266) --
Changes in assets and
liabilities:
Accounts receivable, net........ (1,117) 314 (2,279) (2,235)
Inventories..................... (1,075) (1,372) (2,346) 135
Other receivables............... 131 (145) (206) 191
Prepaid expenses................ 3 131 (250) 110
Accounts payable................ 899 304 590 928
Accrued expenses................ 292 643 1,239 (573)
-------- -------- -------- -------
Net cash provided (used) by
operating activities......... (22) 1,446 (1,521) 504
-------- -------- -------- -------
Cash flows from investing
activities:
Purchase of property and
equipment........................ (63) (460) (3,850) (234)
Proceeds from sale of assets...... 34 24 77 2
Payments received from other note
receivable....................... -- 23 -- --
Other assets...................... 13 -- (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 Common Stock offered
hereby, as if these transactions had occurred on January 1, 1995.
The unaudited pro forma consolidated statement of income for the six months
ended June 30, 1996 has been adjusted to give effect to (i) the Company's
conversion from an S corporation to a C corporation and (ii) the sale of
Common Stock offered hereby, as if these had occurred on January 1, 1996.
The acquisition adjustments, pro forma 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 date specified or to project the Company's
results of operations for any future period. This unaudited pro forma
consolidated statements of income should be read in conjunction with the
Company's consolidated financial statements and 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. AND SUBSIDIARY
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 in-
come............. 2,610 1,383 -- 3,993 -- 3,993 -- 3,993
-------- ------- ------- -------- ------- -------- ------ --------
29,252 8,738 -- 37,990 -- 37,990 -- 37,990
Selling, general
and
administrative
expenses......... 20,839 5,904 (1,177)(1)(2) 25,566 -- 25,566 (242)(8) 25,324
-------- ------- ------- -------- ------- -------- ------ --------
Operating in-
come............ 8,413 2,834 1,177 12,424 -- 12,424 242 12,666
Interest income... 355 1 356 -- 356 -- 356
Interest expense.. (1,692) (407) (358)(3) (2,457) -- (2,457) 1,418 (9) (1,039)
-------- ------- ------- -------- ------- -------- ------ --------
Income before
income taxes.... 7,076 2,428 819 10,323 -- 10,323 1,660 11,983
State income tax-
es............... 45 -- -- 45 (45)(5) -- -- --
Provision for
income taxes..... -- 843 (843)(4) -- 4,026 (6) 4,026 647 (6) 4,673
-------- ------- ------- -------- ------- -------- ------ --------
Net income....... $ 7,031 $ 1,585 $ 1,662 $ 10,278 $(3,981) $ 6,297 $1,013 $ 7,310
======== ======= ======= ======== ======= ======== ====== ========
Earnings per
share............ $ 1.27 $ 1.12
======== ========
Weighted average
shares
outstanding...... 4,946 (7) 6,544
</TABLE>
See accompanying notes to the unaudited pro forma consolidated statement of
income.
F-25
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(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 eliminate non-recurring expenses of $1,385,000 related to compensation
of employees terminated subsequent to the acquisition of Service Supply.
(3) 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.
(4) To eliminate the provision for income taxes for Service Supply, which was
a C corporation prior to its acquisition by the Company.
(5) 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 (6).
(6) To reflect a provision for income taxes at an effective rate of 39%
associated with the Company's conversion to a C corporation.
(7) 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 at December 31, 1995.
(8) To eliminate certain executive compensation that would not have been paid
under the compensation plan to be adopted by the Company upon the
consummation of the common stock offering.
(9) To reflect a decrease in interest expense associated with indebtedness
that will be repaid 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 shareholder level on December 31, 1995.
F-26
<PAGE>
KEVCO, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUPPLEMENTAL OFFERING
ACTUAL ADJUSTMENTS SUPPLEMENTAL ADJUSTMENTS AS ADJUSTED
-------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Sales............... $135,598 $ -- $135,598 $ -- $135,598
Cost of sales........... 115,247 -- 115,247 $ -- 115,247
-------- ------- -------- ------ --------
Gross profit.......... 20,351 -- 20,351 -- 20,351
Commission income....... 2,700 -- 2,700 -- 2,700
-------- ------- -------- ------ --------
23,051 -- 23,051 -- 23,051
Selling, general and
administrative
expenses............... 14,943 -- 14,943 (37)(4) 14,906
-------- ------- -------- ------ --------
Operating income...... 8,108 -- 8,108 37 8,145
Interest income......... 141 -- 141 -- 141
Interest expense........ (1,199) -- (1,199) 735 (5) (464)
-------- ------- -------- ------ --------
Income before income
taxes................ 7,050 -- 7,050 772 7,822
State income taxes...... 25 (25)(1) -- -- --
Provision for income
taxes.................. -- 2,750 (2) 2,750 301 (2) 3,051
-------- ------- -------- ------ --------
Net income............ $ 7,025 (2,725) 4,300 471 4,771
======== ======= ======== ====== ========
Earnings per share...... $ .90 $ .73
======== ========
Weighted average shares
outstanding............ 4,778 (3) 6,544
</TABLE>
See accompanying notes to the unaudited pro forma consolidated statement of
income.
F-27
<PAGE>
NOTES TO THE UNAUDITED AS ADJUSTED PRO FORMA 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 at June 30, 1996.
(4) To eliminate certain executive compensation that would not have been paid
under the compensation plan to be adopted by the Company upon the
consummation of the common stock offering.
(5) To reflect decrease in interest expense associated with indebtedness that
will be repaid 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
shareholder level on 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.......................................................... 10
Dividend Policy.......................................................... 11
Dilution................................................................. 11
Capitalization........................................................... 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Business................................................................. 21
Management............................................................... 30
Principal Shareholders................................................... 37
Description of Capital Stock............................................. 38
Shares Eligible for Future Sale.......................................... 39
Underwriting............................................................. 41
Legal Matters............................................................ 42
Experts.................................................................. 42
Additional Information................................................... 42
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
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.................................. *
Blue Sky Fees and Expenses.......................................... *
Printing and Engraving Costs........................................ 75,000
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Transfer Agent and Registrar Fees and Expenses...................... *
Miscellaneous....................................................... *
-------
Total............................................................. $
=======
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that, to the fullest extent
permitted by Texas law, directors and former directors of the Company will not
be liable to the Company or its shareholders for monetary damages for breach
of fiduciary duty 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 Registrant or its shareholders, (ii) acts or omissions not in good
faith that constitute a breach of duty of the director 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 law.
The Company's Articles of Incorporation and Bylaws grant mandatory
indemnification to directors and officers of the Company to the fullest extent
authorized by 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 has entered into an agreement with each of its shareholders of
record prior to the consummation of this offering pursuant to which the
Company agreed to indemnify each shareholder against any tax liability of such
shareholder resulting from any adjustment of any amount shown on a tax return
filed by the Company or its subsidiaries for periods ending upon the
consummation of this offering and each shareholder agreed to pay the Company
(or one of its subsidiaries) any tax reimbursements (net of additional taxes
owed as a result of such events) such shareholder receives as a result of such
adjustments for such periods or resulting from a determination that the
Operating Company did not qualify for S corporation status for all or a
portion of such periods.
II-1
<PAGE>
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 418,426 shares of Common Stock to
certain employees. 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) Immediately prior to the consummation of this offering, the
Registrant will issue 4,394,500 shares of Common Stock in a one for one
shares exchange for shares of the common stock of the Operating Company.
See "Business--History." Such transaction will be effected without
registration in reliance upon Section 4(2) under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.*
2.1 --Merger Agreement, dated June 6, 1995 by and among Kevco, Inc. and
Service Supply Systems, Inc., joined by a wholly-owned subsidiary
of Kevco, Inc.(1)
2.2 --Agreement and Plan of Merger (between Kevco Texas, Inc. and Kevco
Delaware, Inc.)*
2.3 --Bill of Sale and General Assignment of Kevco Delaware, Inc. as
Assignor, to Sunbelt Wood Components, Inc., as Assignee.*
2.4 --Assumption Agreement between Kevco Delaware, Inc. and Sunbelt Wood
Components, Inc.*
3.1 --Articles of Incorporation of Kevco, Inc.*
3.2 --Bylaws of Kevco, Inc.*
4.1 --Form of certificate evidencing ownership of Common Stock of Kevco,
Inc.*
5.1 --Opinion of Jackson & Walker, L.L.P.*
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated
1995 Stock Option Plan of Kevco, Inc.).*
10.2 --1996 Stock Option Plan of Kevco, Inc.*
10.3 --Amended & Restated Employment Agreement (between Gerald E. Kimmel
and Kevco, Inc.), joined therein by Kevco Delaware, Inc.*
10.4 --Employment Agreement between C. Lee Denham and Kevco, Inc. dated
June 30, 1995.(1)
10.5 --Lease Agreement between K & E Land & Leasing and Kevco, Inc. dated
December 1, 1977.(1)
10.6 --Amendment No. 1 to Lease Agreement, 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 and 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)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14 --Amendment No. 1 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated February 12, 1993.(1)
10.15 --Amendment No. 2 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.16 --Amendment No. 3 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated May 23, 1994.(1)
10.17 --Deferred Compensation Agreement between Kevco, Inc. and Clyde A.
Reed, Jr. dated May 24, 1977.(1)
10.18 --Amendment No. 1 to Deferred Compensation Agreement dated May ,
1980.(1)
10.19 --Amendment No. 2 to Deferred Compensation Agreement dated March 10,
1992.(1)
10.20 --Health & Accident Plan For the Benefit of the Officers of Kevco,
Inc.*
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 Sumitomo Bank, Limited
dated February , 1996 in the amount of $5,714,285.72.(1)
10.28 --Term Loan Note of Kevco, Inc. to Sumitomo Bank dated February ,
1996 in the amount of $4,285,714.28.(1)
10.29 --PaineWebber Standardized 401(K) Profit-Sharing Adoption Agreement
(No. 005) (To be used with Basic Plan Document No. 03 Only) for
Kevco, Inc. dated May 24, 1996 and PaineWebber Defined Contribution
Plan.(1)
10.30 --Promissory Note of Gerald E. Kimmel to Kevco, Inc. dated October
26, 1993 in the amount of $5,000,000.(1)
10.31 --Amendment No. 4 to Lease dated December 1, 1977 by and between K&E
Land & Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.32 --Assignment and Acceptance dated February 2, 1996 between Daiwa
Bank, Limited and the Sumitomo Bank, Ltd., Chicago Branch.(1)
10.33 --Tax Indemnification Agreement*
21.1 --Subsidiaries*
23.1 --Consent of Coopers & Lybrand, L.L.P.(1)
23.2 --Consent of Jackson & Walker, L.L.P.*
23.3 --Consent of Rylander, Clay & Opitz, L.L.P.(1)
23.4 --Consent of Rumsey & Huckaby, P.C.(1)
24.1 --Power of Attorney (contained on the signature page of this
Registration Statement).
99.1 --Consent of Director Nominee.(1)
99.2 --Consent of Director Nominee.(1)
99.3 --Consent of Director Nominee.(1)
</TABLE>
- --------
* To be filed by amendment.
(1) Filed herewith.
II-3
<PAGE>
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
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 such post-effective amendment 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-4
<PAGE>
SIGNATURE PAGE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
KEVCO, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON AUGUST 30, 1996.
Kevco, Inc.
By: /s/ Jerry E. Kimmel
---------------------------------
JERRY E. KIMMEL, PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below authorizes Jerry E. Kimmel and
Richard S. Tucker and each of them, each of whom may act without joinder of
the other, to execute in the name of each such person who is then an officer
or director of the Registrant, and to file, any amendments (including post-
effective amendments) to this Registration Statement necessary or advisable to
enable the Registrant to comply with the Securities Act of 1933, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in respect thereof, in connection with the registration of the
securities which are the subject of this Registration Statement, which
amendments may make such changes to such Registration Statement as such
attorney may deem appropriate.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON AUGUST 30, 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
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
1.1 --Form of Underwriting Agreement.*
2.1 --Merger Agreement, dated June 6, 1995 by and among
Kevco, Inc. and Service Supply Systems, Inc., joined
by a wholly-owned subsidiary of Kevco, Inc.(1)
2.2 --Agreement and Plan of Merger (between Kevco Texas,
Inc. and Kevco Delaware, Inc.)*
2.3 --Bill of Sale and General Assignment of Kevco
Delaware, Inc. as Assignor, to Sunbelt Wood
Components, Inc., as Assignee.*
2.4 --Assumption Agreement between Kevco Delaware, Inc.
and Sunbelt Wood Components, Inc.*
3.1 --Articles of Incorporation of Kevco, Inc.*
3.2 --Bylaws of Kevco, Inc.*
4.1 --Form of certificate evidencing ownership of Common
Stock of Kevco, Inc.*
5.1 --Opinion of Jackson & Walker, L.L.P.*
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended
and Restated 1995 Stock Option Plan of Kevco,
Inc.).*
10.2 --1996 Stock Option Plan of Kevco, Inc.*
10.3 --Amended & Restated Employment Agreement (between
Gerald E. Kimmel and Kevco, Inc.), joined therein by
Kevco Delaware, Inc.*
10.4 --Employment Agreement between C. Lee Denham and
Kevco, Inc. dated June 30, 1995.(1)
10.5 --Lease Agreement between K & E Land & Leasing and
Kevco, Inc. dated December 1, 1977.(1)
10.6 --Amendment No. 1 to Lease Agreement, 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
and 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)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.16 --Amendment No. 3 to Equipment Lease Agreement
between K & E Land & Leasing and Kevco, Inc. dated
May 23, 1994.(1)
10.17 --Deferred Compensation Agreement between Kevco, Inc.
and Clyde A. Reed, Jr. dated May 24, 1977.(1)
10.18 --Amendment No. 1 to Deferred Compensation Agreement
dated May , 1980.(1)
10.19 --Amendment No. 2 to Deferred Compensation Agreement
dated March 10, 1992.(1)
10.20 --Health & Accident Plan For the Benefit of the
Officers of Kevco, Inc.*
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 Sumitomo
Bank, Limited dated February , 1996 in the amount
of $5,714,285.72.(1)
10.28 --Term Loan Note of Kevco, Inc. to Sumitomo Bank
dated February , 1996 in the amount of
$4,285,714.28.(1)
10.29 --PaineWebber Standardized 401(K) Profit-Sharing
Adoption Agreement (No. 005) (To be used with Basic
Plan Document No. 03 Only) for Kevco, Inc. dated
May 24, 1996 and PaineWebber Defined Contribution
Plan.(1)
10.30 --Promissory Note of Gerald E. Kimmel to Kevco, Inc.
dated October 26, 1993 in the amount of
$5,000,000.(1)
10.31 --Amendment No. 4 to Lease dated December 1, 1977 by
and between K&E Land & Leasing and Kevco, Inc. dated
October 26, 1993.(1)
10.32 --Assignment and Acceptance dated February 2, 1996
between Daiwa Bank, Limited and the Sumitomo Bank,
Ltd., Chicago Branch.(1)
10.33 --Tax Indemnification Agreement*
21.1 --Subsidiaries*
23.1 --Consent of Coopers & Lybrand, L.L.P.(1)
23.2 --Consent of Jackson & Walker, L.L.P.*
23.3 --Consent of Rylander, Clay & Opitz, L.L.P.(1)
23.4 --Consent of Rumsey & Huckaby, P.C.(1)
24.1 --Power of Attorney (contained on the signature page
of this Registration Statement).
99.1 --Consent of Director Nominee.(1)
99.2 --Consent of Director Nominee.(1)
99.3 --Consent of Director Nominee.(1)
</TABLE>
- --------
* To be filed by amendment.
(1) Filed herewith.
II-7
<PAGE>
EXHIBIT 2.1
MERGER AGREEMENT
----------------
This Merger Agreement (the "Agreement") is made and entered into effective
the 6th day of June, 1995 by and among KEVCO, INC., a Texas corporation
("Buyer"), and SERVICE SUPPLY SYSTEMS, INC., a Georgia corporation (the
"Company"), joined herein by a wholly-owned subsidiary of Buyer ("Subsidiary")
to be organized under Georgia law and which, upon its organization, will join
herein;
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Buyer and the Company have heretofore entered into a letter of
intent dated March 22, 1995 (the "Letter of Intent") pursuant to which Buyer
indicated its intention to acquire all, but not less than all, of the issued and
outstanding shares (the "Shares") of common stock, $.10 par value per Share (the
"Common Stock") of the Company through a reverse subsidiary merger of the
Subsidiary with and into the Company; and
WHEREAS, the Letter of Intent contemplated that the parties hereto would
enter into this Agreement;
NOW, THEREFORE, in consideration of the premises, and the representations,
warranties, covenants and agreements contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows, intending to be legally bound thereby:
ARTICLE I
TERMS OF THE TRANSACTIONS
-------------------------
1.1 The Merger. On the terms and subject to the conditions set forth in
this Agreement, the Subsidiary will merge with and into the Company (the
"Merger") at the Effective Time (as hereinafter defined). The Company shall be
the corporation surviving the Merger (sometimes hereinafter referred to as the
"Surviving Corporation").
1.2 Effect of Merger.
(a) The Merger shall become effective at the time (the "Effective
Time") the Company and the Subsidiary file Articles of Merger or a Certificate
of Merger (in either case, the "Certificate of Merger") with the Secretary of
State of Georgia in accordance with the provisions of the Georgia Business
Corporation Code (the "Georgia Code"). The Merger shall have the effect set
forth in the Georgia Code. The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering any
document) in the name of and on behalf of either the Company or the Subsidiary
in order to carry out and effectuate the transactions contemplated by this
Agreement.
<PAGE>
(b) In order to effectuate the Merger, the Company and the
Subsidiary shall enter into a Plan of Merger in the form attached hereto as
Exhibit "A" (the "Plan of Merger"). If required by the Georgia Code, the Plan of
Merger shall be filed with the Secretary of State of Georgia.
1.3 Purchase Price.
(a) At and as of the Effective Time (a) each Share of Common Stock
of the Company (other than any Dissenting Shares) shall be converted into the
right to receive an amount in cash equal to $40.46, without interest thereon,
(b) each option to purchase Shares of Common Stock of the Company, whether or
not such option shall be exercisable at the Effective Time, shall be converted
into an amount in cash equal to the difference between the exercise price for
each of such Shares and $40.46, as more fully enumerated on Schedule 1.3
attached hereto, and (c) each Dissenting Share shall be converted into the right
to receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the Georgia Code (Subparagraphs (a), (b) and
(c) being collectively referred to as the "Purchase Price"); provided, however,
that the Purchase Price shall be subject to equitable adjustment in the event of
any stock dividend, reverse stock split or similar recapitalization; and further
provided however that in no event shall the Purchase Price, in the aggregate,
exceed $17,000,000.00. No Share of Common Stock of the Company shall be deemed
to be outstanding or to have any rights other than those set forth above in this
Section 1.3 after the Effective Time. Payment of the Purchase Price shall be
subject to applicable withholding and other payroll and employment deductions to
the extent required by Applicable Law.
(b) Immediately after the Effective Time, (i) Buyer will cause the
Surviving Corporation to furnish to SouthTrust Bank of Alabama, National
Association (the "Escrow Agent") the Purchase Price in cash sufficient in the
aggregate for the Escrow Agent to make payment of 90% of the Purchase Price to
the holders of all of the outstanding Shares of Common Stock of the Company
(other than with respect to any Dissenting Shares) and make payment of 90% of
the Purchase Price to the holders of unexercised options equal to the difference
between the exercise price with respect to the Shares underlying such
unexercised options and $40.46 per Share, and the remaining 10% of the Purchase
Price to be placed in escrow as provided in Section 10.6(b) hereof, which
payment of the Purchase Price to or for the benefit of the holders of the
unexercised options shall be in lieu of any bonus to which such holders may be
entitled pursuant to the June 3, 1994 amendment to the Stock Option Plans under
which such options were granted, and (ii) Buyer will cause the Escrow Agent to
mail a letter of transmittal (with instructions for its use) in the form
attached hereto as Exhibit "B" to each shareholder of record of outstanding
Shares of Common Stock of the Company for each such
-2-
<PAGE>
shareholder of record to use in surrendering the certificates representing his
or its Shares of Common Stock of the Company against payment of the Purchase
Price. No interest will accrue or be paid to the holder of any outstanding
Shares of Common Stock of the Company or to the holder of any unexercised
options to purchase Shares of Common Stock. Buyer, at its option, may cause the
Escrow Agent to pay over to Surviving Corporation any portion of the Purchase
Price (including any earnings thereon) remaining thirty (30) days after the
Effective Time. Thereafter, all former shareholders of the Company shall be
entitled to look solely to the Surviving Corporation (subject to applicable law)
as general creditors thereof with respect to the Purchase Price payable upon
surrender of their certificates representing Shares of Common Stock of the
Company. Buyer shall be responsible for paying all charges and expenses of the
Escrow Agent with respect to investment, distribution and holding of the
Purchase Price.
(c) The portion of the Purchase Price to which each of the
Shareholders of the Company shall be entitled, as of the date of this Agreement,
is set forth on Schedule 3.2 attached hereto.
1.4 Transfer of Shares. In order to effectuate the transfer and
assignment of the Shares of Common Stock of the Company, pursuant to the Plan of
Merger, each Shareholder of record of the Company shall deliver or cause to be
delivered to the Surviving Corporation all Shares of Common Stock of the Company
owned by such Shareholder of record, but all such Shares shall be deemed
canceled in any respect at and as of the Effective Time in accordance with the
provisions of the Plan of Merger.
1.5 No Purchase Price Adjustment. If the aggregate bank debt of the
Company (including accrued but unpaid interest thereon) as of the close of
business on the last day immediately preceding the Closing Date exceeds
$7,500,000.00 (the "Bank Debt Ceiling"), the Buyer may elect not to consummate
this Agreement with no liability to Buyer or proceed to close with no reduction
in the Purchase Price.
1.6 Escrow Agreement. The adoption of this Agreement and the approval of
the Merger by the Shareholders of the Company shall constitute approval of the
Escrow Agreement described in Section 10.6(b) hereof and all of the arrangements
relating thereto, including without limitation (i) the placement of $1,700,000
in escrow, (ii) the appointment of the persons identified as the Shareholders'
Agent in Section 6.14 hereof, and (iii) the authority of the Shareholders' Agent
----
to defend and/or settle any claims for which the Shareholders of the Company may
be required to indemnify the Buyer Group pursuant to Sections 10.2 and 10.6(b)
hereof. All decisions and actions of the Shareholders' Agent under this
Agreement and the Escrow Agreement shall be binding upon all of the Shareholders
of the Company.
-3-
<PAGE>
ARTICLE II
CLOSING AND CLOSING DATE
------------------------
The closing of the transactions contemplated hereby (the "Closing") shall
take place (i) at the offices of Jackson & Walker, L.L.P. on the later of (i)
June 30, 1995, or (ii) three (3) Business Days after each of the conditions
precedent set forth in Articles VII and VIII have been satisfied or waived, or
(iii) at such other place or on such other date as Buyer and Shareholders' Agent
shall agree (the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to Buyer and the Subsidiary that:
3.1 Corporate Organization. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Georgia.
The Company is duly qualified to do business and is in good standing in each
jurisdiction identified on Schedule 3.1. The Company is not required to be
qualified or licensed to do business in any other jurisdictions where the
failure to be so qualified or licensed would, individually or in the aggregate,
have a Material Adverse Effect.
3.2 Corporate Authority; Capital Stock.
(a) The Company has all requisite corporate power and authority to
own or lease its properties and conduct its business as now owned, leased or
conducted.
(b) (i) The authorized capital stock of the Company consists of
10,000,000 Shares of Common Stock, 386,340 of which Shares are issued and
outstanding and owned of record as set forth on Schedule 3.2 hereto. Each
of the Shares of Common Stock of the Company has been duly authorized, is
validly issued, fully paid and non-assessable. None of such Shares was
issued in violation of any preemptive or other rights of any Shareholder of
the Company or any other Person. No Shareholder is a party to any voting
trust, proxy, other agreement, understanding or Contract with respect to
the voting of any Shares of Common Stock of the Company.
(ii) The authorized capital stock of Sunbelt consists of 10,000
shares of common stock, $1.00 par value per share ("Sunbelt Common Stock"),
500 of which shares of Sunbelt Common Stock are issued and outstanding and
owned by the Company. Each of the outstanding shares of Sunbelt Common
Stock has been duly
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authorized, is validly issued, fully paid and non-assessable. None of such
shares of Sunbelt Common Stock was issued in violation of any preemptive or
other rights of the Company or of any other Person. The Company is not a
party to any voting trust, proxy, other agreement, understanding or
Contract with respect to the voting of any shares of Sunbelt Common Stock.
(iii) The authorized capital stock of Kingman consists of
1,000 shares of common stock, no par value per share ("Kingman Common
Stock"), all of which shares of Kingman Common Stock are issued and
outstanding and owned by the Company. Each of the outstanding shares of
Kingman Common Stock has been duly authorized, is validly issued, fully
paid and non-assessable. None of such shares of Kingman Common Stock was
issued in violation of any preemptive or other rights of the Company or any
other Person. The Company is not a party to any voting trust, proxy, other
agreement, understanding or Contract with respect to the voting of any
shares of Kingman Common Stock.
(c) (i) Except as set forth on Schedule 3.2(c), there are no
outstanding subscriptions, options, warrants, calls, demands, or other
Contracts of any kind or nature whatsoever, under which any Shareholder or
the Company is or may be obligated to sell or issue to any Person any
Shares of Common Stock of the Company or any other securities which are
convertible into, or otherwise have a right to subscribe for, any Shares of
Common Stock of the Company or other equity securities of the Company.
(ii) Except as set forth on Schedule 3.2(c), there are no
outstanding subscriptions, options, warrants, call, demands, or other
Contracts of any kind or nature whatsoever, under which Sunbelt or the
Company is or may be obligated to sell or issue to any Person any shares of
Sunbelt Common Stock or any other securities which are convertible into, or
otherwise have a right to subscribe for, any shares of Sunbelt Common Stock
or other equity securities of Sunbelt.
(iii) Except as set forth on Schedule 3.2(c), there are no
outstanding subscriptions, options, warrants, call, demands, or other
Contracts of any kind or nature whatsoever, under which Kingman or the
Company is or may be obligated to sell or issue to any Person any shares of
Kingman Common Stock or any other securities which are convertible into, or
otherwise have a right to subscribe for, any shares of Kingman Common Stock
or other equity securities of Kingman.
(d) The Company has not violated any applicable federal or state
securities law or regulation in connection with the offer, sale or issuance of
any of its securities.
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3.3 Constituent Documents. The Company has delivered to Buyer accurate
and complete copies of its Articles of Incorporation and Bylaws (certified by
the Secretary of State of [Georgia] and the Secretary or an Assistant Secretary
of the Company, respectively) as currently in effect. The minute books
containing the records of meetings of the Shareholders, the Board of Directors
and any committees of the Board of Directors, the stock certificate books, and
the stock record books of the Company are accurate and complete.
3.4 Corporate Authority. The Company has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the Ancillary Agreements. The execution and delivery by the Company
of this Agreement and each of the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action on the part of the Company except that
Company cannot consummate the Merger unless and until it receives the Requisite
Shareholder Approval. This Agreement constitutes, and each of the Ancillary
Agreements upon its execution will constitute, the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except to
the extent such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws from time to time in effect which affect creditors'
rights in general. Except as described on Schedule 3.4 hereto, the execution,
delivery and performance by the Company of this Agreement and each of the
Ancillary Agreements, and the consummation by the Company of the transactions
contemplated hereby and thereby, do not require the consent, waiver, approval,
license or authorization of any Person (except as already obtained).
3.5 Subsidiaries. Except as set forth on Schedule 3.5, the Company does
not control directly or indirectly, or have any direct or indirect equity
participation, in any Person.
3.6 Non-Contravention. Except as set forth on Schedule 3.6, the
execution, delivery, and performance by the Company of this Agreement and the
Ancillary Agreements and the consummation by it of the transactions contemplated
hereby and thereby do not and will not (i) conflict with, or result in a
violation of any provision of, the charter or bylaws of the Company, (ii)
conflict with, or result in a violation of any provision of, or constitute (with
or without the giving of notice or the passage of time or both) a default under,
or give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation, or acceleration under, any
bond, debenture, note, mortgage, indenture, lease, Contract, agreement, or other
instrument or obligation to which the Company is a party or by which the
Company, its business, or any of its owned or leased assets (the "Assets") may
be bound, (iii) conflict with or result in a violation of any provision of any
shareholders agreement, voting agreement, voting trust agreement, stock pledge
agreement, loan agreement or other Contract by which the Company or any of the
Shareholders may be bound or the Shares of Common Stock of the Company, Sunbelt
Common Stock and/or Kingman Common Stock are
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subject or may be affected, (iv) result in the creation or imposition of any
Encumbrance upon any of the Shares of Common Stock of the Company, Sunbelt
Common Stock or Kingman Common Stock, or (v) assuming compliance with the
matters referred to in Section 3.7, violate any Applicable Law.
3.7 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by the Company in connection with the
execution, delivery, or performance by Company of this Agreement or the
consummation of the transactions contemplated hereby, other than as set forth on
Schedule 3.7.
3.8 Financial Statements.
(a) The Company has delivered to Buyer accurate and complete
copies of (i) the Company's audited Balance Sheets as of December 31, 1993 and
1994 and the related audited Statements of Income and Retained Earnings and
Statements of Cash Flow for each of the years then ended, and the notes and
schedules thereto, together with the unqualified reports thereon of Charles F.
Rumsey, P.C., independent certified public accountants (the "Audited Financial
Statements"), and (ii) the Company's unaudited Balance Sheet as of March 31,
1995 (the "Latest Balance Sheet"), and the related unaudited Income Statement
for the three-month period then ended (the "Unaudited Financial Statements"),
certified by the Company's chief financial officer (the financial statements
referred to in (i) and (ii) being collectively, the "Financial Statements"). The
Financial Statements (i) represent actual bona fide transactions, (ii) have been
prepared from the books and records of the Company in conformity with GAAP,
except for LIFO adjustments to the inventory in the Unaudited Financial
Statements, applied on a basis consistent with preceding years throughout the
periods involved, and (iii) fairly present the Company's financial position as
of the respective dates thereof and its results of operations, retained earnings
and cash flows for the periods then ended. True and correct copies of the
Financial Statements are attached hereto as Exhibit "C".
(b) The Company has delivered to Buyer copies of the financial
statements for the Company attached hereto as Schedule 3.8(b) (the "Projected
Financial Statements"). The Projected Financial Statements have been prepared
by the Company in good faith, based upon information and assumptions reasonably
believed by it to be sound and accurate and represent, to the best knowledge and
belief of the Company, reasonable forecasts as to the future operations and
financial performance of the Company; provided, however, such Projected
Financial Statements do not constitute any representation or warranty, express
or implied, as to the future performance of the Company.
3.9 Liabilities. Except as expressly set forth on Schedule 3.9, the
Company has no liabilities or obligations (whether accrued, absolute,
contingent, unliquidated, or
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otherwise, whether or not known to the Company, and whether due or to become
due) which might, individually or in the aggregate, subsequent to the Closing
reasonably be expected to have a Material Adverse Effect on the business,
assets, results of operations, conditions (financial or otherwise), or prospects
of the business of the Company, or the ownership or operation of its Assets or
any material portion thereof.
3.10 Accounts Receivable. All accounts receivable relating to the
Company reflected on the Latest Balance Sheet, and all accounts receivable of
the Company arising subsequent to the date of the Latest Balance Sheet, have
arisen in the ordinary course of the Company's business. All items that are
required by GAAP to be reflected as accounts receivable on the Latest Balance
Sheet are or will be so reflected and any reserve accounts relating thereto have
been established in accordance with GAAP. All such accounts receivable have
been collected or are (or will be) current and, to the best knowledge and belief
of the Company, collectible in amounts not less than the aggregate amount
thereof (net of reserves established in accordance with prior practice) as
carried (or to be carried) on the Latest Balance Sheet or Unaudited Financial
Statements and, to the best knowledge and belief of the Company, are not subject
to any counterclaims or set-offs. The allowance for doubtful accounts reflected
on the Latest Balance Sheet and on the books of the Company is reasonable in
light of historical data and other relevant information.
3.11 Inventory. The materials, supplies and work-in-process included
in the inventory of the Company as set forth on the Latest Balance Sheet were,
and the current inventory of the Company is, and at the Closing will be, as the
case may be, (a) substantially equivalent in quality and quantity to the
materials, supplies and work-in-process, and additions thereto, generally
included in such inventory in the past; (b) suitable for the manufacture and
distribution of the Company's products in a manner substantially equivalent in
quality to that achieved generally by its business in the past and (c) of good
and merchantable quality and is salable in the ordinary course of business,
subject to any reserves with respect to such inventories set forth in the Latest
Balance Sheet or, for inventory not existing as of the Latest Balance Sheet
date, on the books and records of the Company. The amounts shown for
inventories on the Latest Balance Sheet were, and the amounts shown for
inventories subsequently acquired on the Company's books and records will be,
determined in accordance with the valuation principles set forth on Schedule
3.11. The value of obsolete, damaged or excess inventory and of inventory below
standard quality has been written down to net realizable value on the Latest
Balance Sheet, or for inventory not existing on the Latest Balance Sheet, will
be so written down on the Unaudited Financial Statements or adequate reserves
have been or will be provided therefor, and the value of the inventories carried
reflect or will reflect LIFO valuation in accordance with GAAP or in the case of
Sunbelt, FIFO valuation in accordance with GAAP.
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3.12 Real Property.
(a) Owned Real Property. Schedule 3.12(a) lists all real property
owned by the Company (the "Owned Real Property"). The Company's title to the
Owned Real Property and improvements thereon and any Encumbrances thereon is as
set forth on Schedule 3.12(a). None of the Owned Real Property is subject to any
right or option of any other Person to purchase or otherwise obtain title to
such property.
(b) Lease Obligations. Schedule 3.12(b) contains a list of all
leases, licenses, permits, subleases, and occupancy agreements, together with
any amendments thereto (the "Leases"), with respect to (i) all real property
leased by the Company (as lessee and including those in the names of nominees or
other entities) and used or occupied in connection with the Company's business
(the "Leased Property"), and (ii) all real property leased or subleased by the
Company, as lessor or sublessor, to third parties. Except as identified on
Schedule 3.12(b), true, complete and accurate copies of the Leases have been
delivered to Buyer, and each of such Leases is in full force and effect without
modification or amendment from the form delivered. No option has been exercised
under any of such Leases, except options whose exercise has been evidenced by a
written document, a true, complete and accurate copy of which has been delivered
to Buyer with the corresponding Lease. Except as identified on Schedule 3.12(b),
the assignment of the Leases do not require the consent or approval of the other
party to the Leases. Neither the Company nor any of the other parties to the
Leases, is in default under any of the Leases, and no material amount due under
the Leases remains unpaid, no material controversy, claim, dispute or
disagreement exists between the parties to the Leases, and no default has
occurred which with the giving of notice or with the passage of time, or both,
would constitute a default thereunder.
(c) No Violations of Laws. Except as set forth on Schedule 3.12(c):
(i) the Company has not received any notice of any violation of any Applicable
Laws (including, without limitation, the Americans With Disabilities Act) in
respect of the Owned Real Property or Leased Property, which has not been
heretofore remedied, and to the best knowledge and belief of the Company, there
does not exist any such violations which, individually or in combination with
any others, materially and adversely affects the ability of the Company to use
the affected parcel of Owned Real Property or Leased Property in the manner and
scope in which it is now being used or operated; (ii) the Company has not
received any notice nor does it have any knowledge that any operations on or
uses of the Owned Real Property and Leased Property constitute non-conforming
uses under any Applicable Laws; and (iii) the Company does not have any
knowledge nor has it received any notice of any pending, threatened or
contemplated rezoning proceeding affecting the Owned Real Property or Leased
Property.
(d) Insurance Notices. Except as set forth in Schedule 3.12(d), the
Company has not received any notice from any insurance carrier regarding defects
or
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inadequacies in the Owned Real Property or Leased Property, which, if not
corrected, would result in termination of the Company's insurance coverage
therefor or an increase in the cost thereof.
(e) Eminent Domain. Except as set forth on Schedule 3.12(e), there
is no pending or, to the knowledge of the Company, threatened: (i) condemnation
of any part of the Owned Real Property or the Leased Property by any
Governmental Entity; (ii) assessment against any part of the Owned Real Property
or the Leased Property; or (iii) litigation against the Company for breach of
any restrictive covenant affecting any part of the Owned Real Property or Leased
Property.
(f) Condition. The Company's Owned Real Property and Leased
Property has been maintained in accordance with normal industry practice and in
accordance with any leases or Contracts with respect thereto and is in good
operating condition and repair (subject to normal wear and tear).
(g) Title Information. The Company has delivered to Buyer accurate
and complete copies of all title insurance policies, title reports, other title
documents, surveys, certificates of occupancy and Permits in the possession of
the Company relating to the Owned Real Property or Leased Property or any of the
buildings, improvements or fixtures situated thereon.
3.13 Personal Property.
(a) Schedule 3.13 contains a list of the Company's material owned
or leased personal property as of the date hereof. The Company owns outright and
has good and marketable title to all its personal property subject to no Lien
except as set forth on Schedule 3.13(a), or if leased by the Company, in each
case under valid and enforceable leases.
(b) The Company's personal property: (i) in the aggregate is
adequate to conduct its business in substantially the manner currently
conducted; (ii) is suitable for the purposes for which it is currently used; and
(iii) is free from material defects, has been maintained in accordance with
normal industry practice and is in good operating condition and repair (subject
to normal wear and tear).
(c) Set forth on Schedule 3.13(c) is a list and brief description,
including but not limited to cancellation terms and annual lease payment terms,
of each personal property lease under which the Company is the lessee of
personal property used in connection with the operation of its business (the
"Personalty Leases"). The Company has been in peaceable possession of the
property covered by each such Personalty Lease since the commencement of the
original term of such Personalty Lease. The Company is not in breach
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of or in default under, nor has any event occurred which (with or without the
giving of notice or the passage of time or both) would constitute a default by
the Company under, any of such Personalty Leases except where such breach,
default or event would not reasonably be expected to have a Material Adverse
Effect on the business, assets or prospects of the Company's business or the use
or operation of such leased personal property or any material portion thereof;
and the Company has not received any notice from, or given any notice to, any
lessor indicating that the Company or such lessor is in breach of or in default
under any of such Personalty Leases.
3.14 Absence of Certain Changes. Except as disclosed on Schedule
3.14, since the date of its Audited Financial Statements (i) there has not been
any change in, or an event or condition that might reasonably be expected to
result in any change in, the business, assets, or prospects of the Company's
business or the ownership or operation of the Company's Assets or any material
portion thereof that would have a Material Adverse Effect; (ii) the Company's
business has been conducted only in the ordinary course consistent with past
practice; (iii) the Company has not, in respect of its business, incurred any
material liability, engaged in any material transaction, or entered into any
material agreement outside the ordinary course of business consistent with past
practice; (iv) the Company has not suffered any material loss, damage,
destruction, or other casualty to any of its Assets (whether or not covered by
insurance); and (v) the Company has not, in respect of its business, taken any
of the actions set forth in Section 5.2 except as permitted thereunder. Without
limiting the generality of the foregoing, since January 1, 1995: (i) the Company
has not sold, leased, transferred, or assigned any of its Assets, tangible or
intangible, other than for fair consideration in the ordinary course of its
business; (ii) the Company has not entered into any contract, lease, sub-lease,
license or sub-license (or series of related contracts, leases, sub-leases,
license and sub-licenses) either involving more than $5,000.00 or other than in
the ordinary course of its business; (iii) no Person, including the Company, has
accelerated, terminated, modified or cancelled any Contract, lease, sub-lease,
license or sub-license (or series of related Contracts, leases, sub-leases,
licenses and sub-licenses) involving more than $5,000.00 to which the Company is
a party or by which it may be bound; (iv) the Company has not permitted or
allowed to be imposed upon any of its Assets, tangible or intangible, any Lien;
(v) the Company has not made any capital expenditures (or series of related
capital expenditures) involving more than $100,000 in the aggregate; (vi) the
Company has not made any capital investment in, any loan to, or any acquisition
of, the securities or assets of any other Person (or series of related capital
investments, loans, or acquisitions); (vii) the Company has not created,
incurred, assumed or guaranteed any Indebtedness (including capitalized lease
obligations); (viii) the Company has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other liabilities or obligations;
(ix) the Company has not cancelled, compromised, waived, or released any right
or claim (or series of related rights or claims) involving more than $5,000.00;
(x) other than a dividend declared on March 3, 1995 in the amount of $.50 per
Share, the Company has not declared, set aside or paid any dividend or
distribution with respect to any of its equity securities or redeemed, purchased
or otherwise acquired any of its equity securities; (xi) the Company has
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not experienced any damage, destruction or loss (whether or not covered by
insurance) to any of its property exceeding $5,000.00 as to any one occurrence
or $25,000.00 in the aggregate; (xii) the Company has not made any loan to, or
entered into any transaction with, any of its directors, officers, or employees
giving rise to any claim or right on its part against such Person or on the part
of such Person against it; (xiii) the Company has not entered into any
employment contracts or collective bargaining agreements, written or oral, or
modified the terms of any existing such contracts or agreements; (xiv) the
Company has not granted any increase in the base compensation of any of its
directors, officers or employees; (xv) the Company has not adopted any bonus,
profit-sharing, incentive compensation, pension, retirement, medical,
hospitalization, life or other insurance, severance or other plan, contract or
commitment for any of its directors, officers, or employees or modified or
terminated any existing such plan, contract or commitment; (xvi) the Company has
not made any other change in employment terms for any of its directors, officers
or employees; (xvii) the Company has not suffered any shortages of materials or
supplies or any casualty that has had, or will have, a Material Adverse Effect;
(xviii) the Company has not made or pledged to make any charitable or other
capital contribution other than in the ordinary course of business consistent
with past business practices; (xix) there has not been any other occurrence,
event, incident, action, failure to act or transaction outside the ordinary
course of business involving the Company; and (xx) the Company has not committed
to any of the foregoing.
3.15 Compliance With Laws. Except as set forth on Schedule 3.15, the
Company has complied in all material respects with all Applicable Laws relating
to the ownership or operation of its Assets or the operation of its business,
except for noncompliance with such Applicable Laws which, individually or in the
aggregate, the Company does not expect, and would not reasonably be expected, to
have a Material Adverse Effect upon the business, Assets, or prospects of the
Company's business or any material portion thereof, and the Company has not
received any written notice which has not been dismissed or otherwise disposed
of, that the Company has not so complied. The Company is not charged or, to the
knowledge of the Company, threatened with, or, under investigation with respect
to, any violation of any Applicable Law relating to any aspect of the ownership
or operation of its Assets or the operation of its business. The Company has
not made any illegal payment to officers or employees of any Governmental Entity
or to customers or suppliers engaged in any other illegal reciprocal practices
or illegally given any consideration to purchasing agents or other
representatives of customers with respect to sales made or to be made by the
Company and no notification has been received by the Company alleging any
violation of any of the foregoing.
3.16 Permits. Schedule 3.16 sets forth a list of each Permit that is
material to or necessary for the conduct of the Company's business or the
ownership or use of its Assets as currently or currently proposed to be
conducted, owned and used by the Company, the date such Permits were obtained,
the date of renewals thereof and the status of each Permit. All Permits
included on Schedule 3.16, except as noted therein, are in full force and effect
and no
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Proceeding is pending or threatened, to revoke or limit any such Permit.
Schedule 3.16 sets forth a list of those Permits (i) which are necessary for the
conduct of the business after the Closing Date, and which are non-assignable,
(ii) which will terminate or (iii) which must otherwise be amended upon the
consummation of the transactions contemplated by this Agreement.
3.17 Affiliate Agreements. Except as set forth on Schedule 3.17,
there are no material written or oral Contracts between the Company and its
Affiliates in connection with its business, including, without limitation, any
such Contracts relating to the provision of any services by the Company to any
such Affiliate, or by any such Affiliate to the Company. Other than in the
ordinary course of business and except as set forth on Schedule 3.17, since
December 31, 1994 (a) there have been, (b) prior to the Closing Date there will
be, and (c) after the Closing Date there will be, no transactions, agreements or
arrangements between the Company and (i) any Affiliate of the Company, (ii) any
director or officer of an Affiliate of a Shareholder or (iii) any member of the
immediate family of any individual described in clause (i) or (ii) of this
sentence.
3.18 Contracts. Schedule 3.18 hereto lists all of the Contracts, both
oral and written, which are material to the conduct, operations and prospects of
the Company's business as a whole. Except as set forth on Schedule 3.18, the
Company is not a party to or bound by any written: (i) mortgage, indenture,
note, or installment obligation, or other instrument for or relating to
Indebtedness; (ii) guaranty of any obligation for borrowings or performance, or
guaranty or warranty of products or services; (iii) agreement or arrangement for
the sale or lease of any amount of its Assets other than in the usual, regular,
and ordinary course of business; (iv) agreement or other arrangement for the
purchase of any real estate, machinery, equipment, or other capital assets in
excess of $5,000; (v) Contracts pursuant to which it is or may be obligated to
make payments, contingent or otherwise, on account of or arising out of prior
acquisitions or sales of business, assets, or stock of other companies; (vi)
distribution, dealerships, representative, broker, sales agency, or advertising
Contract excepting any such Contract that is terminable at will, or by giving
notice of 30 days or less, without liability; (vii) lease or other agreement for
the use of personal property with rent in excess of $5,000.00 per year; (viii)
agreement imposing non-competition or exclusive dealing obligations on the
Company; (ix) Contract for the future purchase of materials, supplies, services,
merchandise, or equipment parts; (x) Contract for the employment of any
stockholder, director, officer, consultant or employee not terminable without
penalty or liability arising from such termination, or (xi) Contract,
arrangement or commitment not made in the ordinary course of business, including
but not limited to any outstanding indemnity arrangement in connection with the
sale of all or a portion of a business, excluding any Contract relating to the
provision of confidential information in connection with the subject matter of
this Agreement. Each Contract is valid, binding and enforceable against the
Company and other parties thereto in accordance with its terms, and in full
force and effect. The Company has performed in all material respects all
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obligations required to be performed by it to date under each of the Contracts,
and to the extent all obligations have not been performed under a Contract, the
failure to perform such obligations does not (with the giving of notice or the
passage of time, or both) constitute an event of default under such Contract or
give rise to a right of the other party to such Contract to cancel same. Except
as set forth in Schedule 3.18, neither the Company nor any other party thereto
is in material default under any Contracts to which the Company is a party or by
which it is bound or to which its business or Assets are subject. The Company
has delivered to the Buyer a copy of each Contract or other written evidence of
the obligations, and all amendments thereto, listed in Schedule 3.18, except to
the extent otherwise noted thereon.
3.19 Intellectual Property. Schedule 3.19 contains a list of all
material Intellectual Property in which the Company has any right, title or
interest or which has been used in connection with, or which relates to, its
business. Except as set forth in Schedule 3.19, the Company either owns or has
the right to use by license, sublicense, agreement, or permission all of the
Intellectual Property set forth on Schedule 3.19. Except as otherwise set forth
in Schedule 3.19, the Company has not granted a license, nor reached an
understanding with any third party, nor entered into a written agreement,
relating in whole or in part, to any of the Intellectual Property of the Company
used in connection with the conduct of its business, and there has been no
assertion thereof by any Person. To the knowledge of the Company, there is no
infringement or other adverse claim against the rights of the Company with
respect to any of the Intellectual Property used or owned by the Company in
connection with the conduct of its business. Schedule 3.19 lists separately the
Company's trademarks and trade names which are material to the conduct of its
business (the "Material Trademarks and Trade Names"). The Company has not been
charged with, nor, to the knowledge of the Company, is it threatened to be
charged with, nor is there any Basis for any charge of, with respect to its
Material Trademarks and Trade Names, the infringement or other violation of the
intellectual property rights of any other Person. In connection with the
conduct of its business, the Company, with respect to its Material Trademarks
and Trade Names, has not infringed, nor is it infringing, any intellectual
property right of any other Person.
3.20 Labor Relations.
(a) Except as set forth on Schedule 3.20, the Company is not a
party to any collective bargaining agreement. Except as set forth on Schedule
3.20, there are no controversies or unfair labor practice proceedings pending
or, to the knowledge of the Company, threatened between the Company and any of
its current or former employees or any labor or other collective bargaining unit
representing any current or former employee of the Company that could reasonably
be expected to result in a labor strike, dispute, slow-down or work stoppage or
otherwise have a Material Adverse Effect. Except as set forth on Schedule 3.20,
no organizational effort is presently being made or, to the knowledge of the
Company, threatened by or on behalf of any labor union with respect to employees
of the Company. To
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the knowledge of the Company, no executive, key employee or group of employees
of the Company has any plan to terminate employment with the Company.
(b) The Company is in compliance in all material respects with
all Applicable Laws pertaining to employment and employment practices and wages,
hours, and other terms and conditions of employment in respect of the employees
of its business and is not, in respect of its business or the employees thereof,
engaged in any unfair labor practices or unlawful employment practices. There is
no pending or, to the knowledge of the Company, threatened Proceeding by or
before, and the Company is not subject to any judgment, order, writ, injunction,
or decree of or inquiry from, the National Labor Relations Board, the Equal
Employment Opportunity Commission, the Department of Labor, or any other
Governmental Entity in connection with any current, former, or prospective
employee of the Company's business.
3.21 Employee Benefits.
(a) Employee Benefit Plans. Schedule 3.21 lists all Employee
Benefit Plans whether or not covered by ERISA, and, to the extent covering any
employee, any executive compensation arrangement, change in control agreement or
severance plan or arrangement that the Company maintains or to which the Company
contributes for the benefit of any current or former employee of the Company.
For each such Employee Benefit Plan, the Company has delivered to Buyer, where
applicable, (a) the most recent annual report, (b) the most recent annual and
periodic accounting of plan assets, (c) the most recent determination letter
received from the IRS and (d) the most recent actuarial valuation.
(b) Multi-Employer Plans. The Company has no current obligation
to contribute to any Multi-Employer Plan for the benefit of any current or
former employee of the Company.
(c) Documents. The Company has delivered to Buyer complete and
accurate copies of all plans or summary plan descriptions for each Employee
Benefit Plan listed on Schedule 3.21.
(d) Continuation Coverage. With respect to each Employee Welfare
Benefit Plan listed on Schedule 3.21, the Company or an Affiliate has complied
with the requirements of Code Section 4980B of the Internal Revenue Code of
1986, as amended (the "Code").
(e) Liabilities. There are no accumulated funding deficiencies as
defined in Section 412 of the Code (whether or not waived) with respect to any
Employee Benefit Plan. The fair market value of the assets held with respect to
each Employee Benefit
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Plan which is an Employee Pension Benefit Plan exceeds the actuarially
determined present value of all benefit liabilities accrued thereunder (whether
or not vested) determined using reasonable actuarial assumptions. Neither the
Company nor any Affiliate of the Company has incurred any material liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. The Company and each of its Affiliates have paid and
discharged promptly when due all liabilities and obligations arising under ERISA
or the Code of a character which if unpaid or unperformed might result in the
imposition of a Lien against any of the Company's Assets. Nothing done or
omitted to be done and no transaction or holding of any Asset under or in
connection with any Employee Benefit Plan has or will make the Company or any
director or officer of the Company subject to any liability under ERISA or any
liability for any Tax pursuant to Section 4975 of the Code that could have a
Material Adverse Effect on the business, Assets, or prospects of the Company's
business or the ownership or operation of the Assets or any material portion
thereof. There are no pending, or to the knowledge of the Company, threatened
claims by, or on behalf of the Employee Benefit Plans, or by any participant
therein, alleging a breach or breaches of fiduciary duties or violations of
Applicable Laws which could result in any material liability on the part of the
Company, its officers or directors, or such Employee Benefit Plans, under ERISA
or any other Applicable Law and, to the knowledge of the Company, there is no
Basis for any such claim.
3.22 Insurance.
(a) Schedule 3.22(a) sets forth a list of all material
insurance policies providing coverage for the properties or operations of the
Company's business, the type and amount of coverage, and the expiration dates of
the policies. Such current policies are valid and enforceable in accordance with
their terms, are in full force and effect and insure against risk and
liabilities to the extent and in the manner deemed appropriate and sufficient by
the Company. The Company has not received notice from any insurance carrier: (i)
threatening a suspension, revocation, modification, or cancellation of any
insurance policy or a material increase in any premium in connection therewith,
or (ii) informing the Company that any coverage listed on Schedule 3.22(a) will
not or may not be available in the future on substantially the same terms as now
in effect.
(b) Set forth on Schedule 3.22(b) is a list of the
aggregate claims and all individual claims with respect to product liability
relating to the Company's business in the last five (5) years. Except as set
forth on Schedule 3.22(b), there is no claim by the Company pending under any of
the policies listed in Schedule 3.22(b) hereto as to which coverage has been
questioned, denied or disputed by the underwriters of such policies.
(c) The Company has not been refused any insurance with
respect to its Assets or its business by any insurance carrier to which the
Company has applied for any
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such insurance or with which the Company has maintained insurance during the
preceding three years with the reason for such refusal arising as a result of
the operations of the Company's business.
3.23 Litigation. Except as set forth on Schedule 3.23, there are no
actions, causes of action, claims, suits, or Proceedings pending or, to the
knowledge of the Company, threatened against the Company or affecting the
operation by the Company of its business at law, in equity, or before or by any
Governmental Entity, which (i) seeks to restrain or enjoin the consummation of
the transactions contemplated hereby or (ii) if adversely determined, could
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Schedule 3.23, the Company is not subject to, or in default with respect to, any
order, writ, injunction, or decree of any Governmental Agency.
3.24 Environmental Matters. Except as set forth on Schedule 3.24 or in
the reports of Faircloth & Marbury, and Marbury Associates, Inc., Albany,
Georgia, copies of which have been delivered to Buyer, or as reflected on the
Latest Balance Sheet: (i) the Company is, to the best of its knowledge, in
compliance in all material respects with all Environmental Laws in connection
with the ownership, use, maintenance and operation of the Assets, pertaining to
health, safety, the environment, Hazardous Materials, and otherwise in
connection with the conduct of its business; (ii) the Company has, to the best
of its knowledge, no material liability, whether contingent or otherwise, under
any Environmental Law with respect to its operations or properties; (iii) no
notices of violation or alleged violation of, non-compliance or alleged non-
compliance with or any liability under, any Environmental Law relating to the
operations or properties of the Company have been received by the Company since
January 1, 1980; (iv) there are no administrative, civil or criminal writs,
injunctions, decrees, orders, or judgments outstanding, or any Proceedings
pending or, to the knowledge of the Shareholders and the officers and directors
of the Company (and the employees of the Company having responsibility for such
matters), threatened, relating to compliance with or liability under any
Environmental Law affecting the Company which matters, if decided adversely to
the Company, could have a Material Adverse Effect; (v) there are no underground
storage tanks on any owned or leased real property, or asbestos containing
materials on or in the improvements or fixtures located thereon; (vi) the
Company has obtained or applied for all Permits required under any Environmental
Law for the conduct of its business or related to any of its owned or leased
real property, or improvements or equipment located thereon; (vii) the Company
has neither expressly nor by operation of law, assumed or undertaken any
liability, including without limitation any obligation for Costs of Remediation
of any other Person; (viii) neither the Company, any officer or director nor any
employee of the Company having responsibility for such matters has any knowledge
of any other Person who has caused any Release or threatened Release of any
Hazardous Material on or from any owned or leased real property or any real
property at or to which the Company disposed, transported, treated or arranged
to dispose of Hazardous Materials prior to the Closing Date; and (ix) except as
set
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forth on Schedule 3.24, the Company is not required to give notice of or record
or deliver to any Governmental Entity an environmental disclosure document or
statement by virtue of the transactions set forth herein and contemplated
hereby.
3.25 Tax Matters.
(a) Tax Returns. All returns (including information returns) and
reports, including all schedules or attachments thereto, required by the United
States or any state or any political subdivision thereof or any foreign
jurisdiction to be filed by the Company or by any Affiliated, consolidated, or
combined group of corporations of which the Company is a member, have been
timely filed (collectively, the "Tax Returns"). All information provided in such
Tax Returns is true, complete and accurate in all material respects. All Taxes
owed by the Company by law or pursuant to any Tax sharing agreement (whether or
not shown on any Tax Return and whether or not assessed) have been paid or a
full reserve has been made for such Taxes on the books and records of the
Company, including the Latest Balance Sheet. Except as set forth on Schedule
3.25(a), neither the Company nor any subsidiary is currently the beneficiary of
any extension of time within which to file any Tax Return. No claim with respect
to the Company has ever been made by an authority in a jurisdiction where the
Company or any of its subsidiaries do not file Tax Returns that they are or may
be subject to taxation by such jurisdiction. There is no Lien affecting any of
the Assets that arose in connection with any failure or alleged failure to pay
any Tax.
(b) Payments. The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or any other
Person.
(c) Additional Taxes. The Company does not expect any
Governmental Entity to assess any amount of additional Taxes for any period for
which Tax Returns have been filed. There is no material dispute or claim
concerning any Tax liability of the Company either claimed or raised by any
authority in writing or as to which the Company has knowledge based upon direct
inquiry by any agent of such authority. Except as described in Schedule 3.25(c),
no tax deficiency or delinquency has been asserted against the Company; there is
no unpaid assessment, proposal for additional Taxes, deficiency or delinquency
in the payment of any of the Taxes of the Company that, to the knowledge of the
Company, could be asserted by any authority. Schedule 3.25(c) lists all federal
and state income Tax returns of the Company, and any Affiliated, consolidated,
or combined group of corporations of which the Company is a member, for taxable
periods ended on or after January 1, 1990, indicates those Tax returns that have
been audited and indicates those tax returns that currently are the subject of
audit. The Company has delivered to the Buyer correct and complete copies of all
Tax Returns, examination reports and statements of deficiencies assessed against
or agreed to by the Company, and any Affiliated, consolidated, combined, or
group of corporations of which the
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Company is a member for any taxable period ended on or after January 1, 1990.
The Company has not violated any federal, state, local or foreign Tax law except
where such violation would not have a Material Adverse Effect on the property,
business or financial condition of the Company.
(d) Waivers. Except as set forth on Schedule 3.25(d), no
Person has waived any statute of limitations in respect of Taxes or agreed to
any extension of time with respect to a Tax assessment or deficiency affecting
the liability of the Company for Taxes.
(e) Tax Liability in Financial Statements. The liabilities
for Taxes (including deferred taxes) shown in the Financial Statements are and
will be adequate accruals and have been and will be accrued in a manner
consistent with the practices utilized for accruing Tax liabilities in the
Company's most recently completed tax year.
(f) Safe Harbor Lease. None of the assets of the Company
constitute property that Buyer, or any Affiliate of Buyer, will be required to
treat as being owned by another Person pursuant to the "Safe Harbor Lease"
provisions of Section 168(f)(8) of the Code prior to repeal by the Tax Equity
and Fiscal Responsibility Act of 1982.
(g) Tax Exempt Entity. None of the Assets of the Company are
or will be subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code.
(h) Other Tax Matters. The Company has not filed a consent
under Section 341(f) of the Code concerning collapsible corporations. The
Company has not made any payments, is not obligated to make any payments and is
===
not a party to any agreement that under certain circumstances could obligate it
to make any payments that would be disallowed under Section 280G of the Code.
The Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
periods specified in Section 897(c)(1)(A)(ii) of the Code. The Company is not a
foreign person as such term is referred to in Section 1445(f)(3) of the Code.
The Company does not own any interests in any entity that is characterized as a
partnership under the Code. There are no outstanding requests for rulings with
any taxing or revenue authority that would effect the operations of the Company.
(i) Tax Information. Schedule 3.25(i) sets forth the following
information with respect to the Company (or, in the case of clause (A) below,
with respect to the Company's subsidiaries) as of the most recent practicable
date (as well as on an estimated pro forma basis as of the Closing giving effect
to the consummation of the transactions contemplated hereby): (A) the basis of
the Company in the stock of each of its subsidiaries (or the amount of any
Excess Loss Account as defined in Treasury Regulation Section 1.1502.19; (B) the
amount of
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any net operating loss, net capital loss, unused investment or other credit,
unused foreign tax, or excess charitable contribution allocable to the Company
or any of its subsidiaries; and (C) the amount of any deferred gain or loss
allocable to the Company or any of its subsidiaries arising out of any Deferred
Intercompany Transaction as defined in Treasury Regulation Section 1.1502-13.
3.26 Brokers. Except for Rauscher Pierce Refsnes, Inc. and Kenneth T.
White, Jr., whose fees shall be paid by Buyer, all negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by the
Company without the intervention of any other Person acting on its behalf in
such manner as to give rise to any valid claim by any such Person against the
Company's business or Buyer for a finder's fee, brokerage commission or other
similar payment based on an arrangement with the Company.
3.27 Customers and Suppliers. Schedule 3.27 sets forth a complete and
correct list of (a) the 25 largest customers by aggregate dollar net sales of
the Company during the Company's last full fiscal year, and (b) the 25 largest
suppliers by dollar volume of the Company and the aggregate dollar volume of
purchases by the Company for such fiscal year. Except as set forth on Schedule
3.27, none of such customers or suppliers has, or to the knowledge of the
Company, intends to, terminate or change significantly its relationship with the
Company's business.
3.28 Product Liability. Except as disclosed in Schedule 3.28, (i)
there is no notice, demand, claim, action, suit, inquiry, hearing, Proceeding,
notice of violation or investigation of a civil, criminal or administrative
nature by or before any Governmental Entity against or involving any product,
substance or material (collectively, a "Product"), or claims or lawsuits by any
Person involving the same or similar Product manufactured, produced, distributed
or sold by or on behalf of the Company which is pending or, to the knowledge of
the Company, threatened, resulting from a defect or alleged defect in design,
manufacture, materials or workmanship of any Product manufactured, produced,
distributed or sold by or on behalf of the Company, or any failure or alleged
failure to warn, or from any breach or alleged breach of implied warranties or
representations, (ii) to the knowledge of the Company, for the past five (5)
years, there has been no Basis for any such claim, and (iii) there has not been,
nor is there under consideration or investigation by the Company, any Product
recall, rework, retrofit or post-sale warning (collectively, recalls, reworks,
retrofits and post-sale warnings are referred to in this Agreement as "Recalls")
conducted by or on behalf of the Company or any Recall conducted by or on behalf
of any entity as a result of any defect or alleged defect in any Product
supplied by the Company.
3.29 Product Warranty. Each Product manufactured, sold, leased or
delivered by the Company has been in conformity with all applicable contractual
commitments, all Applicable Laws, and all express and implied warranties, and,
to the knowledge of the
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Company, the Company has no liability (and there is no Basis) for any present or
future charge, complaint, action, suit, Proceeding, hearing, investigation,
claim or demand giving rise to any liability for replacement or repair thereof
or other damages in connection therewith, subject only to the reserve product
warranty claims set forth on the Latest Balance Sheet as adjusted for the
passage of time through the Closing Date in accordance with past customs and
practices of the Company. No Product manufactured, sold, leased or delivered by
any of the Company is subject to any guaranty, warranty or other indemnity
beyond the applicable standard terms and conditions of sale or purchase.
Schedule 3.29 includes copies of the standard terms and conditions of sale or
lease for the Company as well as all applicable guaranty, warranty and indemnity
provisions.
3.30 Capital Expenditures. Schedule 3.30 sets forth a complete and
correct list of all capital expenditures, purchases of equipment and maintenance
expenditures, in excess of $100,000.00, with respect to the Company's business
(a) undertaken (i) for the past four (4) fiscal years and (ii) from the period
from January 1, 1995 through the date of the Latest Balance Sheet, and (b)
undertaken, planned or committed since the date of the Latest Balance Sheet.
3.31 Employees. Set forth on Schedule 3.31 is a list of the name,
social security number, and dates of employment by the Company of each employee
of its business as of April 1, 1995, together with a description of the position
for each employee whose annual compensation exceeds $50,000 and the total
amounts of salary, bonuses, and other compensation paid or payable by the
Company to each such employee for the current fiscal year and the immediately
preceding fiscal year.
3.32 Financial Requirements. Set forth on Schedule 3.32 is a list and
brief description of all bonds, deposits, financial assurance requirements, and
insurance coverage required to be submitted to Governmental Entities for the
continued ownership and operation of the Assets and the operation of the
Company's business.
3.33 Books and Records. All the books and records of the Company
relating to the Assets or the Company's business, including all personnel files,
employee data, and other materials relating to employees of its business, are
substantially complete and correct in all material respects, have been in all
material respects maintained in accordance with good business practice and all
Applicable Laws, and in the case of the books of account, have been prepared and
maintained in accordance with GAAP consistently applied. Such books and records
accurately and fairly reflect, in reasonable detail, all material transactions,
Assets, and liabilities of the Company with respect to its business.
3.34 Disclosure. No representation or warranty made by the Company in
this Agreement, and no statement of the Company contained in any document,
certificate, or other writing furnished or to be furnished by the Company
pursuant hereto or in connection herewith,
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contains or will contain, at the time of delivery, any untrue statement of a
material fact or omits or will omit, at the time of delivery, any untrue
statement of a material fact or omits or will omit, at the time of delivery, to
state any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading. The Company knows of no matter which has not been disclosed to Buyer
pursuant to this Agreement which would reasonably be expected to affect
materially and adversely, or, so far as the Company can now reasonably foresee,
will materially and adversely affect, the business, Assets, results of
operations, condition (financial or otherwise), or prospects of the Company's
business or the ownership or operation of the Company's Assets or any material
portion thereof or the ability of the Company to consummate the transactions
contemplated hereby.
3.35 Other Claims. There are no suits, claims, actions, Proceedings or
investigations, whether actual, pending, asserted, or to the knowledge of the
Company, threatened, against or affecting the Company or the Shares of Common
Stock of the Company, or to which the Company is or might become a party, which
would or might have a Material Adverse Effect upon any representation or
warranty made by the Company herein. To the knowledge of the Company, there is
no overtly threatened or pending litigation, contractually assumed obligations
or other unasserted possible claims or assessments affecting or relating to the
Company or the Shares of Common Stock of the Company except as set forth on
Schedule 3.35.
3.36 Insolvency. To the knowledge of the Company, no insolvency or any
other Proceedings of any character including, but without limitation,
bankruptcy, reorganization, composition or arrangement with creditors, whether
voluntary or involuntary, involving any Shareholder or the Shares of Common
Stock of the Company is pending or threatened. To the knowledge of the Company,
no Shareholder has taken any action in contemplation of, or which would
constitute the Basis for, the institution of any such proceedings.
3.37 Representations and Warranties on Closing Date. The
representations and warranties made in this Article III will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to the Company that:
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4.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. At Closing, Subsidiary will be a
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia and will have all requisite power and authority to own,
lease and operate its properties and to carry on its business as will be
conducted by it.
4.2 Qualifications. Buyer is duly qualified or licensed to do
business and is in good standing in all of the jurisdictions in which the
conduct of Buyer's business or the ownership or leasing of its property requires
qualification or licensing except those jurisdictions in which the failure to be
qualified or licensed would not have a Material Adverse Effect. At Closing,
Subsidiary will be duly qualified or licensed to do business and will be in good
standing in each jurisdiction where the ownership or leasing of its property
requires qualification or licensing, except those jurisdictions in which the
failure to be so qualified or licensed would not have a Material Adverse Effect.
4.3 Articles of Incorporation and Bylaws. Buyer has delivered to the
Company accurate and complete copies of the Articles of Incorporation and Bylaws
of Buyer as currently in effect. Prior to Closing, Buyer will deliver to the
Company accurate and complete copies of the Articles of Incorporation and Bylaws
of the Subsidiary to be adopted as the Articles of Incorporation and Bylaws of
Subsidiary as of the time of Closing.
4.4 Authority Relative to This Agreement. Buyer has, and Subsidiary
will have at Closing, full power and authority to execute, deliver, and perform
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery, and performance by Buyer and Subsidiary of this Agreement,
and the consummation by each of them of the transactions contemplated hereby,
have been duly authorized by all necessary action of Buyer and prior to Closing
will have been duly authorized by all necessary action of Subsidiary. This
Agreement has been duly executed and delivered by Buyer and prior to Closing
will be duly executed and delivered by Subsidiary and constitutes, and each
other agreement, instrument, or document executed or to be executed by Buyer or
Subsidiary in connection with the transactions contemplated hereby has been, or
when executed will be, duly executed and delivered by Buyer and Subsidiary and
(assuming due authorization, execution and delivery by the other party or
parties thereto) constitutes, or when executed and delivered by Buyer or
Subsidiary will constitute, a valid and legally binding obligation of Buyer and
Subsidiary, enforceable against Buyer and Subsidiary in accordance with their
respective terms, except that such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (ii) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
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4.5 Non-contravention. Other than as set forth on Schedule 4.5, the
execution, delivery, and performance by Buyer and Subsidiary of this Agreement
and the consummation by each of them of the transactions contemplated hereby do
not and will not (i) conflict with or result in a violation of any provision of
the Articles of Incorporation or Bylaws of Buyer or Subsidiary, (ii) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which Buyer or Subsidiary is a party or by which
Buyer or Subsidiary or any of their respective properties may be bound, (iii)
result in the creation or imposition of any Encumbrance upon the properties of
Buyer or Subsidiary, or (iv) assuming compliance with the matters referred to in
Section 4.6, violate any Applicable Law binding upon Buyer and Subsidiary,
except, in the case of clauses (ii), (iii), and (iv) above, for any such
conflicts, violations, defaults, terminations, cancellations, accelerations, or
Encumbrances which would not, individually or in the aggregate, have a Material
Adverse Effect on the business, assets, results of operations, condition
(financial or otherwise), or prospects of Buyer or Subsidiary considered as a
whole or on the ability of Buyer to consummate the transactions contemplated
hereby.
4.6 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by Buyer or Subsidiary in connection
with the execution, delivery, or performance by Buyer of this Agreement or the
consummation by it of the transactions contemplated hereby, other than (i) as
set forth on Schedule 4.6; and (ii) such consents, approvals, orders, or
authorizations which, if not obtained, and such declarations, filings, or
registrations which, if not made, would not, individually or in the aggregate,
have a Material Adverse Effect on the business, assets, results of operations,
condition (financial or otherwise), or prospects of Buyer and Subsidiary
considered as a whole or on the ability of Buyer or Subsidiary to consummate the
transactions contemplated hereby.
4.7 Legal Proceedings. There are no Proceedings pending or, to the
best knowledge of Buyer, threatened seeking to restrain, prohibit, or obtain
damages or other relief in connection with this Agreement or the transactions
contemplated hereby.
4.8 Brokerage Fees. Neither Buyer nor any of its Affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby (other than Rauscher Pierce Refsnes, Inc.
or Kenneth T. White, Jr). Buyer shall indemnify and hold harmless the Company
and the Shareholders from and against any and all losses, claims, damages, and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage
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commission, or similar payment in connection with any transaction contemplated
hereby asserted by any person on the basis of any act or statement made or
alleged to have been made by Buyer or any of its affiliates.
4.9 Representations and Warranties on Closing Date. The
representations and warranties made in this Article IV will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
4.10 Buyer Financial Statements. Buyer has delivered to the Company
accurate and complete copies of (i) Buyer's audited Balance Sheets as of
December 31, 1993, and 1994 and the related audited Statements of Income and
Retained Earnings and Statements of Cash Flow for each of the year's then ended,
and the notes and schedules thereto, together with the unqualified reports
thereon of Rylander, Clay & Opitz, L.L.P., independent certified public
accountants (the "Buyer's Audited Financial Statements"), and (ii) Buyer's
Unaudited Balance Sheet as of March 31, 1995 ("Buyer's Latest Balance Sheet"),
and the related Unaudited Income Statement for the three month period then ended
("Buyer's Unaudited Financial Statements"), certified by Buyer's Controller (the
financial statements referred to in (i) and (ii) being collectively, "Buyer's
Financial Statements"). Buyer's Financial Statements (i) represent actual bona
fide transactions, (ii) have been prepared from the books and records of Buyer
in conformity with GAAP, except for LIFO adjustments to the inventory in the
Buyer's Unaudited Financial Statements, applied on a basis consistent with
preceding years throughout the period involved, and (iii) fairly present Buyer's
financial position as of the respective dates thereof and its results of
operations, retained earnings and cash flows for the periods then ended. True
and correct copies of Buyer's Financial Statements are attached hereto as
Exhibit "D".
(b) Buyer has delivered to the Company copies of the financial
statements for Buyer attached hereto as Schedule 4.10(b) ("Buyer's Projected
Financial Statements"). Buyer's Projected Financial Statements have been
prepared by Buyer in good faith, based upon information and assumptions
reasonably believed by it to be sound and accurate and represent, to the best
knowledge of Buyer, reasonable forecasts as to the future operations and
financial performance of Buyer; provided, however, such Buyer Projected
Financial Statements do not constitute any representation or warranty, express
or implied, as to the future performance of Buyer.
4.11 Absence of Certain Changes. Except as disclosed on Schedule 4.11,
since the date of Buyer's Audited Financial Statements (i) there has not been
any change in, or an event or condition that might reasonably be expected to
result in any change in, the business, assets, or prospects of Buyer's business
or the ownership or operation of Buyer's assets or any material
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portion thereof that would have a Material Adverse Effect; (ii) Buyer's business
has been conducted only in the ordinary course consistent with past practice;
(iii) Buyer has not, in respect of its business, incurred any material
liability, engaged in any material transaction, or entered into any material
agreement outside the ordinary course of business consistent with past practice;
(iv) Buyer has not suffered any material loss, damage, destruction, or other
casualty to any of its assets (whether or not covered by insurance); and (v)
Buyer has not, in respect of its business, taken any of the actions set forth in
Section 5.2. Without limiting the generality of the foregoing, since January 1,
1995: (i) Buyer has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for fair consideration in the
ordinary course of its business; (ii) Buyer has not entered into any contract,
lease, sub-lease, license or sub-license (or series of related contracts,
leases, sub-leases, license and sub-licenses) either involving more than
$5,000.00 or other than in the ordinary course of its business; (iii) no Person,
including Buyer, has accelerated, terminated, modified or cancelled any
Contract, lease, sub-lease, license or sub-license (or series of related
Contracts, leases, sub-leases, licenses and sub-licenses) involving more than
$5,000.00 to which Buyer is a party or by which it may be bound; (iv) Buyer has
not permitted or allowed to be imposed upon any of its assets, tangible or
intangible, any Lien; (v) Buyer has not made any capital expenditures (or series
of related capital expenditures) involving more than $100,000 in the aggregate;
(vi) Buyer has not made any capital investment in, any loan to, or any
acquisition of, the securities or assets of any other Person (or series of
related capital investments, loans, or acquisitions); (vii) Buyer has not
created, incurred, assumed or guaranteed any Indebtedness (including capitalized
lease obligations); (viii) Buyer has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other liabilities or obligations;
(ix) Buyer has not cancelled, compromised, waived, or released any right or
claim (or series of related rights or claims) involving more than $5,000.00; (x)
Buyer has not declared, set aside or paid any dividend or distribution with
respect to any of its equity securities or redeemed, purchased or otherwise
acquired any of its equity securities other than in the ordinary course of its
business and consistent with past practices; (xi) Buyer has not experienced any
damage, destruction or loss (whether or not covered by insurance) to any of its
property exceeding $5,000.00 as to any one occurrence or $25,000.00 in the
aggregate; (xii) Buyer has not made any loan to, or entered into any transaction
with, any of its directors, officers, or employees giving rise to any claim or
right on its part against such Person or on the part of such Person against it;
(xiii) Buyer has not entered into any employment contracts or collective
bargaining agreements, written or oral, or modified the terms of any existing
such contracts or agreements; (xiv) Buyer has not granted any increase in the
base compensation of any of its directors, officers or employees; (xv) Buyer has
not adopted any bonus, profit-sharing, incentive compensation, pension,
retirement, medical, hospitalization, life or other insurance, severance or
other plan, contract or commitment for any of its directors, officers, or
employees or modified or terminated any existing such plan, contract or
commitment; (xvi) Buyer has not made any other change in employment terms for
any of its directors, officers or employees; (xvii) Buyer has not suffered any
shortages of materials or supplies or any casualty that has had, or will have, a
Material Adverse Effect; (xviii) Buyer has
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not made or pledged to make any charitable or other capital contribution other
than in the ordinary course of business consistent with past business practices;
(xix) there has not been any other occurrence, event, incident, action, failure
to act or transaction outside the ordinary course of business involving Buyer;
and (xx) Buyer has not committed to any of the foregoing.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING
The Company covenants and agrees with Buyer and Subsidiary as follows:
5.1 Conduct and Preservation of Business. Except as contemplated by
this Agreement, during the period from the date hereof to the Closing, the
Company (i) shall conduct its business only in the ordinary course consistent
with past practice and in material compliance with all Applicable Laws; (ii)
shall use its reasonable best efforts to preserve, maintain, and protect its
Assets and the Company's business; and (iii) shall use its reasonable best
efforts to preserve intact the business organization of the Company's business,
to keep available the services of the employees of its business, and to maintain
existing relationships with licensors, licensees, suppliers, contractors,
distributors, customers, and others having business relationships with its
business.
5.2 Restrictions on Certain Actions. Without limiting the generality
of the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Closing, the Company shall not, without the prior written consent
of Buyer (which consent will not be unreasonably withheld):
(a) make any material change in the ongoing operations of its
Assets or the Company's business;
(b) except in the ordinary course of business consistent with
past practice with respect to the purchase of inventory (including raw
materials), create, incur, guarantee, or assume any Indebtedness for borrowed
money in respect of the Company's business;
(c) mortgage or pledge any of its Assets or create or suffer to
exist any Encumbrance thereupon;
(d) (i) enter into, adopt, or (except as may be required by
Applicable Law) amend any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock, stock
purchase, pension, retirement, deferred compensation, employment, severance, or
other Employee Benefit Plan, trust, fund, or other
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arrangement for the benefit or welfare of any employee of the Company's
business; (ii) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, increase
in any manner the compensation or fringe benefits of any employee of the
Company's business; (iii) pay to any employee of the Company any benefit not
required by any Employee Benefit Plan, trust, fund, or other arrangement as in
effect on the date hereof; (iv) pay any bonus to any employee of the Company
except for quarterly bonuses paid in the ordinary course of business and
consistent with past practice; (v) declare, set aside or pay any dividend or
distribution with respect to its Common Stock or other equity securities, or
redeem, repurchase, or otherwise acquire any of its Common Stock or other equity
securities; or (vi) offer, sell, issue or commit to issue any Shares of Common
Stock or securities convertible into or having a right to acquire Common Stock;
(e) sell, lease, transfer, or otherwise dispose of, directly or
indirectly, any of the Assets, other than inventory and unusable equipment sold
in the ordinary course of business consistent with past practice;
(f) make any capital expenditure or expenditures relating to the
Company's business which is in excess of $100,000.00;
(g) pay, discharge, or satisfy any claims, liabilities, or
obligations relating to the Company's business (whether accrued, absolute,
contingent, unliquidated, or otherwise, and whether asserted or unasserted),
other than the payment, discharge, or satisfaction in the ordinary course of
business consistent with past practice, or in accordance with their terms, of
liabilities reflected or reserved against in the financial statements or
incurred since the Latest Balance Sheet in the ordinary course of business
consistent with past practice;
(h) enter into any lease, Contract, agreement, commitment,
arrangement, or transaction relating to the Company's business, except in the
ordinary course of business consistent with past practice;
(i) amend, modify, or change any existing lease, Contract, or
agreement relating to the Company's business, other than in the ordinary course
of business consistent with past practice;
(j) waive, release, grant, or transfer any rights of value
relating to the Company's business, other than in the ordinary course of
business consistent with past practice;
(k) allow the levels of raw materials, work-in-progress, finished
goods, supplies, and other materials included in the inventory of the Company's
business to vary in any
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material respect from the levels customarily maintained by the Company in the
ordinary course of business consistent with past practice;
(l) permit any current insurance or reinsurance policy to be
cancelled or terminated or any of the coverages thereunder to lapse if such
policy covers Assets or insures risks, contingencies, or liabilities of the
Company's business, unless simultaneously with such cancellation, termination,
or lapse, replacement policies providing coverage equal to or greater than the
coverage cancelled, terminated, or lapsed are in full force and effect and
written copies thereof have been provided to Buyer;
(m) change any of the accounting principles or practices used by
it relating to the Company's business, except for any change required by reason
of a concurrent change in GAAP and notice of which is given in writing by the
Company to Buyer; or
(n) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Management Incentive Bonus.
Buyer shall cause the Surviving Corporation to institute a management
incentive plan for key employees of the Surviving Corporation to be selected by
Buyer and the Surviving Corporation, the terms and conditions of which shall be
set forth on an exhibit to be attached to the Employment Agreements of such of
the employees who will be participants therein.
6.2 Access to Information; Confidentiality.
(a) Between the date hereof and the Closing, the Company and
Buyer (i) shall give each other and their authorized representatives reasonable
access to all employees, all offices, warehouses, and other facilities, and all
books and records relating to their respective businesses, (ii) shall permit
each other and their authorized representatives to make such inspections as they
may reasonably require, and (iii) shall cause their officers to furnish the
other and their authorized representatives with such financial and operating
data and other information with respect to the their respective business as each
may from time to time reasonably request; provided, however, that no
investigation pursuant to this Section shall affect any representation or
warranty of any party contained in this Agreement or in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith; and
provided further that the party providing access and information shall have the
right to have a representative present at
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all times. Each party shall hold in confidence all such information on the
terms and subject to the conditions contained in the Confidentiality Agreements
heretofore entered into (collectively the "Confidentiality Agreements").
(b) Each party acknowledges and agrees that irreparable damage
would occur in the event any confidential information regarding the Assets,
Intellectual Property, the Company's business, Buyer or Buyer's business
(collectively the "Confidential Information") were disclosed to or utilized on
behalf of any Person which is in competition with the Company, Buyer or
Subsidiary. Accordingly, each party covenants and agrees with the other that it
will not, directly or indirectly, without the prior written consent of the
other, disclose any of such Confidential Information from and after the date
hereof, except to its authorized representatives; provided, however, that
Confidential Information shall not be deemed to include information which (i)
was or becomes generally available to the public other than as a result of an
unauthorized disclosure, or (ii) was or becomes available on a nonconfidential
basis from a source other than the recipient of such information, provided that
such source is not known by the provider of such information to be bound by a
confidentiality agreement with respect to such Confidential Information.
Notwithstanding the foregoing provisions of this paragraph, each party and its
Affiliates may disclose any Confidential Information to the extent that, in the
opinion of its counsel, such person is legally compelled to do so, provided
that, prior to making such disclosure, such person advises and consults with the
other party regarding such disclosure and provided further that such person
discloses only that portion of such Confidential Information as is legally
required.
6.3 Acquisition Proposals. Unless this Agreement shall have
terminated in accordance with Section 9.1, neither the Company, any Affiliate or
any director, officer, employee, or representative of the Company or any of
their Affiliates shall, directly or indirectly, (i) solicit, initiate, or
knowingly encourage any Acquisition Proposal or (ii) engage in discussions or
negotiations with any Person that is considering making or has made an
Acquisition Proposal. The Company shall immediately cease and cause to be
terminated any existing activities, discussions, or negotiations with any
Persons conducted heretofore with respect to any Acquisition Proposal and shall
promptly request each such Person who has heretofore entered into a
confidentiality agreement in connection with an Acquisition Proposal to return
to the Company all confidential information heretofore furnished to such Person
by or on behalf of the Company. The term "Acquisition Proposal", as used in
this Section, means any offer or proposal for, or any indication of interest in,
the acquisition of all or substantially all of the Assets of the Company or the
Shares of Common Stock of the Company, other than the transactions contemplated
or expressly permitted by this Agreement.
6.4 Third Party Consents. The Company and Buyer shall use their
reasonable best efforts to obtain all consents, approvals, orders,
authorizations, and waivers of, and to effect all declarations, filings, and
registrations with, all third parties (including
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Governmental Entities) that are necessary, required or deemed by the Company or
Buyer to be desirable to enable consummation of the transactions as contemplated
by this Agreement.
6.5 Employment Agreements; Consulting Agreements.
(a) Buyer shall enter into an employment agreement (the
"Employment Agreement") at (and subject to the occurrence of) the Closing with
each of the persons identified on Schedule 6.5 (a) pursuant to which Buyer shall
agree to employ each of such persons for the period and on the terms set forth
therein. The Employment Agreement shall be substantially in the form of Exhibit
"E" hereto.
(b) Buyer shall enter into a Consulting Agreement (the
"Consulting Agreement") at (and subject to the occurrence of) the Closing with
each of the persons identified on Schedule 6.5(b) pursuant to which Buyer shall
agree to hire each of such persons as a consultant to Buyer. The Consulting
Agreement shall be substantially in the form of Exhibit "F" attached hereto.
6.6 Non-competition Agreements. Each of the Shareholders identified
on Schedule 6.6 shall enter into a non-competition agreement (the "Non-Compete
Agreement") with Buyer at (and subject to the occurrence of) the Closing. The
Non-Compete Agreement shall be in substantially the form attached hereto as
Exhibit "G".
===
6.7 Public Announcements. Without the written consent of the Company
and Buyer, Buyer and the Company shall consult with each other before issuing
any press release or otherwise making any public statement with respect to this
Agreement or the transactions contemplated hereby, and shall not issue any such
press release or make any such public statement with respect thereto.
6.8 Notification of Certain Matters. The Company shall give prompt
notice to Buyer of (i) the occurrence or nonoccurrence of any event, the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in Article III to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of the Company to comply
with or satisfy any covenant, condition, or agreement to be complied with or
satisfied by the Company hereunder. Buyer shall give prompt notice to the
Company of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
contained in Article IV to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any failure of Buyer or Subsidiary to comply with
or satisfy any covenant, condition, or agreement to be complied with or
satisfied by Buyer or Subsidiary hereunder. The delivery of any notice pursuant
to this Section shall not be deemed to (i) modify the representations or
warranties hereunder of the
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party delivering such notice, (ii) modify the conditions set forth in Articles
VII and VIII, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
6.9 Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. For all purposes of this Agreement, including without limitation for
all purposes of determining whether the conditions set forth in Sections 7.1 and
8.1 have been fulfilled, the Schedules hereto shall be deemed to include only
that information contained therein on the date of this Agreement and shall be
deemed to exclude all information contained in any supplement or amendment
thereto; provided, however, that if the Closing shall occur, then all matters
disclosed pursuant to any such supplement or amendment at or prior to the
Closing shall be waived and no party shall be entitled to make a claim thereon
pursuant to the terms of this Agreement.
6.10 Fees and Expenses. Buyer and the Company shall each be
responsible for their own fees and expenses incurred in connection with the
transactions contemplated by this Agreement. If such transactions are
consummated, Buyer agrees to pay not more than $500,000.00 of the fees and
expenses of the Company, including the fee to Kenneth T. White, Jr. If the
transactions contemplated by this Agreement are not consummated, the provisions
of paragraph 10 of the Letter of Intent shall govern, except that the amount
payable by a Defaulting Party to a Non-Defaulting Party to cover the fees and
expenses of the Non-Defaulting Party shall be $1,000,000.
6.11 Survival of Covenants. Except for any covenant or agreement
which by its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without contractual limitation as provided in Section 10.1 hereof.
6.12 Hart-Scott-Rodino. As promptly as practicable, and in any event
within ten (10) Business Days following the execution and delivery of this
Agreement by the parties, the Company and the Buyer shall each prepare and file,
or shall cause its "ultimate parent" (as defined in the HSR Act) to prepare and
file, any required notification and report form under the HSR Act, in connection
with the transactions contemplated hereby, the filing fees for which shall be
borne one-half (1/2) by the Company and one-half (1/2) by Buyer; the Company and
Buyer shall, or shall cause their ultimate parents to, request early termination
of the waiting period thereunder; and the Company and Buyer shall, or shall
cause their ultimate parents to, respond with reasonable diligence to any
request for additional information made in response to such filings. As
promptly as practicable, and in any event within ten (10) business days,
following
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the execution and delivery of this Agreement by the parties, the Company and
Buyer shall prepare and file any other application, report, or other filing
required to be submitted to any other governmental authority in connection with
the transactions contemplated hereby.
6.13 Best Efforts. Upon the terms and subject to the conditions of
this Agreement, each of the parties hereto will use commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper, or advisable consistent with Applicable Law
to consummate and make effective in the most expeditious manner practicable the
transactions contemplated hereby.
6.14 Shareholders' Agent. C. Monroe Hunt, Joseph F. Zolkowski, Gentry
Bruce Davenport and Cecil D. Whiteside shall act as agent ("Shareholders'
Agent") for the Shareholders of the Company for purposes of this Agreement and
shall act and perform such duties in accordance with the terms of this
Agreement. Shareholders' Agent shall have the exclusive right and power to
represent, act on behalf of, waive or modify and negotiate settlements of all
matters on behalf of Shareholders which may arise before or after the Closing
Date in connection with the transactions contemplated by this Agreement.
Shareholders shall be bound by any such settlements, representations, actions,
waivers or modifications, or other matters agreed to by Shareholders' Agent.
Delivery or disclosure to Shareholders' Agent of any documents, reports,
information, notices or communications permitted or required to be furnished to
Shareholders pursuant to this Agreement shall be deemed for all purposes of this
Agreement to have been, or to be furnished to all of Shareholders by delivery to
Shareholders' Agent. Buyer shall have no obligation to question the authority
of Shareholders' Agent and shall have no liability to any Shareholder or
Shareholders' Agent for any action taken in good faith in reliance on or in
accordance with written instructions from Shareholders' Agent. In the event one
or more of the original Shareholders' Agent named herein shall resign, die, or
be unable to act or continue to act or refuse to act as Shareholders' Agent, a
majority of Shareholders (determined by ownership of Shares of Common Stock of
the Company) or their successors, assigns, or personal representatives shall
designate a successor to serve as a Shareholders' Agent. The successor
Shareholders' Agent shall have all of the rights and powers as the Shareholders'
Agent herein conferred upon the original Shareholders' Agent. It is
specifically agreed that Buyer shall only be required to deal with Shareholders'
Agent and not with any of the Shareholders individually. Specifically, but
without limiting the generality of the foregoing, Buyer shall not be required to
furnish any reports or information to, give any notices to, or obtain any
consents from, any Shareholders. In addition, except to the extent that
Shareholders' Agent is prevented or prohibited from doing so and except as
otherwise provided herein, only Shareholders' Agent shall have the right or
power to exercise any of the rights or remedies provided for herein or in any of
the Ancillary Agreements which may be exercised or undertaken by Shareholders.
Accordingly, no Shareholders shall be entitled to exercise any rights or
remedies unless and to the extent that Shareholders' Agent is prevented or
prohibited from doing so. Buyer may rely and shall be protected in acting or
refraining from acting upon any
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certificate, statement, notice, request, direction or consent received by Buyer
from Shareholders' Agent, and Buyer shall have no duty or obligation to
determine whether any Shareholder or other person has consented to any such
communication to Buyer from Shareholders' Agent.
6.15 Approvals. The Company will call a special meeting of its
Shareholders as soon as reasonably practicable in order that the Shareholders
may consider and vote upon the adoption of this Agreement, the approval of the
Merger in accordance with the Georgia Code and the consummation of the other
transactions contemplated hereby. Each of the individuals identified as a
Designated Shareholder on the signature pages hereto, as evidenced by execution
of this Agreement, covenants and agrees that he (i) has reviewed and approved
this Agreement, (ii) will make an affirmative recommendation to the Shareholders
to adopt this Agreement, to approve the Merger and to approve the consummation
of the other transactions contemplated hereby, (iii) will vote in favor of the
adoption of this Agreement, will vote to approve the Merger and will vote to
approve the consummation of the other transactions contemplated hereby, and (iv)
at or prior to the Closing, will execute such of the exhibits to this Agreement
as are applicable to them, including the Non-Compete Agreements.
6.16 Other Corporate Action.
(a) Prior to Closing, the Company shall, at the request of Buyer,
cause each of its subsidiaries to merge with and into the Company.
(b) Prior to Closing, Buyer shall cause Subsidiary to join in
this Agreement and to otherwise be bound by the terms and provisions hereof
which are applicable to Subsidiary.
Each of the members of the Board of Directors of the Company, as evidenced by
the execution of this Agreement, covenants and agrees that he will not vote at
any meeting of the Board of Directors of the Company to condition the submission
to the Shareholders of the proposed Merger on any basis which will require more
than a majority of all of the votes entitled to be cast on the question of
whether to approve the Merger (including the Plan of Merger) and the
consummation of the other transactions contemplated hereby.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND SHAREHOLDERS TO CLOSE
The obligations of the Company and Shareholders to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
on or prior to the Closing Date of each of the following conditions:
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7.1 Representations and Warranties True. All the representations and
warranties of Buyer or Subsidiary contained in this Agreement, and in any
agreement, instrument, or document delivered pursuant hereto or in connection
herewith on or prior to the Closing Date, shall be true and correct on and as of
the Closing Date as if made on and as of such date, except as affected by
transactions contemplated or permitted by this Agreement and except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
as of such specified date.
7.2 Covenants and Agreements Performed. Buyer and Subsidiary shall
have performed and complied with in all material respects all covenants and
agreements required by this Agreement to be performed or complied with by them
on or prior to the Closing Date.
7.3 Certificate. The Company shall have received a certificate
executed by the President of Buyer and Subsidiary, dated the Closing Date,
representing and certifying, in such detail as the Company may reasonably
request, that the conditions set forth in Sections 7.1 and 7.2 have been
fulfilled and that neither Buyer nor Subsidiary is in breach of any provisions
of this Agreement.
7.4 Opinion of Counsel. The Company shall have received an opinion
of Jackson & Walker, L.L.P., legal counsel to Buyer and Subsidiary, dated the
Closing Date, in form and substance satisfactory to the Company and Shareholders
and their counsel. In rendering such opinion, such counsel may rely as to
factual matters upon certificates or other documents furnished by directors and
officers of Buyer and by government officials and upon such other documents and
data as such counsel deems appropriate as a basis for such opinion.
7.5 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7.6 Hart-Scott-Rodino. All applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or otherwise been
terminated without objection from any of the relevant federal authorities.
7.7 Other Documents. Each of the certificates, instruments,
documents and payments listed below shall have been received by the Company or
other indicated recipient:
(a) An executed copy of the Plan of Merger and Certificate of
Merger to the extent required;
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(b) An Employment Agreement executed by Buyer shall have been
delivered to each of the persons identified on Schedule 6.5(a) hereto and a
Consulting Agreement executed by Buyer shall have been delivered to each of the
persons identified on Schedule 6.5(b) hereto.
(c) Buyer shall have executed a Non-Compete Agreement with
respect to each of the Designated Shareholders.
(d) A copy of the resolutions of the Boards of Directors of Buyer
and Subsidiary authorizing the execution, delivery, and performance by Buyer and
Subsidiary of this Agreement, certified by the secretary or an assistant
secretary of Buyer and Subsidiary.
(e) Executed copies of all consents and approvals of third
parties required to be obtained by Buyer or Subsidiary for the consummation of
the transactions contemplated hereby.
(f) Certificates from the Secretary of State of Texas and the
Comptroller of Public Accounts of the State of Texas, each dated not more than
15 days prior to the Closing Date, as to the legal existence and good standing
of Buyer under the laws of such state.
(g) A certificate from the appropriate governmental official,
dated not more than fifteen (15) days prior to the Closing Date, as to the legal
existence and good standing of Subsidiary under the laws of such State.
(h) Such other certificates, instruments, and documents as may be
reasonably requested by the Company to carry out the intent and purposes of this
Agreement.
(i) The Purchase Price.
(j) Buyer shall have executed a copy of the Escrow Agreement.
7.8 Approval of Counsel to the Company. All legal matters in
connection with the consummation of the transactions contemplated hereby and all
agreements, instruments, and documents delivered in connection therewith shall
be reasonably satisfactory in form and substance to Vinson & Elkins, legal
counsel to the Company.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER AND SUBSIDIARY TO CLOSE
The obligations of Buyer and Subsidiary to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
8.1 Representations and Warranties True. All the representations and
warranties of the Company contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date, shall be true and correct on and as of the Closing
Date as if made on and as of such date, except as affected by transactions
contemplated or permitted by this Agreement and except to the extent that any
such representation or warranty is made as of a specified date, in which case,
such representation or warranty shall have been true and correct as of such
specified date.
8.2 Covenants and Agreements Performed. The Company (and the
Shareholders and the Board of Directors of the Company to the extent required by
this Agreement) shall have performed and complied with in all material respects
all covenants and agreements required by this Agreement to be performed or
complied with by it or them on or prior to the Closing Date.
8.3 Certificate. Buyer and the Subsidiary shall have received a
certificate executed by the president and the chief financial officer of the
Company, dated the Closing Date, representing and certifying, in such detail as
Buyer may reasonably request, that the conditions set forth in Sections 8.1 and
8.2 have been fulfilled and that neither the Company, any of its Shareholders
nor any of its Board of Directors is in breach of any provision of this
Agreement.
8.4 Opinion of Counsel. Buyer and Subsidiary shall have received an
opinion of Vinson & Elkins, legal counsel to the Company, dated the Closing
Date, in form and substance satisfactory to Buyer and Subsidiary and their
counsel. In rendering such opinion, such counsel may rely as to factual matters
upon certificates or other documents furnished by directors and officers of the
Company and by government officials and upon such other documents and data as
such counsel deems appropriate as a basis for such opinion. To the extent the
foregoing opinion concerns the laws of any jurisdiction other than Texas, such
counsel may rely upon the opinion of legal counsel, who shall be reasonably
satisfactory to Buyer and Subsidiary, admitted to practice in such other
jurisdiction. Any opinion relied upon by such counsel, which shall be in form
and substance reasonably satisfactory to Buyer and Subsidiary, shall be
delivered together with the opinion of such counsel, which shall state that such
counsel believes that its reliance thereon is justified.
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8.5 Joinder Agreement. The Shareholders of the Company shall each
execute and deliver to Buyer, at or prior to Closing, an agreement substantially
in the form of Exhibit "H" attached hereto (the "Joinder Agreement").
8.6 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
8.7 Hart-Scott-Rodino. All applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or otherwise been
terminated without objection of any of the relevant federal authorities.
8.8 Consents; Estoppel Certificates. All consents and approvals of
third parties (including Governmental Entities) required to be obtained by or on
the part of the parties hereto or otherwise reasonably necessary for the
consummation of the transactions contemplated hereby shall have been obtained,
and all thereof shall be in full force and effect at the time of Closing. Buyer
shall also have received estoppel or other certificates of confirmation or
assurance reasonably satisfactory to it from the appropriate landlords, lessors,
or other persons with respect to (i) the Leases described on Schedule 3.12(b),
(ii) the Personalty Leases described on Schedule 3.13(c), (iii) the Permits
described on Schedule 3.16, and (iv) the Contracts described on Schedule 3.18.
8.9 No Material Adverse Change. Since the Latest Balance Sheet,
there shall not have been any Material Adverse Change in the business, assets,
results of operations, condition (financial or otherwise), or prospects of the
Company's business or the ownership or operation of the Assets, or any material
portion thereof.
8.10 Financing. Buyer shall have obtained financing for the
transactions contemplated by this Agreement in such amount and on such
conditions as are reasonably satisfactory to Buyer.
8.11 Due Diligence. The due diligence conducted by Buyer and its
representatives in connection with the proposed transactions contemplated hereby
shall not have caused Buyer or its representatives to become aware of any
material facts relating to the business, assets, results of operations,
condition (financial or otherwise), or prospects of the Company's business or
the Assets which, in the good faith judgment of Buyer, make it inadvisable for
Buyer to proceed with the consummation of the transactions contemplated hereby.
8.12 Other Documents. Buyer shall have received the certificates,
instruments, documents and payments listed below:
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(a) Executed copy of the Plan of Merger and Certificate of Merger
to the extent required;
(b) The Employment Agreements and Consulting Agreements executed
by the persons identified on Schedule 6.5(a) and Schedule 6.5(b), respectively.
(c) The Non-Compete Agreements executed by the Designated
Shareholders.
(d) A Joinder Agreement executed by each of the Shareholders of
the Company.
(e) Executed copies of all consents and approvals of third
parties required to be obtained by or on the part of the Company and the
Shareholders for the consummation of the transactions contemplated hereby.
(f) Certificates from the appropriate governmental authorities of
the State of Georgia, each dated not more than fifteen (15) days prior to the
Closing Date, as to the legal existence and good standing of the Company under
the laws of such state.
(g) Certificates from the appropriate governmental authorities of
the states listed on Schedule 3.1 as to the due qualification or licensing of
------------
the Company to do business in such states, dated not more than fifteen (15) days
prior to the Closing Date.
(h) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer to carry out the intent and purposes of this
Agreement.
(i) Delivery to the Company of all of the Shares of Common Stock
of the Company for cancellation pursuant to the provisions of Section 1.4
hereof.
(j) The Escrow Agreement executed by the Escrow Agent and the
Shareholders' Agent.
8.13 Approval of Counsel to Buyer. All legal matters in connection
with the consummation of the transactions contemplated hereby and all
agreements, instruments, and documents delivered in connection therewith shall
be reasonably satisfactory in form and substance to Jackson & Walker, L.L.P.,
legal counsel to Buyer and Subsidiary.
8.14 Environmental Review. The receipt of an environmental review,
satisfactory to Buyer, with respect to the matters referred to in Section 3.24
hereof.
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8.15 Termination of the ESOP and Stock Option Plans. The Company
shall have taken action to terminate the Company's Employee Stock Ownership Plan
(the "ESOP") and Employee Stock Ownership Trust established pursuant to the
provisions of the ESOP, as well as the Company's Incentive Stock Option Plan
(the "ISO Plan") and Non-Statutory Stock Option Plan (the "Non-Statutory Plan").
Each option granted under the ISO Plan or the Non-Statutory Plan shall have been
exercised or cancelled pursuant to Section 1.3(b) hereof and all benefits,
whether or not vested, shall have been cancelled and the Company shall have
provided evidence to Buyer that no portion of said benefits has been paid or
accrued on the books of the Company. Each option granted under such Plans shall
have been exercised or canceled pursuant to Section 1.3(b) hereof.
8.16 Cancellation of $500,000 Bonus. The Company shall have cancelled
the $500,000 bonus declared and accrued prior to January 1, 1995 and shall have
provided evidence to Buyer that no portion of said bonus has been paid or
accrued on the books of the Company.
8.17 Cancellation of Stock Appreciation Rights. The Company shall have
cancelled each of the stock appreciation rights granted pursuant to the
Company's Non-Statutory Plan and shall have provided evidence to Buyer that such
stock appreciation rights have been cancelled and are of no further force or
effect and that no portion of such stock appreciation rights have been paid
pursuant to the terms thereof or accrued on the books of the Company.
8.18 Termination of Shareholders Agreement. The parties to that
certain Shareholders Agreement entered into on June 27, 1979 as thereafter
amended shall have been terminated and shall be of no further force or effect
and shall have provided evidence to Buyer of such termination.
8.19 Liquidation of Subsidiaries. Each of the Company's subsidiaries
(other than Delta-Tech, Inc.) shall, prior to Closing, have been merged with and
into the Company with the Company being the surviving corporation.
8.20 Payment of Inter-Company Debt. All inter-company debt owing by
any of the Company's subsidiaries to the Company shall have been repaid in full
prior to Closing.
ARTICLE IX
TERMINATION, AMENDMENT, AND WAIVER
9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of the Company and Buyer; or
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(b) either by the Company or by Buyer, if the Closing Date shall
not have occurred on or before August 1, 1995, unless such failure to close
shall be due to a breach of this Agreement by the party or parties seeking to
terminate this Agreement pursuant to this clause (b); or
(c) either by the Company or by Buyer, if there shall be any
statute, rule, or regulation that makes consummation of the transactions
contemplated hereby illegal or otherwise prohibited or a Governmental Entity
shall have issued an order, decree, or ruling or taken any other action
permanently restraining, enjoining, or otherwise prohibiting the consummation of
the transactions contemplated hereby, and such order, decree, ruling, or other
action shall have become final and nonappealable.
9.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1 by the Company or by Buyer, written notice
thereof shall forthwith be given to the other party specifying the provision
hereof pursuant to which such termination is made, and this Agreement shall
become void and have no effect, except that the Confidentiality Agreements, the
agreements contained in this Section, Section 6.10, and Article XII shall
survive the termination hereof. Nothing contained in this Section shall relieve
any party from liability for damages actually incurred as a result of any breach
of this Agreement.
9.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
9.4 Waiver. The Company, on the one hand, and Buyer and Subsidiary,
on the other hand, may (i) waive any inaccuracies in the representations and
warranties of the other party or parties contained herein or in any document,
certificate, or writing delivered pursuant hereto or (ii) waive compliance by
the other party or parties with any of the other party's or parties' agreements
or fulfillment of any conditions to its or their own obligations contained
herein. Any agreement on the part of a party hereto to any such waiver shall be
valid only if set forth in an instrument in writing signed by or on behalf of
such party. No failure or delay by a party hereto in exercising any right,
power, or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.5 Remedies Not Exclusive. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
The rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence, or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter
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of any other representation, warranty, covenant, or agreement contained in this
Agreement (or in any other agreement between the parties as to which there is no
inaccuracy or breach.
ARTICLE X
SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION
10.1 Survival. All representations, warranties, covenants and
agreements of the parties hereto contained in this Agreement, in any of the
Ancillary Agreements or in any certificates, instruments or documents delivered
pursuant hereto or thereto shall survive the Closing, and continue in full force
and effect until the first anniversary of the Closing Date (the "Survival
Date"), regardless of any investigation or "due diligence" performed or made by
or on behalf of any Indemnified Party prior to the Closing Date or any actual
knowledge of an Indemnified Party prior to the Closing Date with respect to any
matter as to which indemnification is sought. From and after the Survival Date,
no party hereto shall be under any liability whatsoever pursuant to this Article
X with respect to any matter for which indemnification may be sought, except
with respect to matters for which notice has received in accordance with the
provisions of this Article X. No party hereto shall have any indemnification
obligation pursuant to this Article X with respect to any matter for which
indemnification may be sought unless before the applicable Survival Date, it
(the "Indemnifying Party") shall have received from the party seeking
indemnification (an "Indemnified Party") written notice as to the matter or
matters for which indemnification is sought. The notice (a "Notice of Claim")
to be provided by the Indemnified Party to the Indemnifying Party shall be
provided promptly and in any event, within thirty (30) calendar days after
receiving any written notice from a third party; provided, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party will relieve
the Indemnifying Party from any obligation hereunder unless, and then solely to
the extent that, the Indemnifying Party is materially prejudiced thereby.
10.2 Indemnification by Shareholders. Subject to the terms and
provisions of this Article X, the Shareholders shall, to the extent of the Cap
Amount (as defined in Section 10.6(b)) hereof, defend, indemnify and hold Buyer
and Subsidiary, and their respective officers, directors, shareholders,
employees and agents and its and their respective successors, assigns, heirs,
executors, administrators, receivers, trustees and other legal representatives
(collectively the "Buyer Group") harmless at all times from and after the
Closing Date immediately on demand against and in respect of any Damages
incurred, sustained, suffered by or resulting to the Buyer Group, or any of
them, arising out of, resulting from, incurred in connection with, or sustained
as a result of:
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(i) any inaccurate representation made by or on behalf of the
Company in, or pursuant to this Agreement, any Ancillary Agreement or any
certificate, instrument or document delivered pursuant hereto or thereto; or
(ii) any breach of any warranty made by or on behalf of the
Company in or pursuant to this Agreement, any Ancillary Agreement, or any
certificate, instrument or document delivered pursuant hereto or thereto; or
(iii) any breach, default, nonfulfillment, nonperformance or
nonobservance by the Company or Shareholders in the performance, fulfillment, or
observance of any of the obligations, covenants or agreements which are to be
performed, fulfilled or observed by or on behalf of the Shareholders in or
pursuant to this Agreement, any of the Ancillary Agreements or any certificates,
instruments or documents delivered pursuant hereto or thereto; or
(iv) any breach or violation prior to the Effective Time of
any agreement, contract or understanding between a third party, the Company
and/or any of Shareholders or any of their agents or affiliates, or a breach of
any fiduciary or other duty owed to such third party by the Company and/or any
of Shareholders or any of their agents or affiliates; or
(v) any other actions, inactions, deeds or courses of conduct
of the Company and/or Shareholders or any other Persons acting on their behalf.
10.3 Indemnification by Buyer. Subject to the terms and conditions of
this Article X, Buyer agrees to defend, indemnify and hold the Shareholders
harmless at all times from and after the Closing Date immediately on demand,
against and in respect of any Damages incurred, sustained, suffered by or
resulting to the Shareholders, or any of them, arising out of, resulting from,
incurred in connection with or sustained as a result of:
(i) any inaccurate representation made by or on behalf of
Buyer or Subsidiary in, or pursuant to this Agreement, any Ancillary Agreement
or any certificate, instrument or document delivered pursuant hereto or thereto;
or
(ii) any breach of any warranty made by or on behalf of Buyer
or Subsidiary in or pursuant to this Agreement, any Ancillary Agreement, or any
certificate, instrument or document delivered pursuant hereto or thereto; or
(iii) any breach, default, nonfulfillment, nonperformance or
nonobservance by Buyer or Subsidiary in the performance, fulfillment, or
observance of any of the obligations, covenants or agreements which are to be
performed, fulfilled or observed by or
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on behalf of the Buyer or Subsidiary in or pursuant to this Agreement, any of
the Ancillary Agreements or any certificates, instruments or documents delivered
pursuant hereto or thereto; or
(iv) any breach or violation of any agreement, Contract or
understanding between a third party and Buyer or Subsidiary or any of their
agents or affiliates, or a breach of any fiduciary or other duty owed to such
third party by Buyer or Subsidiary or any of their agents or affiliates; or
(v) any other actions, inactions, deeds or courses of conduct
of Buyer or any other Persons acting on its behalf.
10.4 Procedure for Indemnification. If and whenever an Indemnified
Party desires to claim indemnification for any of the matters for which
indemnification may be sought pursuant to the provisions of this Article X, such
Indemnified Party shall deliver to the Indemnifying Party a Notice of Claim
specifying each of the matters for which indemnification is sought. Upon
receiving the Notice of Claim, the Indemnifying Party shall have the right,
exercisable at any time during a ten (10) Business Day period from the day of
the receipt of the Notice of Claim, to elect to compromise or defend against any
of the matters for which indemnification is sought through counsel of its own
choosing and at its expense, or at the election of the Indemnifying Party,
exercisable at any time within such ten (10) Business Day period, the
Indemnified Party shall have the right to compromise or defend against any of
the matters for which indemnification is sought, through counsel of its own
choosing and at the expense of the Indemnifying Party. If the Indemnifying
Party does not make either of the elections called for by this Section 10.4
within said 10 day period, or to the extent the Indemnifying Party fails to make
such election, then and in that event, the Indemnified Party shall have the
right to compromise or defend against any of the matters for which
indemnification is sought through counsel of its own choosing and at the expense
of the Indemnifying Party. Any Indemnified Party shall be entitled to be
represented by its own counsel at its own expense irrespective of any elections
made herein as to the appointment of counsel by the Indemnifying Party. If any
action or claim for which indemnification is sought is asserted both against the
Indemnifying Party and the Indemnified Party, and in good faith it is determined
there is a conflict of interest which renders it inappropriate for the same
counsel to represent both the Indemnifying Party and the Indemnified Party, the
Indemnifying Party shall be responsible for paying for separate counsel for the
Indemnified Party; provided however, that if there is more than one Indemnified
Party, the Indemnifying Party shall not be responsible for paying for more than
one separate firm of attorneys to represent the Indemnified Party, regardless of
the number of Indemnified Parties. The Indemnified Party will not consent to
the entry of a judgment or enter into any agreement with respect to any matter
for which indemnification is sought without the written consent of the
Indemnifying Party (not to be withheld or delayed unreasonably). The
Indemnifying Party shall not consent to the entry of a
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judgment with respect to any matter for which indemnification is sought or enter
into any settlement with respect thereto which does not include a provision
whereby the plaintiff or claimant in the matter releases the Indemnified Party
from all liability with respect thereto, without the written consent of the
Indemnified Party (not to be withheld or delayed unreasonably). All attorneys
and other representatives employed by the Indemnifying Party shall be subject to
approval by the Indemnified Party, which approval shall not be unreasonably
withheld or delayed.
10.5 Dispute as to Right of Indemnification. In the event the question
of the right to indemnification is submitted to a court of competent
jurisdiction for determination, all attorneys' fees and other costs and expenses
in litigating the question of the right of an
Indemnified Party to indemnification shall be awarded to the prevailing party
and against the party against whom such determination is rendered.
10.6 Indemnification Cap and Deductible.
(a) Shareholders shall not be liable for any claim for
indemnification pursuant to the provisions of this Article X for any matter for
which indemnification is sought unless and until, and only to the extent that,
the aggregate amount of Damages of the Buyer Group exceeds $100,000.00 (the
"Deductible").
(b) At the Closing, the Shareholders shall deposit with the
Escrow Agent pursuant to an Escrow Agreement in the form of Exhibit "I" out of
the Purchase Price the sum of $1,700,000.00 in cash, which together with any
interest thereafter accrued thereon is herein referred to as the "Cap Amount".
Neither Buyer nor the Shareholders shall be liable for Damages with respect to
any matter for which indemnification may be sought in excess of the Cap Amount.
At such time as the Damages of the Buyer Group with respect to any matter for
which indemnification may be sought by the Buyer Group under this Article X is
agreed upon or is finally determined by a court of competent jurisdiction, the
Escrow Agent shall pay to the Buyer Group such portion or portions of the Cap
Amount to which the Buyer Group is entitled. The Buyer Group shall not be
entitled to any portion of the Cap Amount unless and until it shall have been
determined that a member of the Buyer Group is entitled to the Cap
Amount or a portion thereof and the Shareholders' Agent shall have agreed in
writing to the validity of the claim with respect to the matter for which
indemnification is sought and the amount of the requested payment to the Buyer
Group from the Cap Amount or such matter shall have been finally determined by a
court of competent jurisdiction and a copy of the written opinion or order with
respect thereto shall have been delivered to the Escrow Agent.
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(c) Redress under the indemnity provisions contained in this
Article X shall be the exclusive remedy available to the parties hereto for the
matters covered by such provisions.
(d) Immediately following the Survival Date, the remaining
portion of the Cap Amount not theretofore paid or distributed to or for the
benefit of a member of the Buyer Group shall be distributed by the Escrow Agent
to the Shareholders' Agent for distribution to Shareholders in accordance with
their ownership interests therein; provided however, that the Escrow Agent shall
continue to hold and not distribute to the Shareholders' Agent such remaining
portion of the Cap Amount sufficient to cover Damages of the Buyer Group with
respect to any amount for which indemnification may be sought and for which
notice was given prior to the Survival Date.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All statements of fact, representations and warranties, covenants,
certificates, schedules, letters, documents or other instruments delivered by or
on behalf of any party hereto to the other pursuant to the terms of this
Agreement shall be deemed to be representations and warranties under this
Agreement, shall be deemed made both at the date made and at the Closing Date
and all of same shall (notwithstanding any exception, examination or audit made
by any person) survive the Closing Date and remain in full force and effect and
unimpaired until the Survival Date.
ARTICLE XII
FAILURE TO CLOSE BECAUSE OF DEFAULT
12.1 Company Default: In the event that the Closing is not consummated
on or before August 1, 1995 (the "Cut-Off Date"), by virtue of a default made by
the Company in the observance or in the due and timely performance of any of the
covenants or agreements herein contained to be performed by the Company, any
member of its Board of Directors or any of the Designated Shareholders, the
Company shall pay Buyer the amount provided for in Section 6.10 hereof. Buyer
shall also be entitled, at its election, to specific performance of any of the
agreements contained in Section 9.2 hereof or to exercise any other legal or
equitable remedies to which it may otherwise be entitled with respect to
enforcement of such agreements.
12.2 Buyer's or Subsidiary's Default: In the event that the Closing
is not consummated on or before the Cut-Off Date, through no fault of the
Company, its Board of Directors, or the designated Shareholders and by virtue of
the default of Buyer or Subsidiary in the due and timely performance of any of
the covenants or agreements herein contained to be
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performed by Buyer or Subsidiary, Buyer shall pay the Company the amount
provided for in Section 6.10 hereof.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if delivered
personally, or transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, or sent by prepaid overnight delivery
service, to the parties at the following addresses (or at such other addresses
as shall be specified by the parties by like notice):
If to Buyer:
(Until June 15, 1995)
Kevco, Inc.
2501 Parkview Drive, Suite 560
Fort Worth, Texas 76102
Attention: Gerald E. Kimmel, Chairman of the Board and President
(After June 15, 1995)
Kevco, Inc.
University Centre I
Suite 200
1300 South University
Fort Worth, Texas 76107
with a copy to:
Richard S. Tucker
Jackson & Walker, L.L.P.
777 Main Street, Suite 1800
Fort Worth, Texas 76102
If to the Company:
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Service Supply Systems, Inc.
2501 East 13th Avenue
P.O. Box 749
Cordele, Georgia 31015
with a copy to:
Robert H. Whilden, Jr.
Vinson & Elkins
Suite 2500
1001 Fannin Street
Houston, Texas 77002-6760
If to Shareholders:
Shareholders' Agent
2501 East 13th Avenue
P.O. Box 749
Cordele, Georgia 31015
13.2 Place of Performance. This Agreement and all obligations
hereunder are fully performable in Fort Worth, Tarrant County, Texas which shall
be the jurisdiction of all claims, disputes, or other matters arising under or
pursuant to this Agreement, and where venue shall lie. This Agreement has been
delivered at and the transfers contemplated by this Agreement have been
consummated in Fort Worth, Tarrant County, Texas. This Agreement and the
Ancillary Agreements shall be construed in accordance with and governed by the
internal substantive laws, not the law of conflicts, of the State of Texas and
Georgia, respectively.
13.3 Captions. The captions used herein are for administrative and
convenience purposes only and shall not be construed in interpreting this
Agreement.
13.4 Gender. Whenever the context so requires, the masculine shall
include the feminine and neuter, and the singular shall include the plural, and
conversely.
13.5 Invalidity. If any portion of this Agreement shall be held
invalid or inoperative, then so far as reasonable and possible:
(1) The remainder of this Agreement shall be considered valid and
operative; and
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(2) Effect shall be given to the intent manifested by the portion
held invalid or inoperative.
13.6 Amendment. 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 the Agreement.
13.7 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 or condition,
but the obligation of any party with respect thereto shall continue in full
force and effect.
13.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one instrument.
13.9 Remedies. Each party hereto acknowledges that a remedy at law
for any breach or attempted breach of this Agreement will be inadequate, agrees
that such other party hereto shall be entitled to specific performance and
injunctive and other equitable relief in case of any such breach of attempted
breach and further agrees to waive any requirement for securing or posting of
any bond in connection with the obtaining of such injunctive or other equitable
relief. Such remedies shall be cumulative and not exclusive and shall be in
addition to any other rights or remedies any party may have against the other.
13.10 Attorneys' Fees. If any action at law or in equity, 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 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.
13.11 Time of Essence. Time shall be of the essence of this Agreement
and the Ancillary Agreements and through the term of this Agreement and the
Ancillary Agreements.
13.12 Binding Effect. This Agreement and the Ancillary Agreements and
schedules attached hereto, as well as all covenants, agreements,
representatives, warranties or obligations contained in any of same shall be
binding upon and inure to the benefit of the parties hereto, their respective
successors, assigns (if permitted), receivers, trustees or other legal
representatives. Buyer shall have the right to assign this Agreement and all
rights, remedies or privileges or benefits hereunder to any other person or
legal entity.
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13.13 Entire Agreement. This Agreement (and the exhibits and schedules
attached hereto) contains the entire agreement between the parties hereto with
respect to the within subject matter and supersedes any and all prior
agreements, whether written or oral, with respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
COMPANY:
SERVICE SUPPLY SYSTEMS, INC.
By: /s/ C. Monroe Hunt
---------------------------------------
Its President
/s/ C. Monroe Hunt
- ----------------------------------------
C. Monroe Hunt,
Designated Shareholder & Director
/s/ Joseph F. Zolkowski
- ----------------------------------------
Joseph F. Zolkowski,
Designated Shareholder & Director
/s/ Gentry Bruce Davenport
- ----------------------------------------
Gentry Bruce Davenport,
Designated Shareholder & Director
/s/ Cecil D. Whiteside
- ----------------------------------------
Cecil D. Whiteside,
Designated Shareholder & Director
/s/ Dan Russell Hardin
- ----------------------------------------
Dan Russell Hardin, Designated Shareholder
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SHAREHOLDERS' AGENT:
/s/ C. Monroe Hunt
--------------------------------------------------
C. Monroe Hunt
/s/ Joseph F. Zolkowski
--------------------------------------------------
Joseph F. Zolkowski
/s/ Gentry Bruce Davenport
--------------------------------------------------
Gentry Bruce Davenport
/s/ Cecil D. Whiteside
--------------------------------------------------
Cecil D. Whiteside
BUYER:
KEVCO, INC.
By: /s/ Jerry E. Kimmel
----------------------------------------------
Its: Chairman of the Board
and President
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SIGNATURE PAGE/JOINDER OF SUBSIDIARY
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EXHIBITS
--------
A. Plan of Merger
B. Form of Letter of Transmittal
C. Financial Statements
D. Buyer's Financial Statements
E. Employment Agreement
F. Consulting Agreement
G. Non-Compete Agreement
H. Joinder Agreement
I. Form of Escrow Agreement
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into this 30th day of June,
1995, by and between KEVCO, INC., a Texas corporation (the "Employer") and
CURTIS LEE DENHAM (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, Employee is experienced and qualified to perform duties
connected and associated with Employer's Business; and
WHEREAS, Employer wishes to employ Employee, and the Employee wishes
to be employed by Employer, upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, this Agreement is being entered into in order to satisfy a
condition precedent set forth in that certain Merger Agreement (the "Merger
Agreement") dated June 6, 1995 pursuant to which a subsidiary of Employer, in a
cash merger, was merged with and into Service Supply Systems, Inc. ("Service"),
Employee's prior employer.
NOW, THEREFORE, IN CONSIDERATION of the herein recited undertakings,
the compensation to be paid by Employer to Employee, the other benefits to
Employee resulting from Employee's employment under this Agreement, and the
other covenants and agreements contained herein, the receipt and sufficiency of
which are hereby acknowledged and confessed, the parties hereto agree as
follows:
1. Employment. Employer hereby employs the Employee as an employee
----------
of Employer upon the terms and subject to the conditions hereinafter set forth.
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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 Agreement, continue until and terminate on the second anniversary date of
the effective date of this Agreement (the "initial term"); provided, however,
that the term of employment of the Employee under this Agreement shall be
automatically extended for an additional period of one year after the expiration
of the initial term, unless at least sixty (60) days prior to such date either
the Employer or the Employee shall give written notice to the other that the
Employee's term of employment under this Agreement shall end upon the expiration
of the initial term. If the Employee's term of employment is automatically
extended at the expiration of the initial term, it shall be further
automatically extended from year to year thereafter unless at least sixty (60)
days prior to the anniversary date of any such extension, written notice is
given by either the Employer or the Employee to the other that the Employee's
term of employment under this Agreement shall end on such anniversary.
3. Employee Warranties. Employee represents and warrants to Employer
-------------------
that:
(a) Employee has the legal power and right to enter into this
Agreement, and that upon execution and delivery of this Agreement by Employee to
Employer, this Agreement will constitute the legal, valid, and binding
obligation of Employee, fully enforceable in accordance with its terms and
provisions.
(b) Employee is free to enter into the terms of this Agreement and he
has no obligations inconsistent herewith; and
PAGE 2
<PAGE>
(c) Employee agrees to devote his best efforts to Employer's business
interest to the exclusion of any affiliation in competition with Employer or
that might otherwise utilize Employer's know-how or other Confidential
Information.
4. Duties of Employee. For the term provided in Paragraph 2 of this
------------------
Agreement (subject to earlier termination as hereinafter provided), Employee
shall have the same duties and responsibilities as heretofore performed by
Employee for Service, as well as such other duties and responsibilities as may
from time to time hereafter be assigned to Employee by Employer.
5. Place of Employment. The duties to be performed by Employee shall
-------------------
be performed at the offices of Employer, located in Ashburn, Georgia and at such
other temporary locations as the Board of Directors of Employer may from time to
time determine or require for the performance of his duties as an employee of
Employer.
6. Time Requirements. The Employee shall devote his entire
-----------------
productive time, ability and attention during normal business hours to the
business of Employer during the term of this Employment Agreement. Employee
shall not, directly or indirectly, without the prior consent of Employer, render
any services of a business, commercial or professional nature to any other
organization or legal entity, whether for compensation or otherwise, during the
term of this Employment Agreement as provided in Paragraph 2 hereof.
7. Conduct Requirements. Employee shall, at all times during the
--------------------
term of this Employment Agreement, conduct himself in such a manner as to
reflect credit to Employer and shall not do or perform any acts in his capacity
as an employee of Employer and/or in his personal and/or social life and/or in
his financial affairs which are or may be considered improper, immoral,
PAGE 3
<PAGE>
dishonest, indiscreet and/or may cause the Employee and/or Employer to suffer
loss of reputation and/or cause the Employee and/or Employer embarrassment.
8. 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 in Paragraph 11 hereof) the following compensation, subject
to deductions, offsets and credits as elsewhere set forth in this Paragraph 8:
(a) Salary. During the initial term and any extension thereof,
------
Employee shall receive an annual salary of $78,000, subject to mandatory
deductions and withholdings as required by law, payable in equal installments
determined by dividing such annual salary by the number of payroll periods of
Employer during the calendar year following the effective date of this
Agreement, figured to and prorated for any partial employment period.
(b) Reimbursement of Business Expenses. In the event the Internal
----------------------------------
Revenue Service should disallow as a deductible expense to Employer any portion
of any payments by Employer to or on behalf of Employee for reimbursement or
payment of business expenses of Employee, Employee covenants and agrees that
upon final determination of a court of competent jurisdiction adverse to
Employer or prior to such determination, settlement by Employer, Employee will
promptly repay to Employer such portion of business expenses disallowed as a
deductible expense.
(c) Other Deductions. Employee hereby specifically consents and
----------------
acknowledges that Employer shall have the right at any time and from time to
time during the term of this Agreement to deduct, withhold, offset, or otherwise
credit any amounts or sums to which
PAGE 4
<PAGE>
Employee may be entitled under this Agreement, whether salary, bonus, or other
compensation or remuneration whatsoever, against and in respect of any
Obligations, in order to reimburse, discharge, liquidate, or otherwise retire
any Obligations owing by Employee to Employer or for which Employee is otherwise
liable to Employer. As used herein, the term "Obligations" means:
(i) any advances or other loans made by Employer to Employee,
as evidenced by a writing;
(ii) any and all other or additional indebtedness or
liabilities for which Employee is now or may become liable to Employer
in any manner, regardless of how the indebtedness or liability may
have been or may be acquired by Employer; and
(iii) any and all extensions and renewals of or substitutes for
any of the foregoing indebtedness, obligations, and liabilities or any
part thereof.
(d) Other Benefits. During the initial term and any extension
--------------
thereof, Employee shall be eligible to participate in any stock option plan,
incentive compensation plan or bonus plan which may be provided by Employer, the
actual participants therein and benefits granted thereunder to be at the sole
discretion of Employer.
9. Employee Benefits. During the term of this Employment Agreement,
-----------------
Employee shall be entitled to the following benefits:
(a) Medical Benefits. Employer agrees to include Employee, with no
----------------
delay in coverage, in any hospital, surgical and medical plan or plans of
Employer for its employees generally from time to time during the term of this
Employment Agreement, provided Employee is eligible in accordance with the terms
and conditions of such plan or plans to be covered by such plan or plans. The
costs of participating in such plan or plans shall be borne as provided in rules
and regulations adopted by Employer from time to time dealing with such plan or
plans.
PAGE 5
<PAGE>
(b) Other Benefit Plans. Employee, during the term of this
-------------------
Employment Agreement, shall be eligible to be included in any profit sharing,
pension, deferred compensation or other benefit plans of Employer, including
group term life insurance, 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 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 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.
(c) Vacation and Holidays. Employee shall be entitled to an annual
---------------------
vacation with pay, such vacation to be consistent with the vacation policy of
Service heretofore in effect (or such greater length of time as may be approved
from time to time by the President of Employer), and to be taken by Employee at
reasonable times and on or before each anniversary of the effective date of this
Agreement. Unused vacation days may not be carried over if not taken prior to
an anniversary date. In addition, Employee shall be entitled to such holidays
as Employer elects to provide for its employees generally.
10. Business Expenses. Employee shall be entitled to receive
-----------------
reimbursement for, or payment directly by Employer of, all reasonable expenses
incurred by Employee in the performance of his duties under this Agreement,
provided that (i) the Employee accounts therefor in writing pursuant to Section
274 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) such
expenses are ordinary and necessary business expenses of Employer within the
meaning of Section
PAGE 6
<PAGE>
162 of the Code, and (iii) Employee has first obtained the approval of Employer
to the incurring of such expenses in excess of $2,000.00 as to any one matter or
occurrence.
11. Termination. This Employment Agreement shall terminate earlier than
-----------
provided in Paragraph 2 hereof upon the death or disability of Employee or upon
the termination of Employee's employment with Employer by virtue of Employee's
resignation, whichever shall first occur.
(a) Death or Disability. In the event Employee shall die or become
-------------------
disabled during the term of this Employment Agreement, then and in such event,
this Employment Agreement shall automatically terminate as of such date. The
Employer shall pay to Employee or Employee's legal representatives the salary
and performance bonus, if any, due and owing to Employee figured prorata up to
and including the date of death or disability.
As used in this Agreement, the term "disability" shall have the meaning
given such term in any disability insurance policy or policies covering the
Employee if any such policy or policies is in force at the time a determination
of disability is to be made. If no such policy is in force at such time, the
term "disability" or "disabled" shall mean the physical or mental incapacity of
the Employee which has prevented or will prevent such Employee from
substantially performing the usual duties of his employment with Employer for a
continuous period of at least ninety (90) days. If there is any dispute as to
whether the Employee is disabled (whether or not any disability policy is in
force), the Employee and Employer shall each select a medical doctor duly
licensed in the state of Employee's permanent residence within 15 days of the
date the issue of disability first arises. The two doctors so selected shall
then within 15 days thereafter mutually agree on a third medical doctor duly
licensed in such state. The three doctors so selected shall then within 30 days
following the
PAGE 7
<PAGE>
selection of a third medical doctor make a determination as to whether the
Employee is disabled. The decision of the three medical doctors so selected
shall be conclusive on all parties concerned. The cost and expense of the three
medical doctors so selected shall be borne by the Employer.
(b) Termination for Cause. If (i) Employee willfully breaches,
---------------------
refuses to perform, or habitually neglects the duties he is required to perform
under the terms of this Employment Agreement, or (ii) Employee breaches,
defaults, fails to fulfill, perform or observe or otherwise violates any of the
terms or conditions of this Employment Agreement, and any such breach, default,
nonfulfillment, nonperformance, nonobservance, or other violation has not been
remedied, or commenced to be remedied and pursued to completion using due
diligence, within ten (10) days after receipt by Employee from Employer of
written notice of the existence of same (except for violations of Paragraphs 13,
14, and 15 for which no notice shall be required and with respect to which no
cure period is available), or (iii) Employee commits a felony or a crime
involving moral turpitude, or (iv) Employee divulges trade secrets or competes
with Employer, Employer may upon the occurrence or happening of any such
events, and after expiration of any applicable cure period, at its option,
immediately and without advance notice, terminate this Employment Agreement by
giving written notice of such termination to Employee. If the employment of
Employee is terminated by Employer for cause, Employee shall be entitled to no
further compensation or other benefits hereunder as of the date of termination
and shall only be entitled to salary and any bonus earned by him prior to the
date of termination as provided for in this Agreement.
(c) Termination Without Cause. This Employment Agreement and
-------------------------
Employee's employment by Employer may not be terminated by Employer without
cause.
PAGE 6
<PAGE>
(d) Early Termination by Employee. If Employee resigns or otherwise
-----------------------------
terminates his employment with Employer prior to the expiration of the term
provided in Paragraph 2 hereof, Employee shall forfeit and shall not be entitled
to receive any 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 11(d) shall not
limit any right or remedy that Employer may have against Employee.
12. 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.
13. Engaging in Other Employment. Contemporaneously with the execution
----------------------------
and delivery of this Employment Agreement, Employee shall execute and deliver to
Employer a Non-Compete Agreement in the form attached as an exhibit to the
Merger Agreement.
14. Confidential Information.
------------------------
(a) Employee recognizes that Employer's business interests require a
confidential relationship between Employer and Employee and the fullest
practical protection and confidential treatment of Employer's financial data,
writings, computer software, sources of supply, know-how, plans and programs,
and other knowledge of Employer's Business, including but not limited to the
PAGE 9
<PAGE>
identity of its customers and suppliers, its arrangements with such suppliers
and customers and technical data relating to its business, products, and
services (all of which is collectively referred to as the "Confidential
Information"), which may in whole or in part be conceived or learned of by
Employee in the course of Employee's employment with Employer.
(b) Employee agrees to keep secret and to keep confidential all of
Employer's Confidential Information, whether or not copyrightable or patentable,
both during and after the termination of Employee's employment with Employer.
Employee further covenants and agrees not to use or aid others in learning of or
using any of Employer's Confidential Information except in the faithful
performance of Employee's duties for Employer. In this regard, during the term
hereof and for two (2) years following the termination of this Agreement,
Employee covenants and agrees that, except insofar as authorized by Employer as
a necessary disclosure to persons having a need to know consistent with the
working relationship within Employer and with Employer's customers:
(i) Employee will not directly or indirectly disclose
Confidential Information to others either within or outside of
Employer;
(ii) Employee will not use Confidential Information for his own
account and will not aid or abet others in use of it for either their
account or his account or benefit;
(iii) Employee will not make or disclose documents or copies of
documents containing disclosures of Confidential Information; and
(iv) As to documents which are delivered to Employee or which
are made as a necessary part of the working relationships and duties
within Employer and with Employer's customers and suppliers, Employee
will treat them confidentially and will mark them as proprietary
confidential documents not to be reproduced or used without
appropriate authority of Employer.
PAGE 10
<PAGE>
(c) In the event of a breach or threatened breach by Employee of the
provisions of this Paragraph 14, 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. Nothing herein shall be construed to limit any
protection or remedy otherwise available to Employer under the Georgia Trade
Secrets Act or other applicable law protecting confidential information.
15. Technological Information.
----------------------------
(a) Employee covenants and agrees to and with Employer to make prompt
and complete disclosure to Employer of every item of Confidential Information
relating to Employer's business. Employee hereby assigns to Employer, all of
Employee's rights, title, interests, claims or incidents of ownership in and to
every idea, computer program, invention, improvement, betterment, discovery,
process, formula, design, trademark, copyright, or manufacturing method or
technique (collectively the "Technological Information").
(b) Employee covenants and agrees to and with the Employer that every
item of Technological Information which relates to the Company's business or
products or which arises out of his use of Employer's time, facilities or money
is the property of Employer. Further, each and every portion of the
Technological Information which is conceived in whole or in substantial part by
Employee and which is in response to, is built upon or utilizes the Employer's
Confidential Information, is the property of Employer.
PAGE 11
<PAGE>
16. Continuing Effect. The provisions of Paragraphs 13, 14 and 15 of this
-----------------
Employment Agreement shall continue to be binding upon Employee in accordance
with the terms therein contained, notwithstanding termination of Employee's
employment hereunder for any reason whatsoever.
17. 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 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 Georgia.
(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.
PAGE 12
<PAGE>
(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 or condition,
but the obligations of any party with respect thereto shall continue in full
force and effect.
(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, 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
PAGE 13
<PAGE>
from the other party, which fees and expenses may be set by the court 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 Agreements. This Agreement (and the exhibits hereto)
----------------
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.
18. Time of the Essence. Time shall be of the essence throughout the term
-------------------
of this Employment Agreement.
19. Effective Date. The effective date of this Agreement is June 30,
--------------
1995.
20. Management Incentive Bonus. Employer has adopted a Management
--------------------------
Incentive Bonus Plan (the "Plan"), the terms and provisions of which Plan are
hereby set forth on EXHIBIT "A" attached hereto and herein incorporated by
reference for all purposes. Employee is hereby designated as a member of the
Management Group (as such term is defined in EXHIBIT "A"), who shall be entitled
to participate in the Incentive Bonus (as such term is defined on EXHIBIT "A").
Capitalized terms used on EXHIBIT "A" but not defined therein shall have the
meanings given such terms in the Merger Agreement.
EMPLOYER:
KEVCO, INC.,
A TEXAS CORPORATION
By: /s/ JERRY E. KIMMEL
----------------------------------------
Jerry E. Kimmel
Its Chairman of the Board and President
PAGE 14
<PAGE>
Address: University Centre I
Suite 200
1300 South University
Fort Worth, Texas 76107
EMPLOYEE:
/s/ CURTIS LEE DENHAM
----------------------------------------
Signature
CURTIS LEE DENHAM
Address: Route 1, Box 860
Tifton, GA 31794
EXHIBIT "A"
Management Incentive Bonus
--------------------------
(a) As an inducement to the key employees of the Company to remain with
the Surviving Corporation following the Merger, Buyer shall cause the Surviving
Corporation to institute a management incentive plan to pay the key employees of
the Surviving Corporation to be selected by Buyer and the Surviving Corporation
(the "Management Group") a management incentive bonus (the "Incentive Bonus") if
the net earnings before tax for Buyer and the Surviving Corporation and their
respective subsidiaries, if any, on a consolidated basis (the "Consolidated
Earnings") for fiscal years ending December 31, 1996, 1997 and 1998 (each a
"Target Year") exceed the following minimum Consolidated Earnings (the "Base
Earnings") calculated and payable as provided herein:
Target Year Base Earnings
----------- -------------
PAGE 15
<PAGE>
1996 $7,000,000
1997 $8,000,000
1998 $9,000,000
(b) The Consolidated Earnings for each Target Year shall be determined by
independent certified public accountants (the "Accountants") selected by Buyer
and approved by the Management Group. Buyer's current firm of independent
certified public accountants or a firm of certified public accountants of
national standing will be acceptable for such purpose. Within 120 calendar days
of the close of each Target Year, Buyer will prepare and deliver to the
Management Group an income statement as of the close of each Target Year (a
"Target Year Income Statement") showing the computation of the Consolidated
Earnings as of the end of such Target Year, computed in accordance with the
provisions set forth herein. Each Target Year Income Statement will be prepared
in accordance with GAAP, applied on a basis consistent with that heretofore used
in, and in accordance, with the same accounting principles heretofore applied
in, the preparation of Buyer's audited financial statements. Each Target Year
Income Statement shall be audited by the Accountants and shall include a
schedule prepared by the Accountants showing the computation of the Incentive
Bonus, if any, for such Target Year. Each Target Year Income Statement shall
also include an opinion of the Accountants that such Accountants have audited
the Target Year Income Statement in accordance with generally accepted audited
standards and that such Target Year Income Statement was prepared in accordance
with GAAP, applied on a basis consistent with that heretofore used in, and in
accordance with the same accounting principles heretofore applied in, the
preparation of Buyer's audited financial statements, and in accordance with the
terms of this Agreement. In determining the Incentive Bonus, if any, for a
Target Year, the Target Year Income Statement for
PAGE 16
<PAGE>
such Target Year and the accompanying schedule, as prepared by the Accountants,
shall be conclusive on the parties as to whether any portion of the Incentive
Bonus is payable with respect to such Target Year.
(c) If the Consolidated Earnings for a Target Year exceed the Base
Earnings for such Target Year, as determined by the Accountants pursuant to
Section (b) above, the Surviving Corporation shall pay to the Management Group
an Incentive Bonus for such Target Year (the "Target Year Incentive Bonus")
determined by multiplying (i) the amount by which the Consolidated Earnings for
such Target Year exceed the Base Earnings for such Target Year by (ii) 4. No
Target Year Incentive Bonus shall be payable in the event the Consolidated
Earnings for any Target Year is equal to or less than the Base Earnings for such
Target Year. The Base Earnings for a Target Year shall not be cumulated with the
Base Earnings of any other Target Year in determining whether any portion of the
Incentive Bonus is payable. In no event shall the Incentive Bonus exceed, in the
aggregate, $1,000,000.00 (the "Maximum Incentive Bonus").
(d) Within 10 Business Days after receipt by the Management Group of a
Target Year Income Statement pursuant to which a Target Year Incentive Bonus is
payable, Buyer shall cause the Surviving Corporation to pay, in cash, each
member of the Management Group the portion of the Target Year Incentive Bonus to
which they are entitled.
(e) If, prior to December 31, 1997, the Surviving Corporation's business
is sold by Buyer pursuant to a sale of assets or other form of divestiture of
the Surviving Corporation's business, then and in that event, any portion of the
Maximum Incentive Bonus theretofore not paid to the
PAGE 17
<PAGE>
Management Group shall by virtue of such sale or other divestiture be deemed to
be earned by the Management Group.
PAGE 18
<PAGE>
EXHIBIT 10.5
THIS LEASE is made and entered into as of the 1st day of December 1977, by
and between K & E LAND & LEASING ("Lessor") and KEVCO, INC., a Texas
corporation ("Lessee");
W I T N E S S E T H:
IN CONSIDERATION of the mutual covenants and agreements herein contained
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. Premises: Lessor, for and in consideration of the rents, covenants and
--------
agreements herein specified to be paid, kept and performed by Lessee, does
hereby lease, demise and let unto Lessee that certain property located in
Elkhart County, Indiana, as described on Exhibit "A" attached hereto and herein
incorporated by reference for all purposes, together with the buildings and
related improvements constructed thereon. The property described on Exhibit
"A", together with the buildings and improvements thereon, shall hereinafter
sometimes be referred to as the "Demised Premises".
2. Term. The term of this Lease shall be for a period of 244 months
----
beginning December 1, 1977, and continuing to and including March 31, 1998,
subject only to termination at an earlier date or to extension of said original
term in accordance with one or more of the provisions hereinafter set forth.
3. Rental. Lessee agrees and promises to pay to Lessor for and during
------
the term of this Lease as rental for the Demised Premises the sum of
$1,321,260.00, payable in monthly installments of $5,415.00 and payable in
advance and without demand on the first day of each calendar month therein
throughout the stated term of this Lease and any renewals or extensions thereof
except as otherwise provided in Paragraph 14 hereof. Payment of such rent shall
be made at such place or places as Lessor may, from time to time, designate.
<PAGE>
???? acknowledges receipt from Lessee of the sum of $10,830.00 representing
payment in advance of the first and last month's rental of the Demised Premises
under this Lease .
In addition to the monthly rental provided for herein, Lessee shall also
pay such other charges and assignments relating to the Demised Premises as is
elsewhere provided for to be paid by Lessee under other provisions of this
Lease.
4. Use of Premises. For and during the term of this Lease, the premises
---------------
shall be used by Lessee as a commercial business supplying parts to the mobile
home and recreational Vehicle industries. Lessee covenants and agrees to
restrict the use of the Demised Premises for such purposes and not to permit the
use of Demised Premises for any other purpose without the prior written consent
of Lessor, which consent shall not be unreasonably withheld.
5. Condition of Premises. Lessee acknowledges receipt of the Demised
---------------------
Premises and that the same are in good and sanitary condition and in good
repair. The taking possession of the Demised Premises by Lessee shall be
conclusive evidence that the Demised Premises and the equipment, plumbing,
drains, fixtures, appliances and machinery therein were at the time of taking of
such possession thereof in good, clean, sanitary and tenantable condition and in
all respects satisfactory and acceptable to Lessee and in a condition in which
they were represented to Lessee to be in and agreed to be put in by Lessor; and
Lessee hereby releases and agrees to indemnify and hold harmless Lessor and its
partners, promptly on demand from and against any and all claims, demands,
damages, losses, liabilities, obligations, costs or expenses (including but
without limitation, attorneys' fees and expenses) arising out of, resulting
from, caused by or in any way relating to or connected with any defect in the
condition of the Demised Premises or the equipment, fixtures, or appliances In
or serving said Demised Premises and the streets, alleys, areas, area-ways,
passages or sidewalks adjoining or appurtenant thereto.
-2-
<PAGE>
Lessee acknowledges and agrees that Lessee shall have and hold the Demised
Premises just as they are, Without any liability or obligation on the part of
Lessor to make any alterations, improvements or repairs of any kind on or about
the Demised Premises or to the equipment, fixtures, plumbing, appliances or
machinery in, upon or serving same or the streets, alleys, areas, area-ways, or
passages adjoining or appurtenant thereto.
6. Payment of Utilities and Taxes. Lessee covenants and agrees that it
------------------------------
shall promptly pay all charges and assessments for utilities furnished the
Demised Premises for and during the term of this Lease including electricity,
gas, water and telephone services. Lessee further covenants and agrees to pay
all state, city and county taxes and other assessments which might be assessed
on or pertaining to the Demised Premises, which taxes and other assessments
shall be paid by Lessee promptly upon assessment and prior to becoming
delinquent, with Lessor being furnished a certificate evidencing payment of such
taxes and other assessments. Lessee also covenants and agrees to promptly pay
all charges and other assessments that may arise out of the improvements on said
Demised Premises or of the streets, alleys, areas, area-ways, passages or
sidewalks adjoining or appurtenant there-to.
7. Repairs and Maintenance. Lessee shall, during the term of this Lease
-----------------------
and any renewals or extensions thereof:
(a) at its sole cost and expense, maintain and keep the Demised
Premises and the equipment, plumbing, windows, doors, skylights, foundation,
interior and exterior walls, drains, fixtures, appliances and machinery in,
upon, serving or appurtenant to said Demised Premises in good repair and in good
sanitary condition during the term of this Lease and any renewals or extensions
thereof;
(b) replace promptly any and all glass broken in or about the Demised
Premises with glass of the same quality;
(c) not make any alterations in or additions to the Demised Premises
without first obtaining the prior written consent of Lessor;
-3-
<PAGE>
(d) not use or permit anything upon said Demised premises that would
increase the rate of insurance thereon or anything that may be dangerous to life
or limb;
(e) not, in any manner, deface or injure said Demised Premises or any
part thereof or overload floors or do or permit anything to be done upon said
Demised Premises or in the streets, alleys, areas, area-ways, passages or
sidewalks adjoining or appurtenant thereto that would amount to or create a
nuisance;
(f) not use the Demised Premises or any part thereof for any purpose
contrary to the law, ordinances, rules or regulations of the united States or
the State of Indiana or the County of Elkhart or any other municipality or
regulatory authority having jurisdiction thereof;
(g) return the Demised Premises peaceably and promptly to Lessor at
the end of the term of this Lease or any renewals or extensions thereof or at
any previous termination thereof in as good condition as the same are now in or
may hereafter be put in, ordinary wear and tear excepted; and
(h) perform each and every covenant, agreement, obligation and
undertaking of Lessor, relative to the Demised Premises and contained in a
Mortgage dated as of November l, 1977, by and between Lessor, as Mortgagor and
St. Joseph Bank and Trust Company, South Bend, Indiana, as Trustee, such
Mortgage being herein incorporated by reference the same as if set out verbatim
at this point. Lessee hereby acknowledges that a copy of said Mortgage has been
delivered to it by Lessor.
Lessee further covenants and agrees to keep the sidewalks bordering on the
Demised Premises (where the Demised Premises border upon a sidewalk or
passageway) and the roof of said Demised Premises, at all times, free from ice
and snow and other obstructionS and to neither waste nor misuse water,
electricity, gas, steam or any other utilities which are or may be furnished the
Demised Premises.
Lessee further covenants and agrees that neither Lessor nor its partners
shall be liable for any loss, damage, liability, obligations cost or expense,
either to a person or persons or property or the loss of property sustained by
Lessee or by any other person or persons due to the Demised Premises or any part
thereof or the windows, doors, skylights, foundation, interior or exterior
walls, or the equipment, plumbing, drains, fixtures, appliances or machinery in
or upon the Demised Premises or the streets, alleys, areas, area-ways, passages
or sidewalks adjoining or appurtenant thereto, being or becoming out of repair
or defective,
-4-
<PAGE>
?? due to the happening of any accident or accidents or due to act, inaction or
neglect of Lessor or Lessee or any other tenant or occupant of the Demised
Premises or part thereof, or any other person or persons, firm, association,
corporation, partnership or other legal entity, or by the bursting of pipes or
by the use or misuse of any instrumentality or agency in or connected with the
Demised Premises or any part thereof or occasioned by any nuisance made or
suffered thereon or therein, and in connection therewith, Lessee agrees to and
does hereby indemnify and hold harmless Lessor and its partners from and against
any and all damages demands, losses, liabilities, obligations, costs or expenses
(including attorneys' fees and expenses) arising out of, relating to, caused by
or in any way resulting from any of the foregoing.
8. Insurance. Lessee covenants and agrees that it will, at its sole cost
---------
and expense, at all times during the term of this Lease and any renewals or
extensions thereof, obtain and maintain in full force and effect, a policy or
policies of insurance written by one or more responsible insurance carriers
which will insure Lessee and Lessor against liability for injury to, or death
of, persons or loss or damage to their property occurring in or about the
Demised Premises. Liability coverage under such insurance shall not be less than
$300,000.00 for any one person injured or killed, $50,000.00 for each occurrence
and aggregate, and $50,000.00 property damage for each occurrence and aggregate.
Lessee, at its sole cost and expense, during the term of this Lease and any
renewal or extension thereof, shall also obtain and maintain in full force and
effect an insurance policy or policies insuring the Demised Premises and the
fixtures, goods, wares and merchandise contained thereon against loss or damage
by fire, tornado, windstorm, vandalism, malicious mischief and such other
extended and hazard coverage and in such amount as Lessor may require with loss
payable to Lessor.
All insurance required to be obtained and maintained by Lessee pursuant to
this paragraph shall be written by companies and in forms and amounts
satisfactory to Lessor. Certificates of insurance acceptable to Lessor shall be
filed with Lessor as obtained from time to time during the term of this Lease.
Each certificate shall contain
-5-
<PAGE>
the provision that coverages afforded under said policies will not be cancelled
until at least fifteen (15) days' prior written notice has been given to Lessor.
9. Indemnity. Lessee covenants and agrees that it shall indemnify
---------
Lessor, its partners, agents, and employees and hold Lessor, its partners,
agents and employees harmless promptly upon demand from and against any and all
claims, demands, damages, liabilities, actions, deficiencies, penalties, causes
of action, costs, judgments, expenses, suits or proceedings of any kind or
nature whatsoever, including attorneys' fees and expenses resulting to Lessor,
its partners, agents, or employees, caused by, arising out of, relating to,
resulting from or connected in any way with:
(a) the nonfulfillment or nonperformance of any covenant, agreement
or obligation made by or on behalf of Lessee in or pursuant to this Lease;
(b) any accident or occurrence causing injury to any person
whomsoever; or
(c) any damage to any property whatsoever on or about the Demised
Premises or the streets, alleys, areas, area-ways or passages adjoining or
appurtenant thereto.
It is agreed and understood that neither Lessor nor its partners, agents or
employees shall be liable for any loss, damage or injury to any of Lessee's
officers, directors, employees, agents, invitees or any other persons being on
or about the Demised Premises or to any of their property, whether such loss,
damage or injury is caused by, arising out of, relates to, results from or is in
any way connected with any accident occurring on or about the Demised Premises
or the streets, alleys, areas area-ways, or passages adjoining or appurtenant
thereto, or otherwise.
Included in the foregoing but not in limitation thereof, Lessee covenants
and agrees to assume and does hereby assume any and all loss, damage, liability,
obligation, cost or expense( including attorneys' fees and expenses) on account
of all damages suffered or sustained on account of the matters and things above
referred to
-6-
<PAGE>
indemnify and hold Lessor, its partners, employees and agents harmless thereon
and therefrom and to indemnify Lessor, its partners, employees and agents on
account thereof. This provision shall apply especially but not exclusively to
damage caused by water, snow, rain, hail, backing up of water mains or sewers,
frost, steam, sewage, illuminating gas, sewer gas or odors, electricity and
electric current and by the bursting, stoppage or leaking of pipes or radiators,
plumbing, sinks or fixtures in or about the Demised Premises or any part
thereof. In case of such damage, Lessee shall promptly repair all of same and if
not repaired by Lessee promptly upon the notice of such damage, Lessor, at its
option but without any obligation to do so, may repair such damage and thereupon
Lessee shall reimburse Lessor for the costs of repairing such damage promptly on
demand. If Lessee fails to perform any of the covenants, agreements or
obligations herein provided to be kept or performed by Lessee, Lessor, in
addition to any and all other rights and remedies it may have under this Lease,
under any other agreement with Lessee or pursuant to law, may, without any
obligation to do so, perform the same and charge the Lessee with the expense of
such performance and Lessee agrees promptly on demand to repay to Lessor the
cost of such performance by Lessor.
In the event a claim by Lessor to Lessee is made pursuant to the indemnity
contained in this Paragraph 9, Lessor shall give written notice of such claim to
Lessee and immediately upon receipt by Lessor, such claim shall be paid and
satisfied or adequate provisions, in the opinion of Lessor, made therefor.
10. Termination. This Lease may be terminated by Lessor prior to its
-----------
termination as provided herein on ten (10) day's written notice delivered or
mailed to Lessee at its address set forth below in the event that Lessee:
(a) fails to pay the rental charges within the time specified herein;
(b) breaches, defaults, or does not fulfill or perform any covenants,
agreements, stipulations or undertakings required to be
-7-
<PAGE>
performed or fulfilled by Lessee in or pursuant to this Lease or fails to
perform any obligation imposed on Lessee in or pursuant to this Lease; or
(c) becomes bankrupt, insolvent, makes an assignment for the benefit
of creditors or a receiver is appointed to take possession of Lessee's assets.
Should any of the foregoing events occur, Lessor may, without notice to
Lessee, thereupon re-enter and resume possession of the Demised Premises and
remove Lessee and Lessee's property and all other persons and other property
therefrom, using such force as may be necessary without being deemed guilty of
any manner of trespass or forcible entry or detainer, and at Lessor's option,
either terminate this Lease by notifying Lessee of its intention to terminate
this Lease or, without terminating it as provided herein, lease the Demised
Premises for the account of Lessee for the remainder of the term or for such
term or terms as Lessor shall see fit. Should Lessor elect to lease the Demised
Premises for the account of Lessee (although Lessor shall have no obligation so
to do), Lessee shall pay Lessor on demand for costs of renovating, repairing and
altering the Demised Premises for a new tenant or tenants, and also pay Lessor
each month of Lessee's unexpired term, the monthly rental hereinbefore agreed to
be paid, less such part, if any, thereof as Lessor shall have been able to
collect from a new tenant or tenants, it being specifically agreed and
understood that Lessor is and shall be entitled to future rentals under this
Lease and that all attempts to relet the Demised Premises shall be on account of
and for the benefit of Lessee. Should default be made by Lessee, as aforesaid,
Lessor may, on the other hand, should it so desire, without re-entering or
resuming possession of the Demised Premises and without terminating this Lease,
enforce, by all proper and legal suits and other means, its rights hereunder,
including the collection of rent for the unexpired term of this Lease as
hereinabove provided. Should it be necessary for Lessor to take any legal action
hereunder, Lessee shall pay Lessor all reasonable attorneys' fees and
-8-
<PAGE>
expenses so incurred. All rights and remedies of Lessor under this Lease shall
be cumulative and none shall be exclusive of any other, and especially shall no
remedy for the recovery of rent in arrears or accrued rent for the unexpired
term of this Lease be affected by any remedy herein provided for. Waiver of any
defaults hereunder shall not operate to waive or in any manner affect any
subsequent default hereunder. It is expressly agreed and understood that in the
event of default by Lessee hereunder, Lessor shall have a lien upon all goods,
chattels or personal property of any description belonging to Lessee which are
placed in, or become a part of, the Demised Premises, as security for rent due
and to become due for the remainder of the lease term, which lien shall not be
in lieu of or in any way affect the statutory lessor's lien given by law, but
shall be cumulative there to; and Lessee hereby grants to Lessor a security
interest in all such personal property placed in or upon said Demised Premises
for such purposes. This shall not prevent the sale by Lessee of any merchandise
in the ordinary course of business, free of such lien to Lessor. In the event
Lessor exercises the option to terminate this Lease, re-enter and relet the
premises as provided aforesaid, then Lessor, after giving Lessee reasonable
notice of the intent to take possession and giving an opportunity for Lessee for
a hearing thereon, may take possession of all of Lessee's property on the
premises without liability for loss thereof, and sell same at public or private
sale after giving Lessee reasonable notice of the time and place of any public
sale or of the time after which any private sale is to be made, for cash or on
credit, or for such price and on such terms as Lessor deems best, with or
without having the property present at such sale. The proceeds of such sale
shall be applied first to the necessary and proper expense of removing, storing
and selling such property, then to the payment of any rent due or to become due
under this Lease, with the balance, if any, to be paid to Lessee.
11. Destruction of Premises. It is further agreed between the parties
-----------------------
hereto that, if during the term of this Lease or any renewals
-9-
<PAGE>
or extensions thereof, the Demised premises or the buildings or improvements
thereon shall be injured or destroyed by fire or the elements or through any
other cause so as to render the Demised Premises or the buildings or
improvements thereon unfit for occupancy or untenantable from a good business
standpoint or to such an extent that they cannot be repaired with reasonable
diligence within 180 days from the happening of such injury, then and in any of
such event, Lessor may:
(a) at its option, but without any obligation so to do, upon five (5)
day's written notice to Lessee, terminate the Lease and the term herein demised
from the date of such damage or destruction and the Lessee shall as soon
thereafter as reasonably possible surrender the Demised Premises and all
interests therein to Lessor with Lessee only paying rent up to the time of such
notice with the balance of any prepaid rent or other payments or deposits
promptly refunded to Lessee provided it is not otherwise in default under the
terms of this Lease; or
(b) not terminate this Lease, in which event, Lessee shall pay only a
prorata portion of such rent apportioned to the portion of the Demised Premises
which are in condition for occupancy or which may actually be used during such
repairing period, such portion to be paid until the Demised premises have been
repaired and redelivered to Lessee in at least their previous condition.
All improvements or betterments placed by Lessee on the Demised Premises
shall, in any event, be repaired and replaced by Lessee at its sole expense and
not at the expense of Lessor.
12. Condemnation of Demised Premises. If all of the Demised premises are
--------------------------------
taken under any eminent domain proceedings, this Lease shall terminate and come
to an end on the date title to the Demised premises vests in the condemning
authority. Any condemnation award for the Demised premises, including land and
improvements, shall be the sole property of Lessor and Lessee acknowledges and
agrees that it shall have no right, title or interest therein. If any of the
Demised
-10-
<PAGE>
Premises (but less than all of the Demised Premises) is taken under any eminent
domain proceedings, Lessee shall, within sixty (60) days after Lessee first
receives notice of the condemnation, elect by written notice delivered to
Lessor, either to terminate this Lease on the date title to the Demised Premises
vests in a condemning authority or continue this Lease as to that portion of the
Demised Premises not taken by the condemning authority. If Lessee fails to elect
within said sixty (60) day period, this Lease shall automatically be continued
in full force and effect and for that portion of the Demised Premises not taken
by the condemning authority. If, in the event this Lease is continued, the rent
payable hereunder by Lessee to Lessor, for any period after such condemnation,
shall be reduced by an amount determined by taking the ratio which the number of
square feet of the Demised Premises actually taken by the condemning authority
bear to the total number of square feet in the Demised Premises originally
contained in the Demised Premises. Lessee acknowledges and agrees that any
condemnation award for the Demised Premises, including land and improvements
thereon, shall be the sole property of Lessor with Lessee having no right, title
or interest therein.
13. Bond Against Liens. It is understood and agreed by the parties hereto
------------------
that with respect to all alterations, repairs or improvements to the Demised
Premises or any part thereof (which shall only be with the prior written consent
of Lessor), Lessee shall and will, in each instance, save Lessor and its
partners and said premises forever harmless of and from any and all costs,
claims, damages, losses, demands, judgments, liabilities, obligations, suits,
actions, causes of action, costs and expenses (including attorneys' fees and
expenses) of every kind and character, which may be claimed, asserted or
charged, or which may arise out of, result from relate to or be based upon any
acts or alleged acts of negligence or inaction of Lessee or its agents,
contractors or employees or upon the negligence or alleged negligence of any
person or persons in or about said premises or upon the failure of any or either
of them to observe and comply with each and every
-11-
<PAGE>
requirement of law or with the rules, regulations and ordinances of all
applicable municipalities and regulatory authorities, and will preserve and hold
Lessor and its partners and said premises forever free and clear from liens for
labor and material furnished. Lessee covenants and agrees that it will, from
time to time, before making any such repairs, improvements or alterations,
furnish Lessor with a bond in an amount and with sureties satisfactory to Lessor
conditioned for the performance by Lessee of the matters and things in this
paragraph required to be done by Lessee.
14. Notice of Vacancy. Lessee covenants and agrees to give Lessor written
-----------------
notice at least six (6) months before the expiration of this Lease of its
intention to vacate at the end of this Lease. In the event Lessee fails to give
the written notice provided for in this Paragraph 14, then and in that event,
Lessor, at its option, may continue this Lease for an additional one year period
from and after the termination date of this Lease without notice to Lessee. If,
however, Lessor does not elect to so continue this Lease, and Lessee remains in
said premises after the expiration of its term, such remaining in possession
shall not, except at the option of Lessor, extend the term of this Lease, and
Lessee shall promptly, upon the request of Lessor, vacate the premises. In the
event Lessor does not elect to continue this Lease and if for any reason Lessee
does not promptly vacate the Demised Premises at the expiration of the term of
this Lease, Lessee covenants and agrees to pay Lessor as lease rental, for such
time as elapses between the expiration of the term of the Lease and the time
when Lessee actually vacates the Demised Premises, a prorata rental equal to 1-
1/2 times the rent provided to be paid during the term of this Lease, it being
agreed and understood that such holding over shall be subject to all of the
other terms and conditions as provided for in this Lease.
15. Right of Entry. It is agreed and understood by the parties hereto
--------------
that Lessor shall, at all times, during the term of this Lease or any renewal or
extension thereof, have the right to enter upon the Demised Premises to inspect
their condition, and at its election, to
-12-
<PAGE>
make reasonable and necessary repairs thereon for the protection and
preservation thereof at the expense of Lessee, but nothing herein shall be
construed to require Lessor to make such repairs, and Lessor shall not be liable
to Lessee, or any other person or persons, firms, associations, partnerships,
corporations or other legal entities for failure or delay in making said
repairs, or for damage or injury to person or property caused in or by the
making of such repairs, or the doing of such work. Lessor shall have the right
during the last thirty (30) days of the term of this Lease or at such earlier
time as Lessor is notified by Lessee of its intention to vacate the leased
premises at the expiration date of this Lease, to place and maintain on the
Demised Premises and in the windows thereof, the usual notice of "To Let" or "To
Rent", and to show said Demised Premises to prospective tenants during normal
business hours of Lessee.
16. Miscellaneous Provisions. (a) Notwithstanding the location of the
------------------------
Demised Premises or the place where this Agreement may be executed by any of the
parties hereto, the parties hereto expressly agree that this Lease shall be
construed under and in accordance with the laws of the State of Texas as now
adopted or as may be hereafter amended.
(b) This Lease shall be binding upon and inure to the benefit of the
parties hereto, their respective successors, assigns, heirs, executors,
administrators, receivers, trustees and legal representatives.
(c) All notices, demands or communications required or permitted
under this Lease shall be given in writing, addressed to the other party at its
respective address set forth below. Such notice, demand or communication shall
be deemed received when personally delivered or if mailed, when deposited in the
United States Mail, postage prepaid, sent certified or registered 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 party hereto, but such change of address shall
only be considered received when actually received.
-13-
<PAGE>
(d) Construction. The headings used in this Lease are for
------------
convenience and administrative purposes only and shall not be construed in
interpreting this Lease. 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 Lease 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.
(e) Specific Performance. Each party hereto acknowledges that a
--------------------
remedy at law for any breach or attempted breach of this Lease will be
inadequate, agrees that each 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 the 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 remedy any party may have against the other.
(f) Waiver. The failure of either of the parties hereto 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 or
condition, but the obligations of any party with respect thereto shall continue
in full force and effect.
(g) Counterparts. This Lease may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one instrument.
(h) Prior Agreements. This Lease 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
-14-
<PAGE>
within subject matter. No change, amendment or modification hereof shall be or
become effective unless in writing and signed by each of the parties hereto.
(i) Attorneys' Fees. If any action at law or in equity, including
---------------
any action for declaratory relief, is brought to enforce or interpret the
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees from the other party, which fees may be set by the
court in the trial of such action or may be enforced in a separate action
brought for that purpose, and which fee shall be in addition to any other relief
which may be awarded.
(j) Recording. At Lessor's option, Lessor shall execute and
---------
deliver to Lessee a Memorandum of Lease for recording purposes which Lessee
shall execute and record, with Lessee paying the recording costs thereof.
(k) Certification. Upon the request of Lessor, Lessee shall
-------------
furnish to Lessor at no charge, such certificates and other documentation as
Lessor may, at any time and from time to time, request evidencing compliance by
Lessee with the terms and provisions of this Lease.
EXECUTED in duplicate as of the date first above written.
LESSOR:
K & E LAND & LEASING
By /s/ Gerald E. Kimmel
-----------------------------
Partner
Suite 303, Morrow Building
235 Loop 820, N.E.
Hurst, Texas 76053
LESSEE:
KEVCO, INC.
By /s/ Billy T. Everett
-----------------------------
Its President
Suite 303, Morrow Building
235 Loop 820, N.E.
Hurst, Texas 76053
-15-
<PAGE>
SCHEDULE A TO LEASE DATED AS OF
DECEMBER 1, 1977 FROM K & E LAND & LEASING
TO KEVCO, INC.
Description of demised property:
Real Estate situated, lying and being in the unincorporated area of
COUNTY Of ELKHART, STATE Of INDIANA, described as follows:
Part of the Northeast Quarter (1/4) of Section Twenty-six (26), Township Thirty-
eight (38) North, Range Five (5) East, more particularly described as follows:
Beginning on the north line of said quarter section, two hundred thirteen and
sixty-five hundredths (213.65) feet east of the northwest corner; thence east
along the north line of said quarter section, four hundred sixty (460) feet;
thence south parallel with the west line of said quarter section, five hundred
twenty (520) feet; thence west parallel with the north line of said quarter
section, four hundred sixty (460) feet to the east line of Marina Drive; thence
north parallel with the west line of said quarter section and along the east
line of Marina Drive, five hundred twenty (520) feet to the place of beginning.
SUBJECT to Public Highways.
Page 16
<PAGE>
EXHIBIT 10.6
AMENDMENT #1 TO LEASE DATED DECEMBER 1, 1977
BY AND BETWEEN K & E LAND & LEASING AND KEVCO, INC.
This Amendment #1 to a Lease. (the "Lease") made and entered into as
of December 1, 1977., by and between K & E LAND & LEASING ("Lessor"). and KEVCO,
INC. , ("Lessee") is made and entered into as of the. _______ day of March,
1982, but effective January 1, 1982;
W I T N E S S E T H:
-------------------
WHEREAS, Lessor and Lessee desire to amend the Lease as hereinafter
provided;
NOW, THEREFORE, IN CONSIDERATION of the premises and of the covenants
and agreements contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
1. Paragraph 3 of the Lease entitled "Rental" is hereby amended in
its entirety to hereafter read as follows:
"3. Rental. Lessee agrees and promises to pay to Lesson for and
------
during the term of this Lease as rental for the Demised Premises
the sum of $1,321,260.00, payable in monthly installments of
$5,415.00, subject to increase as hereinafter provided, and
payable in advance and without demand on the first of each
calendar month therein throughout the stated term of this Lease
and any renewals or extensions thereof except as otherwise
provided in Paragraph 14 hereof. Payment of such rent shall be
made at such place or places as Lessor may, from time to time,
designate.
Lessor acknowledges receipt from Lessee of the sum of
$10,830.00 representing payment
<PAGE>
in advance of the first and last month's rental of the Demised
Premises under this Lease.
In addition to the monthly rental provided for here in,
Lessee shall also pay such other charges and assessments relating
to the Demised Premises as is elsewhere provided for to be paid
by Lessee under other provisions of this Lease.
Lessor and Lessee agree that Lessor shall have.the right
exercisable at any time prior to any anniversary date of this
Lease, to increase the monthly rental to be paid to Lessor by
Lessee in an amount not to exceed 25% of the monthly rental paid
by Lessee to Lessor during the immediately preceding twelve-month
period. Lessor shall only have the right to increase once every
twelve (12) months the monthly rental to be paid by Lessee to
Lessor. Any increase shall be effective as of the next
anniversary date of the Lease following Lessor's exercise of its
right to increase the monthly rental. Any increase shall be in
relation to the then rental being paid in Elkhart County,
Indiana, or its environs for property similar to that of the
Demised Premises. Lessor's right to increase the monthly rental
shall not be cumulative so that Lessor's failure to increase the
monthly rental in any twelve-month period shall not give rise to
a rental increase greater than 25% in any subsequent twelve-month
period."
-2-
<PAGE>
2. In all other respects the Lease as herein amended shall remain in
full force and effect and unimpaired.
IN WITNESS WHEREOF, this Amendment #1 to the Lease is made and entered
into as of the day and year first above written but effective as of the date
stated above.
LESSOR:
K & E LAND LEASING
BY: /s/ Jerry E. Kimmel
------------------------------
Its Partner
LESSEE:
KEVCO, INC.
BY: /s/ B.T. Everett
------------------------------
Its Chairman
-------------------------
-3-
<PAGE>
EXHIBIT 10.7
AMENDMENT #2 TO LEASE DATED DECEMBER 1, 1977
BY AND BETWEEN K & E LAND & LEASING AND KEVCO, INC.
This Amendment #2 to a Lease (the "Lease") made and entered into as of
December 1, 1977, by and between K & E LAND & LEASING ("Lessor") and KEVCO,
INC., ("Lessee") is made and entered into as the of the 30th day of May, 1983,
----
but effective December 1, 1981:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor and Lessee desire to amend the Lease as hereinafter
provided;
NOW, THEREFORE, IN CONSIDERATION of the premises and of the covenants
and agreements contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
1. Paragraph 3 of the Lease entitled "Rental" is hereby amended in
its entirety to hereafter read as follows:
"3. Rental. Lessee agrees and promises to pay to Lessor for and
------
during the term of this Lease as rental for the Demised Premises
the sum of $1,321,260.00, payable in monthly installments of
$5,415.00, subject to increase as hereinafter provided, and
payable in advance and without demand on the first of each
calendar month therein throughout the stated term of this Lease
and any renewals or extensions thereof except as otherwise
provided in Paragraph 14 hereof. Payment of such rent shall be
made at such place or places as Lessor may, from time to time,
designate.
Lessor acknowledges receipt from Lessee of the sum of
$10,830.00 representing payment in advance of the first and last
month's rental of the Demised Premises under this Lease.
In addition to the monthly rental provided
<PAGE>
for herein, Lessee shall also p:y such other charges and
assignments relating to the Demised Premises as is elsewhere
provided for to be paid by Lessee under other provisions of this
Lease.
Lessor and Lessee agree that Lessor shall have the right
exercisable at any time prior to any anniversary date of this
Lease, to increase the monthly rental to be paid to Lessor by
Lessee in an amount not to exceed 35% of the monthly rental paid
by Lessee to Lessor during the immediately preceding twelve-month
period. Lessor shall only have the right to increase once every
twelve (12) months the monthly rental to be paid by Lessee to
Lessor. Any increase shall be effective as of the next
anniversary date of the Lease following Lessor's exercise of its
right to increase the monthly rental. Any increase shall be in
relation to the then rental being paid in Elkhart County,
Indiana, or its environs for property similar to that of the
Demised Premises. Lessor's right to increase the monthly rental
shall not be cumulative so that Lessor's failure to increase the
monthly rental in any twelve-month period shall not give rise to
a rental increase greater than 35% in any subsequent twelve-month
period."
2. In all other respects the Lease as herein amended shall remain in
full force and effect and unimpaired.
IN WITNESS WHEREOF, this Amendment #2 to the Lease is made and entered
into as of the day and year first above written but effective as of the date
stated above.
LESSOR:
K & E LAND & LEASING
BY:/s/ Billy T. Everett
----------------------------
Its Partner
-2-
<PAGE>
LESSEE:
KEVCO, INC.
BY:/s/Jerry E. Kimmel
----------------------------
Its President
------------------------
-3-
<PAGE>
EXhibit 10.8
AMENDMENT NO. 3 TO LEASE DATED DECEMBER 1, 1977,
BY AND BETWEEN K & E LAND AND LEASING AND KEVCO, INC.
THIS Amendment No. 3 to a Lease (the "Lease") made and entered into as
of December 1, 1977, by and between K & E LAND & LEASING, a partnership
("Lessor") and KEVCO, INC., a Texas corporation ("Lessee"), is made and entered
into as of the 1st day of February, 1993, effective said date:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor and Lessee desire to amend the Lease as hereinafter
provided; 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 do hereby agree as follows,
intending to be legally bound thereby:
1. The first paragraph of Paragraph 3 of the Lease (as heretofore
amended) entitled "Rental" is hereby amended in its entirety to hereafter read
as follows:
"3. Rental. Lessee agrees and promises to pay to Lessor for and
------
during the balance of the term of this Lease as rental for the Demised
Premises the sum of $661,850, payable in monthly installments of
$10,675 each, subject to increase as hereinafter provided, and payable
in advance and without demand on the first of each calendar month
therein throughout the remainder of the stated term of this Lease and
any renewals or extensions thereof except as otherwise provided in
Paragraph 14 hereof. Payment of such rent shall be made at such place
or places as Lessor may, from time to time, designate."
2. In all other respects the Lease as herein and heretofore amended
shall remain in full force and effect and unimpaired.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 3 to the Lease as of the day and year and effective date hereinabove
written.
LESSOR: LESSEE:
K & E LAND & LEASING KEVCO, INC.
BY: /s/ B.T.Everett By: /s/ Jerry.E.Kimmel
------------------------ ------------------------
Its Partner Its Duly Authorized Officer
<PAGE>
EXHIBIT 10.9
LEASE
-----
THIS LEASE made and entered into as of the first day of April, 1980, by and
between the City of Newton, Kansas, a municipal corporation, of Harvey County,
Kansas (the "Landlord"), and K&E Land & Leasing, a general partnership
organized under the laws of the State of Texas (the "Tenant").
W I T N E S S E T H:
WHEREAS, Landlord is a municipality duly organized and existing under the
laws of the State of Kansas, with full lawful power and authority to enter into
this Lease by and through its governing body; and
WHEREAS, Landlord in furtherance of the purposes and pursuant to the
provisions of the laws of the State of Kansas, K.S.A. 12-1740 to 12-1749a, as
amended (the "Act"), and in order to provide for the industrial development and
welfare of the City and its environs and to provide employment opportunities for
its citizens and to promote the economic stability of the State of Kansas, has
proposed and does hereby propose that it shall:
(a) Solely from the proceeds of the sale of the Bonds, acquire by purchase
the real estate hereinafter referred to in Article I hereof (said real estate
hereinafter referred to as the "Land"), and pay for the construction, purchase
and installation of the improvements and related equipment described in Article
IV hereof (said improvements and equipment necessary for the operation of the
Facility being sometimes hereinafter referred to as the "Improvements");
(b) Lease the Land and the Improvements (the Land and the Improvements
together being hereinafter referred to as the "Facility") to Tenant for the
rentals and upon the terms and conditions hereinafter set forth; and
(c) Issue, for the purpose of defraying the foregoing costs, its
Industrial Revenue Bonds, Series 1980-S, dated April 1, 1980, in the aggregate
principal amount of Five Hundred Seventy-Five Thousand Dollars ($575,000) (the
"Bonds")
<PAGE>
under and pursuant to and subject to the provisions of the Act and to be
authorized by an ordinance passed by Landlord (the "Bond Ordinance") in
substantially the form attached hereto and incorporated herein by reference; and
WHEREAS, Tenant, pursuant to the foregoing proposals of Landlord, desires
to lease the Facility from Landlord for the rentals and upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, Landlord and Tenant do hereby covenant and
agree as follows:
ARTICLE I
---------
SECTION 1.1 Granting of Leasehold. Landlord by these presents hereby
---------------------
rents, leases and lets unto Tenant and Tenant hereby rents, leases and hires
from Landlord, for the rentals and upon and subject to the terms and conditions
hereinafter set forth, the Facility described and set forth in Schedule I
attached hereto and made a part hereof for a basic term of twenty-five (25)
years, commencing on the date of this Lease and ending on April 1, 2005, or
until all of the Bonds and all interest thereon shall have been paid or
provisions made for their payment, whichever shall first occur. Notwithstanding
anything herein to the contrary, this Lease shall be effective only if, as and
when the Industrial Revenue Bonds referred to herein are issued.
ARTICLE II
----------
SECTION 2.1 Basic Rent. For the use of the Facility for and during the
----------
term aforesaid, Tenant covenants and agrees to pay to the Fiscal Agent
hereinafter and in the Bond Ordinance designated for the account of Landlord
during the full basic term of this Lease, Basic Rent (hereinafter called "Basic
Rent") payable in monthly installments commencing beginning as of April 1, 1980,
and on the first day of each month thereafter
-2-
<PAGE>
to and including March 1, 2005, in the amounts set forth in Schedule II attached
hereto and made a part hereof. Excess monies on deposit in the Principal and
Interest Account shall be a credit against Tenant's obligation to pay rent.
SECTION 2.2 Acquisition of Bonds. In the event Tenant acquires any
--------------------
outstanding Bonds or any coupons representing interest thereon, it may present
the same to the Landlord for cancellation, and upon such cancellation, or upon
the redemption and payment of any of the Bonds prior to maturity, Tenant's
obligation to pay Basic Rent under Section 2.1 hereof shall be reduced
accordingly, but in no event shall Tenant's obligation to pay Basic Rent be
reduced in such a manner that the Fiscal Agent shall not have on hand in the
Principal and Interest Account funds sufficient to pay maturing principal of and
interest on the Bonds as and when the same shall become due and payable in
accordance with the provisions of the Bond Ordinance.
SECTION 2.3 Additional Rent. Within Thirty (30) days after receipt of
---------------
written notice thereof, Tenant shall pay as additional rent (a) all fees,
charges and expenses of the Fiscal Agent and Paying Agent hereinafter or in the
Bond Ordinance designated, and (b) all Impositions (as defined in Article V),
and (c) all amounts required under Article XXVIII and all other payments of
whatever nature which Tenant has agreed to pay or assume under the provisions of
this Lease, and (d) all expenses (including attorneys' fees) incurred by
Landlord in connection with the enforcement of any rights under this Lease or
the Bond Ordinance, all payments provided for by subparagraphs (a), (b), (c) and
(d) hereof, being hereinafter referred to collectively as "Additional Rent". The
obligations of Section 2.1 above shall have priority over sums due pursuant to
this section.
SECTION 2.4 Rent Payable Without Abatement or Setoff. Except as
----------------------------------------
otherwise provided herein, Tenant covenants and agrees with and for the express
benefit of Landlord and the holders of the Bonds that all payments of Basic Rent
and Additional Rent shall be made by Tenant as the same become due, and that
Tenant shall perform all of its obligations, covenants and
-3-
<PAGE>
agreements hereunder, and without abatement, deduction, setoff, counterclaim,
recoupment or defense or any right of termination or cancellation arising from
any circumstance whatsoever whether now existing or hereafter arising, and
irrespective of whether the Improvements shall have been started or completed,
or whether Landlord's title to the Facility or to any part thereof, is
defective, or non-existent, and notwithstanding any damage to, loss, theft or
destruction of the Facility or any part thereof, any failure of consideration or
commercial frustration of purpose, the taking by eminent domain of title to or
of the right of temporary use of all or any part of the Facility or legal
curtailment of Tenant's use thereof, the eviction or constructive eviction of
Tenant, any change in the tax or other laws of the United States of America, the
State of Kansas, or any political subdivision of either thereof, any change in
Landlord's legal organization or status, or any default of Landlord hereunder,
and regardless of the invalidity of any action of the Landlord or any other
event or condition whatsoever, and regardless of the invalidity of any portion
of this Lease, and Tenant hereby waives the provisions of any statute or other
law now or hereafter in effect contrary to any of its obligations, covenants or
agreements under this Lease or which releases or purports to release Tenant
therefrom. Nothing in this Lease shall be construed as a waiver by Tenant of any
rights, remedies, actions, causes of action, privileges or claims Tenant may
have against Landlord under this Lease or otherwise, but any recovery upon such
rights, remedies, actions, causes of action, privileges and claims shall be had
from Landlord separately, it being the intent of this Lease that the Tenant
shall be unconditionally and absolutely obligated to perform fully all of its
obligations, agreements and covenants under this Lease (including the obligation
to pay Baic Rent and Additional Rent) for the benefit of the holders of the
Bonds.
SECTION 2.5 Prepayment of Basic Rent or Additional Rent. Tenant may at
-------------------------------------------
any time prepay all or any part of the Basic Rent or Additional Rent provided
for hereunder.
-4-
<PAGE>
SECTION 2.6 Designation of Fiscal Agent. Landlord hereby designates
---------------------------
Union National Bank of Wichita, in the City of Wichita, Kansas, as the Fiscal
Agent and Paying Agent for the Bonds (herein referred to as the "Fiscal Agent").
The name of said Bank as Fiscal Agent under this Lease shall, for the purpose of
this Lease, include not only said Bank, but also its successor and successors,
any surviving corporation into which it may be merged, any new corporation
resulting from the consolidation with any other corporation or corporations, the
successor and successors of any such surviving or new corporation, and any
corporation to which the fiduciary business of said Bank may at any time be
transferred. The Landlord may, but only with the consent of the Tenant, for any
reason remove the Fiscal Agent or any of its successors hereunder and appoint a
new Fiscal Agent in its place and stead, and such new Fiscal Agent shall, when
appointed, become successor to the powers, duties and obligations herein
conferred on the Fiscal Agent.
The Fiscal Agent shall establish, and shall deposit all payments of
Basic Rent or other monies received with respect to the Facility in, the
following trust account, the amounts to be deposited in such account to be in
accordance with the provisions of the Bond Ordinance: "City of Newton, Kansas,
Principal and Interest Account for Industrial Revenue Bonds, Series 1980-S,
Dated April 1, 1980," (herein called the "Principal and Interest Account"). The
funds deposited in said Account shall be used and applied by the Fiscal Agent in
the manner and for the purposes set forth herein and in the Bond Ordinance. If,
at any time, the amount in the Principal and Interest Account shall have become
sufficient to pay in full the principal of (including redemption premium, if
any) and interest on all outstanding Bonds, either at maturity or on earlier
redemption, and all costs, expenses and premiums in connection with call,
redemption and payment of all outstanding Bonds, then in that event (i) all of
the Bonds then outstanding as soon as the Bonds are subject to redemption may be
called for redemption by the Landlord with Tenant's consent and all
-5-
<PAGE>
moneys held in the Principal and Interest Account by the Fiscal Agent shall be
used to pay the principal (including redemption premium, if any) of and all
interest on the Bonds so called for redemption and all costs, expenses and
premiums incurred in connection with the call, redemption and payment of said
outstanding Bonds, and (ii) no further Basic Rent shall be payable hereunder
during the basic term.
ARTICLE III
-----------
SECTION 3.1 Disposition of Bond Proceeds; Construction Fund. The
-----------------------------------------------
proceeds of the sale of the Bonds shall be paid over to the Fiscal Agent for the
account of Landlord and deposited in the "Construction Fund". The Fiscal Agent
shall, next, promptly pay from the proceeds of said sale of the Bonds into the
Principal and Interest Account the full amount of any accrued interest and
premium, if any, received upon such sale. The remainder of such proceeds shall
remain in a trust account designated "City of Newton, Kansas, K&E Land & Leasing
Construction Fund" (the "Construction Fund"), to be used and applied as provided
in Article IV and as otherwise provided in the Bond Ordinance, except that
Underwriting costs may be paid from the Construction Fund without further order
or authorization.
SECTION 3.2 Arbitrage Covenant. The Tenant covenants and agrees that it
------------------
will not make or cause to be made, any use of the proceeds of the Bonds which,
if such use had been reasonably expected on the date of issuance of the Bonds,
would have caused the Bonds to be arbitrage bonds within the meaning of Section
103(c) of the Internal Revenue Code of 1954, as amended. Tenant further
covenants and agrees that it will comply with and will take all action
reasonably required to insure that the Fiscal Agent complies with all applicable
requirements of said Section 103(c) and the rules and regulations of the United
States Treasury Department thereunder for so long as any of the Bonds, including
interest thereon and any applicable redemption premium, remain outstanding and
unpaid.
-6-
<PAGE>
ARTICLE IV
----------
SECTION 4.1 Acquisition of Such of the Improvements As Are Completed.
--------------------------------------------------------
Tenant shall immediately after acquiring title to the Land convey or cause to be
conveyed to Landlord by warranty deed the Land and such of the Improvements as
are then completed, installed or in progress. Concurrently with the issuance of
the Bonds, Tenant shall deliver to Landlord and Fiscal Agent either an owner's
policy of title insurance in an amount not less than $450,000 or an attorneys'
approving title opinion as to the Facility satisfactory to Landlord and
containing no exceptions or requirements other than such as are approved by
Landlord. Tenant shall also concurrently with such conveyance make provisions
for the discharge of any liens or encumbrances incurred by it in connection with
the construction, installation or development of the Facility.
SECTION 4.2 Construction Contracts. It is recognized by the parties
----------------------
hereto that prior to the execution hereof Tenant may have entered into a
contract or contracts for the construction of certain of the Improvements. Prior
to the execution hereof, work may have been performed pursuant to said contracts
and otherwise, and Landlord's acquisition referred to in Section 4.1 hereof
shall be subject to said contracts. After the execution hereof, Tenant shall
cause the construction contemplated thereunder to be carried out in accordance
with the terms of same. It is further recognized by the parties hereto that
after Use execution hereof it may be necessary to contract for the construction
of certain of the Improvements from Bond proceeds. It is agreed that Landlord
shall construct or cause to be constructed such of said Improvements and may
award or cause to be awarded or permit Tenant to award the necessary contracts
therefor, all subject to the written approval of Tenant. Said contracts shall
incorporate plans and specifications prepared by or at the direction of Tenant.
Landlord covenants to fully enforce each and all of the terms and provisions of
such of said contracts as it may enter into. All of
-7-
<PAGE>
said contracts, relating to the construction of the Improvements and the
completion of the Facility, whether entered into by Landlord or Tenant, are
hereinafter sometimes referred to as the "Construction Contracts".
SECTION 4.3 Insurance During Construction. It is agreed that either (l)
-----------------------------
the Construction Contracts shall provide that at all times after the execution
hereof the contractors shall maintain or (2) the Tenant shall at all times after
the execution hereof maintain in full force and effect the following policies of
insurance:
(a) General accident and public liability insurance (including
coverage for all losses whatsoever arising from the ownership, maintenance, or
use of any automobile, truck or other vehicle) under which Landlord and the
Fiscal Agent shall be named an insured, in an amount not less than $100,000.00
for personal injuries (including death) to any one person, not less than
$300,000.00 for personal injuries (including death) in any one accident and not
less than $100,000.00 for property damage;
(b) Worker's compensation insurance; and
(c) Builder's Risk-Completed Value Form insurance insuring the
Facility against fire, lightning and all other risks covered by the broadest
form extended coverage endorsement then and from time to time thereafter in use
in the State of Kansas to the full insurable value of the Facility (as the term
is defined in Article VI) and that premiums therefor be prepaid in full prior to
the commencement of construction under the Construction Contracts. Such policy
or policies of insurance shall name the Landlord, Tenant and the Fiscal Agent as
insured, as their respective interests may appear, and all payments received
under such policy or policies by Landlord or Tenant shall be paid over to the
Fiscal Agent and be deposited in the Construction Fund.
Copies or certificates of such policies shall be delivered to Landlord,
Tenant and Fiscal Agent. The Construction Contracts shall also require the
contractors thereunder to deliver to
-8-
<PAGE>
Landlord performance bonds and labor and material payment bonds which shall name
Fiscal Agent as a dual obligee and a statutory bond, with respect to the
Construction Contracts and in the full amount of the Construction Contracts,
made by the contractors thereunder as the principal and a surety company, or
companies, qualified to do business in Kansas, as surety; such bonds shall be in
such form as is approved in writing by Landlord, and all payments received by
Landlord or Tenant under such bonds shall become a part of and be deposited in
the Construction Fund. Any and all amounts received by the Landlord and/or
Tenant from any of the contractors or other suppliers by way of breach of
contract, refunds or adjustments shall become a part of and be deposited in the
Construction Fund.
SECTION 4.4 Payment for Construction. Landlord hereby agrees to
------------------------
promptly pay for the construction of the Improvements aforesaid, but solely from
the Construction Fund, and hereby authorizes and directs the Fiscal Agent to pay
for same, but solely from the Construction Fund, from time to time, upon receipt
by the Fiscal Agent of a certificate executed by the Project Manager designated
in Section 4.6 hereof:
(a) Requesting payment of a specified amount of such funds and
directing to whom such amount shall be paid;
(b) Stating that the amount requested either has been advanced by
Tenant, or is justly due to contractors, subcontractors, suppliers, vendors,
materialmen, engineers, architects or other persons (whose names and addresses
shall be stated) who have performed necessary and appropriate work or furnished
necessary and appropriate materials, machinery or equipment in the construction,
purchase and installation of the Improvements and giving a brief description of
such work and materials, machinery or equipment and the several amounts so paid
or due to each of said persons in respect thereof and stating that the fair
value of such work and materials, machinery or equipment is not exceeded by the
amount requested to be withdrawn;
-9-
<PAGE>
(c) Stating that, except for the amounts if any stated in said
certificate pursuant to the foregoing subparagraph (b), there are no outstanding
indebtednesses which are then due and payable for labor, wages, materials,
supplies or services in connection with the construction of said improvements
which if unpaid, might become the basis of a vendors', mechanics', laborers' or
materialmen's statutory or other similar lien upon the Facility or ally part
thereof;
(d) Stating that no part of the several amounts paid or due, as
stated in said certificate pursuant to sub-paragraph (b) of this paragraph, has
been or is being made the basis for the withdrawal of any monies in any previous
or then pending application pursuant to this paragraph.
The sole obligation of Landlord under this paragraph shall be to cause
the Fiscal Agent to make such disbursements upon receipt of such certificates.
The Fiscal Agent may rely fully on any such directions and shall not be required
to make any investigation in connection therewith.
SECTION 4.5 Machinery and Equipment. The parties agree that certain
-----------------------
machinery and equipment and property will be necessary in the construction and
completion of the Facility and Landlord hereby agrees to purchase, but solely
from the Construction Fund, and hereby authorizes and directs the Fiscal Agent
to pay for, but solely from the Construction Fund, such items of machinery and
equipment and property as the Project Manager shall from time to time specify in
a certificate delivered to the Fiscal Agent. Said certificate shall contain a
reasonably complete description of all such items of machinery and equipment and
property, shall specify the cost thereof, shall state that the machinery,
equipment and/or property described therein has been ordered and will be
installed, and shall specify to whom payment shall be made. The sole obligation
of Landlord under this paragraph shall be to cause the Fiscal Agent to make such
disbursements upon receipt of said certificate. The Fiscal Agent may rely fully
on any such
-10-
<PAGE>
certificate and shall not be required to make any investigation in connection
therewith. All machinery, equipment and/or property acquired, in whole or in
part, with funds from the Construction Fund pursuant to this Section 4.5 shall
be and become a part of the Facility.
SECTION 4.6 Project Manager. Landlord hereby designates and appoints
---------------
Jerry E. Kimmel, as Project Manager, and Billy T. Everett, as Alternate Project
Manager. During the absence or in the event of the resignation or inability to
act of the Project Manager, the person designated above as the Alternate Project
Manager shall be Project Manager. Landlord may, and upon the written request of
Tenant shall, remove any person acting as Project Manager at any time and
designate another person to act as Project Manager, provided that any other
person designated to act as Project Manager shall also be approved in writing by
Tenant. Landlord hereby constitutes the Project Manager as its duly authorized
agent to perform and exercise all authorities, discretions and elections of
Landlord under the Constriction Contracts, including the making of changes,
amendments and additions therein and thereto to supervise the construction of
the Improvements, and the completion of the Facility; and to direct the Fiscal
Agent to make disbursements from the Construction Fund as herein provided;
however, major changes, amendments and additions in or to said Construction
Contracts shall also require Landlord's prior written approval, which will not
be unreasonably withheld. It is expressly agreed and understood between the
parties hereto that nothing contained in this Lease shall obligate Landlord to
purchase or pay for or become obligated for the construction of the Improvements
or completion of the Facility, and that the Project Manager shall have no
authority to obligate Landlord to purchase or pay for, anything whatsoever out
of funds other than those in the Construction Fund. The Fiscal Agent may rely
fully on any such direction of the Project Manager and shall not be required to
make any investigation in connection therewith.
-11-
<PAGE>
SECTION 4.7 Construction Cost. The term "Construction Cost" shall be
-----------------
construed to include (i) all costs and expenses necessary or incident to the
acquisition of the Land and such of the Improvements as are constructed,
installed or in progress at the date of such acquisition; (ii) all costs and
expenses of every nature incurred in constructing, purchasing and/or installing
the Improvements and completing the Facility, including the machinery and
equipment constituting a part of same and referred to in Section 4.5 hereof,
including interest paid or to be paid by Tenant during construction; (iii) any
and all expenses incurred by Landlord, Tenant or Subtenant, including those
prior to the sale of the Bonds, for planning, development and design, and all
expenses for architects' and engineering fees, the fees and expenses of Tenant's
employees and consultants, surveys, accountants and attorneys' fees, and other
items necessary to the commencement of construction, including advances to
contractors and others by Tenant; (iv) all other expenses necessary or incident
to the construction and completion of the Facility; and (v) any and all expenses
of whatever nature (other than expenses related to violations of securities law
and regulations) incurred in connection with the issuance and sale of the Bonds,
including but not limited to underwriting expenses. Landlord hereby agrees to
pay for, but solely from the Construction Fund, arid hereby authorizes and
directs the Fiscal Agent to pay for, but solely from the Construction Fund, all
Construction Costs, upon receipt by the Fiscal Agent of a certificate of the
Project Manager, requesting a specified sum of money, and describing in
reasonable detail the Construction Cost which forms the basis for said request.
The Fiscal Agent may rely fully on any such direction and shall not be required
to make any investigation in connection therewith.
SECTION 4.8 Completion of Facility. Tenant agrees that the Facility is
----------------------
necessary or useful in its development. Landlord and Tenant each covenant and
agree to proceed diligently to complete the Facility.
-12-
<PAGE>
SECTION 4.9 Deficiency of Construction Fund. If the Construction Fund
-------------------------------
shall be insufficient to pay fully all Construction Costs and to complete fully
the Facility lien free, Tenant covenants to pay, in cash or otherwise, on terms
acceptable to creditors, the full amount of any such deficiency by making
payments; directly to the contractors and to the suppliers of materials,
machinery, equipment, property and services as the same shall become due and
Tenant shall save Landlord whole and harmless from any obligation to pay such
deficiency.
SECTION 4.10 Surplus in Construction Fund. Any amount remaining in the
----------------------------
Construction Fund after the Project Manager shall certify that the Facility has
been fully completed and paid for, lien free, shall be transferred by the Fiscal
Agent into the Principal and Interest Account.
SECTION 4.11 Right of Entry by Landlord. The duly authorized agents of
--------------------------
Landlord shall have the right at any reasonable time prior to the completion of
the Facility to enter upon the same or any parts thereof, for the purpose of
inspecting and supervising the acquisition and construction thereof.
SECTION 4.12 Machinery and Equipment and Property Purchased by Tenant.
--------------------------------------------------------
Any item of machinery, equipment and/or property the entire purchase price of
which is paid for by Tenant or Subtenant with Tenant's or Subtenant's own funds,
and no part of the purchase price of which is paid for from funds deposited
pursuant to the terms of this Lease in the Construction Fund shall be the
property of Tenant, and shall not be included within the term "Improvements" as
used in this Lease. Such machinery, equipment and/or property may be removed by
Tenant, whether before or at the expiration of this Lease or any extension
thereof.
SECTION 4.13 Facility Property of Landlord. Except as otherwise provided
-----------------------------
herein, all buildings, improvements and work constituting a part of the
Facility, all work and materials on the Facility as such work progresses, and
the Facility as fully completed, anything under this Lease which becomes, is
deemed
-13-
<PAGE>
to be, or constitutes a part of the Facility, and the Facility as repaired,
rebuilt, rearranged, restored or replaced by Tenant or Subtenant under the
provisions of this Lease, except as otherwise specifically provided herein,
shall immediately when erected or installed become the absolute property of
Landlord.
SECTION 4.14 Kansas Retailers' Sales Tax.
---------------------------
(a) The parties have entered into this Lease in contemplation that,
under the existing provisions of K.S.A. 79-3606 (d) and other applicable laws,
sales of tangible personal property or services purchased in connection with
construction of the Facility are entitled to exemption from the tax imposed by
the Kansas Retailers' Sales Tax Act. The parties agree that Landlord shall, with
Tenant's assistance, promptly obtain from the State of Kansas and furnish to the
contractors and suppliers an exemption certificate for the construction of the
Facility.
(b) The parties further acknowledge that, under the existing
provisions of K.S.A. 79-3603(h), a tax may be levied at the rate of three
percent (3%) upon the gross receipts derived by Landlord from renting or leasing
personal property, if any, purchased from the proceeds of the Bonds. The Tenant
agrees to pay, as Additional Rent hereunder, the full amount of any such tax as
hereinafter determined. Such payments, if required, shall be made at the same
time as the installments of Basic Rent provided for hereby, and shall be made
direct to Landlord, or in such other manner as Landlord may from time to time
direct in writing. It shall be the duty of the Landlord to promptly file any
returns and remit any such taxes to the State, or to make suitable provision
therefor, in accordance with applicable laws, rulings and regulations. The
Landlord's taxable gross receipts shall be determined by multiplying that
portion of each installment of Basic Rent which represents payment of principal
of the Bonds by a fraction in which the total proceeds of the Bonds is the
denominator, and the amount expended from Bond proceeds for acquisition of
personal property
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<PAGE>
is the numerator, which amount shall be determined by the Project Manager and
set forth in a certificate delivered to Landlord, Tenant and Fiscal Agent
immediately following completion of construction of the Facility, is the
numerator. The amount of each installment of tax due shall be determined by
multiplying Landlord's taxable gross receipts determined in accordance with the
preceding sentence (unless a different determination has been made in a judicial
or administrative proceeding as hereinafter provided), by three percent (3%) or
such other tax rate percentage as may from time to time be imposed by applicable
law. Notwithstanding the foregoing provisions, if it shall be determined in any
judicial or administrative proceeding that Landlord's taxable gross receipts
are' in an amount other than the amount determined by applying the foregoing
provisions, Tenant shall be obligated to pay and hereby agrees to pay the full
amount of such tax, based upon such judicially or administratively determined
gross receipts, it being the intent of this provision that Tenant shall pay in
full the amount of any such tax, but no more than such amount, which Landlord is
obligated to collect under present or any future Kansas law.
ARTICLE V
---------
SECTION 5.1 Impositions. Tenant shall, during the life of this Lease,
-----------
bear, pay and discharge, before the delinquency thereof, all taxes and
assessments, general and special, if any, which may be lawfully taxed, charged,
levied, assessed or imposed upon or against or be payable for or in respect of
the Facility or any part thereof, or any improvements at any time thereon or
Tenant's interest therein, including any new lawful taxes and assessments not of
the kind enumerated above to the extent that the same are lawfully made, levied
or assessed in lieu of or in addition to taxes or assessments now customarily
levied against real property, and further including all water and sewer charges,
assessments and other governmental charges and impositions whatsoever, foreseen
or unforeseen, which if
-15-
<PAGE>
not paid when due would encumber Landlord's title to the Facility (all of the
foregoing being herein referred to as "Impositions"). All Impositions prior to
the date of this Lease shall be paid in full by Tenant, and in the event any
special assessment taxes are lawfully levied and assessed which may be paid in
installments, Tenant shall be required to pay only such installments thereof as
become due and payable during the life of this Lease as and when the same become
due and payable. Landlord covenants that without Tenant's written consent it
will not, unless required by law, take any action which may reasonably be
construed as tending to cause or induce the levying or assessment of any
Imposition (other than special assessments levied on account of special
benefits) which Tenant would be required to pay under this Article and that
should any such levy or assessment be threatened or occur Landlord shall, at
Tenant's request, fully cooperate with Tenant in all reasonable ways to prevent
any such levy or assessment.
SECTION 5.2 Receipted Statements. Within Thirty (30) days after the
--------------------
last day for payment, without penalty or interest, of an Imposition which Tenant
is required to bear, pay and discharge pursuant to the terms hereof, Tenant
shall deliver to Landlord a photostatic copy of the statement issued there for
duly receipted to show the payment thereof.
SECTION 5.3 Landlord May Not Sell. Landlord covenants that, without
---------------------
Tenant's written consent, it will not, unless required by law, sell or otherwise
part with its fee or other ownership interest in the Facility at any time during
the life of this Lease. If Landlord is required by law to sell the Facility at a
price in excess of the amount necessary to pay the principal of, interest and
redemption premium, if any, on the Bonds, then Tenant shall receive such excess
monies.
SECTION 5.4 Contest of Impositions. Tenant shall have the right, in its
----------------------
own or Landlord's name or both, to contest the validity or amount of any
Imposition which Tenant is required to bear, pay and discharge pursuant to the
terms of this Article by appropriate legal proceedings instituted at least
-16-
<PAGE>
Ten (10) days before the Imposition complained of becomes delinquent if, and
provided, Tenant, before instituting any such contest, gives Landlord written
notice of its intention so to do and, if requested in writing by Landlord,
deposits with Landlord a bond in favor of Landlord with a surety company
acceptable to Landlord as surety, or cash, in a sum of at least the amount of
the Imposition so contested conditioned upon the payment if so adjudged, of the
contested Imposition, together with all interest and penalties accruing thereon
and costs of suit, and if Tenant diligently prosecutes any such contest, at all
times effectively stays or prevents any official or judicial sale therefor,
under execution or otherwise, and promptly pays any final judgment enforcing the
Imposition so contested and thereafter promptly procures record release or
satisfaction thereof. Tenant shall hold Landlord whole and harmless from any
costs and expenses Landlord may incur related to any such contest.
SECTION 5.5 Ad valorem Taxes. The parties acknowledge that under the
----------------
existing provisions of K.S.A. 79-201(a), the property constructed or purchased
with the proceeds of the Bonds is entitled to exemption from ad valorem taxation
for a period of ten (10) calendar years after the calendar year in which the
Bonds are issued, provided proper application is made therefore. Landlord
covenants that it will not voluntarily take any action which may reasonably be
construed as tending to cause or induce levy or assessment of ad valorem taxes
on the Facility so long as any of the Bonds be outstanding and unpaid or for
said ten (10) year period, whichever shall be the shorter time, and should any
such levy or assessment be threatened or occur, Landlord shall, at Tenant's
request, fully cooperate with Tenant in all reasonable ways to prevent any such
levy or assessment.
ARTICLE VI
----------
SECTION 6.1 Insurance. Tenant shall and covenants and agrees that:
---------
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<PAGE>
(a) It will, prior to or simultaneously with the expiration of the
insurance provided under the Construction Contracts and throughout the life of
this Lease, at its sole cost and expense, keep the Improvements constantly
insured against loss or damage by fire, lightning and all other risks covered by
the broadest form extended coverage insurance endorsement then in use in the
State of Kansas in an amount equal to the full insurable value thereof in such
insurance company or companies authorized to do business in the State of Kansas
as it may select. The term "full insurable value" shall mean the full actual
replacement cost of the Improvements less physical depreciation and such shall
be determined from time to time at the request of Landlord, Tenant or the Fiscal
Agent (but not more frequently than once in every Twenty-Four (24) months) by an
architect, appraiser, appraisal company or one of the insurers, to be selected,
subject to Landlord's written approval, and paid by Tenant. At or prior to the
termination of the insurance provided under the Construction Contracts, and
thereafter not less than Thirty (30) days prior to the expiration dates of the
expiring policies, originals or certificates or acceptable binders of the
policies provided for in this Article, each bearing notations evidencing payment
&f the premiums or other evidence of such payment satisfactory to Landlord,
shall be delivered by Tenant to the Landlord and, until the Bonds and interest
thereon are fully paid, to the Fiscal Agent. All policies of such insurance and
all renewals thereof shall name Landlord, Tenant and, until the Bonds and
interest thereon are fully paid, the Fiscal Agent hereunder as insureds as their
respective interests may appear, shall contain a provision that such insurance
may not be cancelled or amended by the issuer thereof without at least Ten (10)
days' written notice to Landlord, Tenant and Fiscal Agent, and until
-18-
<PAGE>
the Bonds and all the interest thereon have been fully paid shall be payable to
the Fiscal Agent as Insurance Trustee hereunder. Landlord and Tenant hereby
agree that each will do anything necessary, be it the endorsement of checks or
otherwise, to cause any such payment to be made to the Insurance Trustee, as
long as such payment is required by this Lease to be made to the Insurance
Trustee. The proceeds of such insurance shall be held and used pursuant to
Article XXII of this Lease. Any charges made by the Insurance Trustee for its
services as Insurance Trustee shall be paid by Tenant. The sole obligation of
the Insurance Trustee shall be to make disbursements from the insurance proceeds
in accordance with the provisions of Article XXII hereof. The cost of such
insurance shall be paid in the manner provided.
(b) It will prior to or concurrently with the issuance of the Bonds
obtain general accident and comprehensive general liability insurance in an
amount not less than $1,000,000 per occurrence and $1,000,000 aggregate, and
automobile liability and property damage insurance in an amount not less than
$500,000 for each person, $1,000,000 for each occurrence and $100,000 for
property damage. Landlord and Fiscal Agent shall be named as an insured under
said policies, and such policies shall properly protect and indemnify Landlord
and Fiscal Agent in amounts not less than aforesaid. The policies of said
insurance shall contain a provision that such insurance may not be cancelled by
the issuer thereof without at least Thirty (30) days' advance written notice to
Landlord, Tenant and Fiscal Agent. Such policies or copies or certificates
thereof shall be furnished to Landlord and, until the Bonds and interest thereon
are fully paid, to the Fiscal Agent.
(c) Each policy of insurance hereinabove referred to shall be issued
by a nationally recognized responsible insurance company qualified under the
laws of the State of Kansas to assume the risks covered therein.
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<PAGE>
(d) The initial premium on the policies of insurance herein provided
for a period of not less than one year shall be paid by Tenant prior to or
concurrently with the issuance of the Bonds, or at such later date as; such
policies of insurance may be required to be in force under the terms of this
Article VI, and evidence of such payment shall be filed with the Fiscal Agent at
or before the time the Bonds are issued. Thereafter, the requirements of
subparagraph (a) of this Section 6.1 respecting delivery of originals or
certificates or acceptable binders of the policies required hereunder not less
than Thirty (30) days prior to the expiration of expiring policies shall be
complied with respecting all policies carried pursuant to this Section 6.1.
(e) Each policy of insurance hereinabove referred to may be subject
to a reasonable deductible in an amount approved by the Fiscal Agent.
(f) Anything in this Lease to the contrary notwithstanding, Tenant
shall be liable to Landlord pursuant to the provisions of this Lease or
otherwise, as to any loss or damage which may have been occasioned by the
negligence of Tenant, its agents or employees.
ARTICLE VII
-----------
SECTION 7.1 Use of Facility. Subject to the provisions of this Article,
---------------
Tenant shall have the right to use the Facility for any and all purposes allowed
by law and contemplated by the Constitution of Kansas and the Act. Tenant shall
comply with all statutes, laws, ordinances, orders, judgments, decrees,
regulations, directions and requirements of all federal, state, local and other
governments or governmental authorities, now or hereafter applicable to the
Facility or to any adjoining public ways, as to the manner of use or the
condition of same or of adjoining public ways. Tenant shall comply with the
mandatory requirements, rules (Pounds)ind regulations of all insurers under the
policies required to be carried under the provisions of Article VI.
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<PAGE>
ARTICLE VIII
------------
SECTION 8.1 Sublease by Tenant. Tenant may sublease the Facility, or
------------------
any part thereof, with the prior written consent of Landlord, which consent
Landlord shall not unreasonably withhold. In the event of such subleasing,
Tenant shall remain fully liable for the performance of its duties and
obligations hereunder, and no such subleasing and no dealings or transactions
between Landlord or the Fiscal Agent and any such subtenant shall relieve Tenant
of any of its duties and obligations hereunder. It is specifically contemplated
that the Tenant will sublease the Facility to Kevco, Inc. pursuant to a Sublease
and Lease Guarantee dated April 1, 1980, substantially in the form attached
hereto, to which Sublease Landlord hereby consents. It is agreed and understood
that Subtenant shall have all rights, benefits and privileges granted to Tenant
hereunder, except as otherwise provided herein or in the Sublease.
SECTION 8.2 Assignment by Tenant. Tenant may assign its interest in
--------------------
this Lease with the prior written consent of Landlord, which consent Landlord
shall not unreasonably withhold In the event of any such assignment, Tenant
shall remain fully liable for the performance of its duties and obligations
hereunder, except to the extent hereinafter provided, and no such assignment and
no dealings or transactions between Landlord or the Fiscal Agent and any such
assignee shall relieve Tenant of any of its duties and obligations hereunder,
except as may be otherwise provided in Section 8.3 hereof.
SECTION 8.3 Release of Tenant. If, in connection with an assignment by
-----------------
Tenant of its interests in this Lease, (1) the Landlord and the holders of
Ninety percent (90%) in aggregate principal amount of the outstanding Bonds
(including any additional bonds issued under the provisions of the Bond
Ordinance) shall file with the Fiscal Agent and the original underwriter their
prior written consent to such assignment, and (2) the proposed assignee shall
expressly assume and agree to perform all of the obligations of Tenant under
this Lease; then and in
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<PAGE>
such event the Tenant shall be fully released from all obligations accruing
hereunder after the date of such assignment and in connection therewith,
Landlord will execute a Release in form and substance satisfactory to Tenant.
SECTION 8.4 Release in Connection With Sale or Disposition.
----------------------------------------------
Notwithstanding the provisions of Section 8.2 and Section 8.3, if Tenant shall
assign its interests in this Lease as part of a transaction involving the sale,
lease or other disposition of all or substantially all of the property of Tenant
as an entirety to another person, association, corporation or other entity, and
(1) the Landlord shall file with the Fiscal Agent its prior written consent to
such assignment, (2) the proposed assignee shall expressly assume and agree to
perform all of the obligations of Tenant under this Lease and the Guaranty
Agreement with regard to the Bonds, and (3) Tenant shall furnish the Fiscal
Agent and Landlord with evidence in the form of financial statements certified
by an independent certified public accountant of recognized standing
establishing that the net worth of such proposed assignee immediately following
such assignment will be at least equal to the net worth of Tenant as shown by
the last previous financial statement of Tenant; then and in such event the
Tenant shall be fully released from all obligations accruing hereunder after the
date of such assignment and in connection therewith, Landlord will execute a
Release in form and substance satisfactory to Tenant.
SECTION 8.5 Covenant Against Other Assignments. Tenant will not assign
----------------------------------
or in any manner transfer its interests under this Lease, nor will it suffer or
permit any assignment thereof by operation of law, except in accordance with the
limitations, conditions and requirements herein set forth.
ARTICLE IX
----------
SECTION 9.1 Repairs and Maintenance. Tenant covenants and agrees that
-----------------------
it will, during the life of this Lease, keep and maintain the Facility and all
parts thereof in good condition and repair, ordinary wear and tear excepted,
including but
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<PAGE>
not limited to the furnishing of all parts, mechanisms and devices required to
keep the machinery and equipment and property constituting a part of the
Facility in good mechanical and working order, and that during said period of
time it will keep the Facility and all parts thereof free from filth, nuisance
or conditions unreasonably increasing the danger of fire.
SECTION 9.2 Removal, Disposition and Substitution of Machinery and
------------------------------------------------------
Equipment. Tenant shall have the right, provided Tenant is not at such time in
- ---------
default in the payment of Basic Rent and Additional Rent, to remove and sell or
otherwise dispose of any machinery and equipment or other property which
constitutes a part of the Facility and which are no longer used by the Tenant
or, in the opinion of Tenant or Subtenant, are no longer useful to Tenant or
Subtenant in its operations (whether by reason of changed processes, changed
techniques, obsolescence, depreciation or otherwise), subject, however, but with
respect only to such items of machinery and equipment or other property that
originally cost $5,000 or more as to each such item, to the following:
(a) Prior to any such removal, Tenant shall deliver to the Fiscal
Agent a certificate signed by an authorized representative of Tenant (i)
containing a complete description, including the make, model and serial numbers,
if any, of any machinery and equipment or other property constituting a part of
the Facility which it proposes to remove, (ii) stating the reason for such
removal, (iii) stating what disposition, if any, of the machinery and equipment
is to be made by Tenant after such removal and the names of the party or parties
to whom such disposition is to be made and the consideration to be received by
Tenant therefor, if any, and (iv) setting forth the fair market value of such
machinery and equipment; provided, however, that in no event shall the fair
market value of such machinery and equipment be less than the consideration to
be received by Tenant upon the disposition thereof.
(b) Prior to any such removal, Tenant shall pay the fair market value
of such machinery and equipment as set forth
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<PAGE>
in said certificate to the Fiscal Agent and the Fiscal Agent shall deposit such
amount in the Principal and Interest Account. Upon such removal, all such
machinery, equipment or other property shall become the unencumbered property of
Tenant.
(c) Tenant may remove any machinery, equipment or other property
constituting a part of the Facility without first complying with the provisions
of subparagraph (b) above; provided, however, that Tenant shall promptly replace
any such machinery and equipment so removed with machinery, equipment or other
property of the same or a different kind but which are capable of performing the
same function, efficiently, as the machinery, equipment or other property so
removed, and the machinery, equipment or other property so acquired by Tenant to
replace such machinery, equipment or other property shall be deemed a part of
the Facility. Within Thirty (30) days after any such replacement by Tenant,
Tenant shall deliver to the Fiscal Agent a certificate signed by an officer of
Tenant setting forth a complete description, including make, model and serial
numbers, if any, of the machinery, equipment or other property which Tenant or
Subtenant has acquired to replace the machinery, equipment or other property so
removed by Tenant, the cost thereof and that said machinery, equipment or other
property have been installed. All machinery, equipment or other property
constituting a part of the Facility and removed by Tenant pursuant to this
subparagraph shall become the absolute property of Tenant and may be sold or
otherwise disposed of by Tenant without accounting to the Landlord with respect
thereto.
In all cases, Tenant shall pay all the costs and expenses of any such
removal and shall immediately repair at its expense all damage caused thereby.
Tenant's rights under this Article to remove machinery, equipment or other
property constituting a part of the Facility is intended only to permit Tenant
to maintain an efficient operation by the removal of such machinery, equipment
or other property no longer suitable
-24-
<PAGE>
to Tenant's use for any of the reasons set forth in this paragraph and such
right is not to be construed to permit a removal under any other circumstances
and specifically is not to be construed to permit Tenant to make a wholesale
removal of such machinery and equipment. The Fiscal Agent may rely fully on any
such directions and shall not be required to make any investigation in
connection therewith.
ARTICLE X
---------
SECTION 10.1 Alteration of Facility. Tenant shall have and is hereby
----------------------
given the right, at its sole cost and expense, to make such additions, changes
and alterations in and to any part of the Facility as Tenant from time to time
may deem necessary or advisable; provided, however, Tenant shall not make any
major addition, change or alteration which will adversely affect the intended
use or structural strength of any part of the Facility. All additions, changes
and alterations made by Tenant pursuant to the authority of this Article shall
(a) be made in a workmanlike manner and in strict compliance with all laws and
ordinances applicable thereto, (b) when commenced, be prosecuted to completion
with due diligence, and (c) when completed, shall be deemed a part of the
Facility; provided, however, that additions of machinery, equipment and/or
property by Tenant, not purchased or acquired from funds deposited with the
Fiscal Agent or Insurance Trustee hereunder and not constituting a part of the
Facility shall remain the property of Tenant and may be removed by Tenant prior
to the termination of this Lease, but, in all cases, Tenant shall pay all the
costs and expenses of any such removal and shall immediately repair at its
expense all damage caused thereby; provided further, however, that all such
additional machinery, equipment and/or property which remain on the Facility
after the termination of this Lease for a period of 90 days for any cause other
than the purchase of the Facility pursuant to Article XVII hereof shall, upon
and in the event of such termination, become the separate and absolute property
of Landlord.
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<PAGE>
ARTICLE XI
----------
SECTION 11.1 Additional Improvements. Tenant shall have and is hereby
-----------------------
given the right, at its sole cost and expense, to construct on the Land or
within areas occupied by the Facility, or in airspace above the same, such
additional buildings and improvements as Tenant from time to time may deem
necessary or advisable. All additional buildings and improvements so constructed
pursuant to the authority of this Article shall, during the life of this Lease,
remain the property of Tenant and may be added to, altered or razed and removed
by Tenant at any time during the life of this Lease. Tenant covenants and agrees
(a) to make all repairs and restorations, if any, required to be made to the
Facility because of the construction of, addition to, alteration or removal of,
said additional buildings or improvements, if deemed necessary or desirable by
Tenant or Subtenant for the conduct of their business, (b) to keep and maintain
said additional buildings and improvements in good condition and repair,
ordinary wear and tear and damages by fire or other casualty excepted, (c) to
promptly and with due diligence either raze and remove from the Land, in a good,
workmanlike manner, or repair, replace or restore such of said additional
buildings or improvements as may from time to time be damaged by fire or other
casualty, if deemed necessary or desirable by Tenant or Subtenant for the
conduct of their business, and (d) that all additional buildings and
improvements constructed by Tenant pursuant to this Article which remain in
place after the termination of this Lease for a period of 90 days any cause
other than the purchase of the Facility pursuant to Article XVII hereof shall,
upon and in the event of such termination, become the separate and absolute
property of Landlord.
ARTICLE XII
-----------
SECTION 12.1 Securing of Permits and Authorizations. Tenant shall not do
--------------------------------------
or permit others under its control to do any work in or in connection with the
Facility or related to any repair, rebuilding, restoration, replacement,
alteration of
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<PAGE>
or addition to the Facility, or any part thereof, unless Tenant shall have first
procured and paid for all requisite municipal and other governmental permits and
authorizations. All such work shall be done in a good and workmanlike manner and
in compliance with all applicable building, zoning and other laws, ordinances,
governmental regulations and requirements and in accordance with the
requirements, rules and regulations of all insurers under the policies required
to be carried under the provisions of Article VI.
SECTION 12.2 Mechanics' Liens. Tenant shall not do or suffer anything to
----------------
be done whereby the Facility, or any part thereof, may be encumbered by any
mechanic's or other similar lien and if, whenever and as often as any mechanic's
or other similar lien is filed against the Facility, or any part thereof, Tenant
shall discharge the same of record within Thirty (30) days after the date of
filing. Notice is hereby given that Landlord does not authorize or consent to
and shall not be liable for any,labor or materials furnished Tenant or anyone
claiming by, through or under Tenant upon credit, and that no mechanic's or
similar lien for any such labor, services or materials shall attach to or affect
the reversionary or other estate of Landlord in and to the Facility, or any part
thereof.
SECTION 12.3 Contest of Liens. Tenant, notwithstanding the above, shall
----------------
have the right to contest any such mechanic's or other similar lien if within
said Thirty (30) day period stated above it notifies Landlord in writing of its
intention so to do, and if requested by Landlord, deposits with Landlord a bond
in favor of Landlord with a surety company acceptable to Landlord as surety, or
cash, or other adequate provision acceptable to Landlord, in the amount of the
lien claim so contested, indemnifying and protecting Landlord from and against
any liability, loss, damage, cost and expense of whatever kind or nature growing
out of or in any way connected with said asserted lien and the contest thereof
and if, and provided further, Tenant diligently prosecutes such contest, at all
times effectively stays or prevents any official or judicial sale of the
Facility or any part thereof or interest therein, under execu-
-27-
<PAGE>
tion or otherwise, and pays or otherwise satisfies any final judgment adjudging
or enforcing such contested lien claim and thereafter promptly procures record
release or satisfaction thereof.
ARTICLE XIII
------------
SECTION 13.1 Utilities. All utilities and utility services used by
---------
Tenant in, on or about the Facility shall be paid for by Tenant and shall be
contracted for by Tenant or Subtenant in Tenant's or Subtenant's own name and
Tenant shall, at its sole cost and expense, procure any and all permits,
licenses or authorizations necessary in connection therewith.
ARTICLE XIV
-----------
SECTION 14.1 Indemnity. Tenant shall and covenants and agrees to
---------
indemnify, protect, defend and save Landlord and Fiscal Agent harmless from and
against any and all claims, demands, liabilities and costs, including attorneys'
fees, arising from damage or injury, actual or claimed, of whatsoever kind or
character, to property or persons, occurring or allegedly occurring in, on or
about the Facility during the life of this Lease, and upon notice from Landlord
or Fiscal Agent, Tenant shall defend Landlord and Fiscal Agent in any action or
proceeding brought thereon. Provided, however, nothing contained in this
section shall be construed as requiring Tenant to indemnify Landlord or Fiscal
Agent for any claim arising out of a willful act of Landlord or Fiscal Agent.
ARTICLE XV
----------
SECTION 15.1 Access to Facility. Landlord, for itself and its duly
------------------
authorized representatives and agents, reserves the right to enter the Facility
at all reasonable times during usual business hours throughout the life of this
Lease for the purpose of (a) examining and inspecting the same, (b) performing
such work made reasonably necessary by reason of Tenant's default under any of
the provisions of this Lease, and (c) exhibiting the Facility to prospective
purchasers, lessees or
-28-
<PAGE>
mortgagees. Landlord may, during the progress of said work mentioned in (b)
above, keep and store on the Facility all necessary materials, supplies and
equipment and shall not be liable for necessary in convenience, annoyances,
disturbances, loss of business or other damage suffered by reason of the
performance of any such work or the storage of materials, supplies and equipment
so long as all of the same is reasonable.
ARTICLE XVI
-----------
SECTION 16.1 Option to Extend. Tenant shall have the right and option,
----------------
to be exercised as hereinafter provided, and provided that all of the Bonds and
interest thereon shall have been paid or adequate provision made there for, to
extend the term of this Lease by Five (5) years from and after April 1, 2005.
Rent for such extended term shall be the sum of $1,000.00 per year payable in
advance on April 1 of each year of such extended term. Such rent shall be
payable direct to the Landlord together with such additional rent as may be
required under Article II hereof. All other terms and conditions of this Lease
shall be fully applicable to such extended term including the option to purchase
granted by Article XVII hereof, except only the provisions hereof with reference
to the Bonds. Should this Lease terminate for any reason sooner than April 1,
2005, the option to extend set forth above shall be from such earlier
termination date to April 1, 2005. Notice of Tenant's intention to exercise its
option to extend this Lease shall be given the Landlord in writing and not later
than March 1, 2005; provided, however, if said Lease shall terminate earlier
than April 1, 2005, notice of Tenant's intention to exercise the first option to
extend this Lease shall be given to Landlord Thirty (30) days prior to such
earlier termination date.
ARTICLE XVII
------------
SECTION 17.1 Option to Purchase Facility. Subject to the provisions of
---------------------------
this Article, Tenant shall have the right and option to purchase the Facility at
any time during the basic
-29-
<PAGE>
term of this Lease or any extension thereof under Article XVI or at any time
within sixty (60) days after the expiration of the basic term of this Lease or
any extension thereof. Tenant shall exercise its aforesaid option by giving
Landlord written notice of Tenant's election to exercise its option and
specifying the date, time and place of closing, which date (the "Closing Date")
shall neither be earlier than Forty-Five (45) days nor later than One Hundred
Eighty (180) days after the notice is given; provided, however, that Tenant may
not exercise its said option if Tenant is in default hereunder at the time said
notice is given and may not purchase the Facility on the Closing Date if Tenant
is in default hereunder on the Closing Date.
SECTION 17.2 Quality of Title and Purchase Price. If said notice of
-----------------------------------
election to purchase be given as aforesaid, Landlord shall and covenants and
agrees to sell and convey the Facility to Tenant on the Closing Date free and
clear of all liens and encumbrances whatsoever except (a) those to which the
title was subject on the date of Tenant's conveyance to Landlord of the Land, or
to which title became subject with Tenant's written consent, or which resulted
from any failure of Tenant to perform any of its covenants or obligations under
this Lease, (b) taxes and assessments, general and special, if any, and (c) the
rights, titles and interests of any party having condemned or who is attempting
to condemn title to, or the use for a limited period of, all or any part of the
Facility, for the price and sum as follows (which Tenant shall and covenants and
agrees to pay in cash at the time of delivery of Landlord's deed or other
instrument or instruments of transfer of the Facility to Tenant as hereinafter
provided):
(i) The full amount which is required, when added to the
amount in the Principal and Interest Account on the Closing Date
together with interest and earnings to accrue thereon, to provide
Landlord and the Fiscal Agent with funds necessary to pay at
maturity or to redeem and pay in full (aa) the principal of all
outstanding Bonds, (bb) all interest due thereon to date of
maturity or redemption, whichever first occurs, and (cc) all
costs,
-30-
<PAGE>
expenses and premiums incident to the redemption and payment of
said Bonds in full, plus
(ii) $100.00.
Nothing in this Article shall release or discharge Tenant from its
duty or obligation under this Lease to make any payment of Basic Rent or
Additional Rent which, in accordance with the terms of this Lease, becomes due
and payable prior to the Closing Date or its duty and obligation to fully
perform and observe all covenants and conditions herein stated to be performed
and observed by Tenant prior to the Closing Date.
SECTION 17.3 Closing of Purchase. On the Closing Date Landlord shall
-------------------
deliver to Tenant its special warranty deed or other appropriate instrument of
conveyance or assignment, properly executed and conveying the Facility to Tenant
free and clear of all liens and encumbrances whatsoever except as stated above
or conveying such other title to the Facility as may be acceptable to Tenant,
and then and there Tenant shall pay the full purchase price for the Facility as
follows: (a) the amount specified in "(i)" of Section 17.2 shall be paid to the
Fiscal Agent who shall deposit the same in the Principal and Interest Account
and shall use the same to pay or redeem the Bonds on the date the Bonds are
first subject to redemption as provided in the Bond Ordinance, and (b) the
amount specified in "(ii)" of said Section 17.2 shall be paid to the Landlord;
provided, however, nothing herein shall require Landlord to deliver its said
special warranty deed or other appropriate instrument of assignment or
conveyance to Tenant until after all duties and obligations of Tenant under this
Lease to the date of such delivery have been fully performed and satisfied. Upon
the delivery to Tenant of Landlord's said special warranty deed, or other
appropriate instrument of assignment or conveyance, and payment of the purchase
price by Tenant, this Lease shall, ipso facto, terminate.
SECTION 17.4 Effect of Failure to Complete Purchase. If, for any reason
--------------------------------------
whatsoever, the purchase of the Facility by Tenant pursuant to valid notice of
election to purchase given
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<PAGE>
as aforesaid is not effected on the Closing Date, this Lease shall be and remain
in full force and effect according to its terms the same as though no notice of
election to purchase had been given, except that:
(a) If such purchase is not effected on the Closing Date because of
the failure or refusal of Tenant to pay the purchase price or because of the
failure or refusal of Tenant to fully perform and observe all of the covenants
and conditions herein contained on Tenant's part to be performed or observed to
the Closing Date, then this Lease shall continue the same as if the option to
purchase had never been exercised.
(b) If such purchase is not effected on the Closing Date because on
said date Landlord does not have and is unable to convey to Tenant such title to
the Facility as Tenant is required to accept, Tenant shall have the right to
cancel this Lease forthwith if, but only if, the principal of and interest on
the Bonds and all costs incident to the redemption and payment of the Bonds have
been paid in full, and in the event of such cancellation, notwithstanding
Article XXVI hereof, to remove from or about the Facility all furniture, trade
fixtures, machinery and equipment, buildings and improvements then owned by
Tenant for the period of Sixty (60) days after the date of such cancellation.
All repairs to and restorations of the Facility required to be made because of
such removal shall be made by and at the sole cost and expense of Tenant.
Tenant shall have the sole responsibility and bear the sole risk of loss for all
such furniture, trade fixtures, machinery and equipment, buildings and
improvements, during said Sixty (60) day period.
(c) If the closing does not take place, Tenant's right to purchase
the Facility, as contained herein shall continue in full force and effect.
SECTION 17.5 Application of Condemnation Awards if Tenant Purchases
------------------------------------------------------
Facility. The right of Tenant to exercise an option to purchase the Facility
- --------
under the provisions of this Article shall remain unimpaired notwithstanding any
condemnation of title to, or the use for a limited period of, all or any part
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<PAGE>
of the Facility, and the provisions of Article XIX, XX and XXI shall be
construed in the light of the effect of said option exercised by Tenant, and if
Tenant shall exercise its said option and pay the purchase price as provided in
this Article, all of the condemnation awards received by Landlord after the
payment of said purchase price, less all attorneys' fees and other expenses and
costs incurred by Landlord in connection with such condemnation, shall belong
and be paid to Tenant notwithstanding any other provision in Articles XIX, XX
and XXI.
ARTICLE XVIII
-------------
SECTION 18.1 Option to Purchase Portions of Land. Tenant shall have and
-----------------------------------
is hereby given the right and option to purchase at any time and from time to
time during the life of this Lease a vacant part or vacant parts of the
unimproved Land constituting a part of the Facility; provided, however, Tenant
must furnish Landlord with a certificate of an authorized representative of
Tenant, dated not more than Thirty (30) days prior to the date of the purchase
and stating that, in the opinion of the person signing such certificate, (a) the
portion of said Land with respect to which the option is exercised is not needed
for the operation of the Facility for the purposes herein stated and (b) the
purchase will not impair the usefulness of the Facility for its intended purpose
and will not destroy the means of ingress thereto and egress therefrom. Tenant
shall exercise this option by giving Landlord written notice of Tenant's
election to exercise its option and specifying the legal description and the
date, time and place of closing, which date shall neither be earlier than Forty-
Five (45) days nor later than One Hundred Eighty (180) days after the notice is
given; provided, however, that Tenant may not exercise this option if Tenant is
in default hereunder at the time said notice is given and may not purchase said
real property on the specified date if Tenant is in default hereunder on said
date. The option hereby given shall include the right to purchase a perpetual
easement for right-of-way to and from
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<PAGE>
the public roadway and the right to purchase such land as is necessary to assure
that there will always be access between the real property purchased pursuant to
this Article XVI II and the public roadway.
SECTION 18.2 Quality of Title--Purchase Price. If said notice of
--------------------------------
election to purchase is given as aforesaid under Section 18.1, Landlord shall
sell and convey the real property described in Tenant's aforesaid notice to
Tenant on the specified date free and clear of all liens and encumbrances
whatsoever except (i) those to which the title was subject on the date of
commencement of the term of this Lease, or to which title became subject with
Tenant's written consent, or which resulted from any failure of Tenant to
perform any of its agreements or obligations under this Lease, (ii) taxes and
assessments, general or special, if any, and (iii) the rights, titles and
interests of any party having condemned or who is attempting to condemn title
to, or the use for a limited period of, all or any part of the real property
described in Tenant's aforesaid notice, for a price of $2,000 per acre.
SECTION 18.3 Closing of Purchase. If Landlord has title to the real
-------------------
property free and clear of all liens and encumbrances whatsoever except as
stated above or has such other title to the real property as may be acceptable
to Tenant, then on the specified date, Landlord shall deliver to Tenant its
special warranty deed, properly executed and conveying the real property to
Tenant free and clear of all liens and encumbrances whatsoever except as stated
above, and then and there Tenant shall pay the aforesaid purchase price, for the
real property, said purchase price to be paid to the Fiscal Agent for the
account of the Landlord and deposited by the Fiscal Agent in the Principal and
Interest Account for the benefit of the holders of the Bonds; provided, however,
nothing herein shall require Landlord to deliver its said special warranty deed
to Tenant until after all duties and obligations of Tenant under this Lease to
the date of such delivery have been fully performed and satisfied.
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<PAGE>
SECTION 18.4 Effect of Purchase on Lease. The exercise by Tenant of the
---------------------------
option granted under this Article XVIII and the purchase and sale and conveyance
of a portion or portions of the Land constituting a part of the Facility
pursuant hereto shall in no way whatsoever affect this Lease, and all the terms
and provisions hereof shall remain in full force and effect the same as though
no notice of election to purchase had been given, and specifically, but not in
limitation of the generality of the foregoing, exercise of such option shall not
affect, alter, diminish, reduce or abate Tenant's obligations to pay all Basic
Rent and Additional Rent required hereunder.
SECTION 18.5 Effect of Failure to Complete Purchase. If, for any reason
--------------------------------------
whatsoever, the purchase by Tenant of the real property described in said notice
is not effected on the specified date, this Lease shall be and remain in full
force and effect according to its terms the same as though no notice of election
to purchase had been given.
ARTICLE XIX
-----------
SECTION 19.1 Condemnation as to All or Substantially All of Facility.
-------------------------------------------------------
If, during the life of this Lease, title to all or substantially all of the
Facility be condemned by any authority having the power of eminent domain, this
Lease shall (subject to the following provisions of this Article), ipso facto,
terminate on the date possession of the condemned portion of the Facility is
required to be surrendered to the condemning authority. A condemnation which in
Tenant's judgment renders the Facility untenantable or impairs the efficient
utilization of the Facility by Tenant shall be deemed a condemnation of
substantially all of the Facility; provided, however, Tenant agrees to be
reasonable in exercising its judgment.
SECTION 19.2 Disposition of Awards Received Prior to Payment of Bonds.
--------------------------------------------------------
In the event this Lease shall terminate pursuant to Section 19.1 hereof, all
awards received from the condemnation of the Facility during the life of this
Lease, and
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<PAGE>
before the Bonds and interest thereon have been paid in full or adequate
provision made therefor, shall when received become the property of Landlord,
subject to the provisions of this Lease, and Tenant hereby assigns and transfers
to Landlord any and all awards granted in connection with such condemnation and,
after deducting all attorneys' fees and other expenses and costs incurred by
Landlord in connection with such condemnation, shall be forthwith delivered and
paid over by the Landlord to the Fiscal Agent and deposited in the Principal and
Interest Account. All of the Bonds then outstanding shall as soon thereafter as
practicable be called for redemption, and all monies then held in the Principal
and Interest Account by the Fiscal Agent shall be used for the purposes of
paying.the principal of and all interest accrued on the Bonds so called for
redemption and all costs and expenses and premiums, if any, incurred in
connection with the call, redemption and payment of said outstanding Bonds. If
the funds then held by the Fiscal Agent in said Principal and Interest Account
are insufficient in amount for the purposes aforesaid, Tenant shall be obligated
to pay, and it does hereby covenant and agree to pay, to the Fiscal Agent as
additional rent, upon demand therefor, such further sums of money, in cash, as
may be required for such purposes.
SECTION 19.3 Disposition of Awards Received After Payment of Bonds. In
-----------------------------------------------------
the event this Lease shall terminate pursuant to Section 19.1 hereof, all awards
received from the condemnation of the Facility during the life of this Lease and
after the Bonds and interest thereon have been paid in full or adequate
provision made therefor, shall be applied as follows: (a) Landlord shall receive
an amount equal to all attorneys' fees and other expenses and costs incurred by
Landlord in connection with such condemnation aid any sums of money then due and
owing by Tenant under the terms of this Lease, and (b) the balance shall belong
and be paid to Tenant.
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<PAGE>
ARTICLE XX
----------
SECTION 20.1 Condemnation Not Resulting in Termination. Except as
-----------------------------------------
provided in Section 19.1 hereof, a condemnation of the Facility or any part
thereof shall not cause a termination of this Lease or give Landlord or Tenant
any right to terminate this Lease, and neither the term nor any of the
obligations (including the payment of rentals) of either party under this Lease
shall be reduced or affected in any way.
SECTION 20.2 Disposition of Awards Received Prior to Payment of Bonds if
-----------------------------------------------------------
Repairs or Restorations to Facility Are Not Required. If this Lease is not
- ----------------------------------------------------
terminated pursuant to Section 19.1 hereof and if no repairs or restorations to
the Facility are required as a result of the condemnation, then all awards
received from the condemnation of the Facility before the Bonds and interest
thereon have been paid in full shall, when received, become the property of
Landlord, subject to the provisions of this Lease; and Tenant hereby assigns and
transfers to Landlord any and all awards granted in connection with such
condemnation and, after deducting all attorneys' fees and costs reasonably
incurred by Landlord in connection with such condemnation, shall be forthwith
delivered and paid over by the Landlord to the Fiscal Agent and deposited in the
Principal and Interest Account.
SECTION 20.3 Disposition of Awards Received Prior to Payment of Bonds and
------------------------------------------------------------
if Repairs or Restorations to Facility Are Required. If this Lease is not
- ---------------------------------------------------
terminated pursuant to Section 19.1 hereof, but if repairs or restorations to
the Facility are required as a result of the condemnation to make it suitable
for its intended use, then Tenant shall promptly make such repairs and
restorations, so as to make the Facility suitable for Tenant's use hereunder
(and such may, if necessary or convenient, include the purchase of additional
adjacent land, provided that said land shall be conveyed to Landlord, free from
material liens or encumbrances, and become a part of the Facility), and all
awards received from such condemnation of the Facility before the Bonds and
interest thereon have been
-37-
<PAGE>
paid in full shall, when received, become the property of Landlord, subject to
the provisions of this Lease, and Tenant hereby assigns and transfers to
Landlord any and all awards granted in connection with such condemnation and,
after deducting all attorneys' fees and costs reasonably incurred by Landlord in
connection with such condemnation, shall be forthwith delivered and paid over to
the Fiscal Agent and deposited in a special account to be designated "K&E Land &
Leasing Construction Account" (the "Construction Account"). Before commencing
any such repairing, or restoring of the Facility, there shall be delivered to
Landlord performance and labor and material payment bonds with respect to such
work and in the full amount of the contract covering such work made by the
person, firm or corporation which contracts to do such work as the principal and
surety company, or companies, satisfactory to Landlord as surety and in form
satisfactory to Landlord. Said Bonds shall name the Landlord and Tenant as dual
obligees and all amounts received by the Landlord and/or Tenant under said bonds
shall be paid into the Construction Account and become a part thereof. Funds out
of the Construction Account shall be paid to Tenant from time to time upon
receipt by the Fiscal Agent of a certificate signed by a representative selected
by Tenant:
(a) Requesting payment of a specified amount of such funds and
directing to whom such amount shall be paid;
(b) Stating that the amount requested either has been paid by
Tenant or is justly due to contractors, subcontractors, materialmen,
engineers, architects or other persons (whose names and addresses
shall be stated) who have performed necessary and appropriate work or
furnished necessary and appropriate materials in the repair or
restoring of the Facility, and giving a brief description of such work
and materials and the several amounts so paid or due to each of said
persons in respect thereof, and stating that the fair value of such
work or materials is not exceeded by the amount requested to be
withdrawn;
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<PAGE>
(c) Stating that, except for the amounts, if any, stated in
said certificate pursuant to the foregoing subparagraph (b),
there are no outstanding indebtednesses which are then due and
payable for labor, wages, materials, supplies or services in
connection with the repair or restoration of the Facility which,
if unpaid, might become the basis of a vendor's, mechanic's,
laborer's or materialman's statutory or other similar lien upon
the Facility or any part thereof; and
(d) Stating that no part of the several amounts paid or
due, as stated in said certificate pursuant to subparagraph (b)
of this paragraph, has been or is being made the basis for the
withdrawal of any monies in any previous or then pending
application pursuant to this paragraph.
The sole obligation of Landlord under this paragraph shall be to cause
the Fiscal Agent to make such disbursements upon receipt of such certificates.
The Fiscal Agent may rely fully on any such directions and shall not be required
to make any investigation in connection therewith.
SECTION 20.4 Deficiency in Construction Account. If the amount in the
----------------------------------
Construction Account shall be insufficient to pay in full the cost of such
repairing or restoring of the Facility, Tenant shall nevertheless proceed to
complete the work and as additional rent shall provide and furnish all other
monies necessary to complete all such repairs or restorations.
SECTION 20.5 Surplus in Construction Account. Any balance remaining in
-------------------------------
the Construction Account over and above the cost of the repair or restoring of
the Facility shall, upon receipt by the Fiscal Agent of a certificate by the
Tenant's representative aforesaid to the effect that the work has been completed
and that no liens exist, be forthwith deposited by the Fiscal Agent in the
Principal and Interest Account.
SECTION 20.6 Disposition of Awards Received After Payment of Bonds. If
-----------------------------------------------------
this Lease is not terminated pursuant to Section 19.1 hereof, then all awards
received from the condemnation of the Facility after the Bonds and interest
thereon have been
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<PAGE>
paid in full, shall be applied in the same manner as provided in Section 19.3.
ARTICLE XXI
-----------
SECTION 21.1 Condemnation as to Use. If, during the life of this Lease,
----------------------
the use for a limited period of all or part of the Facility be condemned by any
authority having the power of eminent domain, this Lease shall not be thereby
terminated and neither the term nor any of the obligations (including the
payment of rentals) of either party under this Lease shall be reduced or
affected in any way.
SECTION 21.2 Disposition of Awards Received Prior to Payment of Bonds.
--------------------------------------------------------
All awards received for the condemnation during the life of this Lease, and
before the Bonds and interest thereon have been paid in full or adequate
provision made therefor, of the use, for a limited period, of all or part of the
Facility, whether by way of damages, rent or otherwise, shall, when received,
become the property of Landlord, subject to the provisions of this Lease, and
Tenant hereby assigns and transfers to Landlord any and all awards granted in
connection with such condemnation and, after deducting all attorneys' fees and
costs reasonably incurred by Landlord in connection with such condemnation,
shall be forthwith delivered and paid over to the Fiscal Agent and deposited in
the Principal and Interest Account.
SECTION 21.3 Disposition of Awards Received After Payment of Bonds. All
-----------------------------------------------------
awards received for the condemnation of the use for a limited period of all or
part of the Facility, during the life of this Lease, and after the Bonds and
interest thereon have been paid in full or adequate provision made there for,
whether by way of damages, rent or otherwise, shall be applied as follows:
Landlord shall receive therefrom the amount of all reasonable attorneys' fees
and costs and expenses reasonably incurred by Landlord in connection with such
condemnation and any sum or sums of money then due and owing by Tenant to
Landlord under the terms of this Lease; and Urn balance shall belong to and be
paid to Tenant.
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<PAGE>
SECTION 21.4 Restoration of Facility. If the period of condemnation of
-----------------------
the use, for a limited period, of all or part of the Facility shall end before
the Bonds and interest thereon have been paid in full or adequate provision made
there for, Tenant shall, upon being restored to possession, restore the Facility
as nearly as may be possible to the condition existing immediately prior to such
condemnation.
ARTICLE XXII
------------
SECTION 22.1 Damage or Destruction by Fire or Other Casualty. If, at any
-----------------------------------------------
time during the life of this Lease, the Facility or parts thereof are damaged or
destroyed by fire or other casualty, Tenant shall, unless Tenant purchases the
Facility pursuant to Section 22.2 hereof, proceed with due diligence to repair,
restore, rebuild or replace said damaged or destroyed Facility or parts thereof
to as good condition as the same were in immediately prior to such damage or
destruction, subject to such alterations as Tenant may elect to make as
permitted in Article X. Tenant shall, before commencing the work of repairing,
restoring, rebuilding or replacing the Facility or parts thereof as above
provided, deliver to Landlord performance bonds and labor and material payment
bonds with respect to such work and in the full amount of the contract covering
such work made by the person which contracts to do such work as the principal
and a surety company, or companies, satisfactory to Landlord as surety and in
form satisfactory to Landlord. Such bonds shall name the Landlord and Tenant as
dual obligees and all amounts received by Landlord and/or Tenant under said
bonds before the Bonds and interest thereon have been paid in full shall be paid
over to the Insurance Trustee and become a part of the insurance monies.
SECTION 22.2 Purchase of Facility and Use of Insurance. In the event
-----------------------------------------
that such damage or destruction occurs before the Bonds and interest thereon
have been paid in full and Tenant shall have elected to exercise its option to
purchase the Facility pursuant to Article XVII hereof, all of the insurance
-41-
<PAGE>
monies attributable to damage or destruction of the Facility collected by the
Insurance Trustee on account of such damage or destruction on the policy or
policies of insurance maintained by Tenant pursuant to Article VI hereof shall,
concurrently with the purchase of the Facility by Tenant, become the absolute
property of Landlord and be forthwith delivered and paid over to the Fiscal
Agent and deposited in the Principal and Interest Account and applied toward the
purchase price.
SECTION 22.3 Use of Insurance Monies if Lease Not Terminated. In the
-----------------------------------------------
event that such damage or destruction occurs before the Bonds and interest
thereon have been paid in full and this Lease is not terminated pursuant to
Section 22.2 hereof, funds out of the insurance monies collected by the
Insurance Trustee shall be paid to Tenant by the Insurance Trustee upon receipt
by the Insurance Trustee of the certificates described in Section 20.3 hereof
with respect to the Construction Account there referred to, provided that the
words "repair or restoring of the Facility" there used in describing said
certificates shall for the purposes of this paragraph refer to "repairing,
restoring, rebuilding or replacing of the Facility". All such insurance monies
not required to be used for such purpose shall, upon receipt by the Insurance
Trustee of a certificate by an architect or engineer selected by Tenant to the
effect that the work has been completed and that no liens exist, become the
absolute property of the Landlord and be forthwith delivered and paid over to
the Fiscal Agent and deposited in the Principal and Interest Account. If such
insurance monies are insufficient in amount to pay in full the cost of all
repairs, restorations, rebuilding and replacements of said damaged or destroyed
Facility, Tenant shall provide and furnish all other monies necessary to fully
complete all such repairs, restorations, rebuilding and replacements.
SECTION 22.4 Application of Insurance Monies in Event of Tenant's Default
------------------------------------------------------------
Anything in this Article to the contrary
-42-
<PAGE>
notwithstanding, Landlord shall have the right at any time and from time to time
to notify the Insurance Trustee to withhold payment of all or any part of the
insurance monies attributable to damage or destruction of the Facility to Tenant
in the event (a) Tenant is in default in the payment of Basic Rent or Additional
Rent, (b) Landlord has given notice to Tenant of any other default on Tenant's
part under this Lease, or (c) a default described under Section 24.1(e) has
occurred. After receipt of such notice from the Landlord, the Insurance Trustee
shall not pay any part of said insurance monies to Tenant without Landlord's
prior written consent, which Landlord will not unreasonably withhold. In the
event Tenant shall cure the defaults specified in (a) or (b) above or a default
specified in (c) above shall cease to exist, Landlord shall promptly so notify
the Insurance Trustee and after receipt of such notice, the Insurance Trustee
shall make payments from the said insurance monies to Tenant in accordance with
provisions of this Article; provided, however, that if this Lease is terminated
or Landlord otherwise re-enters and takes possession of the Facility without
terminating this Lease under the provisions of Article XXIV, the Landlord may
direct the Insurance Trustee to pay all of said insurance monies then held by it
attributable to damage or destruction of the Facility to the Fiscal Agent for
deposit in the Principal and Interest Account and upon such payment to the
Fiscal Agent all duties, responsibilities and obligations of the Insurance
Trustee with respect to such insurance monies, and all rights of the Tenant in
and to such insurance monies, shall cease.
SECTION 22.5 Application of Insurance Monies After Payment of Bonds. If
------------------------------------------------------
such damage or destruction to the Facility occurs after the Bonds and interest
thereon have been paid in full, all of the insurance proceeds shall become the
absolute property of Tenant and be forthwith delivered and paid over to Tenant.
-43-
<PAGE>
ARTICLE XXIII
-------------
SECTION 23.1 Termination by Reason of Change of Circumstance. If, at any
-----------------------------------------------
time during the life of this Lease, (i) as a result of changes in the
Constitution of the State of Kansas, or of legislative or administrative action
by the State of Kansas or any political subdivision thereof, or by the United
States, or by reason of any action instituted in any court, this Lease shall
become void or unenforceable, or impossible of performance without unreasonable
delay, or in any other way, by reason of such change of circumstances,
unreasonable burdens or excessive liabilities are imposed upon the Tenant,
including without limitation Federal, state or other ad valorem, property,
income or other taxes not being imposed on the date of this Lease, or (ii) title
to, or the use for a limited period of, all or substantially all of the Facility
is condemned by any authority having the power of eminent domain; or (iii) all
or substantially all of the Facility is damaged or destroyed by fire or other
casualty, then in any of such events Tenant shall have the option to terminate
this Lease by giving Landlord notice of such termination within Ninety (90) days
after Tenant has actual knowledge of the change giving rise to such option. In
the event that such change shall take place before the Bonds and interest
thereon have been paid in full and Tenant shall elect to terminate this Lease,
then all of the Bonds then outstanding shall as soon thereafter as practicable
be called for redemption, and all monies then held in the Principal and Interest
Account by the Fiscal Agent shall be available for use to pay the principal of
and all interest accrued and redemption premium, if any, on the Bonds so called
for redemption and all reasonable costs and expenses incurred in connection with
the call, redemption and payment of said outstanding Bonds. If the funds then
held by the Fiscal Agent in the Principal and Interest Account are insufficient
in amount for the purposes aforesaid, Tenant shall be obligated to pay, and it
does hereby covenant and agree to pay, to the Fiscal Agent additional rent,
-44-
<PAGE>
upon demand therefor, such further sums of money, in cash, as may be required
for such purpose.
ARTICLE XXIV
------------
SECTION 24.1 Default Provisions. This Lease is made on condition that
------------------
if:
(a) Tenant fails to make the installments of Basic Rent required
under Section 2.1 hereof on the day any such payment is required to be made; or
(b) There are not sufficient funds to pay principal and interest on
the Bonds in the Principal and Interest Account at least Ten (10) days prior to
any date for payment of same; or
(c) Tenant defaults in the due and punctual payment of Additional
Rent; or
(d) Tenant defaults in the keeping or performance of any other
covenant or obligation herein contained on Tenant's part to be kept or
performed, and Tenant fails to remedy the same within Thirty (30) days after
Landlord or the Fiscal Agent has given Tenant written notice specifying such
default (or within such additional period, if any, as may be reasonably required
to cure such default if it is of such nature that it cannot be cured within said
Thirty (30) day period because of governmental restriction or other cause beyond
the control of the Tenant); or
(e) Tenant shall file a voluntary petition under the Bankruptcy Act,
as amended, or an involuntary petition under the Bankruptcy Act, as amended, is
filed against Tenant and Tenant after full hearing, is adjudged to be bankrupt,
insolvent or unable to pay its debts as they mature; or Tenant makes an
assignment for the benefit of its creditors; or a trustee or receiver, after
full hearing, is appointed or retained to take charge of and manage any
substantial part of the assets of Tenant; or any execution or attachment shall
issue against Tenant whereupon the Facility or any part thereof, or any
-45-
<PAGE>
interest therein of Tenant under this Lease shall be taken or attempted to be
taken and the same is not released prior to judicial sale thereunder (each of
the events described in this subparagraph being deemed a default under the
provisions of this Lease);
then Landlord may at Landlord's election (subject, however, to any restrictions
against termination of this Lease in the Bond Ordinance) then or at any time
thereafter, and while such default shall continue, give Tenant written notice of
intention to terminate this Lease on a date specified therein, which date shall
not be earlier than Ten (10) days after such notice is given and, if all
defaults have not then been cured on the date so specified, Tenant's rights to
possession of the Facility shall cease, and this Lease shall thereupon be
terminated, and Landlord may re-enter and take possession of the Facility as of
Landlord's former estate; and as an alternative remedy, Landlord may, at
Landlord's election, without terminating the term hereof, or this Lease, re-
enter the Facility or take possession thereof pursuant to legal proceedings or
pursuant to any notice provided for by law, and having elected to re-enter or
take possession of the Facility without terminating the term of this Lease,
Landlord shall use reasonable diligence to relet the Facility, or parts thereof,
for such term or terms and at such rental and upon such other terms and
conditions as Landlord may deem advisable, with the right to make alterations
and repairs to the Facility, and no such re-entry or taking of possession of the
Facility by Landlord shall be construed as an election on Landlord's part to
terminate this Lease, and no such re-entry or taking of possession by Landlord
shall relieve Tenant of its obligation to pay Basic Rent or Additional Rent (at
the time or times provided herein), or of any of its other obligations under
this Lease, all of which shall survive such re-entry or taking of possession,
and Tenant shall continue to pay the Basic Rent and Additional Rent provided for
in this Lease until the end of the term and whether or not the Facility shall
have
-46-
<PAGE>
been relet, less the net proceeds, if any, of any reletting of the Facility
after deducting all of Landlord's expenses in or in connection With such
reletting, including without limitation, all repossession costs, brokerage
commissions, legal expenses, expenses of employees, alteration costs and
expenses of preparation for reletting. Said net proceeds of any reletting shall
be deposited in the Principal and Interest Account. Having elected to re-enter
or take possession of the Facility without terminating the term of this Lease,
Landlord may (subject, however, to any restrictions against termination of this
Lease in the Bond Ordinance), by notice to Tenant given at any time thereafter
while Tenant is in default in the payment of Basic Rent or Additional Rent or in
the performance of any other obligation under this Lease, elect to terminate
this Lease on a date to be specified in such notice, which date shall be not
earlier than Ten (10) days after the giving of such notice, and if all defaults
shall not have then been cured, on the date so specified, this Lease shall
thereupon be terminated. If, in accordance with any of the foregoing provisions
of this Article, Landlord shall have the right to elect to re-enter and take
possession of the Facility, Landlord may enter and expel Tenant and those
claiming through or under Tenant and remove the property and effects of both or
either (forcibly if necessary) without being guilty of any manner of trespass
and without prejudice to any remedies for arrears of rent or preceding breach of
covenant.
SECTION 24.2 Survival of Obligations. Tenant covenants and agrees with
-----------------------
Landlord and the holders of the Bonds that until the Bonds and the interest
thereon and redemption premium, if any, are paid in full or provision made for
the payment thereof, its obligations under this Lease shall survive the
cancellation and termination of this Lease, for any cause, and that Tenant shall
continue to pay Basic Rent and Additional Rent and perform all other obligations
provided for in this Lease, all at the time or times provided in this Lease.
-47-
<PAGE>
ARTICLE XXV
-----------
SECTION 25.1 Performance of Tenant's Obligations by Landlord. If Tenant
-----------------------------------------------
shall fail to keep or perform any of its obligations as provided in this Lease,
then Landlord may (but shall not be obligated to do so) upon the continuance of
such failure on Tenant's part for Thirty (30) days after notice of such failure
is given Tenant by Landlord or Fiscal Agent and without waiving or releasing
Tenant from any obligation here-under, as an additional but not exclusive
remedy, make any such payment or perform any such obligation, and all sums so
paid by Landlord and all necessary and reasonable incidental costs and expenses
incurred by Landlord in performing such obligations shall be deemed Additional
Rent and shall be paid to Landlord on demand, and if not so paid by Tenant
within Ten (10) days of demand, Landlord shall have the same rights and remedies
provided for in Article XXIV in the case of default by Tenant in the payment of
Basic Rent.
ARTICLE XXVI
------------
SECTION 26.1 Surrender of Possession. Upon accrual of Landlord's right
-----------------------
of re-entry because of Tenant's default hereunder or upon the cancellation or
termination of this Lease by lapse of time or otherwise, Tenant shall peacefully
surrender possession of the Facility to Landlord in good condition and repair,
ordinary wear and tear excepted; provided, however, Tenant shall have the right,
prior to the termination of this Lease, to remove from or about the Facility the
buildings and improvements, machinery, equipment and property, the furniture and
trade fixtures which Tenant owns under the terms of this Lease. All repairs to
and restorations of the Facility required to be made because of such removal
shall be made by and at the sole cost and expense of Tenant. All machinery,
equipment, property, furniture, trade fixtures, buildings and improvements owned
by Tenant and which are not so removed from or about the Facility prior to the
termination of this Lease shall become the separate and absolute property of
Landlord.
-48-
<PAGE>
ARTICLE XXVII
-------------
SECTION 27.1 Notices. All notices required or desired to be given
-------
hereunder shall be in writing and all such notices and other written documents
required or desired to be given hereunder shall be deemed duly served and
delivered for all purposes (a) upon Landlord, if delivered in person to its duly
elected, qualified and acting Mayor or Clerk or if a copy thereof be mailed by
certified or registered mail, postage prepaid, addressed to Landlord at the
public office of its duly elected, qualified and acting Clerk or at such other
place as Landlord from time to time may designate in writing to Tenant and
Fiscal Agent; and (b) upon Tenant if delivered in person to any partner of
Tenant or if a copy thereof be mailed by certified or registered mail, postage
prepaid, addressed to Tenant at Suite 503, Morrow Building II, 301 Loop 820,
N.E., Hurst, Texas 76063, or at such other place as Tenant from Lime to time may
designate in writing to Landlord and Fiscal Agent, and (c) upon the Fiscal Agent
if delivered in person to any Trust Officer of Fiscal Agent or if a copy thereof
be mailed by certified or registered mail, postage prepaid, addressed to Fiscal
Agent at P.O. Box 637, Wichita, KS 67201, or at such other place as the Fiscal
-------------------------------
Agent from time to time may designate in writing to Landlord and Tenant. All
notices given by certified or registered mail as aforesaid shall be deemed duly
given as of the date they are so mailed.
ARTICLE XXVIII
---------------
SECTION 28.1 Net Lease. The parties hereto agree (a) that this Lease is
---------
intended to be a net lease, (b) that the payments of Basic Rent are designed to
provide Landlord and its Fiscal Agent with funds adequate in amount to pay all
principal of and interest on the Bonds as the same become due and payable and to
pay and discharge all of the other duties and requirements set forth in Section
2.1 hereof, and (c) that to the extent that the payments of Basic Rent are not
sufficient to provide
-49-
<PAGE>
the Landlord and its Fiscal Agent with funds sufficient for the purposes
aforesaid, Tenant shall be obligated to pay, and it does hereby covenant and
agree to pay, upon demand therefor, such further sums of money, in cash, as may
from time to time be required for such purposes.
SECTION 28.2 Funds Held by Fiscal Agent After Payment of Bonds. If,
------------------------------------------------
after the principal of and interest on the Bonds and all costs incident to the
payment of Bonds have been paid in full, the Fiscal Agent holds unexpended funds
received in accordance with the terms hereof, such unexpended funds shall,
except as otherwise provided in this Lease and the Bond Ordinance and after
payment there from to Landlord of any sums of money then due and owing by Tenant
under the terms of this Lease, be the absolute property of and be paid over
forthwith to Tenant.
ARTICLE XXIX
------------
SECTION 29.1 Rights and Remedies. The rights and remedies reserved by
-------------------
Landlord and Tenant hereunder and those provided by law shall be construed as
cumulative and continuing rights. No one of them shall be exhausted by the
exercise thereof on one or more occasions. Landlord and Tenant shall each be
entitled to specific performance, and injunctive or other equitable relief for
any breach or threatened breach of any of the provisions of this Lease,
notwithstanding the availability of an adequate remedy at law, and each party
hereby waives the right to raise such defense in any proceeding in equity.
SECTION 29.2 Waiver of Breach. No waiver of any breach of any covenant
----------------
or agreement herein contained shall operate as a waiver of any subsequent breach
of the same covenant or agreement or as a waiver of any breach of any other
covenant or agreement, and in case of a breach by either party of any covenant,
agreement or undertaking, the nondefaulting party may nevertheless accept from
the other any payment or payments or
-50-
<PAGE>
performance hereunder without in any way waiving its right to exercise any of
its rights and remedies provided for herein or otherwise with respect to any
such default or defaults which were in existence at the time such payment or
payments or performance were accepted by it.
SECTION 29.3 Abandonment by Tenant. If Tenant vacates or abandons the
---------------------
Facility, Landlord shall have all the same rights and remedies against Tenant by
reason thereof as are herein granted to Landlord upon and by reason of a default
of the Tenant.
SECTION 29.4 Landlord Shall Not Unreasonably Withhold Consents and
-----------------------------------------------------
Approvals. Wherever in this Lease it is provided that the Landlord shall, may
- ---------
or must give its approval or consent, or execute supplemental agreements,
exhibits or schedules, Landlord shall not unreasonably, arbitrarily or
unnecessarily withhold or refuse to give such approvals or consents or refuse to
execute such supplemental agreements, exhibits or schedules.
ARTICLE XXX
-----------
SECTION 30.1 Quiet Enjoyment and Possession. Landlord covenants that so
------------------------------
long as Tenant shall not be in default under this Lease, Tenant shall and may
peaceably and quietly have, hold and enjoy the Facility and that Landlord will
defend Tenant's enjoyment and possession thereof against all parties.
SECTION 30.2 Due Organization and Authority of Landlord. Landlord
------------------------------------------
represents, warrants and covenants that it is a municipal corporation duly
organized and existing under the laws of the State of Kansas, with lawful power
and authority to enter into this Lease, acting by and through its duly
authorized officials.
ARTICLE XXXI
------------
SECTION 31.1 Authority of Tenant. Tenant covenants that it is a duly
-------------------
existing partnership, with lawful power and authority
-51-
<PAGE>
to enter into this Lease, acting by and through its duly authorized partners.
The execution of this Lease and the performance of the terms of this Lease by
Tenant will not result in a breach of any of the terms of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which Tenant is a party or by which it or any of its property
is bound, or the Tenant's Partnership Agreement or to Tenant's knowledge, any
order, rule or regulation applicable to Tenant or its property of any court or
other governmental body.
SECTION 31.2 Maintenance of Existence by Tenant. Tenant shall maintain
----------------------------------
and preserve its existence and its authority to do business in the State of
Kansas and to operate the Facility. Tenant shall not terminate without (i)
securing the prior written consent thereto of the Landlord and (ii) making
provision for the payment in full of the principal of and interest and
redemption premium, if any, on the Bonds.
SECTION 31.3 Financial Reports by Tenant and Subtenant. During the life
-----------------------------------------
of this Lease or until the Bonds are paid in full or adequate provision made
therefor an annual audit of Subtenant's books and accounts shall be made by an
independent certified public accountant. During such period, Tenant will, or
shall cause Subtenant to, promptly file a copy of said report with Landlord, the
Fiscal Agent and the Original Underwriter, as well as a copy of Tenant's
unaudited balance sheet and income statement for the same period. Tenant shall
also make, or cause to be made, available to any Bondholder or prospective
Bondholder or, any agent thereof, on request, any of said annual reports.
SECTION 31.4 Covenant to Reimburse. Tenant will reimburse Landlord for
---------------------
any and all obligations reasonably assumed or incurred by Landlord under this
Lease.
SECTION 31.5 Investment Tax Credit; Depreciation. Tenant or Subtenant
-----------------------------------
shall be entitled to claim the full benefit of (1) any investment credit against
federal or state income tax allowable with respect to expenditures of the
character
-52-
<PAGE>
contemplated hereby under any federal or state income tax laws now or from time
to time hereafter in effect, and (2) any deduction for depreciation of the
Improvements to be constructed or purchased hereunder from federal or state
income taxes. Landlord agrees that it will upon Tenant's or Subtenant's request
execute all such elections, returns or other documents which may be reasonably
necessary or required to more fully assure the availability of such benefits to
Tenant or Subtenant.
ARTICLE XXXII
-------------
SECTION 32.1 Amendments. This Lease may be amended, changed or modified
----------
in the following manner:
(a) With respect to any amendment, change or modification which will
materially adversely affect the security or rights of the holders of any of the
Bonds, by an agreement in writing executed by the Landlord and Tenant and
consented to in writing by the holders of Sixty-Six and Two-Thirds percent (66
2/3%) of the aggregate principal amount of the Bonds then outstanding.
(b) With respect to any amendment, change or modification which
reduces the Basic Rent or Additional Rent, or any amendment which reduces the
percentage of bondholders whose consent is required for any such amendment,
change or modification, by an agreement in writing executed by Landlord and
Tenant and consented to in writing by the holders of One Hundred percent (100%)
of the aggregate principal amount of the Bonds then outstanding; and
(c) With respect to all other amendments, changes, or modifications
by an agreement in writing executed by Landlord and Tenant.
At least Thirty (30) days prior to the execution of any agreement
pursuant to (c) above, Landlord and Tenant shall furnish the Fiscal Agent and
the original underwriter of the Bonds with a copy of the amendment, change or
modification proposed to be made.
-53-
<PAGE>
SECTION 32.2 Granting of Easements. If no event of default under this
---------------------
Lease shall have happened and be continuing, the Tenant may, at any time or
times, (a) grant easements, licenses and other rights or privileges in the
nature of easements with respect to any property included in the Facility, free
from any rights of Landlord or the Bondholders, or (b) release existing
easements, licenses, rights-of-way and other rights or privileges, all with or
without consideration and upon such terms arid conditions as the Tenant shall
determine, and the Landlord agrees, to the extent that it may legally do so,
that it will execute and deliver any instrument necessary or appropriate to
confirm and grant or release any such easement, license, right-of-way or other
right or privilege or any such agreement or other arrangement, upon receipt by
the Landlord of: (i) a copy of the instrument of grant or release or of the
agreement or other arrangement, (ii) a written application signed by a partner
of the Tenant requesting such instrument and (iii) a certificate executed by a
partner of the Tenant stating (aa) that such grant or release is not detrimental
to the proper conduct of the business of the Tenant, and (bb) that such grant or
release will not impair the effective use or interfere with the efficient and
economical operation of the Facility and will not materially adversely affect
the security of the Bondholders. If the instrument of grant shall so provide,
any such easement or right and the rights of such other parties thereunder shall
be superior to the rights of the Landlord and the Bondholders and shall not be
affected by any termination of this Lease or default on the part of the Tenant
hereunder. If no event of default shall have happened and be continuing, any
payments or other consideration received by the Tenant for any such grant or
with respect to or under any such agreement or other arrangement shall be and
remain the property of the Tenant, but, in the event of the termination of this
-54-
<PAGE>
Lease or default of the Tenant, all rights then existing of the Tenant with
respect to or under such grant shall inure to the benefit of and be exercisable
by the Landlord.
SECTION 32.3 Construction and Enforcement. This Lease shall be construed
----------------------------
and enforced in accordance with the laws of Kansas. Wherever in this Lease it is
provided that either party shall or will make any payment or perform or refrain
from performing any act or obligation, each such provision shall, even though
not so expressed, be construed as an express covenant to make such payment or to
perform, or not to perform, as the case may be, such act or obligation.
SECTION 32.4 Invalidity of Provisions of Lease. If, for any reason, any
---------------------------------
provision hereof shall be determined to be invalid or unenforceable, the
validity and effect of the other provisions hereof shall not be affected
thereby.
SECTION 32.5 Covenants Binding on Successors and Assigns. The covenants,
-------------------------------------------
agreements and conditions herein contained shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
SECTION 32.6 Paragraph Headings. The paragraph headings shall not be
------------------
treated as a part of this Lease or as affecting the true meaning of the
provisions hereof. The reference to sections herein or in the Bond Ordinance
shall be deemed to refer to the numbers preceding each paragraph.
SECTION 32.7 Execution of Counterparts. This Lease may be executed
-------------------------
simultaneously in multiple counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
-55-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed these presents as of
the day and year first above written.
CITY OF NEWTON, KANSAS
By: /s/ Fred Gonzalez
------------------------
Attest: Mayor
/s/ Allison Schroeder
- ------------------------
City Clerk
[Seal]
"LANDLORD"
K&E LAND & LEASING
-
/s/ Billy T. Everett
---------------------------
Partner
/s/ Jerry E. Kimmel
---------------------------
Partner
"TENANT"
-56-
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
)ss:
COUNTY OF HARVEY )
BE IT REMEMBERED that on this, 17th day of April, 1980, before me, a notary
---- -----
public in and for said county and state, came Fred Gonzalez, Mayor of the City
of Newton, Kansas, a municipal corporation duly authorized, incorporated and
existing under and by virtue of the Constitution and laws of the State of
Kansas, and Allison Schroeder, City Clerk of said City, who are personally known
to me to be the same persons who executed, as such officers, the within
instrument on behalf of said City, and such persons duly acknowledged the
execution of the same to be the act and deed of said City.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year last above written.
/s/ Alice Jeanne Terrill
------------------------------
Notary Public
[SEAL]
My Appointment Expires: Feb. 5th, 1982
STATE OF TEXAS
----------
) ss:
COUNTY OF TARRANT )
---------
BE IT REMEMBERED that on this 17th day of April, 1980, before we, a notary
---- -----
public in and for said county and state, came Billy T. Everett, Partner of K&E
----------------
Land & Leasing, a partnership duly organized and existing under and by virtue of
the laws of Texas, and Gerald E. Kimmel, Partner of said partnership, who are
----------------
personally known to we to be such partners, and who are personally known to me
to be the same persons who executed, as such partners, the within instrument on
behalf of said partnership, and such persons duly acknowledged the execution of
the same to be the act and deed of said partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year last above written.
/s/ Richard S. Tucker
----------------------------
Notary Public
My Appointment Expires: RICHARD S. TUCKER, Notary
Public in and for Tarrant
County, Texas My Commission
Expires April 30 1981
-- ----
-57-
<PAGE>
SCHEDULE I
SCHEDULE I TO ORDINANCE NO. 3473 OF THE CITY OF NEWTON, KANSAS, AND TO
THE LEASE DATED APRIL 1, 1980, BY AND BETWEEN SAID CITY AND K&E LAND &
LEASING, AUTHORIZED BY SAID ORDINANCE.
PROPERTY SUBJECT TO LEASE
-------------------------
(a) The following described real estate located in Harvey County,
Kansas, to wit:
Lot 4, Block 5, a subdivision of Block 5, NEWTON INDUSTRIAL PARK
ADDITION to the City of Newton, Harvey County, Kansas. Property
commonly known as 915 So. Spencer Road.
said real property constituting the "Land" as referred to in said Lease.
(b) All buildings, improvements, machinery and equipment now or
hereafter constructed, located or installed on the Land pursuant to said Lease,
constituting the "Improvements" as referred to in said Lease and said Ordinance,
and more specifically described as follows:
A 38,400 sq. ft. pre-stressed concrete building containing office and
warehouse space, railroad spur and parking lot.
the property described in paragraphs (a) and (b) of this Schedule I together
constituting the "Facility" as referred to in said Lease and said Ordinance.
<PAGE>
SCHEDULE II
Basic Rent Schedule
-------------------
<TABLE>
<CAPTION>
Payment Dates (inclusive) Amount
---------------------------------- ---------
<S> <C>
April 1, 1980, to March 1, 1981 $4,614.58
April 1, 1981, to March 1, 1982 4,573.96
April 1, 1982, to March 1, 1983 4,950.00
April 1, 1983, to March 1, 1984 4,866.67
April 1, 1984, to March 1, 1985 4,783.33
April 1, 1985, to March 1, 1986 4,700.00
April 1, 1986, to March 1, 1987 5,031.25
April 1, 1987, to March 1, 1988 4,903.13
April 1, 1988, to March 1, 1989 4,775.00
April 1, 1989, to March 1, 1990 4,643.75
April 1, 1990, to March 1, 1991 4,512.50
April 1, 1991, to March 1, 1992 4,797.92
April 1, 1992, to March 1, 1993 4,206.25
April 1, 1993. to March 1, 1994 4,519.79
April 1, 1994, to March 1, 1995 4,798.96
April 1, 1995, to March 1, 1996 4,627.08
April 1, 1996, to March 1, 1997 4,871.88
April 1, 1997, to March 1, 1998 4,665.63
April 1, 1998, to March 1, 1999 4,459.38
April 1, 1999, to March 1, 2000 4,669.79
April 1, 2000, to March 1, 2001 4,845.83
April 1, 2001, to March 1, 2002 4,570.83
April 1, 2002, to March 1, 2003 4,712.50
April 1, 2003, to March 1, 2004 4,403.13
April 1, 2004, to March 1, 2005 4,510.42
</TABLE>
<PAGE>
EXHIBIT 10.10
SUBLEASE AND LEASE GUARANTEE AGREEMENT
THIS SUBLEASE AND LEASE GUARANTEE AGREEMENT made and entered into as of the
first day of April, 1980, (the "Sublease") by and among K&E Land & Leasing, a
partnership (the "Tenant"), and Kevco, Inc., a Texas corporation (the
"Subtenant"), and Union National Bank of Wichita, Wichita, Kansas (the "Fiscal
Agent").
W I T N E S S E T H:
WHEREAS, Tenant has entered into a Lease dated as of April 1, 1980,
covering the property hereinafter described, which Lease is more specifically
hereafter described and Tenant desires to enter into a Sublease with Subtenant
covering the same property and upon the same terms and conditions, as set forth
herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, Tenant and Subtenant, with the approval of the
City of Newton, Kansas, and the Fiscal Agent do hereby covenant and agree as
follows:
1. That certain Lease made and entered into as of the first day of
April, 1980, by and between the City of Wichita, Kansas, a municipal corporation
of Harvey County, Kansas, (the "Landlord") and K&E Land & Leasing, a Texas
partnership (the "Tenant") and covering the property hereinafter described is
hereby incorporated by reference as though fully set out herein and made a part
hereof, which Lease is sometimes hereinafter called the "Lease". Also made a
part hereof and incorporated herein by reference, is that certain Ordinance No.
3473 of the City of Newton, Kansas, related to the Lease and authorizing the
issuance of Industrial Revenue Bonds, Series 1980-S, in the aggregate principal
amount of Five Hundred Seventy-five Thousand Dollars ($575,000) dated April 1,
1980, and issued for the purpose of providing funds to pay the cost of acquiring
certain real property and constructing and equipping certain improvements to be
located thereon, which bonds are hereinafter sometimes referred to as the
"Bonds", and which are secured by the Lease and this Sublease.
2. Tenant hereby subleases to Subtenant the real property together
with the improvements located and to be located thereon described in paragraphs
(a) and (b) of Schedule I attached hereto and incorporated herein by reference,
as if fully set forth herein, for the basic rent of $6,083, subject to increase
as hereinafter provided, and upon and further subject to the terms and
conditions where applicable as set forth in the Lease. Tenant and Subtenant
agree that Tenant shall have the right exercisable at any time prior to any
anniversary date
<PAGE>
of this Sublease, to increase the basic rent to be paid to Tenant by Subtenant
in an amount not to exceed 25% of the monthly rental paid by Subtenant to Tenant
during the preceding twelve-month period. Subtenant shall not have the right to
exercise the option to purchase the property granted to Tenant by the City in
the Lease, unless the Tenant should otherwise agree.
3. Subtenant hereby specifically consents to and affirms all of the
terms, conditions and provisions of the Lease. In addition, the Subtenant hereby
unconditionally and irrevocably guarantees to the Fiscal Agent, for the benefit
of the City and the holders of the Bonds, the full and timely performance by
Tenant of each of its obligations and payments under the Lease.
4. This Sublease shall be non-cancellable between the parties as long as
any of the Bonds are outstanding or until adequate provision is made therefor,
regardless of any breach or act by either party; and neither party shall have
any right of setoff or counterclaim against the payments, obligations and
responsibilities of the Lease or Sublease unless such right of setoff or
counterclaim arises under the Lease or Sublease.
5. An annual audit of Subtenant's books and accounts shall be made by an
independent certified public accountant. When completed, Subtenant will promptly
file a copy of said audit with Landlord, the Fiscal Agent and the original
underwriter of the Bonds, and Subtenant shall also make available to any
Bondholder or prospective Bondholder or, any agent thereof, on request, any of
said annual audits.
6. Subtenant agrees that this Sublease shall constitute additional
security for the Bonds and is executed and delivered for the benefit of the
bondholders of such Bonds and the Landlord and Fiscal Agent on behalf of such
holders. In the event of the failure of the Tenant to enforce this Sublease as
against the Sub tenant, it may be enforced directly against Subtenant by the
City of Newton or the Fiscal Agent, or both, by way of .subrogation or
otherwise, as if Subtenant was the original tenant under the Lease. Any action
taken by the City or the Fiscal Agent against Tenant or Sub tenant shall not
constitute a waiver or estoppel of right to proceed against the other. The
approval of this Sublease by the City of Newton shall be necessary to the
validity thereof, but such approval shall not constitute a waiver of any
provisions of the Lease as between the Landlord and Tenant.
7. Subtenant shall maintain and preserve its existence and organization
as a corporation qualified to do business in the State of Kansas and to operate
the Facility. Subtenant shall not initiate any proceedings of any kind
whatsoever to dissolve or liquidate without (i) securing the prior written
consent thereto of the Landlord and the City of Newton, and
<PAGE>
(ii) making provision for the payment in full of its obligations as Subtenant
hereunder. Except as permitted under paragraph 10 hereof, Subtenant covenants to
maintain its corporate existence until the Bonds are paid or provision is made
therefor.
8. Subtenant may assign its interest in this Sublease. However, in the
event of any such assignment, Subtenant shall remain fully liable for the
performance of its duties and obligations hereunder, except to the extent
hereinafter provided, and no such assignment and no dealings or transactions
with any such assignee shall relieve Subtenant of any of its duties and
obligations hereunder, except as may be otherwise provided in paragraph 9 and 10
hereof.
9. Notwithstanding the provisions of paragraph 8 hereof, if, in
connection with an assignment by Subtenant of its interests in this Sublease,
(1) the City of Newton, the Tenant and the holders of Ninety percent (90%) in
aggregate principal amount of the outstanding Bonds (including any additional
bonds issued under the provisions of the Bond Ordinance) shall file with the
Fiscal Agent and the Original Underwriter their prior written consent to such
assignment which consent shall not be unreasonably withheld, and (2) the
proposed assignee shall expressly assume and agree to perform all of the
obligations of Subtenant under this Sublease; then and in such event the
Subtenant shall be fully released from all obligations accruing hereunder after
the date of such assignment.
10. Notwithstanding the provisions of paragraphs 8 and 9 hereof, if
Subtenant shall assign its interest in this Sublease as part of a transaction
involving the merger or consolidation of Subtenant with or into, or a sale,
lease or other disposition of all or substantially all of the property of
Subtenant as an entirety to another person, association, corporation or other
entity, and (1) the Tenant and the City of Newton shall file with the Fiscal
Agent their prior written consent to such assignment which consent shall not be
unreasonably withheld, (2) the proposed assignee shall expressly assume and
agree to perform all of the obligations of Sub tenant under this Sublease and
(3) Subtenant shall furnish the Fiscal Agent and the City of Newton with
evidence in the form of financial statements certified by an independent
certified public accountant of recognized standing establishing that the net
worth of such proposed assignee immediately following such assignment will be at
least equal to the net worth of Sub tenant as shown by the last previous such
financial statement of Subtenant; then and in such event the Subtenant shall be
fully released from all obligations accruing hereunder after the date of such
assignment.
11. The covenants, agreements and conditions herein contained shall be
binding upon and inure to the benefit of the parties hereto and their
successors, assigns, heirs, executors and administrators.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed these presents the day
and year first above written.
K&E LAND & LEASING
Tenant
/s/ Billy T. Everett
------------------------------
Partner
/s/ Jerry E. Kimmel
------------------------------
Partner
KEVCO, INC.
Subtenant
/s/ Jerry E. Kimmel
------------------------------
Attest: President
/s/ Billy T. Everett
- -------------------------------
Secretary
[Seal]
UNION NATIONAL BANK OF WICHITA
Attest: By [SIGNATURE ILLEGIBLE]
-----------------------------
Authorized Officer
/s/ M. Eloise Kennedy
- -------------------------------
[Seal]
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF TEXAS )
----------
) ss
COUNTY OF TARRANT )
---------
BE IT REMEMBERED, that on this 16th day of April , 1980, before
---- -----------
me, a notary public in and for the said county and state, came Billy T. Everett
----------------
and Gerald E. Kimmel, Partners of K&E Land & Leasing, a Texas partnership to me
---------------- -----
Personally known to be the same persons who executed the foregoing instrument
and duly acknowledged the execution of the same, for and on behalf of and as the
act and deed of said partnership.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal the day and year last above written.
/s/ RICHARD S. TUCKER
----------------------------
Notary Public
RICHARD S. TUCKER, Notary
Public In and for Tarrant
My Appointment Expires: County, Texas My Commission
Expires April 30 1981
-- ----
STATE OF TEXAS )
----------
) ss
COUNTY OF TARRANT )
---------
BE IT REMEMBERED, that on this 16th day of April ' 1980, before me,
---- --------
a notary public in and for the said county and state, came Gerald E. Kimmel ,
-------------------
President and Billy T. Everett, Secretary, of Kevco, Inc., a Texas corporation,
---------------- -----
to me personally known to be the same persons who executed the foregoing
instrument and duly acknowledged the execution of the same, for and on behalf
of and as the act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal the day and year last above written.
/s/ RICHARD S. TUCKER
----------------------------
Notary Public
RICHARD S. TUCKER, Notary
Public In and for Tarrant
My Appointment Expires: County, Texas My Commission
Expires April 30 1981
-- ----
<PAGE>
EXHIBIT 10.11
AMENDMENT #1 TO SUBLEASE AND LEASE GUARANTY AGREEMENT
DATED APRIL 1, 1980 BY AND BETWEEN K & E LAND & LEASING AND KEVCO, INC.
This Amendment #1 to a Sublease and Lease Guaranty Agreement
("Sublease") made and entered into as of April l, 1980 by and between K & E LAND
& LEASING ("Tenant") and KEVCO, INC., ("Subtenant") is made and entered into as
of the 30th day of May, 1983, but effective January 1, 1981:
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W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Tenant and Subtenant desire to amend the Lease as hereinafter
provided;
NOW, THEREFORE, IN CONSIDERATION of the premises and of the covenants
and agreements contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
1. Paragraph 2 of the Lease is hereby amended in its entirety to
hereafter read as follows:
"2. Tenant hereby subleases to Subtenant the real property
together with the improvements located and to be located thereon
described in paragraph (a) and (b) of Schedule I attached hereto
and incorporated herein by reference, as if fully set forth
herein, for the basic rent of $6,083.00 subject to increase as
hereinafter provided, and upon and further subject to the terms
and conditions where applicable as set forth in the lease. Tenant
and Subtenant agree that Tenant shall have the right exercisable
at any time prior to any anniversary date of this sublease, to
increase the basic rent to be paid to tenant by Subtenant in an
amount not to exceed 35% of the monthly rental paid by Subtenant
to Tenant during the preceding 12-month period. Subtenant shall
not have the right to exercise the option to purchase the
property granted to Tenant by the City in the lease, unless the
Tenant should otherwise agree.
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2. In all other respects the Sublease as herein amended shall remain
in full force and effect and unimpaired.
IN WiTNESS WHEREOF, this Amendment #1 to the Sublease is made and
entered into as of the day and year first above written but effective as of the
date stated above.
TENANT:
K & E LAND & LEASING
BY: /s/ [SIGNATURE ILLEGIBLE]
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Its Partner
SUBTENANT:
KEVCO, INC.
BY: /s/ Jerry E Kimmel
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Its President
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-2-
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EXHIBIT 10.12
LEASE AGREEMENT
THIS LEASE is made and entered into as of the 12th day of October, 1987, by
and between 1741 CONANT PARTNERSHIP, a Texas general partnership ("Lessor") and
KEVCO, INC., a Texas corporation ("Lessee") ;
W I T N E S S E T H:
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IN CONSIDERATION of the mutual covenants and agreements herein contained
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. Premises. Lessor, for and in consideration of the rents, covenants
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and agreements herein specified to be paid, kept and performed by Lessee, does
hereby lease, demise and let unto Lessee that certain property located in
Elkhart County, Indiana, as described on EXHIBIT "A" attached hereto and herein
incorporated by reference for all purposes, together with the buildings and
related improvements constructed thereon. The property described on EXHIBIT
"A," together with the buildings and improvements thereon, shall hereinafter
sometimes be referred to as the "Demised Premises."
2. Term. The term of this Lease shall be for a period of 240 months
----
beginning October 12, 1987 and continuing to and including October 11, 2007,
subject only to termination at an earlier date or to extension of said original
term in accordance with one or more of the provisions hereinafter set forth. If
not otherwise stated, as used herein, the "term of this Lease" shall mean the
original term stated herein and any renewals or extensions thereof. It is
expressly agreed and understood that this is an agreement of Lease only and that
the Lessee acquires no right, title or interest in or to the Demised Premises
other than the right of possession and use of the Demised Premises to the extent
set forth in this Lease. Lessee shall have no option to (a) purchase the Demised
Premises at the expiration of the term of this Lease, or (b)
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renew or extend this Lease other than as set forth herein.
3. Rental. Lessee agrees and promises to pay to Lessor for and during
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the term of this Lease as rental for the Demised Premises the sum of
$3,672,000.00, payable in monthly installments of $15,300.00, subject to
increase as hereinafter provided, and payable in advance, without offset,
deduction or other credit whatsoever and without demand on the first (1st) day
of each calendar month therein throughout the stated term of this Lease and any
renewals or extensions thereof except as provided in Paragraph 14 hereof.
Payment of such rent shall be made at such place or places as Lessor may from
time to time designate. The monthly rental called for herein shall be pro rated
if this Lease commences other than on the first day of a calendar month or
terminates other than on the last day of a calendar month.
Lessor acknowledges receipt from Lessee of the sum of $30,600.00
representing payment in advance of the first and last month's rental of the
Demised Premises under this Lease.
In addition to the monthly rental provided for herein, Lessee shall also
pay such other charges and assessments relating to the Demised Premises as is
elsewhere provided for to be paid by Lessee under other provisions of this
Lease.
Lessor and Lessee agree that the monthly rental to be paid to Lessor by
Lessee hereunder shall automatically increase on each anniversary date of this
Lease in an amount equal to the greater of (i) the difference, if any, between
the monthly rental per square foot then being paid on or about such anniversary
date in Elkhart, Indiana or its environs for property similar to that of the
Demised Premises and the monthly rental per square foot then being paid by
Lessee to Lessor hereunder, or (ii) the increase, if any, between the monthly
payment required to be paid during the year beginning on such anniversary date
by Lessor to any lender holding a mortgage or lien on the Demised premises and
the monthly payment paid by Lessor during the immediately preceding year
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ending on the day immediately preceding such anniversary date. Anything herein
to the contrary, the monthly rental to be paid by Lessee to Lessor shall never
be less than $15,300.00.
4. Use of Premises. For and during the term of this Lease, Lessee shall
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be entitled to utilize the Demised Premises for the purpose of engaging in the
distribution and sale of various parts, accessories and products used or to be
used in the mobile home, manufactured housing and recreational vehicle
industries and in all service or business incidental or ancillary thereto.
Lessee covenants and agrees to restrict the use of the Demised Premises for such
purposes and not to permit the use of the Demised Premises for any other purpose
without the prior written consent of Lessor, which consent shall not be
unreasonably withheld.
5. Condition of Premises. Lessee acknowledges receipt of the Demised
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Premises and that the same are in good and sanitary condition and in good
repair. The taking possession of the Demised Premises by Lessee shall be
conclusive evidence that the Demised Premises and the equipment, plumbing,
drains, fixtures, appliances and machinery therein were at the time of taking of
such possession thereof in good, clean, sanitary and tenantable condition and in
all respects satisfactory and acceptable to Lessee and in a condition in which
they were represented to Lessee to be in and agreed to be put in by Lessor; and
Lessee hereby releases and agrees to indemnify and hold harmless Lessor and its
partners, promptly on demand from and against any and all claims, demands,
damages, losses, liabilities, obligations, costs or expenses (including but
without limitation, attorneys' fees and expenses) arising out of, resulting
from, caused by or in any way relating to or connected with (a) any defect in
the condition of the Demised Premises, or (b) the equipment, fixtures, or
appliances in or serving said Demised Premises and the streets, alleys, areas,
area-ways, passages or sidewalks adjoining or appurtenant thereto, or (c) injury
or damage to persons or property.
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Lessee acknowledges and agrees that Lessee shall have and hold the Demised
Premises just as they are, without any liability or obligation on the part of
Lessor to make any alterations, improvements or repairs of any kind on or about
the Demised
Premises or to the equipment, fixtures, plumbing, appliances or machinery in,
upon or serving same or the streets, alleys, areas, area-ways, or passages
adjoining or appurentenant thereto.
6. Payment of Utilities and Taxes. Lessee covenants and agrees that it
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shall promptly pay all charges and assessments for utilities furnished the
Demised Premises for and during the term of this Lease including electricity,
gas, water and telephone services. Lessee further covenants and agrees to pay
all state, city, county and other ad valorem taxes and other assessments which
may be levied, assessed on or pertaining to the Demised Premises, which taxes
and other assessments shall be paid by Lessee promptly upon assessment and prior
to becoming delinquent, with Lessor being furnished a certificate evidencing
payment of such taxes and other assessments. Lessee also covenants and agrees
to promptly pay all charges and other assessments that may arise out of the
improvements on said Demised Premises or of the streets, alleys, areas, area-
ways, passages or sidewalks adjoining or appurtenant thereto.
7. Repairs and Maintenance. Lessee shall, during the term of this Lease
-----------------------
and any renewals or extensions thereof;
(a) at its sole cost and expenses, maintain and keep the Demised Premises
and the equipment, plumbing, windows, doors, skylights, foundation, interior and
exterior walls, drains, fixtures, appliances and machinery in, upon, serving or
appurtenant to said Demised Premises in good repair and in good sanitary
condition;
(b) replace promptly any and all glass broken in or about the Demised
Premises with glass of the same quality;
(c) not make any alterations in or additions to the Demised Premises
without first obtaining the prior written
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consent of Lessor;
(d) not use or permit anything upon said Demised Premises that would
increase the rate of insurance thereon or anything that may be dangerous to life
or limb;
(e) not, in any manner, deface or injure said Demised Premises or any part
thereof or overload floors or do or permit anything to be done upon said Demised
Premises or in the streets, alleys, areas, area-ways, passages or sidewalks
adjoining or appurtenant thereto that would amount to or create a nuisance;
(f) not use the Demised Premises or any part thereof for any purpose
contrary to the law, ordinances, rules or regulations of the United States or
the State of Indiana or the County of Elkhart or any other municipality or
regulatory authority having jurisdiction thereof;
(g) return the Demised Premises peaceably and promptly to Lessor at the
end of the term of this Lease or any renewals or extensions thereof or at any
previous termination thereof in as good condition as the same are now in or may
hereafter be put in, ordinary wear and tear excepted; and
(h) perform each and every covenant, agreement, obligation and undertaking
of Lessor, relative to the Demised Premises and contained in the Mortgage
attached hereto as EXHIBIT "A" and herein incorporated by reference for all
purposes, the same as if set out verbatim at this point (the "Mortgage").
Lessee hereby acknowledges that a copy of the Mortgage has been delivered to it
by Lessor.
Lessee further covenants and agrees to keep the sidewalks bordering on the
Demised Premises (where the Demised Premises border upon a sidewalk or
passageway) and the roof of said Demised Premises, at all times, free from ice
and snow and other obstructions and to neither waste nor misuse water,
electricity, gas, steam or any other utilities which are or may be furnished the
Demised Premises.
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Lessee further covenants and agrees that neither Lessor nor its partners
shall be liable for any loss, damage, liability, obligation, cost or expense,
either to a person or persons or property or the loss of property sustained by
Lessee or by any other person or persons due to the Demised Premises or any part
thereof or the windows, doors, skylights, foundation, interior or exterior
walls, or the equipment, plumbing, drains, fixtures, appliances or machinery in
or upon the Demised Premises or the streets, alleys, areas, area-ways, passages
or sidewalks adjoining or appurtenant thereto, being or becoming out of repair
or defective, and due to the happening of any accident or accidents or due to
any act, inaction or neglect of Lessor or Lessee or any other tenant or occupant
of the Demised Premises or part thereof, or any other person or persons, firm,
association, corporation, partnership or other legal entity, or by the bursting
of pipes or by the use or misuse of any instrumentality or agency in or
connected with the Demised Premises or any part thereof or occasioned by any
nuisance made or suffered thereon or therein, and in connection therewith,
Lessee agrees to and does hereby indemnify and hold harmless Lessor and its
partners from and against any and all damages, demands, losses, liabilities,
obligations, costs or expenses (including attorneys' fees and expenses) arising
out of, relating to, caused by or in any way resulting from any of the
foregoing.
8. Insurance. Lessee covenants and agrees that it will, at its sole cost
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and expense, at all times during the term of this Lease and any renewals or
extensions thereof, obtain and maintain in full force and effect, a policy or
policies of insurance written by one or more responsible insurance carriers
which will insure Lessee and Lessor against liability for injury to, or death
of, persons or loss or damage to their property occurring in or about the
Demised Premises. Liability coverage under such insurance shall not be less
than $300,000.00 for any one person injured or killed, $500,000.00
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for each occurrence and aggregate, and $50,000.00 property damage for each
occurrence and aggregate. Lessee, at its sole cost and expense, during the term
of this Lease and any renewal or extension thereof, shall also obtain and
maintain in full force and effect an insurance policy or policies insuring the
Demised Premises and the fixtures, goods, wares and merchandise contained
thereon against loss or damage by fire, tornado, windstorm, vandalism, malicious
mischief and such other extended and hazard coverage and in such amount as
Lessor may require with loss payable to Lessor.
All insurance required to be obtained and maintained by lessee pursuant to
this paragraph shall be written by companies and in forms and amounts
satisfactory to Lessor. Certificates of insurance acceptable to Lessor shall be
filed with Lessor as obtained from time to time during the term of this Lease.
Each certificate shall contain the provision that coverages afforded under said
policies will not be cancel led until at least fifteen (15) days prior written
notice has been given to Lessor.
9. Indemnity. Lessee covenants and agrees that it shall indemnify
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Lessor, its partners, agents, and employees and hold Lessor, its partners,
agents and employees harmless promptly upon demand from and against any and all
claims, demands, damages, liabilities, actions, deficiencies, penalties, causes
of action, costs, judgments, expenses, suits or proceedings of any kind or
nature whatsoever, including attorneys' fees and expenses resulting to Lessor,
its partners, agents, or employees, caused by, arising out of, relating to,
resulting from or connected in any way with:
(a) the nonfulfillment or nonperformance of any covenant, agreement or
obligation made by or on behalf of Lessee in or pursuant to this Lease;
(b) any accident or occurrence causing injury to any person whomsoever;
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(c) any damage to any property whatsoever on or about the Demised Premises
or the streets, alleys, areas, area-ways or passages adjoining or appurtenant
thereto; or
(d) any actions, inactions, deeds or courses of conduct of Lessee or of
any of its employees, agents, invitees, contractors, subcontractors or other
persons being on or about the Demised Premises.
It is agreed and understood that neither Lessor nor its partners, agents or
employees shall be liable for any loss, damage or injury to any of Lessee's
officers, directors, employees, agents, invitees or any other persons being on
or about the Demised Premises or to any of their property, whether such loss,
damage or injury is caused by, arising out of, relates to, results from or is in
any way connected with any accident occurring on or about the Demised Premises
or the streets, alleys, areas, area-ways, or passages adjoining or appurtenant
thereto, or otherwise.
Included in the foregoing but not in limitation thereof, Lessee covenants
and agrees to assume and does hereby assume any and all loss, damage, liability,
obligation, cost or expense (including attorneys' fees and expenses) on account
of all damages suffered or sustained on account of the matters and things above
referred to and agrees to indemnify and hold Lessor, its partners, employees and
agents harmless thereon and therefrom and to indemnify Lessor, its partners,
employees and agents on account thereof. This provision shall apply especially
but not exclusively to damage caused by water, snow, rain, hail, backing up of
water mains or sewers, frost, steam, sewage, illuminating gas, sewer gas or
odors, electricity and electric current and by the bursting, stoppage or leaking
of pipes or radiators, plumbing, sinks or fixtures in or about the Demised
Premises or any part thereof. In case of such damage, Lessee shall promptly
repair all of same and if not repaired by Lessee promptly upon the notice of
such damage, Lessor, at its option but without any obligation to do so, may
repair such
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damage and thereupon Lessee shall reimburse Lessor for the costs of repairing
such damage promptly on demand. If Lessee fails to perform any of the covenants,
agreements or obligations herein provided to be kept or performed by lessee,
Lessor, in addition to any and all other rights and remedies it may have under
this Lease, under any other agreement with Lessee or pursuant to law, may,
without any obligation to do so, perform the same and charge the Lessee with the
expense of such performance and Lessee agrees promptly on demand to repay to
Lessor the cost of such performance by Lessor.
In the event a claim by Lessor to Lessee is made pursuant to the indemnity
contained in this Paragraph 9, Lessor shall give written notice of such claim to
Lessee and immediately upon receipt by Lessor, such claim shall be paid and
satisfied or adequate provisions, in the opinion of Lessor, made therefor.
10. Termination. This Lease may be terminated by Lessor prior to its
-----------
termination as provided hereon on ten (10) days written notice delivered or
mailed to Lessee at its address set forth below in the event that Lessee:
(a) fails to pay the rental charges within the time specified herein;
(b) breaches, defaults, or does not fulfill or perform any covenants,
agreements, stipulations or undertakings required to be performed or fulfilled
by Lessee in or pursuant to this Lease or fails to perform any obligation
imposed on lessee in or pursuant to this Lease; or
(c) becomes bankrupt, insolvent, makes an assignment for the benefit of
creditors or a receiver is appointed to take possession of Lessee's assets.
Should any of the foregoing events occur, Lessor may, with free right of
entry and without demand and without terminating this Lease, and without any
notice whatsoever to Lessee, thereupon re-enter and resume possession of the
Demised Premises and remove the Lessee and Lessee's property and all
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other persons and other property therefrom, using such force as may be necessary
without being deemed guilty of any manner of trespass or forcible entry or
detainer or other violation of law. At Lessor's option, Lessor may either
terminate this Lease by notifying Lessee of its intention to terminate this
Lease or without terminating it as provided herein, lease the Demised Premises
for the account of Lessee for the remainder of the term of this Lease or for
such other term or terms as Lessor shall see fit in its sole discretion. Should
Lessor elect to lease the Demised Premises for the account of Lessee (although
Lessor shall have no obligation to do so and shall never be liable for failure
to do so), Lessee shall pay Lessor on demand for costs of renovating, repairing
and altering the Demised Premises for a new tenant or tenants and also pay
Lessor each month of Lessee's unexpired term the monthly rental heretofore
agreed to be paid less such part, if any thereof, Lessor shall have been able to
collect from a new lessee, it being strictly agreed and understood that Lessor
is and shall be entitled to future rentals under this Lease and that all
attempts to relet the Demised Premises shall be on account of and for the
benefit of Lessee. Should Lessor elect to lease the Demised Premises for the
account of Lessee, Lessor shall be entitled to lease such part of the Demised
Premises as Lessor, in its sole discretion, shall determine. Should any of the
foregoing events occur as aforesaid, Lessor may, on the other hand and should it
so desire, without re-entry or resuming possession of the Demised Premises and
without terminating this Lease, enforce by all proper and legal suits and other
means its rights hereunder, including the collection of future rentals for the
unexpired term of this Lease as hereinabove provided. Should it be necessary for
Lessor to take any legal action hereunder, Lessee shall pay Lessor on demand all
reasonable attorneys' fees and expenses so incurred. All rights and remedies of
Lessor under this Lease shall be cumulative and none shall be exclusive of any
other and
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especially shall no remedy for the recovery of rent in arrears or accrued rents
for the unexpired term of this Lease be affected by any remedy herein provided
for or exercised Waiver of any defaults hereunder shall not operate to waive or
in any manner affect any subsequent default hereunder. It is expressly agreed
and understood that Lessor shall have a contractual lien and security interest
upon all goods, chattels or personal property of any description or character
belonging to Lessee which are placed in or become a part of the Demised Premises
as security for all of Lessee's obligations and responsibilities hereunder,
including, but without limitation, rent due and to become due for the remainder
of the Lease term, which lien and security interest shall not be in lieu of or
in any way affect any other lien which Lessor has or may have under law but
shall be cumulative thereto; and Lessee hereby grants to Lessor a security
interest in all such goods, chattels or personal property placed in or upon said
Demised Premises for such purposes. The lien and security interest granted
Lessor herein shall not prevent the sale by Lessee of any merchandise in the
ordinary course of its business, free of such lien to Lessor. Upon the request
of Lessor, Lessee shall sign any financing statements or other instruments or
documents requested by Lessor in order to perfect any security interest or other
liens granted to Lessor hereunder. Alternatively, this Lease may serve as a
financing statement in order to perfect any security interest or other liens
granted to Lessor hereunder. In the event Lessor exercises the option to
terminate this Lease, re-enter and relet the premises as provided aforesaid,
then Lessor, after giving Lessee reasonable notice of the intent to take
possession and giving an opportunity for Lessee for a hearing thereon, may take
possession of all of Lessee's property on the premises without liability for
loss thereof and sell same at public or private sale after giving Lessee
reasonable notice of the time and place of any public sale or of the time after
which any private
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sale is to be made, for cash or on credit, or for such other price and on such
other terms and conditions as Lessor deems best, in its sole discretion, with or
without having the property present at such sale. All rights, remedies and
privileges of Lessor as granted hereunder, including any rights of sale, shall
be governed by the Uniform Commercial Code of Texas. The proceeds of such sale
shall be applied first to the necessary and proper expense of removing, storing
and selling such property, then to the payment of any rent due or to become due
under this Lease, with the balance, if any, to be paid to Lessee. Lessee shall
be fully liable for any deficiency.
11. Destruction of Premises. It is further agreed between the parties
-----------------------
hereto that, if during the term of this Lease or any renewals or extensions
thereof, the Demised premises or the buildings or improvements thereon shall be
injured or destroyed by fire or the elements or through any other cause so as to
render the Demised Premises or the buildings or improvements thereon unfit for
occupancy or untenantable from a good business standpoint or to such an extent
that they cannot be repaired with reasonable diligence within 180 days from the
happening of such injury, then and in any of such event, Lessor may:
(a) at its option, but without any obligation so to do, upon five (5)
day's written notice to Lessee, terminate the Lease and the term herein demised
from the date of such damage or destruction and the Lessee shall as soon
thereafter as reasonably possible surrender the Demised Premises and all
interests therein to Lessor with Lessee only paying. rent up to. the time of
such notice with the balance of any prepaid rent or other payments or deposits
promptly refunded to Lessee provided it is not otherwise in default under the
terms of this Lease; or
(b) not terminate this Lease, in which event, Lessee shall pay only a
pro rata portion of such rent apportioned to
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the portion of the Demised Premises which are in condition for occupancy or
which may actually be used during such repairing period, such portion to be paid
until the Demised premises have been repaired and redelivered to Lessee in at
least their previous condition.
All improvements or betterments placed by Lessee on the Demised Premises
shall, in any event, be repaired and replaced by Lessee at its sole expense and
not at the expense of Lessor.
12. Condemnation of Demised Premises. If all of the Demised premises are
--------------------------------
taken under any eminent domain proceedings, this Lease shall terminate and come
to an end on the date title to the Demised premises vests in the condemning
authority. Any condemnation award for the Demised premises, including land and
improvements, shall be the sole property of Lessor and Lessee acknowledges and
agrees that it shall have no right, title or interest therein. If any of the
Demised Premises (but less than all of the Demised Premises) is taken under any
eminent domain proceedings, Lessee shall, within sixty (60) days after Lessee
first receives notice of the condemnation, elect by written notice delivered to
Lessor, either to terminate this Lease on the date title to the Demised Premises
vests in a condemning authority or continue this Lease as to that portion of the
Demised Premises not taken by the condemning authority. If Lessee fails to
elect within said sixty (60) day period, this Lease shall automatically be
continued in full force and effect and for that portion of the Demised Premises
not taken by the condemning authority. If, in the event this Lease is
continued, the rent payable hereunder by Lessee to Lessor, for any period after
such condemnation, shall be reduced by an amount determined by taking the ratio
which the number of square feet of the Demised Premises actually taken by the
condemning authority bear to the total number of square feet in the Demised
Premises originally contained in the Demised Premises. Lessee acknowledges and
agrees that any condemnation award for the Demised Premises,
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including land and improvements thereon, shall be the sole property of Lessor
with Lessee having no right, title or interest therein.
13. Bond Against Liens. It is understood and agreed by the parties hereto
------------------
that with respect to all alterations, repairs or improvements to the Demised
Premises or any part thereof (which shall only be with the prior written consent
of Lessor), Lessee shall and will, in each instance, save Lessor and its
partners and said premises forever harmless of and from any and all costs,
claims, damages, losses, demands, judgments, liabilities, obligations, suits,
actions, causes of action, costs and expenses (including attorneys' fees and
expenses) of every kind and character, which may be claimed, asserted or
charged, or which may arise out of, result from relate to or be based upon any
acts or alleged acts of negligence or inaction of Lessee or its agents,
contractors or employees or upon the negligence or alleged negligence of any
person or persons in or about said premises or upon the failure of any or either
of them to observe and comply with each and every requirement of law or with the
rules, regulations and ordinances of all applicable municipalities and
regulatory authorities, and will preserve and hold Lessor and its partners and
said premises forever free and clear from liens for labor and material
furnished. Lessee covenants and agrees that it will, from time to time, before
making any such repairs, improvements or alterations, furnish Lessor with a bond
in an amount and with sureties satisfactory to Lessor conditioned for the
performance by Lessee of the matters and things in this paragraph required to be
done by Lessee.
14. Notice of Vacancy. Lessee covenants and agrees to give Lessor written
-----------------
notice at least six (6) months before the expiration of this Lease of its
intention to vacate at the end of this Lease. In the event Lessee fails to give
the written notice provided for in this Paragraph 14, then and in that event,
Lessor, at its option, may continue this Lease for an
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additional one year period from and after the termination date of this Lease
without notice to Lessee. If, however, Lessor does not elect to so continue this
Lease, and Lessee remains in said premises after the expiration of its term,
such remaining in possession shall not, except at the option of Lessor, extend
the term of this Lease, and Lessee shall promptly, upon the request of Lessor,
vacate the premises. In the event Lessor does not elect to continue this Lease
and if for any reason Lessee does not promptly vacate the Demised Premises at
the expiration of the term of this Lease, Lessee covenants and agrees to pay
Lessor as lease rental, for such time as elapses between the expiration of the
term of the Lease and the time when Lessee actually vacates the Demised
Premises, a prorata rental equal to 1 1/2 times the rent provided to be paid
during the term of this Lease, it being agreed and understood that such holding
over shall be subject to all of the other terms and conditions as provided for
in this Lease.
15. Right of Entry. It is agreed and understood by the parties hereto
--------------
that Lessor shall, at all times, during the term of this Lease or any renewal or
extension thereof, have the right to enter upon the Demised Premises to inspect
their condition, and at its election, to make reasonable and necessary repairs
thereon for the protection and preservation thereof at the expense of Lessee,
but nothing herein shall be construed to require Lessor to make such repairs,
and Lessor shall not be liable to Lessee, or any other person or persons, firms,
associations, partnerships, corporations or other legal entities for failure or
delay in making said repairs, or for damage or injury to person or property
caused in or by the making of such repairs, or the doing of such work. Lessor
shall have the right during the last thirty (30) days of the term of this Lease
or at such earlier time as Lessor is notified by Lessee of its intention to
vacate the leased premises at the expiration date of this Lease, to place and
Page 15
<PAGE>
maintain on the Demised Premises and in the windows thereof, the usual notice of
"To Let" or "To Rent", and to show said Demised Premises to prospective tenants
during normal business hours of Lessee.
16. Miscellaneous Provisions.
------------------------
(a) Governing Law: Notwithstanding the location of the Demised Premises
-------------
or the place where this Agreement may be executed by any of the parties hereto,
the parties hereto expressly agree that this Lease shall be construed under and
in accordance with the laws of the State of Texas as now adopted or as may be
hereafter amended.
(b) Binding Effect: This Lease shall be binding upon and inure to the
--------------
benefit of the parties hereto, their respective successors, assigns, heirs,
executors, administrators, receivers, trustees and legal representatives.
(c) Notices: All notices, demands or communications required or permitted
-------
under this Lease shall be given in writing, addressed to the other party at its
respective address set forth below. Such notice, demand or communication shall
be deemed received when personally delivered or if mailed, when deposited in the
United States Mail, postage prepaid, sent certified or registered 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 party hereto, but such change of address shall
only be considered received when actually received.
(d) Construction. The headings used in this Lease are for convenience and
------------
administrative purposes only and shall not be construed in interpreting this
Lease. 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 Lease shall be held invalid or inoperative, then so far
as reasonable and possible:
Page 16
<PAGE>
(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.
(e) Specific Performance. Each party hereto acknowledges that a remedy at
--------------------
law for any breach or attempted breach of this Lease will be inadequate, agrees
that each 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 the 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 remedy any party may have against the other.
(f) Waiver. The failure of either of the parties hereto 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 or condition,
but the obligations of any party with respect thereto shall continue in full
force and effect.
(g) Counterparts. This Lease may be executed in several counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute one instrument.
(h) Prior Agreements. This Lease 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. No
change, amendment or notification hereof shall be or become effective unless in
writing and signed by each of the parties hereto .
(i) Attorneys' Fees. If any action at law or in equity, including any
---------------
action for declaratory relief, is brought to enforce or interpret the provisions
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees from the other party, which fees may be set by
Page 17
<PAGE>
the court in the trial of such action or may be enforced in a separate action
brought for that purpose, and which fee shall be in addition to any other relief
which may be awarded.
(j) Recording. At Lessor's option, Lessor shall execute and deliver to
---------
Lessee a Memorandum of Lease for recording purposes which Lessee shall execute
and record, with Lessee paying the recording costs thereof.
(k) Certification. Upon the request of Lessor, Lessee shall furnish to
-------------
Lessor at no charge, such certificates and other documentation as Lessor may, at
any time and from time to time, request evidencing compliance by Lessee with the
terms and provisions of this Lease.
EXECUTED in duplicate as of the date first above written.
LESSOR:
1741 CONANT PARTNERSHIP,
a Texas General Partnership
BY:
K & E Land and Leasing,
a Texas General Partnership,
Managing Partner
BY: /S/ Billy T. Everett
-------------------------------
Its Partner
Address: 1320 So. University Dr.
P.O. Box 907015
Fort Worth, Tx. 76107
LESSEE:
KEVCO, INC.
BY: /s/ Billy T. Everett
-------------------------------
Its Chairman
-------------------------
Address: 1320 So. University Dr.
P.O. Box 907015
Fort Worth, Tx. 76107
Page 18
<PAGE>
EXHIBIT "A"
Description of Property
A part of the South half (S 1/2, of Section three (3), Township
thirty-seven (37) North, Range five (5) East, in the City of Elkhart, Indiana,
more particularly described as follows: Commencing at a point on the south line
of the Southeast quarter (SE 1/4) of said section that is seven hundred forty
(740) feet due west of the southeast corner of the West Half (W 1/2) of said
quarter section; thence north zero (0) degrees one (1) minute east along the
west line of the public street known as industrial Parkway, one thousand one
hundred ninety-one and forty-five hundredths (1191.45) feet to the beginning
point of this description; thence continuing north zero (0) degrees one (1)
minute east along the west line of said Industrial Parkway, three hundred
thirty-five and four tenths (335.4) feet to the south line of Conant Street;
thence north eighty-nine (89) degrees fifty-nine (59) minutes west along the
south line of said Conant Street, five hundred eighty-seven and five tenths
(587.5) feet; thence south zero (0) degrees one (1) minute west, three hundred
thirty-five and twenty-five hundredths (335.25) feet; thence due east five
hundred eighty-seven and five tenths (587.5) feet to the place of beginning.
ALSO:
- ----
A part of the South Half (S 1/2) of Section 3, Township 37 North, Range 5
East, more particularly described as follows: Commencing at a point on the south
line of said section that is 740 feet due west of the southeast corner of the
west half (1/2) of the southeast quarter (1/4) of said section; thence north
zero (0) degrees 1 minute east along the west line of a public street known as
Industrial Parkway, 1043.16 feet: thence due west 225 feet for the beginning
point of this description; thence north
zero (0) degrees 1 minute east 148.29 feet; thence due west 362.5 feet; thence
south zero (0) degrees 1 minute west 148.29 feet; thence due east 362.5 feet to
the place of beginning.
Subject to right-of-way for a railroad over the west 10 feet of the above
described tract.
EXCEPTING:
- ---------
A part of the South half (1/2) of Section 3, Township 37 North, Range 5 East,
more particularly described as follows: Commencing it a point on the south line
of said section that is 740 feet due west of the southeast corner of the west
half (1/2) of the southeast quarter (1/4) of said section thence north zero (0)
degrees 1 minute east along the west line of a public street known as Industrial
Parkway, 1191.45 feet of the beginning point of this description; thence north
zero (0) degrees 1 minute east along the west line of said Industrial Parkway
335.4 feet to the south dine of Conant Street; thence north 89 degrees 59
minutes west along the south line of said Conant Street 225 feet; thence south
zero (0) degrees 1 minutes west 335.24 feet; thence due east 225 feet to the
place of beginning.
Page 19
<PAGE>
EXHIBIT "B"
Mortgage
Page 20
<PAGE>
EXHIBIT 10.13
EQUIPMENT LEASE AGREEMENT
-------------------------
THIS EQUIPMENT LEASE AGREEMENT (the "Agreement") is made and entered into
effective as of the 1st day of January, 1991, by and between K & E LAND &
LEASING, a partnership ("Lessor") and KEVCO, INC., a Texas corporation
("Lessee"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor is the owner of certain computer equipment which has
beneficial applications in Lessee's business, which computer equipment is
described on EXHIBIT "A" attached hereto (the "Equipment"); and
WHEREAS, the Lessor and Lessee have previously entered into a Lease
Agreement dated January 1, 1987, as amended January 1, 1988, March 1, 1988, and
June 1, 1989 (collectively the "Prior Agreement") and believe it is in their
mutual interests to amend the Prior Agreement in its entirety by entering into
this Agreement as herein provided;
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 do hereby agree as follows,
intending to be legally bound thereby:
1. Lessor hereby leases to Lessee the Equipment for a period of ten (10)
years from the effective date of this Lease (the "Primary Term") unless earlier
terminated as provided herein.
2. Lessee shall pay Lessor a monthly rental of $17,150.00 for the use of
the Equipment, said monthly rental to be due and payable on the first day of
each and every month during the term of this Lease and any renewal thereof. In
addition, Lessee shall also pay Lessor a monthly rental for the use of any other
equipment which is subsequently described on EXHIBIT "A" attached hereto, which
monthly rental shall be in an amount to be mutually agreed upon by the parties
hereto and which shall be paid as provided herein. As used herein, the term
"Equipment" shall mean all equipment now or hereafter described on EXHIBIT "A".
3. It is expressly understood that this is an agreement of lease only and
that the Lessee acquires no right, title or interest in or to the Equipment
described on EXHIBIT "A" or any
Page 1
<PAGE>
amendment thereto other than the right to the possession and use of the same in
accordance with the terms of this Lease. Lessee shall have no option to (a)
purchase the Equipment at the expiration of the Primary Term of this Lease or
any renewal or extension thereof, or (b) renew or extend this Lease beyond the
Primary Term stated in Paragraph 1 above.
4. Lessee accepts the Equipment as is and in its present condition, and
Lessor has made no guaranty or warranty, express implied, or statutory regarding
the leased Equipment as to material, workmanship or the capacity of the
Equipment, including the implied warranties of merchantability and fitness for a
particular purpose. Lessee shall take good care of the Equipment and, upon
expiration of the Lease, shall surrender the same to Lessor in as good condition
as when received, reasonable wear and tear excepted. Lessee accepts the
Equipment as suitable for the purposes for which the same is leased and agrees
that Lessor shall not be liable to Lessee, its officers, directors, employees,
agents or any other persons for any damage or injury resulting from any defects
or want of repair of the Equipment.
5. Lessee shall be responsible for and shall pay for all maintenance and
repairs to the Equipment that are necessary during normal business hours of
Lessee. As used herein the term "normal business hours" of Lessee shall mean
Monday through Friday of each week between the hours of 8:00 a.m. and 5:00 p.m.,
exclusive of holidays when Lessee's offices are closed. In addition, Lessee
shall insure the Equipment against any loss by fire, theft or other hazard or
peril with Lessor to be named in such insurance policy or policies as an
insured. Such insurance policy or policies shall be in such amounts and contain
such terms and conditions as Lessor shall, in its sole discretion, determine.
6. Lessee shall indemnify Lessor and hold Lessor and its partners
harmless from any and all claims, demands, liabilities, actions, costs,
expenses, suits and proceedings of any kind whatsoever, including attorneys'
fees and expenses, caused by, arising out of or connected with the Equipment
leased hereunder. Lessor shall not be liable for any loss, damage or injury to
Lessee, its officers, directors, employees, agents or any other persons of any
kind and in any manner caused by or connected with any Equipment or the
condition, reconditioning, repair, maintenance, possession or use thereof.
7. Lessee shall not assign this Lease nor sublet, mortgage or otherwise
dispose of the Equipment to any person nor suffer the Equipment to come into the
custody or control of
Page 2
<PAGE>
anyone other than Lessor or Lessee without the prior written consent of Lessor.
8. This Lease may be terminated by the Lessor prior to the expiration
date set forth herein on ten (10) days' written notice delivered or mailed to
the Lessee at its address as set forth below in the event that the Lessee:
(a) Fails to pay the rental charges within the time specified herein;
(b) Breaches, defaults, nonperforms, nonfulfills or nonobserves any
representations, covenant, agreement, obligation or undertaking of Lessee made
by Lessee or anyone on its behalf in or pursuant to this Lease;
(c) Becomes bankrupt, insolvent, dissolves, liquidates or makes
assignments for the benefit of creditors; or
(d) Discontinues operations, abandons the Equipment or permits the
Equipment to be subjected to unreasonable hazards or risks.
Should any of the foregoing occur, Lessor may, with free right of entry and
without demand, and without further notice to Lessee, immediately take
possession of the Equipment and remove it from Lessee's premises using such
force as may be necessary without being guilty of any manner of trespass or
other violation of law and if the Equipment is in a location other than on
Lessee's premises, Lessor may take whatever action is necessary in order to
recover and take possession of the Equipment. At Lessor's option, Lessor may
either terminate this Lease by notifying Lessee of its intention to terminate
this Lease or, without terminating it as provided herein, lease the Equipment
for the account of Lessee for the remainder of the term hereof or for such term
or terms as Lessor shall see fit. Should Lessor elect to lease the Equipment for
the account of Lessee (although Lessor shall have no obligation to do so and
shall never be liable for failure to do so) Lessee shall pay Lessor on demand
for costs of renovating, repairing and altering the Equipment for a new lessee
and also pay Lessor each month of Lessee's unexpired term the monthly rental
heretofore agreed to be paid less such part, if any thereof, Lessor shall have
been able to collect from a new lessee, it being strictly agreed and understood
that Lessor is and shall be entitled to future rentals under this Lease and that
all attempts to re-let the Equipment shall be on account of and for the benefit
of Lessee. Should any of the foregoing events occur as aforesaid, Lessor may, on
the other hand should
Page 3
<PAGE>
it so desire, without re-entry or resuming possession of the Equipment and
without terminating this Lease, enforce by all proper and legal suits and other
means its rights hereunder, including the collection of future rentals for the
unexpired term of this Lease as hereinabove provided. Should it be necessary for
Lessor to take any legal action hereunder, Lessee shall pay Lessor all
reasonable attorneys' fees and expenses so incurred. All rights and remedies of
Lessor under this Lease shall be cumulative and none shall be exclusive of any
other and especially no remedy for the recovery of rent in arrears or accrued
rents for the unexpired term of this Lease shall be affected by any remedy
herein provided for. Waiver of any defaults hereunder shall not operate to waive
or in any manner affect any subsequent default hereunder. It is expressly agreed
and understood that Lessor shall have a contractual lien upon all goods or
personal property of any description whatsoever belonging to Lessee which are
placed in or become a part of the Equipment as security for rent due and to
become due for the remainder of the Lease term, which lien shall not be in lieu
of or in any way affect any other lien which Lessor has or may have under law
but shall be cumulative thereto; and Lessee hereby grants Lessor a security
interest in all such goods or personal property placed in or upon the Equipment
for such purposes. Upon the request of Lessor Lessee shall sign any financing
statements or other instruments or documents requested by lessor in order to
perfect any security interests or other liens granted to Lessor hereunder.
Alternatively, this Lease may serve as a financing statement in order to perfect
any security interest or other liens granted to Lessor hereunder. All
replacements, modifications or additions to the Equipment shall become a part of
the Equipment and shall become the sole and exclusive property of Lessor at the
expiration of this Lease. All rights, remedies and privileges of Lessor as
granted hereunder, including any rights of sale, shall be governed by the
Uniform Commercial Code of Texas.
9. This Lease is binding upon and shall inure to the benefit of the
parties hereto, their respective successors, heirs, executors, administrators,
receivers, trustees, legal representatives and assigns where permitted by this
Lease.
10. (a) This Agreement embodies the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior agreements, whether written, oral or implied, with respect to the subject
matter hereof, including the Prior Agreement. This Agreement may not be
modified, changed or altered in any respect except in writing signed by each of
the parties hereto.
Page 4
<PAGE>
(b) Any and all notices, communications, demands or requests provided
for or permitted herein shall be given in writing addressed to the parties at
the addresses set forth below. Such notices, communications, demands, requests
or writings shall be deemed received when personally delivered or, if mailed,
when deposited in the United States Mail, postage prepaid, sent certified or
registered 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, postage prepaid, to each of the
other parties hereto but such change of address shall only be considered
received when actually received.
(c) This Agreement and each of its provisions shall be governed by
the laws of the state of Texas.
(d) Lessee agrees that Lessor may bring suit in Tarrant County,
Texas, to enforce any of the provisions of this Agreement or to collect any sums
due hereunder and Lessee agrees that any court in which suit is brought shall
have jurisdiction hereunder and that venue shall lie in Tarrant County, Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LESSOR:
K & E LAND & LEASING
BY: /s/ B. T. Everett
--------------------------------
Its Partner
LESSEE:
KEVCO, INC.
BY: /s/ Gerald E. Kimmel
--------------------------------
Its Duly Authorized Officer
Page 5
<PAGE>
KEVCO, INC.
COMPUTER SYSTEM
K & E OWNS
EQUIPMENT LIST
<TABLE>
<CAPTION>
DEVICE PRODUCT # LOCATION SERIAL # APPROX PURCHASE APPROX
------ --------- -------- -------- DATE COST
<S> <C> <C> <C> <C> <C>
CRT 2622A Command Port 2152W11712 7-10-84 $ 2000
CRT 2622A Console 2152W11710 7-10-82 2000
Modem VA3451 Computer Room 334637 7-10-82 900
Modem VA1200V Computer room 662365 KEVCO OWNS 250
Coupler VA3412 Computer room 233292 7-10-82 800
Modem MD816B PC hall 8812157 4-14-89 175
Modem MD816B IDC 8903214 6-26-89 175
Modem MD825B Computer room 8807172 8-12-88 375
Modem MD825B Myra's house 8807149 8-12-88 375
CRT 700/94 Gail 2801A02840 11-01-87 700
CRT 700/94 Myra 2748A02038 11-01-87 700
CRT 700/92 Linda J. 3006A50934 2-23-90 795
CRT 700/92 Clyde 3006A50974 2-23-90 795
CRT 700/92 Betty 2745A01350 11-01-87 700
CRT 700/92 Irene 2945A46663 6-01-90 625
CRT 700/92 Pat 2945A46704 6-01-90 625
CRT 2622A Cindy 2152W11708 7-10-82 2000
CRT 2622A Myra's house 2223W16431 7-10-82 2000
CRT 2622A FW (spare) 2342A72322 12-14-83 2000
CRT 2622A FW (broke) 2317W41796 5-10-83 2000
CRT 2622A FW (broke) 2152W12625 7-10-82 2000
Printer 2631B FW (broke) 2121A24035 7-10-82 3500
CRT 700/92 FW (spare) 2945A46623 6-01-90 625
CRT 2622A Newton 2342A74270 1-08-84 2000
CRT 2622A Newton 2317W57956 8-05-83 2000
CRT 700/92 Newton 2802A04650 11-01-87 500
Printer RR Newton 2912A22092 5-01-89 1271
Printer RR Newton 2747A02196 11-01-87 1800
Printer 2631B Newton 2315A31870 5-01-83 3500
Printer 2934A Newton 2844A55167 8-08-90 1650
CRT/PR 2622A/050 Newton 2328W58652 4-20-86 modem
Above unit traded for old modem
CRT 2622A Waco 2317W57954 8-05-83 2000
CRT 2622A Waco 2317W41794 5-10-83 2000
CRT 2622A Waco 2317W57955 8-05-83 2000
CRT 700/92 Waco 3021A57439 9-04-90 795
CRT 700/92 Waco 2802A04658 11-01-87 500
Printer 2634A Waco 2929A67851 9-04-90 1950
Printer 2634A Waco 2929A67851 9-04-90 1950
Printer 2631B Waco 2318A35185 8-05-83 3500
Printer 2631B Waco 2121A22041 5-10-83 3500
Printer RR Waco 2813A11390 7-30-88 1350
CRT 2622A Phoenix 2342A72320 12-14-83 2000
CRT 2622A Phoenix 2372A72321 12-14-83 2000
CRT 2622A Phoenix 2245W36024 5-01-83 2000
</TABLE>
1-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CRT 2622A AZ (spare) 2317W57958 8-12-83 2000
CRT 700/92 Phoenix 2745A01178 11-01-87 500
CRT 700/94 Phoenix 2746A00803 11-01-87 500
Printer 26313 Phoenix (spare) 2121A22489 7-10-82 3500
The spare printer in Phoenix needs to be set at 1200 baud and odd parity.
Printer 2934A Phoenix 2643A35957 1-20-87 2500
Printer RR Phoenix 2814A12672 7-30-88 1350
Printer RR Phoenix 2913A22582 5-01-89 1271
CRT 2622A Elkhart 2342A74271 1-08-84 2000
CRT 2622A Elkhart 2152W12622 7-10-82 2000
CRT 2622A Elkhart 2317W41795 5-10-83 2000
CRT 2622A Elkhart 2223W16144 7-10-82 2000
CRT 2622A Elk (spare) 2245W36023 5-01-83 2000
CRT 700/92 Elkhart 2745A00950 11-01-87 500
CRT 700/94 Elkhart 2749A02351 11-01-87 700
Printer 2934A Elkhart 2406A01406 3-06-84 2548
Printer RR Elkhart 2913A22579 5-01-89 1271
Printer 2934A Elkhart 2929A56722 8-21-89 2000
CRT 700/92 IDC 2802A04638 11-01-87 700
CRT 700/94 IDC 2801A02822 11-01-87 700
PC Dell IDC 286125071332 7-18-89 2800
CRT 2622A IDC 2317W57966 8-12-83 2000
CRT 2622A IDC 2245W36022 5-01-82 2000
Printer RR IDC 2816A14128 7-30-88 1350
Printer RR IDC 2747A02194 11-01-87 1800
Printer 2934A IDC 2715A39530 11-01-87 3000
CRT 2622A Calif 2152W11707 7-10-82 2000
CRT 2622A Calif 2152W12624 7-10-82 2000
CRT 2622A Calif 2317W57957 8-12-83 2000
CRT 700/94 Calif 2752A02813 11-01-87 725
CRT 700/92 Calif 3021A57439 09-04-90 795
Printer 2631B Calif (spare) 2323A37706 11-15-83 3500
Printer 2934A Calif 2929A67849 9-04-90 1950
Printer 2934A Calif XX50A1XX35 6-01-90 1000
Printer RR Calif 2816A14131 7-30-88 1350
Mux(4) 8824/48 Elk 13406 3-23-83 3500
MUX(3) MIC-VU-8 Elkhart 014P1093 8-03-90 1165
The preceding unit was received from MICOM as a replacement for 023P0416
Mux 8824/48 Elk (spare) 12907 9-08-82 3750
MB3 XX0-4 Elkhart 742P02387 11-01-87 2100
PROM ID# 907-1977-0A
MB3-CSW FEATUREPACK
Emulex-1 Elkhart BZ8897 11-01-87 1200
Emulex-2 Elkhart BZ7736 11-01-87 1200
Mux (2) 8828/48 IDC 23462-1 3-29-84 4140
Emulex-3 IDC BZ7048 11-01-87 1200
Emulex-4 Ft Worth BZ8896 11-01-87 1200
Mux 8828/48 Phoenix 20928-1 10-07-83 4365
Mux 8828/48 Waco 21918-1 3-29-84 3330
</TABLE>
1-2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
The preceding unit upgraded to 8 ports about 1-1-87 1200
received from MICOM as an exchange for 23461-1
Mux 8828/48 Newton 23448-1 10-28-83 4140
Mux 8828/48 FW (to 17) 20927-1 10-07-83 4365
Mux 800/2 FW (to 03&21) 124409-1 11-01-87 2500
The preceding unit received from Data Aids in exchange for 21915-1 approx 11-01-87 3300
Mux 8828/48 FW (to 31) 23447-1 10-28-83 4140
Mux 8828/48 FW (to 41) 13816 4-19-83 3363
The preceding unit upgraded to 8 ports about 1-1-87 1200
Mux MIC-VU-8 FW 023P0414 6-26-90 1165
Mux MIC-VU-8 Calif 020P2126 6-26-90 1165
Modem NEC N9353E FW (New chip) 1238 (10/31) 6-21-90 1400
Modem NEC N9353E FW (New chip) 1558 (10/31) 6-21-90 1400
Modem NEC N9353E FW 1424 6-21-90 1400
Modem NEC N9353E FW 1373 6-21-90 1400
MUX 8824/48 FW 13407 3-23-83 3500
</TABLE>
The preceding unit was converted to a mux only by disconnecting and/or removing
the V.27 modem on 1/1/88. On 9/17/90 channels 1 and 3 were knocked out. We have
decided against fixing them at this time.
<TABLE>
<S> <C> <C> <C> <C> <C>
Mux 8824/48 storage 21914-1 3-29-84 3330
Mux 8828/48 FW 13817 4-19-83 3363
The preceding unit upgraded to 8 ports about 1-1-87 1200
Channel 6 may be out sent from Phoenix Feb 7 1991.
MuxB208 8824/48 storage(broken) 13378 11-12-82 3500
MuxB208 8824/48 storage(broken) 13379 11-12-82 3500
CPU 3000 Ft Worth 1ADCC,3GIC,2MB 7-10-82 55255
Upgrade to 42, includes 1 additional Mb memory 8-01-87 9900
Upgrade to 52 6-15-90 4500
Memory 4Mb Ft Worth KELLY 10-10-90 1950
ADCC Ft Worth 7 units 7-10-82 11427
ADCC 30019A Ft Worth 1 unit 11-01-87 650
ATP 30273A Ft Worth 142330 3-23-88 8462
ATP 30273A ET Worth 3-02-90 2300
ATP 30273A ET Worth 5-31-90 1275
Disc 7933H Ft Worth 2213A00756 7-10-82 23012
Disc 7937H Ft Worth 2925A47978 10-01-89 14620
Tape 7970E Ft Worth 2132A22165 7-10-82 13200
Printer 2608A Ft Worth 2222A07883 7-10-82 10208
Printer 630 Ft Worth 86220084 2-13-84 2500
CPU 150 Ft Worth 2341A45034 2-13-84 4410
Stand for 2934 Elkhart 275
Stand for 2631 6 Units @ $3.50 2100
Cables 27 units @ $62 1674
PC Dell Stan 10-40-88 2900
Memory Dell Stan 10-24-90 200
</TABLE>
1-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
PC Dell Barry 08QHT 10-24-90 4755
PC Dell Allen 08QHX 10-24-90 4755
EQUIPMENT SOLD
CRT 2622A Fidelity 2152W11709 7-10-82 2000
CRT 2622A Fidelity 2152W11711 7-10-82 2000
MuxB208 8824/48 ConAm 12906 9-08-82 3750
Disc 7925M HP 2009A03965 6-01-83 12000
ADCC Main (1) Maintenance Control-Dallas 10-30-89 1000
ADCC Extender Maintenance Control-Dallas 10-30-89 1000
EQUIPMENT EXCHANGED (we no longer have)
Mux 8828/48 23461-1 3-29-84 4140
Above unit exchanged with Micom for repair for unit 421918-1 in 1986
Mux 8824/48 21915-1 3-29-84 3330
Exchanged with Data Aids for 124409-1 to upgrade to 16 ports approx 11-01-87
Modem MD816B 8812164
Above unit exchanged with BLACK BOX under warranty approx 6-26-89.
Mux MIC-VU-8 FW 023P0416 6-26-90 1165
Above unit was replaced by MICOM on 7/6/90 because of a bad channel.
</TABLE>
1-4
<PAGE>
EXHIBIT 10.14
AMENDMENT NO. I TO EQUIPMENT LEASE AGREEMENT
--------------------------------------------
THIS Amendment No. 1 to an Equipment Lease Agreement (the "Lease") made and
entered into as of January 1, 1991, is made and entered into this 12th day of
----
February, 1993, but effective as of January 1, 1993, by and between K & E LAND &
LEASING, a partnership ("Lessor") and KEVCO, INC., a Texas corporation
("Lessee"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Lessor and Lessee have previously entered into the Lease, and
believe it is in their mutual interests to amend the Lease by entering into this
amendment thereto;
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 do hereby agree as follows,
intending to be legally bound thereby:
1. Paragraph 2 of the Lease is hereby amended by changing the monthly
rental as provided therein from $17,150 to $17,700.
2. In all other respects the Lease as herein amended shall remain in full
force and effect and unimpaired.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
to the Lease as of the day and year and effective date hereinabove written.
LESSOR: LESSEE:
K & E LAND & LEASING KEVCO, INC.
BY: /s/ B J. Everett BY: /s/ Jerry E. Kimmel
---------------------- ---------------------------
Its Partner Its Duly Authorized Officer
<PAGE>
EXHIBIT 10.15
AMENDMENT NO. 2 TO EQUIPMENT LEASE AGREEMENT
--------------------------------------------
THIS Amendment No. 2 to an Equipment Lease Agreement (the "Lease" or the
"Agreement') made and entered into effective as of January 1, 1991, by and
between K&E LAND & LEASING, a partnership ("Lessor") and KEVCO, INC., a Texas
corporation ("Lessee"), is made and entered into as of the 26 day of October,
--
1993, but effective November 1,1993 (the "Effective Date");
W I T N E S S E T H:
WHEREAS, the Lessor and Lessee desire to amend the Lease as hereinafter
provided;
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 do hereby agree as follows:
1. Paragraph 1 of the Lease is hereby amended in its entirety to hereafter
read as follows:
"1. Effective the Effective Date, Lessor hereby leases to Lessee the
Leased Equipment for a period of one hundred twenty (120) months (the
"Primary Term") unless earlier terminated as provided herein."
2. Paragraph 2 of the Lease is hereby amended in its entirety to hereafter
read as follows:
"2. Lessee absolutely and unconditionally shall pay Lessor an
aggregate rental of $2,124,000 for the use of the Leased Equipment, payable
monthly in equal amounts of $17,700 each, said monthly rental to be due and
payable, in advance, on the first day of each and every month during the
term of this Lease and any renewal thereof. The monthly rental provided for
herein to be paid by Lessee to Lessor shall be without any right of offset,
credit, deduction, diminution or other reduction whatsoever. Payment of
rental as provided herein shall be payable in immediately available funds
in Fort Worth, Texas. If any payment of rental provided for is not received
by Lessor when due, or in the event Lessee fails to timely pay any other
amounts which it is required to pay under any other provisions of this
Lease, or if Lessee fails to timely discharge any of its obligations as set
forth in this Lease and Lessor discharges such obligations for and on
behalf of Lessee and for the benefit of Lessee (Lessor having no obligation
to discharge such obligations), such amount or amounts shall bear interest
at the rate of 10 percent per annum, or the Maximum Rate per annum,
whichever is less, from the date on which such amount was due until paid.
Neither the payment nor acceptance of such interest shall
<PAGE>
constitute a waiver by Lessor of any default to which such interest payment
relates. All such payments of interest shall be due and payable immediately
upon demand. As used herein the term "Maximum Rate" means the maximum
lawful, non-usurious rate of interest allowable under applicable law,
including, but without limitation, the maximum rate permissible under Art.
5069-1.04 V.A.T.S., but in no event to exceed eighteen percent (18%). If
this Lease commences on a day other than the first day of the month, the
rent shall be prorated from the Effective Date through the first day of the
following month. If this Lease terminates on a day other than the first day
of a month, the rent shall be prorated from the first day of the month of
termination through the date of termination and any rent paid in addition
to such prorated amount shall be refunded to Lessee.
3. Paragraph 7 of the Lease is hereby amended in its entirety to
hereafter read as follows:
"7. Lessee shall not assign this Lease, nor sublet, or otherwise
transfer its interest in this Lease, in whole or in part, to any person or
other legal entity other than an affiliate of Lessee, nor suffer or
otherwise allow the Leased Equipment to come into the custody or control of
anyone other than Lessor or Lessee other than an affiliate of Lessee,
without the prior written consent of Lessor. Lessor may assign this Lease
and any rights, benefits or privileges hereunder to any other person or
legal entity without Lessee's consent. Lessee shall not mortgage the Leased
Equipment or otherwise subject the Leased Equipment to any mortgage or
other encumbrance without the prior written consent of Lessor."
4. Paragraph 8 of the Lease is hereby amended in its entirety to hereafter
read as follows:
"8. This Lease may be terminated by the Lessor prior to the
expiration of the Primary Term in the event that (any one or more of the
following events or circumstances being an "Event of Default"):
"(i) Lessee fails to pay the rental charges called for by this
Lease on or before five (5) days after receipt of written notice from
Lessor that a payment is past due;
"(ii) Lessee breaches, defaults, nonperforms, nonfulfills or
nonobserves any representations, covenants, agreements, obligations or
undertakings of Lessee made by Lessee or anyone on its behalf in or
pursuant to this Lease and as to a financial default, more than five (5)
days elapses without same being remedied or alleviated after receipt of
written
PAGE 2
<PAGE>
notice with respect to the nature of such breach, default, nonperformance,
nonfulfillment or nonobservance, or with respect to a non-financial
default, more than thirty (30) days expires without same being remedied or
alleviated after receipt of written notice from Lessor stating the nature
of such breach, default, nonperformance, nonfulfillment or nonobservance;
provided, however, that if such breach, default, nonperformance,
nonfulfillment or nonobservance cannot be reasonably remedied or alleviated
within said thirty (30) day period, no Event of Default shall occur or
exist if Lessor commences to remedy same within said thirty (30) day period
and thereafter diligently pursues the same to completion;
"(iii) Lessee makes a general assignment for the benefit of
creditors, admits in writing its inability to pay its debts as they become
due, or is adjudicated a bankrupt or insolvent; or Lessee files a petition
or application seeking the appointment of a receiver, trustee, or
liquidator for itself or for all or any substantial part of its assets and
properties, or commences any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, debtor relief, dissolution, liquidation
or similar proceedings relating to itself under the laws of any
jurisdiction, whether now or hereafter in effect, or any such petition or
application is filed or any such proceedings are commenced by any third
party or parties against Lessee, and Lessee by any act (whether by
petition, application, answer, consent or otherwise) indicates its approval
thereof, consent thereto or acquiescence therein; or an order is entered
appointing any such receiver, trustee or liquidator, or granting or
approving any such petition or application, and such order remains in
effect for more than thirty (30) days;
"(iv) Lessee forfeits its right to do business, or ceases to
conduct its business in the ordinary course;
"(v) Lessee discontinues operations, abandons or moves the
Leased Equipment or permits the Leased Equipment to be subjected to
unreasonable hazards or risks;
"(vi) Any final judgment is entered against Lessee for the
payment of money in an amount exceeding $50,000 which is not covered by
insurance; or any judgment, writ of attachment or execution or similar
process is issued or levied against any substantial part of Lessee's assets
and properties and is not released, vacated or fully bonded within thirty
(30) days after its issuance or levy;
"(vii) Lessee merges or consolidates with or into any other
corporation or other legal entity other than
affiliate of Lessee, or sells,
PAGE 3
<PAGE>
leases, exchanges or otherwise disposes of all or any substantial part of
its assets or properties other than to an affiliate of Lessee; or
"(viii) An "Event of Default" occurs or is continuing under that
certain Lean Agreement of even date herewith entered into by and between
First Interstate Bank of Texas, N.A., and Lessee; or
"(ix) An "Event of Default" occurs or is continuing under and
pursuant to any of the agreements entered into by and among Lessee, Gerald
E. Kimmel ("Kimmel") and Billy T. Everett ("Everett") relating to the sale
by Everett and the purchase by Lessee and Kimmel of all of the issued and
outstanding shares of common stock owned by Everett.
"Should any of the foregoing occur, Lessor may, with free right of entry
and without demand, and without further notice to Lessee, immediately take
possession of the Leased Equipment and remove the Leased Equipment from
Lessee's premises using such force as may be necessary without being guilty
of any manner of trespass or other violation of law, and if the Leased
Equipment are in a location other than on Lessee's premises, Lessor may
immediately and without prior notice or demand take whatever action is
necessary in order to recover and take possession of the Leased Equipment.
At Lessor's option, Lessor may either terminate this Lease by notifying
Lessee of its intention to terminate this Lease or, without terminating it
as provided herein, lease the Leased Equipment for the account of Lessee
for the remainder of the term hereof or for such term or terms as Lessor
shall see fit. Should Lessor elect to lease the Leased Equipment for the
account of Lessee (although Lessor shall have no obligation to do so and
shall never be liable for failure to do so) Lessee shall pay Lessor on
demand for costs of repairing the Leased Equipment for a new tenant or
tenants and also pay Lessor each month of Lessee's unexpired term the sum
of (i) the monthly rental heretofore agreed to be paid, and (ii) all other
costs and expenses incurred by Lessor which but for an Event of Default
would have been paid for or performed by Lessee, less such part, if any
thereof, Lessor shall have been able to collect from a new tenant or
tenants, it being specifically agreed and understood that Lessor is and
shall be entitled to future rentals under this Lease and that all attempts
to re-let the Leased Equipment shall be on account of and for the benefit
of Lessee. Should an Event of Default occur as aforesaid, Lessor may, on
the other hand should it so desire, without re-entry or resuming possession
of the Leased Equipment and without terminating this Lease, enforce by all
proper and legal suits and other means its rights hereunder, including the
collection of future rentals for the unexpired term of this Lease as
hereinabove provided. All rights and remedies of Lessor under this Lease
shall be cumulative and none shall be exclusive of any other and
PAGE 4
<PAGE>
especially no remedy for the recovery of rent in arrears, accrued rents, or
to require performance of any covenant or agreement of Lessee for the
unexpired term of this Lease shall be affected by any remedy herein
provided for. Waiver of any defaults hereunder shall not operate to waive
or in any manner affect any subsequent default hereunder. All
replacements, modifications or additions to the Leased Equipment shall
become a part of the Leased Equipment and shall become the sole and
exclusive property of Lessor at the expiration of this Lease.
5. The Lease is amended by adding thereto a new Paragraph 11 to read as
follows:
"11. The parties hereto acknowledge that Gerald E. Kimmel ("Kimmel")
is a representative of, and has a financial interest in, Lessor and Lessee,
and as a consequence thereof, the parties hereto agree that neither party
may impute to the other any knowledge that Kimmel shall have or obtain as a
representative of either Lessor or Lessee or assert any claim as a result
of such knowledge or raise as a defense such knowledge."
6. In all other respects, the Lease as herein amended shall remain in full
force and effect and unimpaired.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2
to the Lease as of the day and year first above written but effective the
Effective Date.
LESSOR: LESSEE:
K & E LAND & LEASING KEVCO, INC.
BY: /s/ Gerald Kimmel BY: /s/ Gerald Kimmel
----------------------- -------------------------
Its Partner Its Duly Authorized Officer
PAGE 5
<PAGE>
EXHIBIT 10.16
AMENDMENT NO. 3 TO EQUIPMENT LEASE AGREEMENT
--------------------------------------------
This Amendment No. 3 to an Equipment Lease Agreement (the "Lease" or the
"Agreement") made and entered into effective as of January 1, 1991, by and
between K&E LAND & LEASING, a partnership ("Lessor") and KEVCO, INC., a Texas
corporation ("Lessee"), is made and entered into as of the 23rd day of May,
1994, but effective January 1, 1994.
W I T N E S S E T H:
-------------------
WHEREAS, the Lessor and Lessee desire to amend the Lease as hereinafter
provided;
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 do hereby agree as follows:
1. Paragraph 2 of the Lease is hereby amended by amending in its entirety
the first sentence of said paragraph to hereafter read as follows:
"2. Lessee absolutely and unconditionally shall pay Lessor during the
remainder of the Primary Term an aggregate rental of $2,165,300.00 for the
use of the Leased Equipment, payable monthly in equal amounts of $18,350.00
each, said monthly rental to be due and payable, in advance, on the first
day of each and every month during the term of this Lease and any renewal
thereof."
2. In all other respects, the Lease as herein amended shall remain in
full force and effect and unimpaired.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3
to the Lease as of the day and year first above written but effective the
Effective Date.
LESSOR:
K&E LAND & LEASING
By: /s/ JERRY E. KIMMEL
-----------------------------------
Its Partner
PAGE 1
<PAGE>
LESSEE:
KEVCO, INC.
By: /s/ JERRY E. KIMMEL
----------------------------------
Its Duly Authorized Officer
PAGE 2
<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 (69) 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 Company hereby
agrees to pay deferred compensation to Employees 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 def erred compensation benefit's 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 asset's 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
under stood 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, pledged 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 ben so designated by the Employee, or if no designated beneficiary shall
survive the Employee, any benefit 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 (Pounds)be
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 WHERE OF, 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 10.18
AMENDMENT NO. 1
TO DEFERRED COMPENSATION AGREEMENT
DATED MAY 24, 1977
----------------------------------
THIS AGREEMENT is made and entered into this ____ day of May, 1980, by and
between KEVCO, INC., a Texas corporation (the "Company") and CLYDE A. REED, JR.
("Employee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Employee entered into a Deferred Compensation
Agreement (the "Agreement") on Nay 24, 1977; and
WHEREAS, the Company and Employee desire to amend the Agreement as
hereinafter provided;
NOW, THEREFORE, IN CONSIDERATION of the premises and the agreements
contained herein, the parties hereto have agreed and do hereby agree as follows:
1. The sum of $20,000.00 on line 8 of Paragraph 1(a) on Page 1 of the
Agreement is hereby changed to $35,000.00.
2. Paragraph 2 of the Agreement is hereby amended as follows by amending
in its entirety the schedule at the bottom of Page 2 of the Agreement to
hereafter read as follows:
<TABLE>
<CAPTION>
Year in Which Termination Amount to be Received
of Employment Occurs By Employee
-------------------- -----------
<S> <C>
1980 $14,263
1981 21,622
1982 28,748
1983 35,705
1984 42,540
1985 49,256
1986 55,833
1987 62,294
1988 68,619
1989 74,815
1990 80,879
1991 86,803
1992 92,604
1993 98,259
1994 103,763
1995 109,118
</TABLE>
3. Paragraph 5 of the Agreement is hereby amended as follows:
(a) By amending in its entirety tide first sentence thereof to
hereafter read as follows:
In order to fund the benefits provided for in this Agreement,
<PAGE>
the Company has applied for and procured as owner and for its own benefit two
whole-life insurance policies on the life of Employee in the aggregate amount of
$383,769.
(b) By adding the following additional provisions at the end of such
paragraph to read as follows:
In the event any additional policies of insurance on the life of Employee
are applied for and procured by the Company as owner or in the event the amounts
to be received by Employee under the provisions of Paragraphs 1 or 2 of this
Agreement should hereafter change by agreement of the parties hereto, then and
in either of such events any such changes shall be reflected upon the "Schedule
of Deferred Compensation" attached hereto and made a part hereof for all
purposes. Any of such changes shall be effective as of the dates entered on said
Schedule initialed by the proper officers of the Company and initialed by
Employee. It is agreed and understood that the Company shall have the right at
any time to cancel any life insurance policies on the life of Employee and to
surrender for cancellation such policies to the Company or companies issuing
same. Upon cancellation all amounts received or to be received with respect to
such policies shall be the sole and absolute property of the Company.
4. Paragraph 9 of the Agreement is hereby amended by substituting in
place of the figure "5" on the third line thereof the figure "1."
In all other respects the Agreement shall remain in full force and effect
and unimpaired.
IN WITNESS WHEREOF the parties hereto have executed this Amendment to the
Agreement in multiple copies on the day and year first above written.
COMPANY:
KEYCO, INC
By:JERRY E KIMMEL
--------------------------------
Its President
ADDRESS:
Suite 503, Morrow Building II
301 Loop 820, N.E.
Hurst, Texas 76053
-2-
<PAGE>
EMPLOYEE:
/s/ Clyde A. Reed, Jr.
---------------------------
Clyde A. Reed, Jr.
ADDRESS:
6 Country Club Court
Arlington, Texas 76013
-3-
<PAGE>
SCHEDULE TO BE ATTACHED TO
DEFERRED COMPENSATION AGREEMENT
BETWEEN KEVCO, INC. AND CLYDE A. REED, JR.
-----------------------------------------
It is hereby agreed that the following changes have been made with respect
to the Deferred Compensation Agreement between the Employee and the Company
effective as of the date indicated below:
<TABLE>
<CAPTION>
Lump Sum Cash Face Amount of
Payment to be Life Insurance
Received by Policies Owned
Employee by the Company
Annual Deferred Pursuant on the Life of
Compensation to the Employee Initials
Pursuant to Provisions Pursuant to of
Paragraph 1(a) of Paragraph 2 the Terms of Officer Initials
of the of the Paragraph 5 of of of Effective
Agreement Agreement the Agreement Company Employee Date
- --------------- -------------- -------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
- --------------- -------------- -------------- -------- -------- ---------
- --------------- -------------- -------------- -------- -------- ---------
- --------------- -------------- -------------- -------- -------- ---------
- --------------- -------------- -------------- -------- -------- ---------
- --------------- -------------- -------------- -------- -------- ---------
- --------------- -------------- -------------- -------- -------- ---------
- --------------- -------------- -------------- -------- -------- ---------
- --------------- -------------- -------------- -------- -------- ---------
</TABLE>
<PAGE>
LUMP SUM PAYMENT ON EARLY TERMINATION
-------------------------------------
<TABLE>
<CAPTION>
Year in which Cumulative Cumulative Cumulative
Termination Cash Outlay Cash Outlay Dividend
of Employment on on on
Occurs Policy #1 Policy #2 Policy #2 Total
- --------------- ----------- ----------- ---------- -----
<S> <C> <C> <C> <C>
1980 $10,183 $ 4,080 $ - $ 14,263
1981 13,284 8,161 177 21,622
1982 16,213 12,242 293 28,748
1983 18,969 16,322 414 35,705
1984 21,603 20,403 534 42,540
1985 24,116 24,484 656 49,256
1986 26,504 28,564 765 55,833
1987 28,771 32,645 878 62,294
1988 30,903 36,725 991 68,619
1989 32,905 40,806 1,104 74,815
1990 34,775 44,887 1,217 80,879
1991 36,509 48,967 1,327 86,803
1992 38,103 53,048 1,453 92,604
1993 39,554 57,128 1,577 98,259
1994 40,854 61,209 1,700 103,763
1995 42,008 65,290 1,820 109,118
</TABLE>
<PAGE>
EXHIBIT 10.19
AMENDMENT NO. 2 TO DEFERRED COMPENSATION AGREEMENT
DATED MAY 24, 1977
THIS AGREEMENT (the "Second Amendment") is made and entered into this 10th
----
day of March, 1992, by and between KEVCO, INC., a Texas corporation (the
"Company") and CLYDE A. REED, JR. (the "Employee");
W I T N E S S E T H:
WHEREAS, the Company and Employee entered into a Deferred Compensation
Agreement (the "Agreement") on May 24, 1977; and
WHEREAS, the Company and Employee entered into an Amendment No. 1 to the
Agreement in May, 1980 (the "First Amendment"); and
WHEREAS, the Company and Employee again desire to amend the Agreement as
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties hereto have agreed and do hereby agree as follows:
1. All references in the Agreement to "60 years" are hereby changed to
mean "65 years."
2. Anything in the Agreement or any amendment thereto to the contrary
notwithstanding, if Employee is still in the employ of the Company when he
attains the age of 65 years, the Employee shall retire from his employ with the
Company immediately upon the attainment of such age, which retirement shall be a
condition precedent to Employee's right to any deferred compensation or other
benefits pursuant to the Agreement or any amendment or schedule thereto.
3. In all other respects the Agreement as amended by the First Amendment
and this Second Amendment shall remain in full force and effect and unimpaired.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to the Agreement in multiple copies on the day and year first above written.
COMPANY:
KEVCO, INC.
BY /s/ Jerry E. Kimmel
---------------------------------
Its President
--------------------------
2501 Parkview Drive - Suite 560
Fort Worth, TX 76102
<PAGE>
EMPLOYEE:
/s/ Clyde A. Reed, Jr.
-----------------------------------
CLYDE A. REED, JR.
6 County Club Court
Arlington, TX 76013
<PAGE>
SCHEDULE TO BE ATTACHED TO
DEFERRED COMPENSATION AGREEMENT
BETWEEN KEVCO, INC. AND CLYDE A. REED, JR.
------------------------------------------
It is hereby agreed that the following changes have been made with respect
to the Deferred Compensation Agreement between the Employee and the Company
effective as of the date indicated below:
<TABLE>
<CAPTION>
Lump Sum Cash Face Amount of
Payment to be Life Insurance
Received by Policies Owned
Employee by the Company
Annual Deferred Pursuant on the Life of
Compensation to the Employee Initials
Pursuant to Provisions Pursuant to of
Paragraph 1(a) of Paragraph 2 the Terms of Officer Initials
of the of the Paragraph 5 of of of Effective
Agreement Agreement the Agreement Company Employee Date
- --------------- -------------- -------------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
See Revised
$45,000 Schedule Below $439,938 JEK CAR 2/14/85
- --------------- -------------- -------------- ------- -------- --------
See Revised
$55,000 Schedule Below $514,938 JEK CAR 5/12/88
- --------------- -------------- -------------- ------- -------- --------
See Revised
$55,0000 Schedule Below $553,815 JEK CAR 3/10/92
- --------------- -------------- -------------- ------- -------- --------
</TABLE>
CLYDE REED
TERMINATION VALUES
(End of Year At Policy Anniversary
<TABLE>
<CAPTION>
Conn. Mutual Conn. Mutual Conn. Mutual Conn. Mutual
#3,431,691 #3,813,383 #4,418,813 #4,741,987
Year 03-28-77 (1)(3) 04-16-80 (2)(3) 02-14-85 (2)(3) 02-09-88 (1)(3) Total
---- --------------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
1992 $ 75,031 $ 57,772 $ 10,189 $ 4,571 $ 147,563
1993 80,718 65,895 12,564 6,270 165,447
1994 86,410 74,689 14,885 7,998 183,982
1995 92,108 84,234 17,374 9,755 203,471
1996 97,792 94,555 20,045 11,540 223,932
1997 103,460 105,740 22,916 13,349 245,465
1998 109,101 117,877 25,987 15,176 268,141
1999 114,709 131,044 29,278 17,017 292,048
2000 120,272 145,321 32,800 18,865 317,258
2001 125,775 156,827 36,562 20,717 339,881
2002 131,205 169,147 40,587 22,574 363,513
2003 136,543 182,430 44,884 24,438 388,295
2004 141,774 186,720 49,478 26,309 414,281
2005 146,885 211,996 54,384 28,189 441,454
2006 151,877 228,382 59,623 30,069 469,951
</TABLE>
(1) Dividends applied to reduce the premium.
(2) Includes dividends.
(3) Variable loan rate.
Dividends are based on the current scale and are neither guarantees nor
estimates for the future.
<PAGE>
EXHIBIT 10.21
INVESTMENT AND TAX ADVICE PLAN
OF
Kevco, Inc.
_____________________________________
1. Reimbursement for covered expenses.
----------------------------------
(a) Effective January 1, 1995, Kevco, Inc. (the "Corporation") will
reimburse (at least quarterly) any of the employees and/or officers (a
"Participant") of the Corporation specifically named in Paragraph 1(b) below
for all costs and expenses incurred by such Participant during any calendar year
up to and including the amounts specified as to such Participant in Paragraph
1(b) below. A Participant shall be considered as an employee of the Corporation
if he is employed by the Corporation at the time any covered expense is incurred
and if, at such time, he is customarily working at least nine (9) months of each
year and thirty (30) hours in each week. An officer shall be considered as such
during the period commencing with their election by the Corporation's board of
directors and ending when their successors has been duly elected and qualified.
Covered expense as provided herein shall be limited to expenses incurred by the
Participant for investment advice, accounting services or legal services
rendered to the Participant and tax advice and tax or estate planning rendered
to the Participant by investment advisors, accountants or attorneys. Covered
expenses shall also include amounts paid for transportation, primarily for and
essential to the obtaining of any such advice and premiums for any prepaid legal
or similar insurance relating to the foregoing covered expenses.
(b) The Participants of the Corporation covered by this Plan and the
benefits to which each of such Participants shall be entitled in any one
calendar year are as follows:
<TABLE>
<CAPTION>
Employee Benefits Limited To
---------------------- -------------------
<S> <C>
Gerald E. Kimmel $10,000
Clyde A. Reed, Jr. $ 5,000
Dean Replogle $ 1,000
Allen McGehee $ 1,000
Dick Grasso $ 1,000
Gregory G. Kimmel $ 2,500
Christine Sue Pearce $ 2,500
Amy Llewella Kimmel $ 2,500
</TABLE>
(c) The Corporation may, in its discretion, pay any or all of the
above-covered expenses directly in lieu of making reimbursement therefor. In
such event, the Corporation shall be relieved of all further responsibility with
respect to that particular covered expense. The reimbursement to or the payment
on behalf of any one Participant shall be limited in any one calendar to the
benefit set forth as to each employee in Paragraph 1(b) above.
<PAGE>
(d) Any Participant applying for reimbursement under this Plan shall
submit to the Corporation, at least quaterly, all statements or other bills
including premium notices for applicable insurance for verification by the
Corporation prior to payment. A failure to comply herewith may at the discretion
of the Corporation terminate such Participant's right to reimbursement.
2. Other Insurance.
---------------
Reimbursement under this Plan shall be made by the Corporation only in the
event and to the extent that such reimbursement or payment is not provided for
under any insurance policy or policies, whether owned by the Corporation or the
Participant or under any other plan or similar program. In the event that there
is such a policy or plan in effect providing for reimbursement or payment in
whole or in part, then to the extent of the coverage under such policy or plan,
the Corporation shall be relieved of any liability hereunder.
3. Purpose.
-------
The purpose of this Plan is to encourage and help provide financial
assistance and security for each participating Participant.
4. Coverage.
--------
Each of the Participants named in Paragraph 1(b) above shall be eligible to
participate in the Plan and shall be covered by the Plan. Other full-time
employees and/or officers of the Corporation may become eligible to participate
in the Plan at the discretion of the Board of Directors of the Corporation. A
Participant who is discharged from employment of the Corporation for any reason,
whether for or without cause and whether voluntarily or involuntarily, or who
terminates his employment with the Company for any reason, shall forfeit as of
the date of such discharge or termination all rights to reimbursements under the
Plan, whether or not theretofore accrued or incurred. A copy of this Plan shall
be given to all Participants of the Corporation as hereinabove provided who
become participants in the Plan.
5. Amendment, Termination.
----------------------
This Plan may be amended or terminated at any time subsequent hereto by the
affirmative vote of a majority of the Board of Directors of the Corporation;
provided, however, that any such amendment or termination shall not affect the
right to claim reimbursement for amounts expended for covered expenses prior to
such amendment or termination.
6. Named Fiduciary.
---------------
The named fiduciary of this Plan is the Corporation.
<PAGE>
7. Administration.
--------------
The officers of the Corporation shall have authority and responsibility to
control and manage the operation and administration of this Plan.
8. Claim Procedure.
---------------
Claim for benefits under this Plan shall be made on forms maintained by the
Corporation. Each Participant applying for reimbursement under this Plan shall
submit claims for same as provided in Paragraph 1(d) above.
9. Procedure in the Event of Denial of a Claim.
-------------------------------------------
(a) In the event any claim for benefits hereunder is wholly or
partially denied, notice of such decision shall be furnished to the claimant
within a reasonable period of time after receipt of the claim by the named
fiduciary.
(b) The notice of the denial of a claim shall be in writing, shall be
set forth in a manner calculated to be understood by the claimant, shall set
forth in specific reason or reasons for the denial, shall refer to the pertinent
plan provisions upon which the denial is based, shall describe any additional
material or information necessary for the claimant to perfect the claim, and
shall contained an explanation of the plan's claim review procedure.
(c) Every claimant, or his duly authorized representative, shall have
the right to appeal a denial of a claim under this Plan to the named fiduciary.
Such appeal may be accomplished by a written notice of appeal filed with the
named fiduciary within thirty (30) days of a claim. In the event a claimant does
not file a notice of appeal within this thirty (30) day period, he shall be
deemed to have irrevocably consented to the deny the claim.
(d) A decision by the named fiduciary shall be made promptly within
sixty (60) days after the receipt of the notice of appeal, unless special
circumstances (such as the need for a hearing if the named fiduciary determines
that a hearing is necessary) require any extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not later than
one hundred twenty (120) days after receipt of a notice of appeal. The decision
on review shall be in writing, written in a manner calculated to be understood
by the claimant, and shall include specific reasons for the decision.
<PAGE>
EXHIBIT 10.22
================================================================================
$35,000,000
CREDIT AGREEMENT
AMONG
KEVCO, INC.
CERTAIN LENDERS
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
June 30, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms.................................................. 1
-------------
Section 1.2 Amendments and Renewals....................................... 18
-----------------------
Section 1.3 Construction.................................................. 18
------------
ARTICLE 2
Advances
--------
Section 2.1 The Advances................................................. 18
------------
Section 2.2 Manner of Borrowing and Disbursement......................... 19
------------------------------------
Section 2.3 Interest..................................................... 21
--------
Section 2.4 Fees......................................................... 22
----
Section 2.5 Prepayment and Payments...................................... 22
-----------------------
Section 2.6 Reduction of Commitments..................................... 23
------------------------
Section 2.7 Non-Receipt of Funds by the Administrative Lender............ 24
-------------------------------------------------
Section 2.8 Payment of Principal of Advances............................. 24
--------------------------------
Section 2.9 Reimbursement................................................ 25
-------------
Section 2.10 Manner of Payment............................................ 26
-----------------
Section 2.11 LIBOR Lending Offices........................................ 26
---------------------
Section 2.12 Sharing of Payments.......................................... 26
-------------------
Section 2.13 Calculation of LIBOR Rate.................................... 27
-------------------------
Section 2.14 Booking Loans................................................ 27
-------------
Section 2.15 Taxes........................................................ 27
-----
Section 2.16 Letters of Credit............................................ 30
-----------------
Section 2.17 Extension of Revolving Commitment Maturity Date.............. 36
-----------------------------------------------
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to Closing, the Initial Revolving
------------------------------------------------------
Commitment Advance, the Term Loan Advance, and the Initial
----------------------------------------------------------
Letters of Credit............................................ 37
-----------------
Section 3.2 Conditions Precedent to All Advances and Letters of Credit... 38
----------------------------------------------------------
-i-
<PAGE>
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties............................... 39
------------------------------
Section 4.2 Survival of Representations and Warranties, etc.............. 45
-----------------------------------------------
ARTICLE 5
General Covenants
-----------------
Section 5.1 Preservation of Existence and Similar Matters................ 45
---------------------------------------------
Section 5.2 Business; Compliance with Applicable Law..................... 46
----------------------------------------
Section 5.3 Maintenance of Properties.................................... 46
-------------------------
Section 5.4 Accounting Methods and Financial Records..................... 46
----------------------------------------
Section 5.5 Insurance.................................................... 46
---------
Section 5.6 Payment of Taxes and Claims.................................. 46
---------------------------
Section 5.7 Visits and Inspections....................................... 47
----------------------
Section 5.8 Payment of Indebtedness...................................... 47
-----------------------
Section 5.9 Use of Proceeds.............................................. 47
---------------
SECTION 5.10 INDEMNITY.................................................... 47
---------
Section 5.11 Environmental Law Compliance................................. 49
----------------------------
Section 5.12 Interest Rate Hedging........................................ 49
---------------------
Section 5.13 Deeds of Trust............................................... 50
--------------
ARTICLE 6
Information Covenants
---------------------
Section 6.1 Monthly Borrowing Base Report and Compliance Certificate..... 50
--------------------------------------------------------
Section 6.2 Quarterly Financial Statements and Information............... 50
-----------------------------------------------
Section 6.3 Annual Financial Statements and Information; Certificate
--------------------------------------------------------
of No Default................................................ 51
-------------
Section 6.4 Borrowing Base Report and Compliance Certificate............. 51
------------------------------------------------
Section 6.5 Copies of Other Reports and Notices.......................... 51
-----------------------------------
Section 6.6 Notice of Litigation, Default and Other Matters.............. 52
-----------------------------------------------
Section 6.7 ERISA Reporting Requirements................................. 53
----------------------------
ARTICLE 7
Negative Covenants
------------------
Section 7.1 Indebtedness................................................. 54
------------
Section 7.2 Liens........................................................ 55
-----
-ii-
<PAGE>
Section 7.3 Investments.................................................. 55
-----------
Section 7.4 Liquidation, Disposition or Acquisition of Assets,
--------------------------------------------------
Merger, New Subsidiaries..................................... 55
------------------------
Section 7.5 Restricted Payments.......................................... 56
-------------------
Section 7.6 Affiliate Transactions....................................... 56
----------------------
Section 7.7 Compliance with ERISA........................................ 57
---------------------
Section 7.8 Leverage Ratio............................................... 57
--------------
Section 7.9 Fixed Charge Coverage Ratio.................................. 57
---------------------------
Section 7.10 Quick Ratio.................................................. 57
-----------
Section 7.11 Sale and Leaseback........................................... 58
------------------
Section 7.12 Sale or Discount of Receivables.............................. 58
-------------------------------
Section 7.13 Capital Expenditures and Acquisitions........................ 58
-------------------------------------
Section 7.14 Executive Compensation....................................... 58
----------------------
ARTICLE 8
Default
-------
Section 8.1 Events of Default............................................ 58
-----------------
Section 8.2 Remedies..................................................... 61
--------
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate......................... 62
------------------------------------
Section 9.2 Illegality................................................... 62
----------
Section 9.3 Increased Costs.............................................. 63
---------------
Section 9.4 Effect On Prime Rate Advances................................ 64
-----------------------------
Section 9.5 Capital Adequacy............................................. 64
----------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders...................................... 65
-----------------------
Section 10.2 Lender Credit Decision....................................... 67
----------------------
Section 10.3 Benefits of Article.......................................... 67
-------------------
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices...................................................... 67
-------
-iii-
<PAGE>
Section 11.2 Expenses..................................................... 68
--------
Section 11.3 Waivers...................................................... 69
-------
Section 11.4 Determination by the Lenders Conclusive and Binding.......... 69
---------------------------------------------------
Section 11.5 Set-Off...................................................... 69
-------
Section 11.6 Assignment................................................... 70
----------
Section 11.7 Counterparts................................................. 72
------------
Section 11.8 Severability................................................. 72
------------
Section 11.9 Interest and Charges......................................... 72
--------------------
Section 11.10 Headings..................................................... 73
--------
Section 11.11 Amendment and Waiver......................................... 73
--------------------
Section 11.12 Exception to Covenants....................................... 73
----------------------
Section 11.13 No Liability of Issuing Bank................................. 73
----------------------------
SECTION 11.14 GOVERNING LAW................................................ 74
-------------
SECTION 11.15 WAIVER OF JURY TRIAL......................................... 74
--------------------
SECTION 11.16 ENTIRE AGREEMENT............................................. 74
----------------
-iv-
<PAGE>
Schedules and Exhibits
- ----------------------
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Exhibit A: Revolving Credit Note
Exhibit B: Term Loan Note
Exhibit C: Security Agreement
Exhibit D: Borrowing Base Report and Compliance Certificate
Exhibit E: Assignment Agreement
-v-
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is dated as of June 30, 1995, among Kevco, Inc.,
a Texas corporation ("Borrower"), the Lenders from time to time party hereto,
and NATIONSBANK OF TEXAS, N.A., a national banking association, as
administrative agent for the Lenders.
BACKGROUND
----------
The Borrower has requested that the Lenders make a credit facility
available to the Borrower in the maximum principal amount of $35,000,000. The
Lenders have agreed to do so, subject to the terms and conditions set forth
below.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms. For purposes of this Agreement:
-------------
"Account" shall have the meaning assigned to such term in the UCC.
-------
"Acquisitions" shall mean any transaction pursuant to which the
------------
Borrower or any of its Subsidiaries, (i) whether by means of a capital
contribution or purchase or other acquisition of stock or other securities or
other equity participation or interest, (A) acquires more than 50% of the equity
interest in any Person pursuant to a solicitation by the Borrower or such
Subsidiary of tenders of equity securities of such Person, or through one or
more negotiated block, market, private or other transactions not involving a
tender offer, or a combination of any of the foregoing, (B) makes any
corporation a Subsidiary of the Borrower or such Subsidiary, or causes any
corporation, other than a Subsidiary of the Borrower or such Subsidiary, to be
merged into the Borrower or such Subsidiary (or agrees to be merged into any
other corporation other than a wholly-owned Subsidiary of the Borrower or such
Subsidiary), or (C) agrees to purchase all or substantially all of the assets of
any corporation, pursuant to a merger, purchase of assets or other
reorganization providing for the delivery or issuance to the holders of such
corporation's then outstanding securities, in exchange for such securities, of
cash or securities of the Borrower or such Subsidiary, or any combination
thereof, or (ii) purchases all or substantially all of the business or assets of
any Person or of any operating division of any Person.
"Administrative Lender" means NationsBank of Texas, N.A., a national
---------------------
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
---------------
<PAGE>
"Advance" means any amount advanced by the Lenders to the Borrower
-------
pursuant to Article 2 hereof on the occasion of any borrowing, including without
---------
limitation any Refinancing Advance.
"Affiliate" means any Person that, directly or indirectly, through one
---------
or more Subsidiaries, Controls or is Controlled By or Under Common Control with,
the Borrower.
"Agreement" means this Credit Agreement.
---------
"Agreement Date" means the date of this Agreement.
--------------
"Amortization Date" means October 1, 1996.
-----------------
"Applicable Environmental Laws" means applicable laws pertaining to
-----------------------------
health or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
------
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA"), the Texas Water Code, and the Texas Solid
----
Waste Disposal Act.
"Applicable Law" means (a) in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
(S)(S) 85 and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the maximum
rates of interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute
of the State of Texas now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit; provided that the parties hereto
agree that the provisions of Chapter 15, Title 79, Revised Civil Statutes of
Texas, 1925, as amended, shall not apply to Advances, this Agreement, the Notes
or any other Loan Documents.
-2-
<PAGE>
"Applicable Margin" means the following per annum percentages,
-----------------
applicable in the following situations:
<TABLE>
<CAPTION>
Prime Rate LIBOR
Applicability Basis Basis
------------- ----- -----
<S> <C> <C>
(a) The Fixed Charge Coverage Ratio is less than 0.00 1.75
2.00 to 1
(b) The Fixed Charge Coverage Ratio is greater than 0.00 1.50
or equal to 2.00 to 1 but less than 2.50 to 1
(c) The Fixed Charge Coverage Ratio is greater than 0.00 1.25
or equal to 2.50 to 1 but less than 3.00 to 1
(d) The Fixed Charge Coverage Ratio is greater than 0.00 1.00
or equal to 3.00 to 1
</TABLE>
The Applicable Margin payable by the Borrower on the Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above, on a quarterly basis according to the performance of
the Borrower as tested by using the Fixed Charge Coverage Ratio for the most
recent four fiscal quarters; provided, that each adjustment in the LIBOR Rate
--------
shall be effective with respect to LIBOR Advances (i) made following receipt by
the Administrative Lender of the financial statements required pursuant to
Section 6.2 or 6.3, as applicable, hereof and the Borrowing Base Report and
- ----------- ---
Compliance Certificate required pursuant to Section 6.4 hereof, on the date of
-----------
making of such LIBOR Advance and (ii) outstanding on the date of receipt of the
financial statements and Borrowing Base Report and Compliance Certificate
referred to in clause (i) immediately preceding, within 2 Business Days
following the date of receipt of such financial statements and Borrowing Base
Report and Compliance Certificate. If such financial statements and Borrowing
Base Report and Compliance Certificate are not received by the Administrative
Lender by the date required, the Applicable Margin shall be determined as if the
Fixed Charge Coverage Ratio is less than 2.00 to 1 until such time as such
financial statements and Borrowing Base Report and Compliance Certificate are
received. Notwithstanding the foregoing, for the first three fiscal quarters
ending after the Agreement Date (not including the fiscal quarter ending on June
30, 1995), the Applicable Margin shall be determined as if the Fixed Charge
Coverage Ratio is less than 2.00 to 1.
"Art. 1.04" shall have the meaning ascribed thereto in the definition of
---------
"Applicable Law."
--------------
"Assignees" means any assignee of a Lender pursuant to an Assignment
---------
Agreement and shall have the meaning ascribed thereto in Section 11.6 hereof.
------------
"Assignment Agreement" shall have the meaning ascribed thereto in Section
-------------------- -------
11.6 hereof.
- ----
-3-
<PAGE>
"Assignment of Claims Act" means the Assignment of Claims Act of 1940, as
------------------------
amended (31 U.S.C. (S) 3727).
"Authorized Signatory" means such senior personnel of the Borrower as may
--------------------
be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances hereunder.
"Borrower" means Kevco, Inc., a Texas corporation.
--------
"Borrowing Base" means, at the time in question, an amount equal to the sum
--------------
of (i) 80% of Eligible Accounts, plus (ii) 60% of Eligible Inventory; provided,
--------
however, notwithstanding the foregoing, at no time shall the amount of the
- -------
Borrowing Base computed pursuant to clause (ii) above exceed an amount equal to
60% of the Revolving Credit Commitment.
"Borrowing Base Report and Compliance Certificate" means a certificate,
------------------------------------------------
signed by an Authorized Signatory, in substantially the form of Exhibit D,
---------
appropriately completed.
"Business Day" means a day on which banks are open for the transaction of
------------
business in Dallas, Texas and, with respect to any LIBOR Advance, in London,
England.
"Capital Expenditures" means, for any period, expenditures made by the
--------------------
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capital Leases at the
cost of the item) computed in accordance with GAAP, consistently applied.
"Capital Leases" means capital leases and subleases, as defined in the
--------------
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 13, dated November 1976, as amended.
"Capitalized Lease Obligations" means that portion of any obligation of the
-----------------------------
Borrower or any Subsidiary as lessee under a lease which at the time would be
required to be capitalized on a balance sheet prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
-------------------------
Subsidiary (i) cash (which after the occurrence of an Event of Default shall
exclude any cash proceeds of Accounts), (ii) securities issued or directly and
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (iii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the
-4-
<PAGE>
qualifications specified in clause (iii) above, and (v) commercial paper issued
by any Bank or the parent corporation of any Lender, and commercial paper rated
A-1 or the equivalent thereof by Standard & Poor's Ratings Group, a Division of
McGraw-Hill, Inc., a New York corporation or P-1 or the equivalent thereof by
Moody's Investors Service, Inc. and in each case maturing within six months
after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
-----------------
sale, lease or transfer of all or substantially all of the Borrower's assets to
any Person or group (as such term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Borrower, or (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of a direct or indirect majority in interest
(more than 50%) of the voting power of the voting stock of the Borrower by way
of merger or consolidation or otherwise.
"COBRA" shall have the meaning specified in Section 4.1(l) hereof.
----- --------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means any collateral hereafter granted by any Person to the
----------
Administrative Lender for the benefit of the Lenders to secure the Obligations.
"Collateral Document" means any document under which Collateral is granted
-------------------
and any document related thereto.
"Commitments" means, collectively, the Revolving Credit Commitment and the
-----------
Term Loan Commitment, as reduced from time to time pursuant to Section 2.6
-----------
hereof.
"Consensual Lien" means only those Liens described in clauses (f) and (h)
---------------
of the definition of Permitted Liens.
"Control" or "Controlled By" or "Under Common Control" means possession,
------- ------------- --------------------
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 20% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person not an
----------------
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.
-5-
<PAGE>
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
------------------
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to time
in effect.
"Deed of Trust" means any Deed of Trust or Mortgage, as applicable,
-------------
relating to all of the real property and leasehold interests in real property of
the Borrower and each Subsidiary, in a form acceptable to the Administrative
Lender, as amended, modified, renewed, supplemented or restated from time to
time.
"Default" means an Event of Default and/or any of the events specified in
-------
Section 8.1, regardless of whether there shall have occurred any passage of time
- -----------
or giving of notice that would be necessary in order to constitute such event an
Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a) with
------------
respect to Prime Rate Advances the lesser of (i) the Highest Lawful Rate or (ii)
the Prime Rate plus three percent or (b) with respect to LIBOR Advances, the
lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis plus three
percent.
"Determining Lenders" means, on any date of determination, any combination
-------------------
of the Lenders having at least 67% of the aggregate amount of the Advances then
outstanding; provided, however, that if there are no Advances outstanding
hereunder, "Determining Lenders" shall mean any combination of Lenders whose
Specified Percentages aggregate at least 67%.
"Dividend" means, as to any Person, any declaration or payment of any
--------
dividend (other than a stock dividend) on, or the making of any distribution,
loan, advance or investment to or in any holder of, any shares of capital stock
of such Person (other than salaries and bonuses paid in the ordinary course of
business).
"EBIT" means, for any period, determined in accordance with GAAP on a
----
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of business, and adding
thereto, to the extent included in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of assets other than asset
sales in the ordinary course of business), plus (b) interest expense, minus (c)
the amount of any Life Insurance Premiums distributions permitted pursuant to
Section 7.5(b) hereof.
- --------------
"EBITDA" means, for any period, determined in accordance with GAAP on a
------
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT,
plus (b) depreciation and amortization.
"Eligible Accounts" means at the time of any determination thereof, each
-----------------
Account as to which the following requirements have been fulfilled to the
satisfaction of the Determining Lenders:
-6-
<PAGE>
(i) Borrower or any Subsidiary has lawful and absolute title to
such Account;
(ii) Such Account is a valid, legally enforceable obligation of the
Person who is obligated under such Account (the "account debtor") for goods
--------------
or services delivered or rendered to such Person;
(iii) If such Account and other Accounts are owed by a creditor of
Borrower or any Subsidiary, the amount of all such Accounts included as
Eligible Accounts shall be the amount by which all such Accounts exceeds
the aggregate accounts payable owed by Borrower or such Subsidiary to such
creditor;
(iv) There has been excluded from such Account any portion that is
subject to any dispute, offset, discount (other than discounts granted for
early payment), counterclaim or other claim or defense on the part of the
account debtor or to any claim on the part of the account debtor denying
liability under such Account;
(v) Borrower or any Subsidiary has full and unqualified right to
assign and grant a security interest in such Account to Administrative
Lender as security for the Obligation;
(vi) Such Account is evidenced by an invoice rendered to the
account debtor and such Account is not evidenced by any chattel paper,
promissory note or other instrument;
(vii) Such Account is not subject to any Lien or Negative Pledge in
favor of any Person other than any (A) Lien of the Administrative Lender
pursuant to the Loan Documents or (B) Permitted Lien which is not a
Consensual Lien;
(viii) Such Account has not been due and payable for more than 90
days from the invoice date; provided, that, unless Determining Lenders
agree otherwise, no Accounts from an account debtor shall constitute
Eligible Accounts if 20% or more of the aggregate dollar amount of all
Accounts owed to Borrower or any Subsidiary by such account debtor have
been due and payable for 91 days or more from their respective invoice
dates;
(ix) No account debtor in respect of such Account is (i) primarily
conducting business in any jurisdiction located outside the United States
of America, (ii) the subject of a proceeding under any Debtor Relief Laws,
(iii) the United States of America or any department, agency or
instrumentality thereof unless the Borrower or any Subsidiary has assigned
its right to payment thereof to the Administrative Lender, and the
assignment has been acknowledged, pursuant to the Assignment of Claims Act
or (iv) any state of the United States or any county, city, town,
municipality or division of such state; and
-7-
<PAGE>
(x) Such Account is subject to a fully perfected first priority
security interest in favor of Administrative Lender pursuant to the Loan
Documents, prior to the rights of, and enforceable as such against, any
other Person (including holders of a purchase money security interest).
"Eligible Inventory" means, at the time of any determination thereof, each
------------------
item of Inventory (excluding work-in-progress) valued at the lower of cost or
market value, as to which the following requirements have been fulfilled to the
satisfaction of the Determining Lenders:
(i) Borrower or any Subsidiary has lawful and absolute title to
such Inventory;
(ii) Such Inventory is not subject to any Lien or Negative Pledge in
favor of any Person other than any (A) Lien of the Administrative Lender
pursuant to the Loan Documents or (B) Permitted Lien which is not a
Consensual Lien;
(iii) Such Inventory is without defect;
(iv) Such Inventory is located in the United States of America;
(v) Such Inventory is subject to a fully perfected first priority
security interest in favor of Administrative Lender pursuant to the Loan
Documents, prior to the rights of, and enforceable as such against, any
other Person (including holders of a purchase money security interest); and
(vi) The sale of such Inventory by Administrative Lender (or its
successors or assigns) is not subject to any Necessary Authorization,
restriction or limitation.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its Subsidiaries, (a)
-----------
a Reportable Event (other than a Reportable Event not subject to the provision
for 30-day notice to the PBGC under regulations issued under Section 4043 of
ERISA), (b) the withdrawal of any such Person or any member of its Controlled
Group from a Plan subject to Title IV of ERISA during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate under Section 4041(c) of ERISA, (d)
the institution of proceedings to terminate a Plan by the PBGC, (e) the failure
to make required contributions which could result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the imposition of any liability under Title IV of ERISA
other than PBGC premiums due but not delinquent under Section 4007 of ERISA;
provided, however, that ERISA Event shall not include the termination by Service
- -------- -------
Supply of its employee stock option plan.
-8-
<PAGE>
"Event of Default" means any of the events specified in Section 8.1,
---------------- -----------
provided that any requirement for notice or lapse of time has been satisfied.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to the
Administrative Lender on such day on such transactions as determined by
Administrative Lender.
"Fee Letter" shall have the meaning specified in Section 2.4(b) hereof.
---------- --------------
"Fixed Charges" means, for any date of calculation, calculated for Borrower
-------------
and its Subsidiaries on a consolidated basis, the sum of, without duplication,
(a) interest expense (including interest expense pursuant to Capitalized Lease
Obligations), plus (b) lease expense under Operating Leases, in each case for
the applicable period immediately preceding the date of calculation.
"Fixed Charge Coverage Ratio" means the ratio of Pretax Cash Flow to Fixed
---------------------------
Charges.
"GAAP" means generally accepted accounting principles applied on a
----
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requisite that such principles be applied on a consistent basis shall mean that
the accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period.
"Guaranty" or "Guaranteed", as applied to an obligation of another Person,
-------- ----------
means and include (a) a guaranty, direct or indirect, in any manner, of any part
or all of such obligation, and (b) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of nonperformance) of any
part or all of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to amounts which may be drawn by
beneficiaries of outstanding letters of credit.
"Highest Lawful Rate" means at the particular time in question the maximum
-------------------
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of
-9-
<PAGE>
the effective time of each change in the Highest Lawful Rate without notice to
the Borrower. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be (a)
the indicated rate ceiling described in and computed in accordance with the
provisions of Section (a)(1) of Art. 1.04, or (b) if the parties subsequently
contract as allowed by Applicable Law, the quarterly ceiling or the annualized
ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that
at any time the indicated rate ceiling, the quarterly ceiling or the annualized
ceiling shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for
purposes of such determination, as applicable.
"Indebtedness" means, with respect to any Person, (a) all items, except
------------
account payables arising in the normal course of business, which in accordance
with GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of such Person, (b) all obligations secured by
any Lien on any property or asset owned by such Person (other than accounts
payable arising in the ordinary course of business), whether or not the
obligation secured thereby shall have been assumed, (c) to the extent not
otherwise included, all Capitalized Lease Obligations of such Person, all
obligations in respect of letters of credit, bankers' acceptances and similar
instruments, and all obligations under Interest Hedge Agreements, (d) any
"withdrawal liability" of the Borrower or any Subsidiary, as such term is
defined under Part I of Subtitle E of Title IV of ERISA and (e) any Guaranty of
such Person of any obligation of another Person constituting obligations of a
type set forth above.
"Indemnified Matters" shall have the meaning ascribed to it in Section
------------------- -------
5.10(a) hereof.
- -------
"Indemnitees" shall have the meaning ascribed to it in Section 5.10(a)
----------- ---------------
hereof.
"Interest Hedge Agreements" shall mean any and all agreements, devices or
-------------------------
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap or collar
protection agreements, forward rate currency or interest rate options, puts and
warrants, as the same may be amended or modified and in effect from time to
time, and any and all cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
"Interest Period" means the period beginning on the day any LIBOR Advance
---------------
is made and ending one, two, three or six months thereafter (as the Borrower
shall select).
"Inventory" shall have the meaning assigned to such term in the UCC.
---------
"Investment" means any acquisition of all or substantially all assets of
----------
any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than advances to employees for
moving and travel expenses, drawing accounts and similar expenditures in the
-10-
<PAGE>
ordinary course of business) or capital contribution to, or investment in any
other Person, including without limitation the occurrence or sufferance of
Indebtedness or the purchase of accounts receivable of any other Person that are
not current assets or do not arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A. in its capacity as issuer
------------
of the Letters of Credit.
"Kimmel Note" means that certain promissory note dated October 26, 1993, in
-----------
the original principal amount of $5,000,000, executed by Jerry Kimmel and
payable to the Borrower.
"Lender" means each financial institution shown on the signature pages
------
hereof so long as such financial institution maintains a portion of the
Commitment or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes
party hereto pursuant to Section 11.6 hereof, subject to the limitations set
------------
forth therein.
"L/C Cash Collateral Account" shall have the meaning specified in Section
--------------------------- -------
2.16(h) hereof.
- -------
"L/C Related Documents" shall have the meaning specified in Section 2.16(e)
--------------------- ---------------
hereof.
"Letter of Credit" shall have the meaning specified in Section 2.16(a)
---------------- ---------------
hereof.
"Letter of Credit Agreement" shall have the meaning specified in Section
-------------------------- -------
2.16(b)(i) hereof.
- ----------
"Letter of Credit Facility" means the amount of Letters of Credit the
-------------------------
Issuing Bank may issue pursuant to Section 2.16(a) hereof.
---------------
"Leverage Ratio" means, for any date of determination (which shall be as of
--------------
the first day of any fiscal quarter), the ratio of Total Debt as of the date of
determination to EBITDA for the immediately preceding four fiscal quarters.
"Life Insurance Premiums" means those certain premiums payable by the
-----------------------
Borrower in respect of that certain $8,000,000 "last to die" insurance policy on
the lives of Jerry and Carmen Kimmel.
"LIBOR Advance" means an Advance which the Borrower requests to be made as
-------------
a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with
the provisions of Section 2.2 hereof.
-----------
-11-
<PAGE>
"LIBOR Basis" means a simple per annum interest rate equal to the lesser of
-----------
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable Margin. The LIBOR Basis shall, with respect to LIBOR Advances
subject to reserve or deposit requirements, be subject to premiums for such
reserve or deposit requirements assessed by each Lender, which are payable
directly to each Lender. Once determined, the LIBOR Basis shall remain
unchanged during the applicable Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office
--------------------
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
----------
other office of the Lender or any of its affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any Interest Period, the interest rate per annum
----------
(rounded upward to the nearest one-sixteenth (1/16th) of one percent) quoted by
the Reference Lender at 9:00 a.m. (Dallas, Texas time) (or as soon thereafter as
practicable) on the date that is two Business Days before the first day of such
Interest Period as the "LIBOR Rate" applicable for loans in an amount
approximately equal to the principal amount of, and for a length of time
approximately equal to the Interest Period for, the LIBOR Advance sought by the
Borrower.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
----
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.
"Loan Documents" means this Agreement, the Notes, the Security Agreement,
--------------
the Deeds of Trust, the Fee Letter, any Interest Hedge Agreements entered into
with NationsBank, and any other document or agreement executed or delivered from
time to time by the Borrower, any Subsidiary or any other Person in connection
herewith or as security for the Obligations.
"Material Adverse Effect" means any act or circumstance or event that (a)
-----------------------
causes a Default, (b) otherwise could reasonably be expected to be material and
adverse to the business, assets, liabilities, financial condition, results of
operations, business or prospects of the Borrower and its Subsidiaries taken as
a whole, or (c) in any manner whatsoever does or could reasonably be expected to
materially and adversely affect the validity or enforceability of any Loan
Documents.
"Maximum Amount" means the maximum amount of interest which, under
--------------
Applicable Law, the Lenders are permitted to charge on the Obligations.
"Monthly Date" means the first Business Day of each month during the term
------------
of this Agreement, commencing August 1, 1995.
"Multiemployer Plan" means, as to any Person, at any time, a "multiemployer
------------------
plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person
or any member
-12-
<PAGE>
of its Controlled Group is making, or is obligated to make contributions or has
made, or been obligated to make, contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
-----------
association, in its capacity as a Lender.
"Necessary Authorization" means any right, franchise, license, permit,
-----------------------
consent, approval or authorization from, or any filing or registration with, any
governmental or other regulatory authority or any Person necessary or
appropriate to enable the Borrower or any Subsidiary to maintain and operate its
business and properties.
"Negative Pledge" means any agreement, contract or other arrangement
---------------
whereby the Borrower is prohibited from, or would otherwise be in default as a
result of, creating, assuming, incurring or suffering to exist, directly or
indirectly, any Lien on any of its assets.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
-----------------
disposition of any asset by any Person, the aggregate amount of cash received by
such Person in connection with such transaction minus reasonable fees, costs and
expenses and related taxes.
"Net Income" means net profit (or loss) after Dividends of the Borrower and
----------
its Subsidiaries, on a consolidated basis, determined in accordance with GAAP.
"Net Worth" means, for the Borrower and its Subsidiaries, on a consolidated
---------
basis, determined in accordance with GAAP, the sum of: (i) capital stock taken
at stated or par value, plus (ii) capital surplus plus (iii) retained earnings
less treasury stock.
"Notes" means, collectively, the Revolving Credit Note and the Term Loan
-----
Note.
"Notice of Issuance" shall have the meaning ascribed to it in Section
------------------ -------
2.16(b) hereof.
- -------
"Obligations" means (a) all obligations of any nature (whether matured or
-----------
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Borrower or any Subsidiary to the Lenders under the Loan Documents as they may
be amended from time to time, and (b) all obligations of the Borrower or any
Subsidiary for losses, damages, expenses or any other liabilities of any kind
that any Lender may suffer by reason of a breach by the Borrower or any
Subsidiary of any obligation, covenant or undertaking with respect to any Loan
Document.
"Operating Lease" means any operating lease, as defined in the Financial
---------------
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.
"Participant" shall have the meaning ascribed to it in Section 11.6(c)
----------- ---------------
hereof.
-13-
<PAGE>
"Participation" shall have the meaning ascribed to it in Section 11.6(c)
------------- ---------------
hereof.
"Payment Date" means the last day of the Interest Period for any LIBOR
------------
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
---------------
(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet delinquent, (ii)
Liens created by lease agreements or statute, rule or regulation to secure the
payments of rental amounts and other sums not yet due thereunder, (iii) Liens on
leasehold interests created by the lessor in favor of any mortgagee of the
leased premises, and (iv) Liens for taxes, assessments, governmental charges,
levies or claims that are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on such Person's books, but only so long as no foreclosure, restraint,
sale or similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
and other similar Liens incurred in the ordinary course of business for sums not
yet due or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere with the ordinary conduct of the
business of such Person;
(f) Liens created to secure the purchase price of assets (which includes,
but is not limited to, inventory, equipment and leased equipment) acquired by
such Person or created to secure Indebtedness permitted by Section 7.1(c)
--------------
hereof, which is incurred solely for the purpose of financing the acquisition of
such assets and incurred at the time of acquisition, so long as each such Lien
shall at all times be confined solely to the asset or assets so acquired (and
proceeds thereof), and refinancings thereof so long as any such Lien remains
solely on the asset or assets acquired and the amount of Indebtedness related
thereto is not increased;
(g) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall
-14-
<PAGE>
be fully insured and the insurer shall not have denied coverage, or (iii) such
judgments or awards shall have been bonded to the satisfaction of the
Determining Lenders; and
(h) Any Liens which are described on Schedule 2 hereto, and Liens resulting
----------
from the refinancing of the related Indebtedness, provided that the Indebtedness
secured thereby shall not be increased and the Liens shall not cover additional
assets of the Borrower.
"Person" means an individual, corporation, partnership, trust or
------
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of ERISA
----
(including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pretax Cash Flow" means, for the applicable period preceding any date of
----------------
determination, calculated for the Borrower and its Subsidiaries on a
consolidated basis, an amount equal to the sum of (a) EBIT, plus (b) lease
expense under Operating Leases.
"Pretax Net Income" means net profit (or loss) before taxes of the Borrower
-----------------
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
----------
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Prime Rate Advance" means any Advance bearing interest at the Prime Rate
------------------
Basis.
"Prime Rate Basis" means, for any day, a per annum interest rate equal to
----------------
the lesser of (a) the Highest Lawful Rate on such day, or (b) the sum of (i) the
Prime Rate on such day plus (ii) the Applicable Margin. The Prime Rate Basis
shall be adjusted automatically as of the opening of business on the effective
date of each change in the Prime Rate to account for such change.
"Quarterly Date" means the first Business Day of each January, April, July
--------------
and October, beginning October 2, 1995.
"Reference Lender" means NationsBank; provided that if NationsBank's
----------------
Commitments shall terminate and it shall have no Advances outstanding hereunder,
NationsBank shall cease to be the Reference Lender, and Administrative Lender
(after consultation with Borrower) shall, with notice to Borrower and Lenders,
designate another Lender as the Reference Lender.
-15-
<PAGE>
"Refinancing Advance" means any LIBOR Advance which is used to pay the
-------------------
principal amount (or any portion thereof) of a LIBOR Advance at the end of its
Interest Period and which, after giving effect to such application, does not
result in an increase in the aggregate amount of outstanding LIBOR Advances.
"Reimbursement Obligations" means, in respect of any Letter of Credit as at
-------------------------
any date of determination, the sum of (a) the maximum aggregate amount which is
then available to be drawn under such Letter of Credit plus (b) the aggregate
amount of all drawings under such Letter of Credit and not theretofore
reimbursed by the Borrower.
"Release Date" means the date on which the Notes have been paid, all other
------------
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" shall have the meaning set forth in Section 4043(b) of
----------------
ERISA.
"Restricted Payments" means, collectively, (i) Dividends, (ii) loans to
-------------------
directors, officers and employees of the Borrower and its Subsidiaries and (iii)
any (A) payment or prepayment of principal, premium or penalty on any
Subordinated Debt of the Borrower or any Subsidiary or any defeasance,
redemption, purchase, repurchase or other acquisition or retirement for value,
in whole or in part, of any Subordinated Debt (including, without limitation,
the setting aside of assets or the deposit of funds therefor) and (B) prepayment
of interest on any Subordinated Debt.
"Revolving Commitment Fee" shall have the meaning specified in Section
------------------------ -------
2.4(a) hereof.
- ------
"Revolving Credit Advance" means an Advance made pursuant to Section 2.1(a)
------------------------ --------------
hereof.
"Revolving Credit Commitment" means $20,000,000.00.
---------------------------
"Revolving Commitment Maturity Date" means June 30, 1998, or the earlier
----------------------------------
date of termination in whole of the Revolving Credit Commitment pursuant to
Section 2.6 or 8.2 hereof, or such later date as established pursuant to Section
- ----------- --- -------
2.17 hereof.
- ----
"Revolving Commitment Note" means the Promissory Note of Borrower
-------------------------
evidencing Revolving Credit Advances hereunder, substantially in the form of
Exhibit A hereto, together with any extension, renewal, or amendment thereof, or
- ---------
substitution therefor.
"Security Agreement" means the security agreement relating to all assets of
------------------
the Borrower, substantially in the form of Exhibit C hereto, as amended,
---------
modified, renewed, supplemented or restated from time to time.
"Service Supply" means Service Supply Systems, Inc., a Georgia corporation.
--------------
-16-
<PAGE>
"Service Supply Division" means the unincorporated division of the Borrower
-----------------------
known as Service Supply Systems formed immediately following the Acquisition by
the Borrower of Service Supply.
"Solvent" means, with respect to any Person, that the fair value of the
-------
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability discounted to present value
at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
---------------
or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage indicated
--------------------
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
"Subsidiary" means (a) any corporation of which 50% or more of the
----------
outstanding stock (other than directors' qualifying shares) having ordinary
voting power to elect a majority of its board of directors, regardless of the
existence at the time of a right of the holders of any class of securities of
such corporation to exercise such voting power by reason of the happening of any
contingency, is at the time owned by the Borrower, directly or through one or
more intermediaries, and (b) any other entity which is Controlled or then
capable of being Controlled by the Borrower, directly or through one or more
intermediaries.
"Subordinated Debt" means Indebtedness of the Borrower or any Subsidiary
-----------------
having maturities and terms, and which is subordinated to payment of the
Obligations in a manner, approved in writing by the Administrative Lender and
the Determining Lenders, with only such changes or amendments as approved by the
Administrative Lender and the Determining Lenders.
"Taxes" shall have the meaning ascribed thereto in Section 2.15 hereof.
----- ------------
"Term Loan Advance" means an Advance made pursuant to Section 2.1(b)
----------------- --------------
hereof.
"Term Loan Commitment" means $15,000,000.00, as reduced from time to time
--------------------
pursuant to Section 2.6 hereof.
-----------
-17-
<PAGE>
"Term Loan Maturity Date" means June 30, 2001, or the earlier date of
-----------------------
termination in whole of the Term Loan Commitment pursuant to Section 2.6 or 8.2
----------- ---
hereof, or such later date as established pursuant to Section 2.17 hereof.
------------
Term Loan Note" means the Promissory Note of Borrower evidencing Term Loan
--------------
Advances hereunder, substantially in the form of Exhibit B hereto, together with
---------
any extension, renewal, or amendment thereof, or substitution therefor.
"Total Debt" means, as of any date of determination, determined for the
----------
Borrower and its Subsidiaries on a consolidated basis (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services other than trade payables incurred in the ordinary course
of business, and (iv) Capitalized Lease Obligations.
"UCC" means the Uniform Commercial Code of Texas, as amended from time to
---
time.
"Unused Portion" means an amount equal to the result of (i) the Revolving
--------------
Credit Commitment minus (ii) the sum of (A) the outstanding Revolving Credit
Advances plus (B) outstanding Reimbursement Obligations in respect of the
Letters of Credit.
Section 1.2 Amendments and Renewals. Each definition of an agreement in
-----------------------
this Article 1 shall include such agreement as amended to date, and as amended
---------
or renewed from time to time in accordance with its terms, but only with the
prior written consent of the Determining Lenders.
Section 1.3 Construction. The terms defined in this Article 1 (except as
------------
otherwise expressly provided in this Agreement) for all purposes shall have the
meanings set forth in Section 1.1 hereof, and the singular shall include the
-----------
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.
ARTICLE 2
Advances
--------
Section 2.1 The Advances.
------------
(a) Each Lender severally agrees, upon the terms and subject to the
conditions of this Agreement, to make Revolving Credit Advances to the Borrower
from time to time in an aggregate amount not to exceed its Specified Percentage
of the Revolving Credit Commitment less its Specified Percentage of the
aggregate amount of all Reimbursement Obligations then outstanding (assuming
compliance with all conditions to drawing) for the purposes set forth in
-18-
<PAGE>
Section 5.9 hereof. Subject to Section 2.9 hereof, Revolving Credit Advances
- ----------- -----------
may be repaid and then reborrowed. Notwithstanding any provision in any Loan
Document to the contrary, in no event shall the principal amount of all
outstanding Revolving Credit Advances exceed the lesser of (i) the Revolving
Credit Commitment and (ii) the sum of (A) the Borrowing Base minus (B) the
outstanding Reimbursement Obligations. On the Revolving Commitment Maturity
Date unless sooner paid as provided herein, the outstanding Revolving Credit
Advances shall be repaid in full.
(b) Each Lender severally agrees, upon the terms and subject to the
conditions of this Agreement, to make a Term Loan Advance to the Borrower on the
Agreement Date in an aggregate amount not to exceed its Specified Percentage of
the Term Loan Commitment for the purposes set forth in Section 5.9 hereof.
-----------
Notwithstanding any provision in any Loan Document to the contrary, in no event
shall the principal amount of all outstanding Term Loan Advances exceed the Term
Loan Commitment. Except with respect to any Refinancing Advance, Term Loan
Advances may not be repaid and then reborrowed. On the Term Loan Maturity Date
unless sooner paid as provided herein, the outstanding Term Loan Advances shall
be repaid in full.
(c) Any Advance shall, at the option of the Borrower as provided in Section
-------
2.2 hereof (and, in the case of LIBOR Advances, subject to availability and to
- ---
the provisions of Article 9 hereof), be made as a Prime Rate Advance or a LIBOR
---------
Advance; provided that there shall not be outstanding to any Lender, at any one
time, more than six LIBOR Advances.
Section 2.2 Manner of Borrowing and Disbursement.
------------------------------------
(a) In the case of Prime Rate Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender prior to 11:00 a.m., Dallas,
Texas time, on the date of any proposed Prime Rate Advance irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), of its intention to borrow
or reborrow a Prime Rate Advance hereunder. Such notice of borrowing shall
specify the requested funding date, which shall be a Business Day, and the
amount of the proposed aggregate Prime Rate Advances to be made by Lenders.
(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender at least two Business Days'
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given), of its intention to borrow or reborrow a LIBOR Advance hereunder.
Notice shall be given to the Administrative Lender prior to 11:00 a.m., Dallas,
Texas time, in order for such Business Day to count toward the minimum number of
Business Days required. LIBOR Advances shall in all cases be subject to
availability and to Article 9 hereof. For LIBOR Advances, the notice of
---------
borrowing shall specify the requested funding date, which shall be a Business
Day, the amount of the proposed aggregate LIBOR Advances to be made by Lenders
-19-
<PAGE>
and the Interest Period selected by the Borrower, provided that no such Interest
Period shall extend past the Revolving Commitment Maturity Date or the Term Loan
Maturity Date, as appropriate, or prohibit or impair the Borrower's ability to
comply with Section 2.8 hereof.
-----------
(c) Subject to Sections 2.1 and 2.9 hereof, at least two Business Days
------------ ---
prior to each Payment Date for a LIBOR Advance, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), specifying whether all or
a portion of such LIBOR Advance outstanding on the Payment Date (i) is to be
repaid and then reborrowed in whole or in part as a LIBOR Advance, (ii) is to be
repaid and then reborrowed in whole or in part as a Prime Rate Advance, or (iii)
is to be repaid and not reborrowed; provided, however, notwithstanding anything
in this Agreement to the contrary, if on any Payment Date a Default shall exist,
such LIBOR Advance may only be reborrowed as a Prime Rate Advance. Notice shall
be given to the Administrative Lender prior to 11:00 a.m., Dallas, Texas time,
in order for such Business Day to count toward the minimum number of Business
Days required. Upon such Payment Date, such LIBOR Advance shall, subject to the
provisions hereof, be so repaid and, as applicable, reborrowed.
(d) Subject to Sections 2.1 and 2.9 hereof, upon irrevocable prior written
------------ ---
notice prior to 11:00 a.m., Dallas time, on the date of any proposed repayment
of all or a portion of the Prime Rate Advances (or two Business Days if the
Borrower wishes to reborrow a Prime Rate Advance as a LIBOR Advance), through an
Authorized Signatory, or irrevocable telephonic notice followed immediately by
written notice (provided, however, that the Borrower's failure to confirm any
telephonic notice in writing shall not invalidate any notice so given), the
Borrower may (i) repay all or a portion of the Prime Rate Advances and (ii)
reborrow all or a portion of the principal amount thereof as one or more LIBOR
Advances or Prime Rate Advances; provided, however, notwithstanding anything in
this Agreement to the contrary, if on the date of such proposed repayment a
Default shall exist, such Prime Rate Advance may only be reborrowed as a Prime
Rate Advance.
(e) The aggregate amount of Prime Rate Advances to be made by the Lenders
on any day shall be in a principal amount which is at least $100,000 and which
is an integral multiple of $50,000; provided, however, that such amount may
equal the unused amount of the applicable Commitment. The aggregate amount of
LIBOR Advances having the same Interest Period and to be made by the Lenders on
any day shall be in a principal amount which is at least $500,000 and which is
an integral multiple of $100,000.
(f) The Administrative Lender shall promptly notify the Lenders of each
notice received from the Borrower pursuant to this Section. Failure of the
Borrower to give any notice in accordance with Sections 2.2(c) and (d) hereof
--------------- ---
(if with respect to clause (d), such repayment is to be reborrowed as one or
more LIBOR Advances) shall result in a repayment of any such existing Advance on
the applicable Payment Date by a Refinancing Advance which is a Prime Rate
Advance. Each Lender shall, not later than noon, Dallas, Texas time, on the
date of any
-20-
<PAGE>
Advance that is not a Refinancing Advance, deliver to the Administrative Lender,
at its address set forth herein, such Lender's Specified Percentage of such
Advance in immediately available funds in accordance with the Administrative
Lender's instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date of
any Advance hereunder, the Administrative Lender shall, subject to satisfaction
of the conditions set forth in Article 3, disburse the amounts made available to
---------
the Administrative Lender by the Lenders by (i) transferring such amounts by
wire transfer pursuant to the Borrower's instructions, or (ii) in the absence of
such instructions, crediting such amounts to the account of the Borrower
maintained with the Administrative Lender. All Advances shall be made by each
Lender according to its Specified Percentage.
Section 2.3 Interest.
--------
(a) On Prime Rate Advances.
----------------------
(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of the Prime Rate Advances outstanding from time to time,
until such Prime Rate Advances are due (whether at maturity, by reason of
acceleration, by scheduled reduction, or otherwise) or repaid at a simple
interest rate per annum equal to the Prime Rate Basis for the Prime Rate
Advances as in effect from time to time, provided that interest on the
Prime Rate Advances shall not exceed the Maximum Amount. If at any time
the Prime Rate Basis would exceed the Highest Lawful Rate, interest payable
on the Prime Rate Advances shall be limited to the Highest Lawful Rate, but
the Prime Rate Basis shall not thereafter be reduced below the Highest
Lawful Rate until the total amount of interest accrued on the Prime Rate
Advances equals the amount of interest that would have accrued if the Prime
Rate Basis had been in effect at all times.
(ii) Interest on the Prime Rate Advances shall be computed on the
basis of a year of 365 or 366 days, as applicable, for the number of days
actually elapsed, and shall be payable in arrears on each Quarterly Date
and on the Revolving Commitment Maturity Date or the Term Loan Maturity
Date, as appropriate.
(b) On LIBOR Advances.
-----------------
(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid, at a rate per annum equal to the LIBOR Basis for such
Advance. The Administrative Lender, whose determination shall be
controlling in the absence of manifest error, shall determine the LIBOR
Basis on the second Business Day prior to the applicable funding date and
shall notify the Borrower and the Lenders of such LIBOR Basis.
(ii) Subject to Section 11.9 hereof, interest on each LIBOR Advance
------------
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Revolving Commitment
-21-
<PAGE>
Maturity Date and the Term Loan Maturity Date, as appropriate; provided,
however, that if the Interest Period for such Advance exceeds three months,
interest shall also be due and payable in arrears on each Quarterly Date
during such Interest Period.
(c) Interest if No Notice of Selection of Interest Rate Basis. If the
---------------------------------------------------------
Borrower fails to give the Administrative Lender timely notice of its selection
of a LIBOR Basis or an Interest Period for a LIBOR Advance, or if for any reason
a determination of a LIBOR Basis for any Advance is not timely concluded due to
the fault of the Borrower, the appropriate Prime Rate Basis shall apply to the
applicable Advance.
(d) Interest After an Event of Default. (i) After an Event of Default
----------------------------------
(other than an Event of Default specified in Section 8.1(f) or (g) hereof) and
-------------- ---
during any continuance thereof, at the option of Determining Lenders, and (ii)
after an Event of Default specified in Section 8.1(f) or (g) hereof and during
-------------- ---
any continuance thereof, automatically and without any action by the
Administrative Lender or any Lender, the Obligations shall bear interest at a
rate per annum equal to the Default Rate. Such interest shall be payable on the
earlier of demand or the Revolving Commitment Maturity Date or the Term Loan
Maturity Date, as appropriate, and shall accrue until the earlier of (i) waiver
or cure (to the satisfaction of the Determining Lenders) of the applicable Event
of Default, (ii) agreement by the Lenders to rescind the charging of interest at
the Default Rate, or (iii) payment in full of the Obligations. The Lenders
shall not be required to accelerate the maturity of the Advances, to exercise
any other rights or remedies under the Loan Documents, or to give notice to the
Borrower of the decision to charge interest at the Default Rate. The Lenders
will undertake to notify the Borrower, after the effective date, of the decision
to charge interest at the Default Rate.
Section 2.4 Fees.
----
(a) Revolving Commitment Fee. Subject to Section 11.9 hereof, the Borrower
------------------------ ------------
agrees to pay to the Administrative Lender, for the ratable account of the
Lenders, a commitment fee equal to 0.375% per annum of the daily average Unused
Portion. The commitment fee shall be payable in arrears on each Quarterly Date
and on the Revolving Commitment Maturity Date.
(b) Other Fees. Subject to Section 11.9 hereof, the Borrower agrees to pay
---------- ------------
to the Administrative Lender, for the account of the Administrative Lender, the
fees provided for in the letter agreement (the "Fee Letter"), dated as of the
----------
Agreement Date, between the Borrower and the Administrative Lender on the dates
and in the amounts specified therein.
Section 2.5 Prepayment and Payments.
-----------------------
(a) Voluntary LIBOR Advance Prepayments. Upon two Business Days' prior
-----------------------------------
telephonic notice (to be promptly followed by written notice) by an Authorized
Signatory to the Administrative Lender, LIBOR Advances may be voluntarily
prepaid but only so long as the Borrower concurrently reimburses the Lenders in
accordance with Section 2.9 hereof. Any notice of prepayment shall be
-----------
irrevocable.
-22-
<PAGE>
(b) Mandatory Prepayment. On or before the date of any reduction of (i)
--------------------
the Revolving Credit Commitment, the Borrower shall prepay applicable
outstanding Revolving Credit Advances in an amount necessary to reduce the sum
of outstanding Revolving Credit Advances and Reimbursement Obligations to an
amount less than or equal to the (x) Revolving Credit Commitment as so reduced
or (y) the Borrowing Base, and (ii) the Term Loan Commitment, the Borrower shall
prepay applicable outstanding Term Loan Advances to an amount less than or equal
to the Term Loan Commitment as so reduced. To the extent required by the
preceding sentence, the Borrower shall first prepay all Prime Rate Advances and
shall thereafter prepay LIBOR Advances. To the extent that any prepayment
requires that a LIBOR Advance be repaid on a date other than the last day of its
Interest Period, the Borrower shall reimburse each Lender in accordance with
Section 2.9 hereof. To the extent that outstanding (i) Revolving Credit
- -----------
Advances exceed (x) the Revolving Credit Commitment after any reduction thereof,
the Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Revolving Credit Advances on the date of such
reduction or (y) the Borrowing Base, the Borrower shall repay any such excess
amount and all accrued interest attributable to such excess Revolving Credit
Advances within five days of the date of the occurrence of such excess and (ii)
Term Loan Advances exceed the Term Loan Commitment after any reduction thereof,
the Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Term Loan Advances on the date of such reduction.
(c) Prepayments from Sales of Assets. Concurrently with the receipt of Net
--------------------------------
Cash Proceeds from the sale or disposition by the Borrower or any Subsidiary of
any assets sold or disposed of (other than the sale of inventory and other
assets sold in the ordinary course of business) during any fiscal year in which
the aggregate Net Cash Proceeds previously received during such fiscal year
exceeds $250,000, the Borrower shall prepay Term Loan Advances in a principal
amount equal to the amount that the aggregate Net Cash Proceeds received during
any fiscal year exceeds $250,000. Any such prepayments shall be applied in the
inverse order of maturity.
(d) Prepayments Equaling Cash Dividends. Concurrently with the payment of
-----------------------------------
any cash Dividends pursuant to Section 7.5(c) hereof, the Borrower shall prepay
--------------
Term Loan Advances in a principal amount equal to the amount of such cash
Dividends paid; provided, that any such prepayments up to $500,000 in aggregate
amount per fiscal year shall be applied ratably to all outstanding Term Loan
Advances and any such prepayments in excess of $500,000 in aggregate amount per
fiscal year shall be applied in the inverse order of maturity.
(e) Payments, Generally. Any voluntary partial payment of a Prime Rate
-------------------
Advance shall be in a principal amount which is at least $100,000 and which is
an integral multiple of $50,000.
Section 2.6 Reduction of Commitments.
------------------------
(a) Voluntary Reduction. The Borrower shall have the right, upon not less
-------------------
than 10 Business Days' notice by an Authorized Signatory to the Administrative
Lender (if telephonic,
-23-
<PAGE>
to be confirmed by telex or in writing on or before the date of reduction or
termination), which shall promptly notify the Lenders, to terminate or reduce
either the Revolving Credit Commitment or the Term Loan Commitment, in whole or
in part. Each partial termination shall be in an aggregate amount which is at
least $5,000,000 and which is an integral multiple of $100,000, and no voluntary
reduction in a Commitment shall cause any LIBOR Advance to be repaid prior to
the last day of its Interest Period.
(b) Mandatory Reduction. The Term Loan Commitment shall be automatically
-------------------
reduced by the amount of any Term Loan Advance other than a Refinancing Advance
that is repaid. In addition, the Term Loan Commitment shall be automatically
reduced by any amount prepaid or required to be prepaid pursuant to Section
-------
2.5(c) hereof.
- ------
(c) Amortization. Commencing on the Amortization Date, the Term Loan
------------
Commitment shall automatically reduce on each Quarterly Date through and
including April 1, 2001 by $625,000. On the Term Loan Maturity Date, the Term
Loan Commitment shall automatically reduce to zero.
(d) General Requirements. Upon any reduction of a Commitment pursuant to
--------------------
this Section, the Borrower shall immediately make a repayment of applicable
Advances in accordance with Section 2.5(b) hereof. The Borrower shall reimburse
--------------
each Lender for any loss or out-of-pocket expense incurred by each Lender in
connection with any such payment, as set forth in Section 2.9 hereof to the
-----------
extent applicable. The Borrower shall not have any right to rescind any
termination or reduction. Once reduced, the Commitments may not be increased or
reinstated.
Section 2.7 Non-Receipt of Funds by the Administrative Lender. Unless the
-------------------------------------------------
Administrative Lender shall have been notified by a Lender prior to the date of
any proposed Advance (which notice shall be effective upon receipt) that such
Lender does not intend to make the proceeds of such Advance available to the
Administrative Lender, the Administrative Lender may assume that such Lender has
made such proceeds available to the Administrative Lender on such date, and the
Administrative Lender may in reliance upon such assumption (but shall not be
required to) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Lender
by such Lender, the Administrative Lender shall be entitled to recover such
amount on demand from such Lender (or, if such Lender fails to pay such amount
forthwith upon such demand, from the Borrower) together with interest thereon in
respect of each day during the period commencing on the date such amount was
available to the Borrower and ending on (but excluding) the date the
Administrative Lender receives such amount from the Lender, with interest
thereon at a per annum rate equal to the lesser of (i) the Highest Lawful Rate
or (ii) the Federal Funds Rate. No Lender shall be liable for any other
Lender's failure to fund an Advance hereunder.
Section 2.8 Payment of Principal of Advances. The Borrower agrees to pay
--------------------------------
the principal amount of the Advances to the Administrative Lender for the
account of the Lenders as follows:
-24-
<PAGE>
(a) Prime Rate Advances. The unpaid principal amount of the Prime Rate
-------------------
Advances shall be due and payable on the applicable Maturity Date.
(b) LIBOR Advances. The principal amount of each LIBOR Advance hereunder
--------------
shall be due and payable on its Payment Date, which principal payment may be
made by means of a Refinancing Advance.
(c) Commitment Reduction. On the date of any reduction of the Revolving
--------------------
Credit Commitment pursuant to Section 2.6 hereof, including the Revolving
-----------
Commitment Maturity Date, the aggregate amount of the Revolving Credit Advances
outstanding on such date of reduction in excess of the Revolving Credit
Commitment as reduced minus all outstanding Reimbursement Obligations shall be
due and payable, which principal payment may not be made by means of Refinancing
Advances. On the date of any reduction of the Term Loan Commitment pursuant to
Section 2.6 hereof, including the Term Loan Maturity Date, the aggregate amount
- -----------
of the Term Loan Advances outstanding on such date of reduction in excess of
Term Loan Commitment as reduced shall be due and payable, which principal
payment may not be made by means of Refinancing Advances.
(d) Maturity Dates. To the extent not otherwise required to be paid
--------------
earlier as provided herein, the principal amount of the Revolving Credit
Advances, all accrued interest and fees thereon, and all other Obligations
related thereto, shall be due and payable in full on the Revolving Commitment
Maturity Date. To the extent not otherwise required to be paid earlier as
provided herein, the principal amount of the Term Loan Advances, all accrued
interest and fees thereon, and all other Obligations related thereto, shall be
due and payable in full on the Term Loan Maturity Date.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur any
-------------
losses or reasonable out-of-pocket expenses in connection with (a) failure by
the Borrower to borrow any LIBOR Advance after having given notice of its
intention to borrow in accordance with Section 2.2 hereof (whether by reason of
-----------
the Borrower's election not to proceed or the non-fulfillment of any of the
conditions set forth in Article 3 hereof), or (b) any prepayment for any reason
of any LIBOR Advance in whole or in part (including a prepayment pursuant to
Section 9.3(b) hereof), the Borrower agrees to pay to any such Lender, upon its
- --------------
demand, an amount sufficient to compensate such Lender for all such losses and
out-of-pocket expenses, subject to Section 11.9 hereof. Such Lender's good
------------
faith determination of the amount of such losses or out-of-pocket expenses,
calculated in its usual fashion, absent manifest error, shall be controlling.
Such losses shall include, without limiting the generality of the foregoing,
lost profits and reasonable expenses incurred by such Lender in connection with
the re-employment of funds prepaid, repaid, converted or not borrowed, converted
or paid, as the case may be. Upon request of the Borrower, such Lender shall
provide a certificate setting forth the amount to be paid to it by the Borrower
hereunder and calculations therefor.
-25-
<PAGE>
Section 2.10 Manner of Payment.
-----------------
(a) Each payment (including prepayments) by the Borrower of the principal
of or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Document shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Lender at the Administrative Lender's office, in lawful money
of the United States of America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Document shall be
specified to be made upon a day which is not a Business Day, it shall be made on
the next succeeding day which is a Business Day, unless, with respect to a
payment due in respect of a LIBOR Advance, such Business Day falls in another
calendar month, in which case payment shall be made on the preceding Business
Day. Any extension of time shall in such case be included in computing interest
and fees, if any, in connection with such payment.
(c) The Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from the Borrower are received by
the Administrative Lender, the Administrative Lender shall apply such amounts in
the following order of priority: (i) to the payment of the Administrative
Lender's expenses incurred on behalf of the Lenders then due and payable, if
any; (ii) to the payment of all other fees then due and payable; (iii) to the
payment of interest then due and payable on the Advances; (iv) to the payment of
all other amounts not otherwise referred to in this clause (d) then due and
payable under the Loan Documents; and (v) to the payment of principal then due
and payable on the Advances.
Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR Lending
---------------------
Office is set forth opposite its name in Schedule 1 attached hereto. Each
----------
Lender shall have the right at any time and from time to time to designate a
different office of itself or of any Affiliate as such Lender's LIBOR Lending
Office, and to transfer any outstanding LIBOR Advance to such LIBOR Lending
Office. No such designation or transfer shall result in any liability on the
part of the Borrower for increased costs or expenses resulting solely from such
designation or transfer (except any such transfer which is made by a Lender
pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose of complying
----------- ---
with Applicable Law). Increased costs for expenses resulting from a change in
law occurring subsequent to any such designation or transfer shall be deemed not
to result solely from such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment (whether
-------------------
voluntary or involuntary, due to the exercise of any right of set-off, or
otherwise) on account of its Advances in excess of its Specified Percentage of
all payments made by the Borrower with respect to Advances shall purchase from
each other Lender such participation in the Advances
-26-
<PAGE>
made by such other Lender as shall be necessary to cause such purchasing Lender
to share the excess payment pro rata according to Specified Percentages with
each other Lender; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and the purchase price restored to the extent of such recovery, but
without interest. The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section, to the fullest
extent permitted by law, may exercise all its rights of payment (including the
right of set-off) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such participation.
Section 2.13 Calculation of LIBOR Rate. The provisions of this Agreement
-------------------------
relating to calculation of the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that each Lender shall be entitled to
fund and maintain its funding of all or any part of a LIBOR Advance as it sees
fit.
Section 2.14 Booking Loans. Any Lender may make, carry or transfer
-------------
Advances at, to or for the account of any of its branch offices or the office of
any Affiliate. No such action shall result in any liability on the part of the
Borrower from such action (except any such action which is made by a Lender
pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose of complying
----------- ---
with Applicable Law).
Section 2.15 Taxes.
-----
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.10, free and clear of and without deduction for any
------------
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
---------
of each Lender and the Administrative Lender, taxes imposed on, based upon or
measured by its overall net income, net worth or capital, and franchise taxes,
doing business taxes or minimum taxes imposed on it, (i) by the jurisdiction
under the laws of which such Lender or the Administrative Lender (as the case
may be) is organized and in which it has its applicable lending office or any
political subdivision thereof; (ii) by any other jurisdiction, or any political
subdivision thereof, other than those imposed by reason of (A) an asserted
relation of such jurisdiction to the transactions contemplated by this
Agreement, (B) the activities of the Borrower in such jurisdiction, or (C) the
activities in connection with the transactions contemplated by this Agreement of
a Lender or the Administrative Lender; (iii) by reason of failure by the Lender
or the Administrative Lender to comply with the requirements of paragraph (e) of
this Section 2.15; and (iv) in the case of any Lender, any Taxes in the nature
------------
of transfer, stamp, recording or documentary taxes resulting from a transfer
(other than as a result of foreclosure) by such Lender of all or any portion of
its interest in this Agreement, the Notes or any other Loan Documents (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
-----
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Lender, (x) the sum payable shall
be increased as may be
-27-
<PAGE>
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.15) such Lender or
------------
the Administrative Lender (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (y) the Borrower
shall make such deductions and (z) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than Taxes described in clause (iv) of the first sentence
of Section 2.15(a)) that arise from any payment made hereunder or from the
---------------
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrower will indemnify each Lender and the Administrative Lender
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.15) paid by such Lender or the Administrative Lender (as the case may
- ------------
be) and all liabilities (including penalties, additions to tax, interest and
reasonable expenses) arising therefrom or with respect thereto whether or not
such Taxes or Other Taxes were correctly or legally asserted, other than
penalties, additions to tax, interest and expenses arising as a result of gross
negligence on the part of such Lender or the Administrative Lender, provided,
--------
however, that the Borrower shall have no obligation to indemnify such Lender or
- -------
the Administrative Lender unless and until such Lender or the Administrative
Lender shall have delivered to the Borrower a certificate setting forth in
reasonable detail the basis of the Borrower's obligation to indemnify such
Lender or the Administrative Lender pursuant to this Section 2.15. This
------------
indemnification shall be made within 30 days from the date such Lender or the
Administrative Lender (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Lender the original or a certified copy of a
receipt evidencing payment thereof. If no Taxes are payable in respect of any
payment hereunder, the Borrower will furnish to the Administrative Lender a
certificate from each appropriate taxing authority, or an opinion of counsel
acceptable to the Administrative Lender, in either case stating that such
payment is exempt from or not subject to Taxes, provided, however, that such
-------- -------
certificate or opinion need only be given if: (i) the Borrower makes any
payment from any account located outside the United States, or (ii) the payment
is made by a payor that is not a United States Person. For purposes of this
Section 2.15 the terms "United States" and "United States Person" shall have the
- ------------ ------------- --------------------
meanings set forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees that:
(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 11.6 after the
------------
Agreement Date, the
-28-
<PAGE>
date upon which such Lender becomes a party hereto) deliver to the Borrower
through the Administrative Lender, with a copy to the Administrative
Lender:
(A) if any lending office is located in the United States of America,
two (2) accurate and complete signed originals of Internal
Revenue Service Form 4224 or any successor thereto ("Form 4224"),
---------
(B) if any lending office is located outside the United States of
America, two (2) accurate and complete signed originals of
Internal Revenue Service Form 1001 or any successor thereto
("Form 1001").
-----------
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such lending office or lending offices under this Agreement free
from withholding of United States Federal income tax;
(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter but only to the extent the forms
previously delivered by it hereunder are no longer effective, deliver to
the Borrower through the Administrative Lender, with a copy to the
Administrative Lender, in replacement for the forms previously delivered by
it hereunder:
(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed
originals of Form 4224; or
(B) otherwise, two (2) accurate and complete signed originals of Form
1001, in each case indicating that such Lender is on the date of
delivery thereof entitled to receive payments of principal,
interest and fees for the account of such changed or additional
lending office under this Agreement free from withholding of
United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in clause
(ii) above) requiring a change in the most recent Form 4224 or Form 1001
previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Administrative Lender with a
copy to the Administrative Lender, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time
-29-
<PAGE>
to time by any applicable law, treaty, rule or regulation in order to
establish such Lender's tax status for withholding purposes; and
(v) it shall notify the Borrower within 30 days after any event
(including an amendment to, or a change in any applicable law or regulation
or in the written interpretation thereof by any regulatory authority or any
judicial authority, or by ruling applicable to such Lender of any
governmental authority charged with the interpretation or administration of
any law) shall occur that results in such Lender no longer being capable of
receiving payments without any deduction or withholding of United States
federal income tax.
(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.15 shall survive the payment in full of principal and interest
------------
hereunder.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.15 shall use its reasonable best efforts (consistent with its internal
- ------------
policy and legal and regulatory restrictions) to change the jurisdiction of its
lending office, if the making of such a change would avoid the need for, or
reduce the amount of, any such additional amounts which may thereafter accrue
and would not, in the reasonable judgment of such Lender, be materially
disadvantageous to such Lender.
(h) Each Lender (and the Administrative Lender with respect to payments to
the Administrative Lender for its own account) agrees that (i) it will take all
reasonable actions by all usual means to maintain all exemptions, if any,
available to it from United States withholding taxes (whether available by
treaty, existing administrative waiver, by virtue of the location of any
Lender's lending office) and (ii) otherwise cooperate with the Borrower to
minimize amounts payable by the Borrower under this Section 2.15; provided,
------------ --------
however, the Lenders and the Administrative Lender shall not be obligated by
- -------
reason of this Section 2.15(h) to contest the payment of any Taxes or Other
---------------
Taxes or to disclose any information regarding its tax affairs or tax
computations or reorder its tax or other affairs or tax or other planning.
Subject to the foregoing, to the extent the Borrower pays sums pursuant to this
Section 2.15 and the Lender or the Administrative Lender receives a refund of
- ------------
any or all of such sums, such refund shall be applied to reduce any amounts then
due and owing under this Agreement or, to the extent that no amounts are due and
owing under this Agreement at the time such refunds are received, the party
receiving such refund shall promptly pay over all such refunded sums to the
Borrower, provided that no Default or Event of Default is in existence at such
time.
Section 2.16 Letters of Credit.
-----------------
(a) The Letter of Credit Facility. The Borrower may request the Issuing
-----------------------------
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "Letters of
----------
Credit") for the account of the Borrower from time to time on any Business Day
- ------
from the date of the initial Advance until the Revolving
-30-
<PAGE>
Commitment Maturity Date in an aggregate maximum amount (assuming compliance
with all conditions to drawing) not to exceed, at any time outstanding, the
lesser of (i) $2,000,000 (the "Letter of Credit Facility"), (ii) the Borrowing
-------------------------
Base and (iii) the result of (1) the Revolving Credit Commitment minus (2) the
-----
aggregate principal amount of Revolving Credit Advances then outstanding. No
Letter of Credit shall have an expiration date (including all rights of renewal)
later than the earlier of (i) the Revolving Commitment Maturity Date or (ii) one
year after the date of issuance thereof. Immediately upon the issuance of each
Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred
to each Lender, and each Lender shall be deemed to have purchased and received
from the Issuing Bank, in each case irrevocably and without any further action
by any party, an undivided interest and participation in such Letter of Credit,
each drawing thereunder and the obligations of the Borrower under this Agreement
in respect thereof in an amount equal to the product of (x) such Lender's
Specified Percentage times (y) the maximum amount available to be drawn under
such Letter of Credit (assuming compliance with all conditions to drawing).
Within the limits of the Letter of Credit Facility, and subject to the limits
referred to above, the Borrower may request the issuance of Letters of Credit
under this Section 2.16(a), repay any Revolving Credit Advances resulting from
---------------
drawings thereunder pursuant to Section 2.16(c) and request the issuance of
---------------
additional Letters of Credit under this Section 2.16(a).
---------------
(b) Request for Issuance.
--------------------
(i) Each Letter of Credit shall be issued upon notice, given not
later than 11:00 a.m. (Dallas time) on the third Business Day prior to the
date of the proposed issuance of such Letter of Credit, by the Borrower to
the Issuing Bank. Each Letter of Credit shall be issued upon notice given
in accordance with the terms of any separate agreement between the Borrower
and the Issuing Bank in form and substance reasonably satisfactory to the
Borrower and the Issuing Bank providing for the issuance of Letters of
Credit pursuant to this Agreement and containing terms and conditions not
inconsistent with this Agreement (a "Letter of Credit Agreement"), provided
-------------------------- --------
that if any such terms and conditions are inconsistent with this Agreement,
this Agreement shall control. Each such notice of issuance of a Letter of
Credit by the Borrower (a "Notice of Issuance") shall be by telex,
------------------
telecopier or cable, specifying therein, in the case of a Letter of Credit,
the requested (A) date of such issuance (which shall be a Business Day),
(B) maximum amount of such Letter of Credit, (C) expiration date of such
Letter of Credit, (D) name and address of the beneficiary of such Letter of
Credit, (E) form of such Letter of Credit and (F) such other information as
shall be required pursuant to the relevant Letter of Credit Agreement. If
the requested terms of such Letter of Credit are acceptable to the Issuing
Bank in its reasonable discretion, the Issuing Bank will, upon fulfillment
of the applicable conditions set forth in Article 3 hereof, make such
---------
Letter of Credit available to the Borrower at its office referred to in
Section 11.1 or as otherwise agreed with the Borrower in connection with
------------
such issuance.
(ii) The Issuing Bank shall furnish to each Lender after each
Quarterly Date (or each Monthly Date, if requested by any Lender) a (A)
written report summarizing
-31-
<PAGE>
issuance and expiration dates of Letters of Credit issued during the
preceding fiscal quarter and drawings during such fiscal quarter under all
Letters of Credit and setting forth Lender's participation therein and (B)
if requested by any Lender, a copy of each Letter of Credit issued during
the preceding fiscal quarter.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft
-------------------------
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of an Revolving Credit Advance, which
shall bear interest at the Prime Rate Basis, in the amount of such draft (but
without any requirement for compliance with the conditions set forth in Article
-------
3 hereof). In the event that a drawing under any Letter of Credit is not
- -
reimbursed by the Borrower by 11:00 a.m. (Dallas time) on the first Business Day
after such drawing, the Issuing Bank shall promptly notify Administrative Lender
and each other Lender. Each such Lender shall, on the first Business Day
following such notification, make a Revolving Credit Advance, which shall bear
interest at the Prime Rate Basis, and shall be used to repay the applicable
portion of the Issuing Bank's Advance with respect to such Letter of Credit, in
an amount equal to the amount of its participation in such drawing for
application to reimburse the Issuing Bank (but without any requirement for
compliance with the applicable conditions set forth in Article 3 hereof) and
---------
shall make available to the Administrative Lender for the account of the Issuing
Bank, by deposit at the Administrative Lender's office, in same day funds, the
amount of such Advance. In the event that any Lender fails to make available to
the Administrative Lender for the account of the Issuing Bank the amount of such
Advance, the Issuing Bank shall be entitled to recover such amount on demand
from such Lender together with interest thereon at a rate per annum equal to the
lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Rate.
(d) Increased Costs. If any change in any law or regulation or in the
---------------
interpretation thereof by any court or administrative or governmental authority
charged with the administration thereof shall either (i) impose, modify or deem
applicable any reserve, special deposit or similar requirement against letters
of credit or guarantees issued by, or assets held by, or deposits in or for the
account of, the Issuing Bank or any Lender or (ii) impose on the Issuing Bank or
any Lender any other condition regarding this Agreement or such Lender or any
Letter of Credit, and the result of any event referred to in the preceding
clause (i) or (ii) shall be to increase the cost to the Issuing Bank of issuing
or maintaining any Letter of Credit or to any Lender of purchasing any
participation therein or making any Advance pursuant to Section 2.16(c), then,
---------------
upon demand by the Issuing Bank or such Lender, the Borrower shall, subject to
Section 11.9 hereof, pay to the Issuing Bank or such Lender, from time to time
- ------------
as specified by the Issuing Bank or such Lender, additional amounts that shall
be sufficient to compensate the Issuing Bank or such Lender for such increased
cost. A certificate as to the amount of such increased cost, submitted to the
Borrower by the Issuing Bank or such Lender, shall include in reasonable detail
the basis for the demand for additional compensation and shall be controlling
for all purposes, absent manifest error. The obligations of the Borrower under
this Section 2.16(d) shall survive termination of this Agreement. The Issuing
---------------
Bank or any Lender claiming any additional compensation under this Section
-------
2.16(d) shall use reasonable efforts (consistent with legal and regulatory
- -------
restrictions) to reduce or eliminate any such additional compensation which may
-32-
<PAGE>
thereafter accrue and which efforts would not, in the sole discretion of the
Issuing Bank or such Lender, be otherwise disadvantageous.
(e) Obligations Absolute. The obligations of the Borrower under this
--------------------
Agreement with respect to any Letter of Credit, any Letter of Credit Agreement
and any other agreement or instrument relating to any Letter of Credit or any
Revolving Credit Advance pursuant to Section 2.16(c) shall be unconditional and
---------------
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of this Agreement, any
other Loan Document, any Letter of Credit Agreement, any Letter of Credit
or any other agreement or instrument relating thereto (collectively, the
"L/C Related Documents");
----------------------
(ii) (A) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of the Borrower in
respect of the Letters of Credit or any Revolving Credit Advance pursuant
to Section 2.16(c) or (B) any other amendment or waiver of or any consent
---------------
to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank, any
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C Related Documents or any
unrelated transaction;
(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms
of the Letter of Credit, except for any payment made upon the Issuing
Bank's gross negligence or willful misconduct;
(vi) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any
guarantee, for all or any of the Obligations of the Borrower in respect of
the Letters of Credit or any Revolving Credit Advance pursuant to Section
-------
2.16(c); or
-------
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might
-33-
<PAGE>
otherwise constitute a defense available to, or a discharge of, the
Borrower or a guarantor, other than the Issuing's Bank gross negligence or
wilful misconduct.
(f) Compensation for Letters of Credit.
----------------------------------
(i) Credit Fee. Subject to Section 11.9 hereof, the Borrower shall
---------- ------------
pay to the Administrative Lender for the account of each Lender a fee
(which shall be payable quarterly in arrears on each Quarterly Date and on
the Revolving Commitment Maturity Date) on average daily amount available
for drawing under all outstanding Letters of Credit at the following per
annum percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) The Fixed Charge Coverage Ratio is less than 2.00 to 1.75
1
(b) The Fixed Charge Coverage Ratio is greater than or 1.50
equal to 2.00 to 1 but less than 2.50 to 1
(c) The Fixed Charge Coverage Ratio is greater than or 1.25
equal to 2.50 to 1 but less than 3.00 to 1
(d) the Fixed Charge Coverage Ratio is greater than or 1.00
equal to 3.00 to 1
</TABLE>
The fee payable in respect of the Letters of Credit shall be subject to
reduction or increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of the Borrower as tested by using
the Fixed Charge Coverage Ratio for the most recent four fiscal quarters. Any
such increase or reduction in such fee shall be effective within 2 Business Days
of the date of receipt by the Administrative Lender of the financial statements
required pursuant to Section 6.2 or 6.3, as applicable, hereof and the Borrowing
----------- ---
Base Report and Compliance Certificate required pursuant to Section 6.4 hereof.
-----------
If such financial statements and Borrowing Base Report and Compliance
Certificate are not received by the date required, the fee payable in respect of
the Letters of Credit shall be determined as if the Fixed Charge Coverage Ratio
is less than 2.00 to 1 until such time as such financial statements and
Borrowing Base Report and Compliance Certificate are received. Notwithstanding
the foregoing, for the first three fiscal quarters ending after the Agreement
Date (not including the fiscal quarter ending on June 30, 1995), the fee payable
in respect of the Letters of Credit shall be determined as if the Fixed Charge
Coverage Ratio is less than 2.00 to 1. Subject to Section 11.9 hereof, such fee
------------
shall be computed on the basis of a 360-day year for the actual number of days
elapsed.
(ii) Issuance Fee. Subject to Section 11.9 hereof, the Borrower shall
------------ ------------
pay to the Administrative Lender for the account of the Issuing Bank an
issuance fee (which shall be payable on the date of issuance of each Letter
of Credit) in an amount equal to
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the greater of (a) $250 or (b) the product of (x) 0.125% times (y) the face
amount of the Letter of Credit being issued.
(g) L/C Cash Collateral Account.
---------------------------
(i) Upon the occurrence of an Event of Default and demand by the
Administrative Lender pursuant to Section 8.2(c), the Borrower will
--------------
promptly pay to the Administrative Lender in immediately available funds an
amount equal to the maximum amount then available to be drawn under the
Letters of Credit then outstanding. Any amounts so received by the
Administrative Lender shall be deposited by the Administrative Lender in a
deposit account maintained by the Issuing Bank (the "L/C Cash Collateral
-------------------
Account").
-------
(ii) As security for the payment of all Reimbursement Obligations and
for any other Obligations, the Borrower hereby grants, conveys, assigns,
pledges, sets over and transfers to the Administrative Lender (for the
benefit of the Issuing Bank and Lenders), and creates in the Administrative
Lender's favor (for the benefit of the Issuing Bank and Lenders) a Lien in,
all money, instruments and securities at any time held in or acquired in
connection with the L/C Cash Collateral Account, together with all proceeds
thereof. The L/C Cash Collateral Account shall be under the sole dominion
and control of the Administrative Lender and the Borrower shall have no
right to withdraw or to cause the Administrative Lender to withdraw any
funds deposited in the L/C Cash Collateral Account. At any time and from
time to time, upon the Administrative Lender's request, the Borrower
promptly shall execute and deliver any and all such further instruments and
documents, including UCC financing statements, as may be necessary,
appropriate or desirable in the Administrative Lender's judgment to obtain
the full benefits (including perfection and priority) of the security
interest created or intended to be created by this paragraph (ii) and of
the rights and powers herein granted. The Borrower shall not create or
suffer to exist any Lien on any amounts or investments held in the L/C Cash
Collateral Account other than the Lien granted under this paragraph (ii)
and Liens arising by operation of Law and not by contract which secure
amounts not yet due and payable.
(iii) The Administrative Lender shall (A) apply any funds in the L/C
Cash Collateral Account on account of Reimbursement Obligations when the
same become due and payable if and to the extent that the Borrower shall
fail directly to pay such Reimbursement Obligations and (B) after the
Revolving Commitment Maturity Date, apply any proceeds remaining in the L/C
Cash Collateral Account first to pay any unpaid Obligations then
-----
outstanding hereunder and then to refund any remaining amount to the
----
Borrower.
(iv) The Borrower, no more than once in any calendar month, may
direct the Administrative Lender to invest the funds held in the L/C Cash
Collateral Account (so long as the aggregate amount of such funds exceeds
any relevant minimum investment requirement) in (A) direct obligations of
the United States or any agency thereof, or
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obligations guaranteed by the United States or any agency thereof and (B)
one or more other types of investments permitted by the Determining
Lenders, in each case with such maturities as the Borrower, with the
consent of the Determining Lenders, may specify, pending application of
such funds on account of Reimbursement Obligations or on account of other
Obligations, as the case may be. In the absence of any such direction from
the Borrower, the Administrative Lender shall invest the funds held in the
L/C Cash Collateral Account (so long as the aggregate amount of such funds
exceeds any relevant minimum investment requirement) in one or more types
of investments with the consent of the Determining Lenders with such
maturities as the Borrower, with the consent of the Determining Lenders,
may specify, pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be. All
such investments shall be made in the Administrative Lender's name for the
account of the Lenders, subject to the ownership interest therein of the
Borrower. The Borrower recognizes that any losses or taxes with respect to
such investments shall be borne solely by the Borrower, and the Borrower
agrees to hold the Administrative Lender and the Lenders harmless from any
and all such losses and taxes. Administrative Lender may liquidate any
investment held in the L/C Cash Collateral Account in order to apply the
proceeds of such investment on account of the Reimbursement Obligations (or
on account of any other Obligation then due and payable, as the case may
be) without regard to whether such investment has matured and without
liability for any penalty or other fee incurred (with respect to which the
Borrower hereby agrees to reimburse the Administrative Lender) as a result
of such application.
(v) After the establishment of the L/C Cash Collateral Account
pursuant to Section 2.16(h)(i) hereof, the Borrower shall pay to the
------------------
Administrative Lender the fees customarily charged by the Issuing Bank with
respect to the maintenance of accounts similar to the L/C Cash Collateral
Account.
Section 2.17 Extension of Revolving Commitment Maturity Date. The
-----------------------------------------------
Borrower may notify the Administrative Lender in writing by April 1 of each year
while this Agreement is in effect, commencing April 1, 1996, of its desire to
extend the Revolving Commitment Maturity Date for an additional 12 months beyond
the then present Revolving Commitment Maturity Date. If such notice is given by
the Borrower, the Administrative Lender, by the immediately following May 15 of
each year while this Agreement is in effect will notify the Borrower in writing
of the Lenders' decision whether to extend the Revolving Commitment Maturity
Date. Extension of the Revolving Commitment Maturity Date shall be at the sole
option and discretion of the Lenders, and the decision to extend the Revolving
Commitment Maturity Date shall require the consent of all Lenders. If either
the Borrower or the Administrative Lender fail to give notice within the time
prescribed above, the Revolving Commitment Maturity Date shall be the then
present Revolving Commitment Maturity Date. An extension of the Revolving
Commitment Maturity Date pursuant to this Section 2.17 shall not require any
------------
renewal Revolving Commitment Note or amendment of a supplement to this Agreement
or any other Loan Document unless otherwise determined by the Administrative
Lender.
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<PAGE>
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to Closing, the Initial Revolving
------------------------------------------------------
Commitment Advance, the Term Loan Advance, and the Initial Letters of Credit.
- ----------------------------------------------------------------------------
The obligation of each Lender to sign this Agreement and to make any Advance and
the obligations of the Issuing Bank to issue Letters of Credit is subject to
receipt by the Administrative Lender of each of the following, in form and
substance satisfactory to each Lender, with a copy (except for the Notes) for
each Lender:
(a) A loan certificate of the Borrower certifying as to the accuracy of
its representations and warranties in the Loan Documents, certifying that no
Default has occurred, and including a certificate of incumbency with respect to
each Authorized Signatory, and including (i) a copy of the Articles of
Incorporation of the Borrower, certified to be true, complete and correct by the
secretary of state of its state of incorporation, (ii) a copy of the By-Laws of
the Borrower, as in effect on the Agreement Date, (iii) a copy of the
resolutions of the Borrower authorizing it to execute, deliver and perform this
Agreement, the Notes and the other Loan Documents to which it is a party, and
(iv) a copy of a certificate of good standing and a certificate of existence for
its state of incorporation and each state in which it is qualified to do
business;
(b) a duly executed Revolving Credit Note and Term Loan Note payable to
the order of each Lender and in an amount for each Lender equal to its Specified
Percentage of each Commitment, respectively;
(c) UCC-11 searches in appropriate jurisdictions where Collateral is
located;
(d) opinion of counsel to the Borrower and each Subsidiary addressed to
the Lenders and in form and substance satisfactory to the Lenders, dated the
Agreement Date, and covering the matters set forth in Sections 4.1(a), (b), (c),
--------------- --- ---
(h), (m), (n) and (p) and such other matters incident to the transactions
- --- --- --- ---
contemplated hereby as the Administrative Lender or Special Counsel may
reasonably request;
(e) reimbursement for the Administrative Lender for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered through
the date hereof;
(f) evidence that all corporate proceedings of the Borrower and
Subsidiaries taken in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be reasonably satisfactory in form
and substance to the Lenders and Special Counsel; and the Lenders shall have
received copies of all documents or other evidence which the Administrative
Lender, Special Counsel or any Lender may reasonably request in connection with
such transactions;
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<PAGE>
(g) any fees required to be paid pursuant to the Fee Letter;
(h) a duly executed and completed Security Agreement, dated as of the
Agreement Date;
(i) simultaneously with the making of the initial Advance, executed UCC-3
Termination Statements to be filed in appropriate jurisdictions to terminate all
Liens against assets of the Borrower and its Subsidiaries other than Permitted
Liens;
(j) all Acquisition documents related to the Borrower's Acquisition of
Service Supply shall be on terms and conditions acceptable to the Administrative
Lender;
(k) consummation of the Acquisition of Service Supply shall have occurred
and be on terms and conditions acceptable to the Lenders;
(l) duly executed Deeds of Trust, landlord's waivers, subordination and
attornment agreements required by the Administrative Lender and in form and
substance satisfactory to the Administrative Lender, dated as of the Agreement
Date;
(m) a duly executed agreement among the Borrower, the shareholders of the
Borrower and the Administrative Lender for the benefit of the Lenders, in form
and substance satisfactory to the Administrative Lender, regarding any income
tax refunds owed to such shareholders as a result to their stock ownership in
the Borrower; and
(n) in form and substance reasonably satisfactory to the Lenders and
Special Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, a Borrowing
Base Report and Compliance Certificate, appropriately completed, the status,
organization or authority of the Borrower or any Subsidiary, the enforceability
of the Obligation and the status of the Borrower's information and inventory
control systems.
Section 3.2 Conditions Precedent to All Advances and Letters of Credit.
----------------------------------------------------------
The obligation of each Lender to make each Advance hereunder and the obligation
of the Issuing Bank to issue each Letter of Credit is subject to fulfillment of
the following conditions immediately prior to or contemporaneously with each
such Advance:
(a) With respect to Advances other than Refinancing Advances and each
issuance of a Letter of Credit, all of the representations and warranties of the
Borrower under this Agreement, which, pursuant to Section 4.2 hereof, are made
-----------
at and as of the time of such Advance, shall be true and correct at such time in
all material respects, both before and after giving effect to the application of
the proceeds of the Advance;
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<PAGE>
(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 3.1(a) or as subsequently modified and reflected in a certificate of
--------------
incumbency delivered to the Administrative Lender. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance, is received by the Administrative Lender from
the Borrower prior to the making of such Advance;
(c) There shall not exist a Default hereunder, with respect to Advances
other than Refinancing Advances and with respect to the issuance of each Letter
of Credit, or an Event of Default, with respect to any Refinancing Advance, and,
with respect to each Advance other than a Refinancing Advance, the
Administrative Lender shall have received written or telephonic certification
thereof by an Authorized Signatory (which certification, if telephonic, shall be
followed promptly by written certification);
(d) The aggregate Advances and Letters of Credit, after giving effect to
such proposed Advance or Letter of Credit, shall not exceed the maximum
principal amount then permitted to be outstanding hereunder; and
(e) The Administrative Lender shall have received all such other
certificates, reports, statements, opinions of counsel or other documents as the
Administrative Lender or any Lender may reasonably request.
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties. The Borrower hereby
------------------------------
represents and warrants to each Lender as follows:
(a) Organization; Power; Qualification. As of the Agreement Date, the
----------------------------------
respective jurisdiction of incorporation and percentage ownership by the
Borrower or another Subsidiary of the Subsidiaries listed on Schedule 4 are true
----------
and correct. Each of the Borrower and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization. Each of the Borrower and its Subsidiaries has the corporate power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted. Each of the Borrower and its
Subsidiaries is authorized to do business, duly qualified and in good standing
as set forth in Schedule 7 and no qualification or authorization is necessary in
----------
any other jurisdictions in which the character of its properties or the nature
of its business requires such qualification or authorization except where the
failure to be so qualified or authorized would not have a Material Adverse
Effect.
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<PAGE>
(b) Authorization. The Borrower has corporate power and has taken all
-------------
necessary corporate action to authorize it to borrow hereunder. Each of the
Borrower and its Subsidiaries has corporate power and has taken all necessary
corporate action to execute, deliver and perform the Loan Documents to which it
is party in accordance with the terms thereof, and to consummate the
transactions contemplated thereby. Each Loan Document has been duly executed
and delivered by the Borrower or the Subsidiary executing it. Each of the Loan
Documents to which the Borrower and its Subsidiary are party is a legal, valid
and binding respective obligation of the Borrower or the Subsidiary, as
applicable, enforceable in accordance with its terms, subject, to enforcement of
remedies, to the following qualifications: (i) equitable principles generally,
and (ii) Debtor Relief Laws (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Borrower or any Subsidiary).
(c) Compliance with Other Loan Documents and Contemplated Transactions.
------------------------------------------------------------------
The execution, delivery and performance by the Borrower and its Subsidiaries of
the Loan Documents to which they are respectively a party, and the consummation
of the transactions contemplated thereby, do not and will not (i) require any
consent or approval not already obtained, (ii) violate any Applicable Law, (iii)
conflict with, result in a breach of, or constitute a default under the
certificate of incorporation or by-laws of the Borrower or any Subsidiary, (iv)
conflict with, result in a breach of, or constitute a default under any
Necessary Authorization, indenture, agreement or other instrument, to which the
Borrower or any Subsidiary is a party or by which they or their respective
properties may be bound which could reasonably be expected to have a Material
Adverse Effect, or (v) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired by the
Borrower or any Subsidiary, except Permitted Liens.
(d) Business. The Borrower and its Subsidiaries are engaged primarily in
--------
the business of manufacturing and distributing of plumbing and building products
to producers of manufactured housing and recreational vehicles and activities
directly related thereto.
(e) Licenses, etc. All Necessary Authorizations have been duly obtained,
--------------
and are in full force and effect without any known conflict with the rights of
others and free from any unduly burdensome restrictions, unless the failure to
obtain or have in effect such Necessary Authorizations would not result in a
Material Adverse Effect. The Borrower and its Subsidiaries are and will
continue to be in compliance in all material respects with all provisions
thereof. No circumstance exists which might impair the utility of the Necessary
Authorization or the right to renew such Necessary Authorization the effect of
which would have a Material Adverse Effect. No Necessary Authorization is the
subject of any pending or, to the best of the Borrower's knowledge, threatened
challenge, suspension, cancellation or revocation.
(f) Compliance with Law. The Borrower and its Subsidiaries are in
-------------------
compliance in all respects with all Applicable Laws, except where the failure to
so comply would not have a Material Adverse Effect, taken as a whole.
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<PAGE>
(g) Title to Properties. The Borrower and its Subsidiaries have good and
-------------------
indefeasible title to, or a valid leasehold interest in, all of their material
assets. None of their assets are subject to any Liens, except Permitted Liens.
No financing statement or other Lien filing (except relating to Permitted Liens)
is on file in any state or jurisdiction that names the Borrower or any of its
Subsidiaries as debtor or covers (or purports to cover) any assets of the
Borrower or any of its Subsidiaries. The Borrower and its Subsidiaries have not
signed any such financing statement or filing, nor any security agreement
authorizing any Person to file any such financing statement or filing (except
relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, there is no
---------- ----------
action, suit or proceeding pending against, or, to the Borrower's current actual
knowledge, threatened against the Borrower, or in any other manner relating
directly and adversely to the Borrower or any of its Subsidiaries, or any of
their properties, in any court or before any arbitrator of any kind or before or
by any governmental body in which the amount claimed (in excess of applicable
insurance) exceeds $100,000.
(i) Taxes. All federal, state and other tax returns of the Borrower and
-----
its Subsidiaries required by law to be filed have been duly filed or extensions
have been timely filed, and all federal, state and other taxes, assessments and
other governmental charges or levies upon the Borrower, its Subsidiaries or any
of their properties, income, profits and assets, which are due and payable, have
been paid, unless the same are being diligently contested in good faith by
appropriate proceedings, with adequate reserves established therefor, and no
Lien (other than a Permitted Lien) has attached and no foreclosure, distraint,
sale or similar proceedings have been commenced. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of their
taxes are, in the judgment of the Borrower, adequate.
(j) Financial Statements; Material Liabilities. The Borrower, together
------------------------------------------
with Service Supply, has furnished or caused to be furnished to the Lenders
copies of their respective December 31, 1994 annual financial statements and
March 31, 1995 quarterly financial statements, which are prepared in good faith
and complete in all material respects and present fairly in accordance with GAAP
the financial position of the Borrower and its Subsidiaries and Service Supply
as at such dates and the results of operations for the periods then ended.
Neither Service Supply nor the Borrower and its Subsidiaries taken as a whole
have any material liabilities, contingent or otherwise, nor material losses,
except as set forth in the December 31, 1994 annual financial statements and
March 31, 1995 quarterly financial statements of the Borrower and Service
Supply.
(k) No Adverse Change. Since December 31, 1994, no event or circumstance
-----------------
has occurred or arisen that could be classified as a Material Adverse Effect.
(l) ERISA. None of the Borrower or its Controlled Group maintains or
-----
contributes to any Plan other than those disclosed to the Administrative Lender
in writing. Each such Plan (other than any Multiemployer Plan) is in compliance
in all material respects with the applicable provisions of ERISA, the Code, and
any other applicable Federal or state law, rule or
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<PAGE>
regulation. With respect to each Plan (other than any Multiemployer Plan) of
the Borrower and each member of its Controlled Group, all reports required under
ERISA or any other Applicable Law to be filed with any governmental authority,
the failure of which to file could reasonably result in liability of the
Borrower or any member of its Controlled Group in excess of $50,000, have been
duly filed. All such reports are true and correct in all material respects as
of the date given. No Plan of the Borrower or any member of its Controlled
Group has been terminated under Section 4041(c) of ERISA nor has any accumulated
funding deficiency (as defined in Section 412(a) of the Code) been incurred
(without regard to any waiver granted under Section 412 of the Code), nor has
any funding waiver from the Internal Revenue Service been received or requested
the result of which could reasonably be expected to have Material Adverse
Effect. None of the Borrower or any member of its Controlled Group has failed
to make any contribution or pay any amount due or owing as required under the
terms of any such Plan, or by Section 412 of the Code or Section 302 of ERISA by
the due date under Section 412 of the Code and Section 302 of ERISA the result
of which could reasonably be expected to have Material Adverse Effect. There
has been no ERISA Event or any event requiring disclosure under Section
4041(c)(3)(C) or 4063(a) of ERISA with respect to any Plan or its related trust
of the Borrower or any member of its Controlled Group since the effective date
of ERISA. The present value of the benefit liabilities, as defined in Title IV
of ERISA, of each Plan subject to Title IV of ERISA (other than a Multiemployer
Plan) of the Borrower and each member of its Controlled Group does not exceed by
more than $50,000 the present value of the assets of each such Plan as of the
most recent valuation date using each such Plan's actuarial assumptions at such
date. There are no pending, or to the best of the Borrower's knowledge
threatened, claims, lawsuits or actions (other than routine claims for benefits
in the ordinary course) asserted or instituted against, and neither the Borrower
nor any member of its Controlled Group has knowledge of any threatened
litigation or claims against, the assets of any Plan or its related trust or
against any fiduciary of a Plan with respect to the operation of such Plan the
result of which could reasonably be expected to have Material Adverse Effect.
None of the Borrower or, to the best of the Borrower's knowledge, any member of
its Controlled Group has engaged in any prohibited transactions, within the
meaning of Section 406 of ERISA or Section 4975 of the Code, in connection with
any Plan the result of which could reasonably be expected to have Material
Adverse Effect. None of the Borrower or any member of its Controlled Group has
withdrawn from any Multiemployer Plan, nor has incurred or reasonably expects to
incur (A) any liability under Title IV of ERISA (other than premiums due under
Section 4007 of ERISA to the PBGC), (B) any withdrawal liability (and no event
has occurred which with the giving of notice under Section 4219 of ERISA would
result in such liability) under Section 4201 of ERISA as a result of a complete
or partial withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from
a Multiemployer Plan, or (C) any liability under Section 4062 of ERISA to the
PBGC or to a trustee appointed under Section 4042 of ERISA. None of the
Borrower, any member of its Controlled Group, or any organization to which the
Borrower or any member of its Controlled Group is a successor or parent
corporation within the meaning of ERISA Section 4069(b), has engaged in a
transaction within the meaning of ERISA Section 4069 the result of which could
reasonably be expected to have Material Adverse Effect. None of the Borrower or
any member of its Controlled Group maintains or has established any Plan, which
is a welfare benefit plan within the meaning of Section 3(1) of ERISA and which
provides for
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<PAGE>
continuing benefits or coverage for any participant or any beneficiary of any
participant after such participant's termination of employment, except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"). Each of Borrower and its Controlled Group which maintains a
-----
Plan which is a welfare benefit plan within the meaning of Section 3(1) of ERISA
has complied in all material respects with any applicable notice
and continuation requirements of COBRA and the regulations thereunder. None of
the Borrower or any member of its Controlled Group maintains, has established,
or has ever participated in a multiemployer welfare benefit arrangement within
the meaning of Section 3(40)(A) of ERISA.
(m) Compliance with Regulations G, T, U and X. The Borrower is not engaged
-----------------------------------------
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying any margin stock within the
meaning of Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, and no part of the proceeds of the Advances will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock. No assets of the Borrower and its
Subsidiaries are margin stock. None of the Borrower and its Subsidiaries nor
any agent acting on their behalf, have taken or will knowingly take any action
which might cause this Agreement or any other Loan Documents to violate any
regulation of the Board of Governors of the Federal Reserve System or to violate
the Securities Exchange Act of 1934, in each case as in effect now or as the
same may hereafter be in effect.
(n) Governmental Regulation. The Borrower and its Subsidiaries are not
-----------------------
required to obtain any Necessary Authorization that has not already been
obtained from, or effect any material filing or registration that has not
already been effected with, any federal, state or local regulatory authority in
connection with the execution and delivery of this Agreement or any other Loan
Document, or the performance thereof, in accordance with their respective terms,
including any borrowings hereunder; provided, however, an assignment of Accounts
-------- -------
will need to be filed pursuant to the Assignment of Claims Act with respect to
Accounts in which the account debtor in respect thereof is the United States or
any department, or agency or instrumentality thereof, and certain other filings
and assignments may be necessary to comply with governmental rules concerning
Accounts in which the account debtor in respect thereof is any state of the
United States or any county, city, town, municipality or division of such State.
(o) Absence of Default. The Borrower and its Subsidiaries are in
------------------
compliance in all material respects with all of the provisions of their
certificate of incorporation and by-laws, and no event has occurred or failed to
occur, which has not been remedied or waived, the occurrence or non-occurrence
of which constitutes, or which with the passage of time or giving of notice or
both would constitute, (i) an Event of Default or (ii) a default by the Borrower
or any of its Subsidiaries under any material indenture, agreement or other
instrument, or any judgment, decree or order to which the Borrower or any of its
Subsidiaries or by which they or any of their material properties is bound.
(p) Investment Company Act. The Borrower is not required to register under
----------------------
the provisions of the Investment Company Act of 1940, as amended. Neither the
entering into or
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<PAGE>
performance by the Borrower of this Agreement nor the issuance of the Notes
violates any provision of such act or requires any consent, approval, or
authorization of, or registration with, the Securities and Exchange Commission
or any other governmental or public body of authority pursuant to any provisions
of such act.
(q) Environmental Matters. Neither the Borrower nor any Subsidiary has any
---------------------
current actual knowledge that any substance deemed hazardous by any Applicable
Environmental Law, has been installed (i) on any real property fee title to
which is now owned by the Borrower or any of its Subsidiaries or (ii) by
Borrower or any of its Subsidiaries on any real property leased by the Borrower
or any of its Subsidiaries, in either case in a manner which does not comply
with Applicable Environmental Laws. The Borrower and its Subsidiaries are not
in material violation of or subject to any existing, pending or, to the best of
the Borrower's knowledge, threatened investigation or inquiry by any
governmental authority or to any material remedial obligations under any
Applicable Environmental Laws. The Borrower and its Subsidiaries have not
obtained and are not required to obtain any permits, licenses or similar
authorizations other than certificates of occupancy and building permits to
construct, occupy, operate or use any buildings, improvements, fixtures, and
equipment forming a part of any real property owned or leased by the Borrower or
any Subsidiary by reason of any Applicable Environmental Laws. The Borrower and
its Subsidiaries undertook, at the time of acquisition of fee title to any real
property, reasonable inquiry into the previous ownership and uses of such real
property consistent with good commercial or customary practice. The Borrower
and its Subsidiaries have taken reasonable steps to determine, and the Borrower
and its Subsidiaries have no current actual knowledge, that any hazardous
substances or solid wastes have been disposed of or otherwise released (i) on or
to the real property fee title to which is owned by the Borrower or any of its
Subsidiaries or (ii) by Borrower or any of its Subsidiaries on or to any real
property leased by Borrower or any of its Subsidiaries, all within the meaning
of the Applicable Environmental Laws.
(r) Certain Fees. No broker's, finder's or other fee or commission will be
------------
payable by the Borrower (other than to (i) the Lenders hereunder and (ii)
Rauscher Pierce Refsnes, Inc.) with respect to the making of the Commitments or
the Advances hereunder. The Borrower agrees to indemnify and hold harmless the
Administrative Lender and each Lender from and against any claims, demand,
liability, proceedings, costs or expenses asserted with respect to or arising in
connection with any such fees or commissions.
(s) Necessary Authorizations. No event has occurred which permits (or with
------------------------
the passage of time would permit) the revocation or termination of any Necessary
Authorization, or which could result in the imposition of any restriction
thereon of such a nature that could reasonably be expected to be classified as a
Material Adverse Effect.
(t) Patents, Etc. The Borrower and its Subsidiaries have collectively
------------
obtained or applied for all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their business as presently conducted and as
proposed to be conducted. Nothing has come to the current actual
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knowledge of the Borrower or any of its Subsidiaries to the effect that (i) any
process, method, part or other material presently contemplated to be employed by
the Borrower or any Subsidiary may infringe any patent, trademark, service mark,
trade name, copyright, license or other right owned by any other Person, or (ii)
there is pending or overtly threatened any claim or litigation against or
affecting the Borrower or any Subsidiary contesting its right to sell or use any
such process, method, part or other material, which if determined adversely to
the Borrower or any Subsidiary could reasonably be expected to be classified as
a Material Adverse Effect.
(u) Disclosure. Neither this Agreement nor any other document, certificate
----------
or statement which has been furnished to any Lender by or on behalf of the
Borrower or any Subsidiary in connection herewith contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statement contained herein and therein not misleading at the time it
was furnished. There is no fact known to the Borrower and not known to the
public generally that could reasonably be expected to materially adversely
affect the assets or business of the Borrower and its Subsidiaries, or in the
future could reasonably be expected (so far as the Borrower can now foresee) to
have a Material Adverse Effect, which has not been set forth in this Agreement
or in the documents, certificates and statements furnished to the Lenders by or
on behalf of the Borrower prior to the date hereof in connection with the
transaction contemplated hereby.
(v) Solvency. The Borrower is, and Borrower and its Subsidiaries on a
--------
consolidated basis are, Solvent.
Section 4.2 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance, and each shall be true and correct when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof, (b) applicable to a specific date or otherwise subsequently
inapplicable, or (c) previously waived in writing by the Determining Lenders
with respect to any particular factual circumstance. All such representations
and warranties shall survive, and not be waived by, the execution hereof by any
Lender, any investigation or inquiry by any Lender, or by the making of any
Advance under this Agreement.
ARTICLE 5
General Covenants
-----------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
---------------------------------------------
shall, and shall cause each Subsidiary to:
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(a) preserve and maintain, or timely obtain and thereafter preserve and
maintain, its existence, rights, franchises, licenses, authorizations, consents,
privileges and all other Necessary Authorizations from federal, state and local
governmental bodies and any tribunal (regulatory or otherwise), the loss of
which could have a Material Adverse Effect; and
(b) qualify and remain qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization, unless the failure to do
so could not have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower and
----------------------------------------
its Subsidiaries shall (a) engage primarily in the businesses set forth in
Section 4.1(d) hereof, and (b) comply in all material respects with the
- --------------
requirements of all Applicable Law.
Section 5.3 Maintenance of Properties. The Borrower shall, and shall
-------------------------
cause each Subsidiary to, maintain or cause to be maintained all its properties
(whether owned or held under lease) in reasonably good repair, working order and
condition, taken as a whole, and from time to time make or cause to be made all
appropriate (in the reasonable judgment of the Borrower) repairs, renewals,
replacements, additions, betterments and improvements thereto.
Section 5.4 Accounting Methods and Financial Records. The Borrower shall,
----------------------------------------
and shall cause each Subsidiary to, maintain a system of accounting established
and administered in accordance with GAAP, keep adequate records and books of
account in which complete entries will be made and all transactions reflected in
accordance with GAAP, and keep accurate and complete records of its respective
assets. The Borrower and each of its Subsidiaries shall maintain a fiscal year
ending on the last day of December.
Section 5.5 Insurance. The Borrower shall, and shall cause each
---------
Subsidiary to, maintain insurance from responsible companies in such amounts and
against such risks as shall be customary and usual in the industry for companies
of similar size and capability, but in no event less than the amount and types
insured as of the Agreement Date. Each insurance policy shall provide for at
least 30 days' prior notice to the Administrative Lender of any proposed
termination or cancellation of such policy, whether on account of default or
otherwise.
Section 5.6 Payment of Taxes and Claims. The Borrower shall, and shall
---------------------------
cause each Subsidiary to, pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or its income or properties prior
to the date on which penalties attach thereto, and all lawful material claims
for labor, materials and supplies which, if unpaid, might become a Lien upon any
of its properties; except that no such tax, assessment, charge, levy or claim
need be paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books, but only so long as no Lien (other than a Permitted Lien)
shall attach with respect thereto and no foreclosure, distraint, sale or similar
proceedings shall have been commenced. The Borrower shall, and shall cause each
Subsidiary to, timely file all information returns (or extensions of such filing
deadlines) required by federal, state or local tax authorities.
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Section 5.7 Visits and Inspections. The Borrower shall, and shall cause
----------------------
each Subsidiary to, promptly permit representatives of the Administrative Lender
or any Lender from time to time after notice by the Administrative Lender or any
Lender no later than the previous Business Day to (a) visit and inspect the
properties of the Borrower and Subsidiary as often as the Administrative Lender
or any Lender shall reasonably deem advisable, (b) audit, inspect and make
extracts from and copies of the Borrower's and each Subsidiary's books and
records, and (c) discuss with the Borrower's and each Subsidiary's directors,
officers, employees and auditors its business, assets, liabilities, financial
positions, results of operations and business prospects. The Borrower shall pay
the reasonable expenses related to inspections and audits performed by the
Administrative Lender or any Lender. Prior to the occurrence of an Event of
Default, all such visits and inspections shall be conducted during normal
business hours and shall not be conducted more often than once per fiscal
quarter. Following the occurrence and during the continuance of an Event of
Default, such visits and inspections shall be conducted at any time requested by
the Administrative Lender or any Lender without any requirement for advance
notice.
Section 5.8 Payment of Indebtedness. Subject to Section 5.6 hereof, the
----------------------- -----------
Borrower shall, and shall cause each Subsidiary to, pay its Indebtedness when
and as the same becomes due, other than amounts (other than the Obligations)
duly and diligently disputed in good faith.
Section 5.9 Use of Proceeds. The Borrower shall use the proceeds of
---------------
Advances for the Acquisition of Service Supply, the refinancing of certain
Indebtedness of Service Supply and the Borrower, for working capital and for
other general corporate purposes.
SECTION 5.10 INDEMNITY.
---------
(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND
EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT
LIMITATION, THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED
SATISFACTION OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING
(COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES,
-----------
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS,
REASONABLE COSTS, REASONABLE EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND
OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH
INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND
WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL
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<PAGE>
LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT,
TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE
OPERATIONS OF THE BORROWER OR ITS PREDECESSORS IN INTEREST, OR THE PAST, PRESENT
OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF THE BORROWER), IN ANY MANNER
RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE LOAN DOCUMENTS, OR ANY ACT,
EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT
THERETO, THE MANAGEMENT OF THE ADVANCES, INCLUDING IN CONNECTION WITH, OR AS A
RESULT, IN WHOLE OR IN PART, OF ANY NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY
LENDER (OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE
ADMINISTRATIVE LENDER OR ANY LENDER AND NOT THE BORROWER), OR THE USE OR
INTENDED USE OF THE PROCEEDS OF THE ADVANCES HEREUNDER, OR IN CONNECTION WITH
ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING (i) ANY
CLAIM OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF
COMPETENT JURISDICTION, AND (ii) MATTERS RAISED BY ONE LENDER AGAINST ANOTHER
LENDER OR BY ANY SHAREHOLDERS OF A LENDER AGAINST A LENDER OR ITS MANAGEMENT
(COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE EXTENT THAT ANY INDEMNIFIED
-------------------
MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH INDEMNITEES SHALL USE THE SAME
LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS REASONABLE DISCRETION DETERMINES THAT
CONFLICTS EXIST OR MAY ARISE IN CONNECTION WITH SUCH REPRESENTATION.
(b) IN ADDITION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST, REIMBURSE
EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE EXPENSES
(INCLUDING THE REASONABLE COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN
CONNECTION WITH ANY INDEMNIFIED MATTER; PROVIDED, HOWEVER, THAT PRIOR TO THE
OCCURRENCE OF A DEFAULT, THE ADMINISTRATIVE LENDER OR LENDERS, AS APPLICABLE,
SHALL OBTAIN THE BORROWER'S PREVIOUS CONSENT BEFORE THE INCURRENCE OF ANY LEGAL
AND OTHER EXPENSES OTHER THAN THOSE INCURRED IN CONNECTION WITH THE
DOCUMENTATION OF THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THOSE
INCURRED IN CONNECTION WITH THE EXERCISE OF ANY RIGHTS UNDER SECTION 5.7 OR 5.13
----------- ----
HEREOF. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS
SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE BORROWER MAY OTHERWISE
HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS
AND PERSONAL REPRESENTATIVES OF THE BORROWER, THE ADMINISTRATIVE LENDER, THE
LENDERS AND ALL OTHER
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<PAGE>
INDEMNITEES. THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND
PAYMENT OF THE OBLIGATIONS.
Section 5.11 Environmental Law Compliance. The use which the Borrower or
----------------------------
any Subsidiary intends to make of any real property which is owned or leased by
it will not result in the disposal or other release of any hazardous substance
or solid waste on or to such real property which is in violation of Applicable
Environmental Laws. As used herein, the terms "hazardous substance" and
"release" as used in this Section shall have the meanings specified in CERCLA
(as defined in the definition of Applicable Environmental Laws), and the terms
"solid waste" and "disposal" shall have the meanings specified in RCRA (as
defined in the definition of Applicable Environmental Laws); provided, however,
that if CERCLA or RCRA is amended so as to broaden or lessen the meaning of any
term defined thereby, such broader or lesser meaning shall apply subsequent to
the effective date of such amendment; and provided further, to the extent that
any other law applicable to the Borrower, any Subsidiary or any of their
properties establishes a meaning for "hazardous substance," "release," "solid
waste," or "disposal" which is broader or lesser than that specified in either
CERCLA or RCRA, such broader or lesser meaning shall apply. The Borrower agrees
to indemnify and hold the Administrative Lender and each Lender harmless from
and against, and to reimburse them with respect to, any and all claims, demands,
causes of action, loss, damage, liabilities, reasonable costs and reasonable
expenses (including reasonable attorneys' fees and courts costs) of any kind or
character, known or unknown, fixed or contingent, asserted against or incurred
by any of them at any time and from time to time by reason of or arising out of
(a) the failure of the Borrower or any Subsidiary to perform any of their
obligations hereunder regarding asbestos or Applicable Environmental Laws, (b)
any violation on or before the Release Date of any Applicable Environmental Law
in effect on or before the Release Date, and (c) any act, omission, event or
circumstance existing or occurring on or prior to the Release Date (including
without limitation the presence on such real property or release from such real
property of hazardous substances or solid wastes disposed of or otherwise
released on or prior to the Release Date), resulting from or in connection with
the ownership of the real property, regardless of whether the act, omission,
event or circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence; provided that, the Borrower
shall not be under any obligation to indemnify the Administrative Lender or any
Lender to the extent that any such liability arises as the result of the
negligence or willful misconduct of such Person, as finally judicially
determined by a court of competent jurisdiction. The provisions of this
paragraph shall survive the Release Date and shall continue thereafter in full
force and effect.
Section 5.12 Interest Rate Hedging. Within ninety days after the
---------------------
Agreement Date, the Borrower will hedge its interest rate exposure pursuant to
and in accordance with an Interest Hedge Agreement acceptable to the
Administrative Lender, provided that such agreement shall (a) be in a notional
principal amount of not less than $15,000,000, (b) have a term of not less than
three years, and (c) have a maximum effective interest rate of not greater than
9.00% plus the Applicable Margin in effect with respect to LIBOR Advances on the
date of such agreement.
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Section 5.13 Deeds of Trust. If the Determining Lenders shall so request
--------------
in writing, the Borrower shall, and shall cause each Subsidiary to, within five
Business Days of such request, create and deliver to the Administrative Lender
(a) any Deeds of Trust, together with related fixture filings and financing
statements, concerning any real property owned by the Borrower or such
Subsidiary, (b) such other documents and instruments as the Administrative
Lender shall deem necessary in its sole judgment to grant or assure the Lenders
a first priority, perfected Lien in any real property owned by the Borrower or
such Subsidiary, and (c) opinions of counsel to the Borrower and each
Subsidiary, in form and substance reasonably satisfactory to the Administrative
Lender, with respect to the execution and enforceability of the Deeds of Trust
and related documents. As an accommodation to the Borrower, to the extent that
any mortgage or similar tax is required to be paid in connection with the filing
and recordation of any Deed of Trust, Lenders agree to limit the amount of Debt
secured by such Deed of Trust to an amount not in excess of 120% of the fair
market value of the Collateral subject to such Deed of Trust determined at the
time of filing of such Deed of Trust.
ARTICLE 6
Information Covenants
---------------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled), the Borrower shall furnish or cause to be furnished to
each Lender, subject to such Lender having executed a Confidentiality Agreement:
Section 6.1 Monthly Borrowing Base Report and Compliance Certificate.
--------------------------------------------------------
Within 15 days after the end of each calendar month, the Borrowing Base Report
and Compliance Certificate for the last day of such calendar month completed as
provided therein, together with a schedule showing for such month an aging of
Accounts of Borrower in categories of 0 - 30 days, 31 - 60 days, 61 - 90 days
and 91 days or more from invoice date.
Section 6.2 Quarterly Financial Statements and Information. Within 45
----------------------------------------------
days after the end of each fiscal quarter, a (i) consolidated balance sheet of
the Borrower and its Subsidiaries as at the end of such fiscal quarter and the
related consolidated statement of income for such fiscal quarter and for the
elapsed portion of the year ended with the last day of such fiscal quarter, and
consolidated statement of cash flow for the elapsed portion of the year ended
with the last day of such fiscal quarter and (ii) profit and loss statement for
the Service Supply Division of the Borrower as at the end of such fiscal quarter
and for the elapsed portion of the year ended with the last day of such fiscal
quarter; all of which shall be certified by the president or chief financial
officer or other officer of the Borrower acceptable to the Administrative
Lender, to be, in his or her opinion acting solely in his or her capacity as an
officer of the Borrower, complete and correct in all material respects and to
present fairly, in accordance with GAAP, the financial position and results of
operations of the Borrower, its Subsidiaries and the Service Supply Division of
the Borrower as at the end of and for such fiscal
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quarter, and for the elapsed portion of the year ended with the last day of such
fiscal quarter, subject only to normal year-end adjustments.
Section 6.3 Annual Financial Statements and Information; Certificate of No
--------------------------------------------------------------
Default.
- -------
(a) Within 120 days after the end of each fiscal year, a copy of (i) the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years, (ii) the
balance sheet and statement of earnings of the Service Supply Division of the
Borrower, as of the end of the current and prior fiscal years and (iii) the
consolidated and consolidating statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of changes in cash
as of and through the end of such fiscal year, all of which are prepared in
accordance with GAAP, and certified by independent certified public accounts
acceptable to the Lenders (provided, however, any big six public accounting firm
shall be acceptable to the Lenders), whose opinion shall be in scope and
substance in accordance with generally accepted auditing standards and shall be
unqualified.
(b) Simultaneously with the delivery of the statements required by this
Section 6.3, a letter from the Borrower's public accountants certifying that no
- -----------
Default was detected during the examination of the Borrower and its
Subsidiaries.
(c) As soon as available, but in any event within 90 days following the end
of each fiscal year, a copy of the annual consolidated operating budget of the
Borrower and its Subsidiaries for the succeeding fiscal year.
Section 6.4 Borrowing Base Report and Compliance Certificate. At the time
------------------------------------------------
financial statements are furnished pursuant to Sections 6.2 and 6.3 hereof, the
------------ ---
Borrowing Base Report and Compliance Certificate, completed as provided therein.
Section 6.5 Copies of Other Reports and Notices.
-----------------------------------
(a) Promptly upon their becoming available, a copy of (i) all material
reports or letters submitted to the Borrower or any Subsidiary by accountants in
connection with any annual, interim or special audit, including without
limitation any report prepared in connection with the annual audit referred to
in Section 6.3 hereof, and, if requested by the Administrative Lender, any other
-----------
comment letter submitted to management in connection with any such audit, (ii)
each financial statement, report, notice or proxy statement sent by the Borrower
or any Subsidiary to stockholders generally, (iii) each regular, periodic or
other report and any registration statement (other than statements on Form S-8)
or prospectus (or material written communication in respect of any thereof)
filed by the Borrower or any subsidiary with any securities exchange, with the
Securities and Exchange Commission or any successor agency, and (iv) all press
releases concerning material financial aspects of the Borrower or any
Subsidiary;
(b) Promptly upon becoming aware that (i) the holder(s) of any note(s) or
other evidence of indebtedness or other security of the Borrower or any
Subsidiary in excess of
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$100,000 in the aggregate has given notice or taken any action with respect to a
breach, failure to perform, claimed default or event of default thereunder, (ii)
any occurrence or non-occurrence of any event which constitutes or which with
the passage of time or giving of notice or both could constitute a material
breach by the Borrower or any Subsidiary under any material agreement or
instrument other than this Agreement to which the Borrower or any Subsidiary is
a party or by which any of their properties may be bound, or (iii) any event,
circumstance or condition which could reasonably be expected to be classified as
a Material Adverse Effect, a written notice specifying the details thereof (or
the nature of any claimed default or event of default) and what action is being
taken or is proposed to be taken with respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized Lease
Obligations or any other lease obligations, in each case, in excess of $100,000,
has given notice or taken any action with respect to a breach, failure to
perform, claimed default or event of default thereunder, a written notice
specifying the details thereof (or the nature of any claimed default or event of
default) and what action is being taken or is proposed to be taken with respect
thereto;
(d) Promptly upon receipt thereof, information with respect to and copies
of any notices received from any federal, state or local regulatory agencies or
any tribunal relating to any order, ruling, law, information or policy that
relates to a breach of or noncompliance with any Law, or might result in the
payment of money by the Borrower or any Subsidiary in an amount of $100,000 or
more in the aggregate, or otherwise have a Material Adverse Effect, or result in
the loss or suspension of any Necessary Authorization;
(e) Promptly upon receipt from any governmental agency, or any government,
political subdivision or other entity, any material notice, correspondence,
hearing, proceeding or order regarding or affecting the Borrower, any
Subsidiary, or any of their properties or businesses; and
(f) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Borrower and its Subsidiaries, as the
Administrative Lender or any Lender may reasonably request.
Section 6.6 Notice of Litigation, Default and Other Matters. Prompt
-----------------------------------------------
notice of the following events after the Borrower has knowledge or notice
thereof:
(a) The commencement of all proceedings and investigations by or before any
governmental body, and all actions and proceedings in any court or before any
arbitrator involving claims for damages (including punitive damages) in excess
of $100,000 (after deducting the amount with respect to the Borrower or any
Subsidiary is insured), against or in any other way relating directly to the
Borrower, any Subsidiary, or any of their properties or businesses;
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(b) Promptly upon the happening of any condition or event of which the
Borrower has current actual knowledge which constitutes a Default, a written
notice specifying the nature and period of existence thereof and what action is
being taken or is proposed to be taken with respect thereto; and
(c) Any material adverse change with respect to the business, assets,
liabilities, financial position, results of operations or prospective business
of the Borrower or any Subsidiary, other than changes in the ordinary course of
business which have not had and are not likely to have a Material Adverse
Effect.
Section 6.7 ERISA Reporting Requirements.
----------------------------
(a) Promptly and in any event (i) within 30 days after the Borrower or any
member of its Controlled Group has current actual knowledge that any ERISA Event
described in clause (a) of the definition of ERISA Event or any event described
in Section 4063(a) of ERISA with respect to any Plan of the Borrower or any
member of its Controlled Group has occurred, and (ii) within 10 days after the
Borrower or any member of its Controlled Group has current actual knowledge that
any other ERISA Event with respect to any Plan of the Borrower or any member of
its Controlled Group has occurred or a request for a minimum funding waiver
under Section 412 of the Code with respect to any Plan of the Borrower or any
member of its Controlled Group, a written notice describing such event and
describing what action is being taken or is proposed to be taken with respect
thereto, together with a copy of any notice of event that is given to the PBGC;
(b) Promptly and in any event within three Business Days after receipt
thereof by the Borrower or any member of its Controlled Group from the PBGC,
copies of each notice received by the Borrower or any member of its Controlled
Group of the PBGC's intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(c) Promptly and in any event within 30 days after the filing thereof by
the Borrower or any member of its Controlled Group with the United States
Department of Labor or the Internal Revenue Service, copies of each annual
report (including Schedule B thereto, if applicable) with respect to each Plan
of which Borrower or any member of its Controlled Group is the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after receipt
thereof, a copy of any correspondence the Borrower or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Borrower or such member of its Controlled Group setting
forth details as to the events giving rise to such potential withdrawal
liability and the action which the Borrower or such member of its Controlled
Group is taking or proposes to take with respect thereto;
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<PAGE>
(e) Notification within 30 days of any material increases in the benefits
of any existing Plan which is not a Multiemployer Plan, or the establishment of
any new Plans, or the commencement of contributions to any Plan to which the
Borrower or any member of its Controlled Group was not previously contributing
which would in either case result in a material liability to the Borrower;
(f) Notification within three Business Days after the Borrower or any
member of its Controlled Group knows that the Borrower or any such member of its
Controlled Group has filed or intends to file a notice of intent to terminate
any Plan under a distress termination within the meaning of Section 4041(c) of
ERISA and a copy of such notice; and
(g) Within three Business Days after receipt of written notice of
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any member of
its Controlled Group with respect to any Plan, except those which, in the
aggregate, if adversely determined could not have a Material Adverse Effect.
ARTICLE 7
Negative Covenants
------------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 7.1 Indebtedness. The Borrower shall not, and shall not permit
------------
any Subsidiary to, create, assume, incur or otherwise become or remain obligated
in respect of, or permit to be outstanding, or suffer to exist any Indebtedness,
except:
(a) Indebtedness under the Loan Documents;
(b) Accounts payable and accrued liabilities incurred in the ordinary
course of business;
(c) Interest hedging obligations under Interest Hedge Agreements entered
into with the Administrative Lender or any of its Affiliates;
(d) Indebtedness existing on the Agreement Date which is described on
Schedule 6 hereto, including renewals (but no increases) thereof; and
- ----------
(e) Indebtedness in respect of endorsement of negotiable instruments in the
ordinary course of business; and
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(f) Other Indebtedness not to exceed $500,000 in aggregate amount
outstanding at any time.
Section 7.2 Liens. The Borrower shall not, and shall not permit any
-----
Subsidiary to, create, assume, incur, permit or suffer to exist, directly or
indirectly, any Lien on any of its assets, whether now owned or hereafter
acquired, except Permitted Liens. The Borrower shall not, and shall not permit
any Subsidiary to, agree with any other Person that it shall not create, assume,
incur, permit or suffer to exist or to be created, assumed, incurred or
permitted to exist, directly or indirectly, any Lien on any of its assets.
Section 7.3 Investments. The Borrower shall not, and shall not permit any
-----------
Subsidiary to, make any Investment, except that the Borrower may purchase or
otherwise acquire and own:
(a) Marketable, direct obligations of, or guaranteed by, the United States
of America and maturing in one year or less of the date of purchase;
(b) Commercial paper maturing not more than 270 days from the date of
creation thereof issued by U.S. corporations that have a rating of A-1/P-1 or
better by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, a
Division of McGraw-Hill, Inc., a New York corporation;
(c) Certificates of deposit maturing in one year or less of the date of
purchase of (i) domestic banks which banks' debt obligations have one of the two
highest ratings obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation;
(d) Accounts receivable that arise in the ordinary course of business and
are payable on standard terms;
(e) Investments in existence on the Agreement Date which are described on
Schedule 5 hereto; and
- ----------
(f) Other Investments not to exceed $250,000 in aggregate amount.
Section 7.4 Liquidation, Disposition or Acquisition of Assets, Merger, New
--------------------------------------------------------------
Subsidiaries. The Borrower shall not, and shall not permit any Subsidiary to,
- ------------
at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or dissolution)
or otherwise wind up;
(b) sell, lease, abandon, transfer or otherwise dispose of assets
(excluding dispositions in the ordinary course of business and dispositions of
obsolete assets) in an aggregate amount in excess of $250,000 during any fiscal
year unless the Net Cash Proceeds from such dispositions are applied in
accordance with Section 2.5(c) hereof;
--------------
-55-
<PAGE>
(c) enter into any merger or consolidation unless (i) with respect to a
merger or consolidation, the Borrower shall be the surviving corporation, unless
the merger or consolidation involves a Subsidiary and not the Borrower, such
Subsidiary shall be the surviving corporation, (ii) such transaction shall not
be utilized to circumvent compliance with any term or provision herein and (iii)
no Default or Event of Default shall then be in existence or occur as a result
of such transaction; or
(d) create or acquire any Subsidiary.
Section 7.5 Restricted Payments. The Borrower shall not, and shall not
-------------------
permit any Subsidiary to, directly or indirectly declare, pay or make any
Restricted Payments; provided, however, the Borrower shall be permitted to (a)
so long as the Borrower is an "S Corporation" (as defined in the Internal
Revenue Code), pay cash Dividends in any 12-month period to any of its
shareholders in an amount equal to the Taxes of such shareholder for such period
solely attributable to such shareholder's ownership in the Borrower, (b) pay
cash Dividends to (i) Jerry Kimmel in an amount not to exceed $200,000 in
aggregate amount per fiscal year for the purpose of paying Life Insurance
Premiums, (ii) Jerry Kimmel in an amount equal to the amount of the Kimmel Note
permitted to be amortized pursuant to Section 7.15 hereof, plus interest
------------
thereon, for the purpose of paying such principal amortization and interest
thereon, and (iii) in connection with the foregoing Dividends, pay any necessary
cash Dividends to the other shareholders of the Borrower on a pro rata basis
based on the amount of the Dividends paid to Jerry Kimmel pursuant to this
subsection (b), (c) if during any fiscal year the Borrower has maintained at all
times a Fixed Charge Coverage Ratio greater than 1.90 to 1 and would continue to
do so after the paying of a cash Dividend under this subsection (c), and
provided that Section 2.5(d) hereof is complied with, pay cash Dividends in an
--------------
amount not to exceed the product of (i) 20% times (ii) the sum of (x) Net
Income, minus (y) any sums paid pursuant to subsections (a) and (b) of this
Section 7.5, and (d) make loans to its employees not to exceed in aggregate
- -----------
amount, $25,000 outstanding at any time; provided, further, however, the
Borrower shall not pay or make any Restricted Payments permitted by this Section
-------
7.5 unless there shall exist no Default prior to or after giving effect to any
- ---
such proposed Restricted Payment.
Section 7.6 Affiliate Transactions. Except (i) for those certain (a)
----------------------
lease agreements for the Borrower's facilities in Newton, Kansas, and Elkhart,
Indiana, with K & E Land and Leasing, a Texas general partnership, and 1741
Conant Partnership, a Texas general partnership, (b) equipment lease agreements
with K & E Land and Leasing, and (c) lease of six automobiles from a partnership
with certain officers of Service Supply, all of which leases described in
clauses (a), (b) and (c) immediately preceding are reflected on Borrower's
financial statements as Capitalized Leases and (ii) as otherwise expressly
permitted herein to the contrary, the Borrower shall not, and shall not permit
any Subsidiary to, at any time engage in any transaction with an Affiliate
(other than the Borrower or any Subsidiary), nor make an assignment or other
transfer of any of its assets or properties to any Affiliate (other than the
Borrower or any Subsidiary), on terms materially less advantageous to the
Borrower or Subsidiary than would be the case if such transaction had been
effected with a non-Affiliate (other than advances to employees in the ordinary
course of business). The Borrower shall not, and shall not permit any
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<PAGE>
Subsidiary to, in any event incur or suffer to exist any Indebtedness or
Guaranty in favor of any Affiliate, unless such Affiliate shall subordinate the
payment and performance thereof to the Obligations on terms, conditions and
documentation satisfactory to the Determining Lenders.
Section 7.7 Compliance with ERISA. The Borrower shall not, and shall not
---------------------
permit any Subsidiary to, directly or indirectly, or permit any member of its
Controlled Group to directly or indirectly, (a) terminate any Plan so as to
result in any material (in the opinion of the Determining Lenders) liability to
the Borrower or any member of its Controlled Group taken as a whole, (b) permit
to exist any ERISA Event, or any other event or condition which presents the
risk of a material (in the opinion of the Determining Lenders) liability of the
Borrower or any member of its Controlled Group taken as a whole, (c) make a
complete or partial withdrawal (within the meaning of Section 4201 of ERISA)
from any Multiemployer Plan so as to result in any material (in the opinion of
the Determining Lenders) liability to the Borrower or any member of its
Controlled Group taken as a whole, (d) enter into any new Plan or modify any
existing Plan so as to increase its obligations thereunder except in the
ordinary course of business consistent with past practice which could result in
any material (in the opinion of the Determining Lenders) liability to the
Borrower or any member of its Controlled Group taken as a whole, or (e) permit
the present value of all benefit liabilities, as defined in Title IV of ERISA,
under each Plan of the Borrower or any member of its Controlled Group (using the
actuarial assumptions utilized by each such Plan) to exceed the fair market
value of Plan assets allocable to such benefits, all determined as of the most
recent valuation date for each such Plan, by $50,000.
Section 7.8 Leverage Ratio. At the end of each fiscal quarter occurring
--------------
during the periods indicated below, the Borrower shall not permit the Leverage
Ratio to be greater than:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From the Agreement Date through June 30, 4.00 to 1
1996
Thereafter through June 30, 1997 3.50 to 1
Thereafter through June 30, 1998 2.75 to 1
Thereafter 2.00 to 1
</TABLE>
Section 7.9 Fixed Charge Coverage Ratio. The Borrower shall not permit
---------------------------
the Fixed Charge Coverage Ratio to be less than 1.50 to 1 at the end of any
fiscal quarter, calculated for the four fiscal quarters preceding the date of
determination.
Section 7.10 Quick Ratio. The Borrower shall not permit the ratio of (a)
-----------
accounts receivable to (b) the sum of (i) accounts payable plus (ii) accrued
liabilities shown on the Borrower's financial statements to be less than 0.70 to
1 at the end of any fiscal quarter ending
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<PAGE>
during the period commencing on the Agreement Date through and including June
30, 1996 and (ii) 0.75 to 1 at the end of any fiscal quarter thereafter.
Section 7.11 Sale and Leaseback. If a Default or Event of Default shall
------------------
occur and be continuing, the Borrower shall not, and shall not permit any
Subsidiary to, enter into any arrangement whereby it sells or transfers any of
its assets, and thereafter rents or leases such assets.
Section 7.12 Sale or Discount of Receivables. The Borrower shall not, and
-------------------------------
shall not permit any Subsidiary to, directly or indirectly, sell, with or
without recourse, for discount or otherwise, any notes or accounts receivable.
Section 7.13 Capital Expenditures and Acquisitions. The Borrower shall
-------------------------------------
not permit the sum of (i) Capital Expenditures to be paid or incurred by it and
its Subsidiaries and (ii) cash consideration paid for Acquisitions to exceed, in
aggregate amount, $2,000,000 during any fiscal year.
Section 7.14 Executive Compensation. Total cash compensation to Jerry
----------------------
Kimmel during any fiscal year, including without limitation, salary and bonus
(but excluding Restricted Payments permitted pursuant to Section 7.5 hereof),
-----------
shall not exceed $650,000.
Section 7.15 Amortization of Kimmel Note. The Borrower shall not permit
---------------------------
principal and interest amortization of the Kimmel Note to exceed $750,000, plus
interest as provided in the Kimmel Note, per fiscal year.
ARTICLE 8
Default
-------
Section 8.1 Events of Default. Each of the following shall constitute an
-----------------
Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or non-
governmental body:
(a) Any representation or warranty made under any Loan Document shall prove
to have been incorrect or misleading in any material respect when made;
(b) The Borrower shall default in the payment of any (i) principal under
any Note or any fees payable hereunder or any other costs, fees, expenses or
other amounts payable hereunder or under the other Loan Documents, when due and
(ii) interest under any Note or under any other Loan Document, when due, which
Default is not cured within five Business Days after the occurrence thereof;
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<PAGE>
(c) The Borrower or any Subsidiary shall default in the performance or
observance of any agreement or covenant contained in Section 5.1, 5.12 or
----------- ----
Article 7 hereof;
- ---------
(d) The Borrower or any Subsidiary shall default in the performance or
observance of any other agreement or covenant contained in this Agreement not
specifically referred to elsewhere in this Section 8.1, and such default shall
-----------
not be cured within a period of 30 days after the earlier of notice from the
Administrative Lender thereof or actual notice thereof by the Borrower or such
Subsidiary;
(e) There shall occur any default or breach in the performance or
observance of any agreement or covenant (after the expiration of any applicable
grace period) in any of the Loan Documents (other than this Agreement);
(f) There shall be entered a decree or order by a court having jurisdiction
in the premises constituting an order for relief in respect of the Borrower or
any Subsidiary under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal or state bankruptcy law or
other similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar official of the Borrower or any Subsidiary,
or of any substantial part of their respective properties, or ordering the
winding-up or liquidation of the affairs of the Borrower or any Subsidiary, and
any such decree or order shall continue unstayed and in effect for a period of
60 consecutive days;
(g) The Borrower or any Subsidiary shall file a petition, answer or consent
seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal or state bankruptcy law or
other similar law, or the Borrower or any Subsidiary shall consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Borrower or
any Subsidiary or of any substantial part of their respective properties, or the
Borrower or any Subsidiary shall fail generally to pay its debts as they become
due, or the Borrower or any Subsidiary shall take any action in furtherance of
any such action;
(h) A final judgment or judgments shall be entered by any court against the
Borrower or any Subsidiary for the payment of money which exceeds $250,000 in
the aggregate, or a warrant of attachment or execution or similar process shall
be issued or levied against property of the Borrower or any Subsidiary which,
together with all other such property of the Borrower and its Subsidiaries
subject to other such process, exceeds in value $250,000 in the aggregate, and
if such judgment or award is not insured or, within 30 days after the entry,
issue or levy thereof, such judgment, warrant or process shall not have been
paid or discharged or stayed pending appeal, or if, after the expiration of any
such stay, such judgment, warrant or process shall not have been paid or
discharged;
(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other party-in-
interest or disqualified person shall
-59-
<PAGE>
engage in transactions which in the aggregate would reasonably result in a
direct or indirect liability to the Borrower or any member of its Controlled
Group in excess of $100,000 under Section 409 or 502 of ERISA or Section 4975 of
the Code; (ii) the Borrower or any member of its Controlled Group shall incur
any accumulated funding deficiency, as defined in Section 412 of the Code, in
the aggregate in excess of $100,000, or request a funding waiver from the
Internal Revenue Service for contributions in the aggregate in excess of
$100,000; (iii) the Borrower or any member of its Controlled Group shall incur
any withdrawal liability in the aggregate in excess of $100,000 as a result of a
complete or partial withdrawal within the meaning of Section 4203 or 4205 of
ERISA, or any other liability with respect to a Plan in excess of $100,000,
unless the amount of such liability has been funded within the Plan or pursuant
to one or more insurance contracts; (iv) the Borrower or any member of its
Controlled Group shall fail to make a required contribution by the due date
under Section 412 of the Code or Section 302 of ERISA which would result in the
imposition of a lien under Section 412 of the Code or Section 302 of ERISA; (v)
the Borrower, any member of its Controlled Group or any Plan sponsor shall
notify the PBGC of an intent to terminate, or the PBGC shall institute
proceedings to terminate, or the PBGC shall institute proceedings to terminate,
any Plan subject to Title IV of ERISA; (vi) a Reportable Event shall occur with
respect to a Plan subject to Title IV of ERISA, and within 15 days after the
reporting of such Reportable Event to the Administrative Lender, the
Administrative Lender shall have notified the Borrower in writing that the
Determining Lenders have made a determination that, on the basis of such
Reportable Event, there are reasonable grounds for the termination of such Plan
by the PBGC or for the appointment by the appropriate United States District
Court of a trustee to administer such Plan and as a result thereof an Event of
Default shall have occurred hereunder; (vii) a trustee shall be appointed by a
court of competent jurisdiction to administer any Plan or the assets thereof;
(viii) the benefits of any Plan shall be increased, or the Borrower or any
member of its Controlled Group shall begin to maintain, or begin to contribute
to, any Plan, without the prior written consent of the Determining Lenders; or
(ix) any ERISA Event with respect to a Plan subject to Title IV of ERISA shall
have occurred, and 30 days thereafter (A) such ERISA Event, other than such
event described in clause (f) of the definition of ERISA Event herein, (if
correctable) shall not have been corrected and (B) the then present value of
such Plan's benefit liabilities, as defined in Title IV of ERISA, shall exceed
the then current value of assets accumulated in such Plan; provided, however,
that the events listed in subsections (v) through (ix) shall constitute Events
of Default only if, as of the date thereof or any subsequent date, the amount of
liability that the Borrower or any member of its Controlled Group reasonably is
likely to incur in the aggregate under Section 4062, 4063, 4064, 4219 or 4023 of
ERISA or any other provision of law with respect to all such Plans, computed by
the actuary of the Plan taking into account any applicable rules and regulations
of the PBGC at such time, and based on the actuarial assumptions used by the
Plan, resulting from or otherwise associated with such event exceeds $100,000;
(j) All or any material portion of the Collateral or the Loan Documents
shall be the subject of any proceeding instituted by any Person other than a
Lender (except in connection with any Lender's exercise of any remedies under
the Loan Documents), or there shall exist any litigation with respect to all or
any material portion of the Collateral or the Loan Documents,
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<PAGE>
or any Person shall challenge in any manner whatsoever the validity or
enforceability of all or any portion of the Loan Documents or the Collateral;
provided, however, that during any such time any such circumstance shall be
bonded or stayed in accordance with Applicable Law and to the satisfaction of
each Lender, such circumstance shall not be an Event of Default;
(k) The Borrower or any Subsidiary shall default in the payment of any
Indebtedness or any lease obligations in an aggregate amount of $250,000 or more
beyond any grace period provided with respect thereto, or shall default in the
performance of any agreement or instrument under which such Indebtedness is
created or evidenced beyond any applicable grace period, if the effect of such
default is to permit or cause the holder of such Indebtedness (or a trustee on
behalf of any such holder) to cause such Indebtedness to become due prior to its
date of maturity;
(l) Any lease of the Borrower or any Subsidiary shall terminate or cease
to be effective, and termination or cessation thereof, together with all other
leases, if any, which have been terminated or cease to be effective, could
reasonably be expected to have a Material Adverse Effect; provided, however,
that termination or cessation of a lease shall not constitute an Event of
Default if another lease reasonably satisfactory to each Lender is
contemporaneously substituted therefor;
(m) Any provision of any Loan Document shall for any reason cease to be
valid and binding on or enforceable against any party to it (other than the
Administrative Lender or any Lender) in all material respects, or any such party
shall so state in writing;
(n) Any Collateral Document shall for any reason (other than pursuant to
the terms thereof) cease to create a valid and perfected first priority Lien in
any Collateral;
(o) Any cash Dividends paid to Jerry Kimmel pursuant to Section
-------
7.5(b)(ii) hereof are not immediately used to pay the principal and interest
- ----------
due and owing on the Kimmel Note; or
(p) A Change of Control shall have occurred.
Section 8.2 Remedies. If an Event of Default shall have occurred and
--------
shall be continuing:
(a) With the exception of an Event of Default specified in Section 8.1(f)
--------------
or (g) hereof, the Administrative Lender shall, upon the direction of the
---
Determining Lenders, terminate the Commitments and/or declare the principal of
and interest on the Advances and all Obligations and other amounts owed under
the Loan Documents to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Documents to the contrary notwithstanding.
-61-
<PAGE>
(b) Upon the occurrence of an Event of Default specified in Section 8.1(f)
--------------
or (g) hereof, such principal, interest and other amounts shall thereupon and
---
concurrently therewith become due and payable and the Commitments shall
forthwith terminate, all without any action by the Administrative Lender, any
Lender or any holders of the Notes and without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.
(c) If any Letter of Credit shall be then outstanding, the Administrative
Lender may demand upon the Borrower to, and forthwith upon such demand, the
Borrower shall, pay to the Administrative Lender in same day funds at the office
of the Administrative Lender in such demand for deposit in the L/C Cash
Collateral Account, an amount equal to the maximum amount available to be drawn
under the Letters of Credit then outstanding.
(d) The Administrative Lender, and the Lenders may exercise all of the
post-default rights granted to them under the Loan Documents or under Applicable
Law.
(e) The rights and remedies of the Administrative Lender and the Lenders
hereunder shall be cumulative, and not exclusive.
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate. If with respect to any
------------------------------------
proposed LIBOR Advance for any Interest Period, any Lender determines that (i)
deposits in dollars (in the applicable amount) are not being offered to that
Lender in the relevant market for such Interest Period or (ii) the LIBOR Basis
for such proposed LIBOR Advance does not adequately cover the cost to such
Lender of making and maintaining such proposed LIBOR Advance for such Interest
Period, such Lender shall forthwith give notice thereof to the Borrower,
whereupon until such Lender notifies the Borrower that the circumstances giving
rise to such situation no longer exist, the obligation of such Lender to make
LIBOR Advances shall be suspended.
Section 9.2 Illegality. If any applicable law, rule or regulation, or any
----------
change therein or adoption thereof, or interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender (or
its LIBOR Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency,
shall make it unlawful or impossible for such Lender (or its LIBOR Lending
Office) to make, maintain or fund its LIBOR Advances, such Lender shall so
notify the Borrower and the Administrative Lender. Before giving any notice to
the Borrower pursuant to this Section, the notifying Lender shall designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for giving such notice and will not, in the sole judgment of the
Lender, be materially disadvantageous to the Lender. Upon receipt of such
notice,
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<PAGE>
notwithstanding anything contained in Article 2 hereof, the Borrower shall repay
---------
in full the then outstanding principal amount of each LIBOR Advance owing to the
notifying Lender, together with accrued interest thereon, on either (a) the last
day of the Interest Period applicable to such Advance, if the Lender may
lawfully continue to maintain and fund such Advance to such day, or (b)
immediately, if the Lender may not lawfully continue to fund and maintain such
Advance to such day. Concurrently with repaying each affected LIBOR Advance
owing to such Lender if the Borrower does not terminate this Agreement,
notwithstanding anything contained in Article 2 hereof, the Borrower shall
---------
borrow a Prime Rate Advance from such Lender, and such Lender shall make such
Prime Rate Advance, in an amount such that the outstanding principal amount of
the Advances owing to such Lender shall equal the outstanding principal amount
of the Advances owing immediately prior to such repayment.
Section 9.3 Increased Costs.
---------------
(a) If any applicable law, rule or regulation, or any change in or adoption
of any law, rule or regulation, or any interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof or compliance by any Lender (or its
LIBOR Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax
(net of any tax benefit engendered thereby) with respect to its LIBOR
Advances or its obligation to make such Advances, or shall change the basis
of taxation of payments to a Lender (or to its LIBOR Lending Office) of the
principal of or interest on its LIBOR Advances or in respect of any other
amounts due under this Agreement, as the case may be, or its obligation to
make such Advances (except for changes in the rate of tax on the overall
net income, net worth or capital of the Lender and franchise taxes, doing
business taxes or minimum taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's
LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending
Office) or on the United States market for certificates of deposit or the
London interbank market any other condition affecting its LIBOR Advances or
its obligation to make such Advances;
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 15 days after demand by a Lender, the Borrower agrees to
pay to such Lender such additional amount as will compensate such Lender for
such increased costs or reduced amounts, subject to Section 11.9 hereof. The
------------
affected Lender will as soon as practicable notify the Borrower of any event of
which it has knowledge,
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<PAGE>
occurring after the date hereof, which will entitle such Lender to compensation
pursuant to this Section and will designate a different LIBOR Lending Office or
other lending office if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole judgment of the affected
Lender made in good faith, be disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder and
calculations therefor shall be controlling in the absence of manifest error. In
determining such amount, a Lender may use any reasonable averaging and
attribution methods. If a Lender demands compensation under this Section, the
Borrower may at any time, upon at least five Business Days' prior notice to the
Lender, after reimbursement to the Lender by the Borrower in accordance with
this Section of all costs incurred, prepay in full the then outstanding LIBOR
Advances of the Lender, together with accrued interest thereon to the date of
prepayment, along with any reimbursement required under Section 2.9 hereof.
-----------
Concurrently with prepaying such LIBOR Advances, the Borrower shall borrow a
Prime Rate Advance from the Lender, and the Lender shall make such Prime Rate
Advance, in an amount such that the outstanding principal amount of the Advances
owing to such Lender shall equal the outstanding principal amount of the
Advances owing immediately prior to such prepayment.
Section 9.4 Effect On Prime Rate Advances. If notice has been given
-----------------------------
pursuant to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a Lender
----------- --- ---
to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be repaid or
prepaid, then, unless and until the Lender notifies the Borrower that the
circumstances giving rise to such repayment no longer apply, all Advances which
would otherwise be made by such Lender as LIBOR Advances shall be made instead
as Prime Rate Advances.
Section 9.5 Capital Adequacy. If either (a) the introduction of or any
----------------
change in or in the interpretation of any law, rule or regulation or (b)
compliance by a Lender with any law, rule or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitment or Advances hereunder
and other commitments or advances of such Lender of this type, then, upon demand
by such Lender, subject to Section 11.9, the Borrower shall immediately pay to
------------
such Lender, from time to time as specified by such Lender, additional amounts
sufficient to compensate such Lender with respect to such circumstances, to the
extent that such Lender reasonably determines in good faith such increase in
capital to be allocable to the existence of such Lender's Commitments hereunder.
A certificate as to such amounts submitted to the Borrower by a Lender
hereunder, shall, in the absence of manifest error, be conclusive and binding
for all purposes.
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<PAGE>
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders. The Lenders agree among themselves
-----------------------
that:
(a) Administrative Lender. Each Lender hereby appoints the Administrative
---------------------
Lender as its nominee in its name and on its behalf, to receive all documents
and items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Documents; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, unless and until the Administrative Lender shall have received
such requests, the Administrative Lender may take such administrative action, or
refrain from taking such administrative action, as it may deem advisable and in
the best interests of the Lenders; to arrange the means whereby the proceeds of
the Advances of the Lenders are to be made available to the Borrower; to
distribute promptly to each Lender information, requests and documents received
from the Borrower, and each payment (in like funds received) with respect to any
of such Lender's Advances, fee or other amount; and to deliver to the Borrower
requests, demands, approvals and consents received from the Lenders.
Administrative Lender agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and payments
received from the Borrower.
(b) Replacement of Administrative Lender. Should the Administrative Lender
------------------------------------
or any successor Administrative Lender ever cease to be a Lender hereunder, or
should the Administrative Lender or any successor Administrative Lender ever
resign as Administrative Lender (provided that the Administrative Lender may not
resign without the prior written consent of the Borrower), or should the
Administrative Lender or any successor Administrative Lender ever be removed
with cause by the Determining Lenders, then the Lender appointed by the other
Lenders shall forthwith become the Administrative Lender, and the Borrower and
the Lenders shall execute such documents as any Lender may reasonably request to
reflect such change at no cost to the Borrower. Any resignation or removal of
the Administrative Lender or any successor Administrative Lender shall become
effective upon the appointment by the Lenders of a successor Administrative
Lender; provided, however, that if the Lenders fail for any reason to appoint a
successor within 60 days after such removal or resignation, the Administrative
Lender or any successor Administrative Lender (as the case may be) shall
thereafter have no obligation to act as Administrative Lender hereunder.
(c) Expenses. Each Lender shall pay its pro rata share, based on its
--------
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Documents if Administrative Lender
does not receive reimbursement therefor from other sources within 60 days after
the date incurred, unless payment of such fees is being diligently disputed by
such Lender or the Borrower in good faith. Any amount so paid by the Lenders to
the Administrative Lender shall be returned by the Administrative Lender pro
rata to each paying Lender to the extent later paid by the Borrower or any other
Person on the Borrower's behalf to the Administrative Lender.
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<PAGE>
(d) Delegation of Duties. The Administrative Lender may execute any of
--------------------
its duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender and its
---------------------------------
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected the Administrative Lender. The Administrative Lender may, in
its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.
(f) Limitation of Administrative Lender's Liability. Neither the
-----------------------------------------------
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards the
execution or enforcement of the powers hereby created or to prosecute or defend
any suit in respect hereof, unless indemnified to its satisfaction against loss,
cost, liability and expense. The Administrative Lender shall not be responsible
in any manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made herein
or furnished in connection with any Loan Documents, or be under any obligation
to any Lender to ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any Loan Documents on the part of
the Borrower. To the extent not reimbursed by the Borrower, each Lender hereby
severally indemnifies and holds harmless the Administrative Lender, pro rata
according to its Specified Percentage, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and/or disbursements of any kind or nature whatsoever which may be
imposed on, asserted against, or incurred by the Administrative Lender in any
way with respect to any Loan Documents or any action taken or omitted by the
Administrative Lender under the Loan Documents (including any negligent action
of the Administrative Lender), except to the extent the same result from gross
negligence or wilful misconduct by the Administrative Lender.
(g) Liability Among Lenders. No Lender shall incur any liability (other
-----------------------
than the sharing of expenses and other matters specifically set forth herein and
in the other Loan Documents) to any other Lender, except for acts or omissions
in bad faith.
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<PAGE>
(h) Rights as Lender. With respect to its commitment hereunder, the
----------------
Advances made by it and the Notes issued to it, the Administrative Lender shall
have the same rights as a Lender and may exercise the same as though it were not
the Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder and without
any duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges that it
----------------------
has, independently and without reliance upon the Administrative Lender or any
other Lender and based upon the financial statements referred to in Sections
--------
4.1(j), 6.1, 6.2 and 6.3 hereof, and such other documents and information as it
- ------ --- --- ---
has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Lender or any other Lender and based
upon such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents.
Section 10.3 Benefits of Article. None of the provisions of this Article
-------------------
shall inure to the benefit of any Person other than Lenders; consequently, no
Person shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of the Administrative Lender or any Lender to comply
with such provisions.
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices.
-------
(a) All notices and other communications under this Agreement shall be
in writing (except in those cases where giving notice by telephone is expressly
permitted) and shall be deemed to have been given on the date personally
delivered or sent by telecopy (answerback received), or three days after deposit
in the mail, designated as certified mail, return receipt requested, postage-
prepaid, or one day after being entrusted to a reputable commercial overnight
delivery service, or one day after being delivered to the telegraph office or
sent out by telex addressed to the party to which such notice is directed at its
address determined as provided in this Section. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
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<PAGE>
(i) If to the Borrower, at:
Kevco, Inc.
University Centre I
Suite 200
1300 South University
Fort Worth, Texas 76107
Attn: Jerry E. Kimmel
with a copy to:
Jackson & Walker, L.L.P.
777 Main Street
Suite 1800
Fort Worth, Texas 76102
Attn: Richard S. Tucker
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Todd Shipley, Senior Vice President
(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.
(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.
Section 11.2 Expenses. The Borrower shall promptly pay:
--------
(a) all reasonable out-of-pocket expenses of the Administrative Lender in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, the transactions contemplated hereunder
and thereunder, and the making of Advances hereunder, including without
limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses and reasonable attorneys' fees
of the Administrative Lender in connection with the administration of the
transactions contemplated in this Agreement and the other Loan Documents and the
preparation, negotiation, execution and delivery of any waiver, amendment or
consent by the Administrative Lender relating to this Agreement or the other
Loan Documents; and
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<PAGE>
(c) after the occurrence of an Event of Default, all costs, out-of-pocket
expenses and attorneys' fees of the Administrative Lender and each Lender
incurred for enforcement, collection, restructuring, refinancing and "work-out",
or otherwise incurred in obtaining performance under the Loan Documents, which
in each case shall include without limitation fees and expenses of consultants,
counsel for the Administrative Lender and any Lender, and administrative fees
for the Administrative Lender. Notwithstanding anything to the contrary
contained herein, prior to the occurrence of an Event of Default, the Borrower
shall have no obligation to pay legal fees or expenses of any Lender other than
the reasonable legal fees and expenses of the Administrative Lender.
Section 11.3 Waivers. The rights and remedies of the Lenders under this
-------
Agreement and the other Loan Documents shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have. No failure or delay by
the Administrative Lender or any Lender in exercising any right shall operate as
a waiver of such right. The Lenders expressly reserve the right to require
strict compliance with the terms of this Agreement in connection with any
funding of a request for an Advance. In the event that any Lender decides to
fund an Advance at a time when the Borrower is not in strict compliance with the
terms of this Agreement, such decision by such Lender shall not be deemed to
constitute an undertaking by the Lender to fund any further requests for
Advances or preclude the Lenders from exercising any rights available under the
Loan Documents or at law or equity. Any waiver or indulgence granted by the
Lenders shall not constitute a modification of this Agreement, except to the
extent expressly provided in such waiver or indulgence, or constitute a course
of dealing by the Lenders at variance with the terms of the Agreement such as to
require further notice by the Lenders of the Lenders' intent to require strict
adherence to the terms of the Agreement in the future. Any such actions shall
not in any way affect the ability of the Administrative Lender or the Lenders,
in their discretion, to exercise any rights available to them under this
Agreement or under any other agreement, whether or not the Administrative Lender
or any of the Lenders are a party thereto, relating to the Borrower.
Section 11.4 Determination by the Lenders Conclusive and Binding. Any
---------------------------------------------------
calculation or material determination required or expressly permitted to be made
by the Administrative Lender or any Lender under this Agreement shall be made in
its reasonable judgment and in good faith, and shall when made, absent manifest
error, be controlling.
Section 11.5 Set-Off. In addition to any rights now or hereafter granted
-------
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, each Lender and any subsequent holder of any
Note, and any assignee or participant in any Note is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or any
other Person, any such notice being hereby expressly waived, to set-off,
appropriate and apply any deposits (general or special (except trust and escrow
accounts), time or demand, including without limitation Indebtedness evidenced
by certificates of deposit, in each case whether matured or unmatured) and any
other Indebtedness at any time held or owing by such Lender or holder to or for
the credit or the account of the Borrower, against and on account of the
Obligations and other liabilities of the Borrower to such
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<PAGE>
Lender or holder, irrespective of whether or not (a) the Lender or holder shall
have made any demand hereunder, or (b) the Lender or holder shall have declared
the principal of and interest on the Advances and other amounts due hereunder to
be due and payable as permitted by Section 8.2. Any sums obtained by any
-----------
Lender or by any assignee, participant or subsequent holder of any Note shall be
subject to pro rata treatment of all Obligations and other liabilities
hereunder.
Section 11.6 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Documents without the prior
written consent of the Lenders.
(b) No Lender shall be entitled to assign its interest in this Agreement,
its Notes or its Advances, except as hereinafter set forth.
(c) Lender may at any time sell participations in all or any part of its
Advances (collectively, "Participations") to any banks or other financial
--------------
institutions ("Participants") provided that such Participation shall not confer
------------
on any Person (other than the parties hereto) any right to vote on, approve or
sign amendments or waivers, or any other independent benefit or any legal or
equitable right, remedy or other claim under this Agreement or any other Loan
Documents, other than the right to vote on, approve, or sign amendments or
waivers or consents with respect to items that would result in (i) any increase
in the commitment of any Participant; or (ii)(A) the extension of the date of
maturity of, or (B) the extension of the due date for any payment of principal,
interest or fees respecting, or (C) the reduction of the amount of any
installment of principal or interest on or the change or reduction of any
mandatory reduction required hereunder, or (D) a reduction of the rate of
interest on, the Advances, the Letters of Credit, or the Reimbursement
Obligations; or (iii) the release of security for the Obligations, including
without limitation any guarantee; or (iv) the reduction of any fees payable
hereunder. Notwithstanding the foregoing, any Lender may sell a Participation
to any of its Affiliates which is a bank or financial institution without the
consent of the Borrower, provided that such Participation shall not confer any
Person (other than the parties hereto) any right to vote on, approve or sign
amendments or waivers, or any other independent benefit or any legal or
equitable right, remedy or other claim under this Agreement or any other Loan
Documents. Notwithstanding the foregoing, the Borrower agrees that the
Participants shall be entitled to the benefits of Article 9 and Section 11.5
--------- ------------
hereof as though they were Lenders and the Lenders may provide copies of all
financial information received from the Borrower to such Participants. To the
fullest extent it may effectively do so under Applicable Law, the Borrower
agrees that any Participant may exercise any and all rights of banker's lien,
set-off and counterclaim with respect to this Participation as fully as if such
Participant were the holder of the Advances in the amount of its Participation.
(d) Each Lender may assign to one or more financial institutions
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political
-70-
<PAGE>
subdivision of any such country, which is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
(each, an "Assignee") its rights and obligations under this Agreement and the
--------
other Loan Documents; provided, however, that (i) each such assignment shall be
-------- -------
subject to the prior written consent of the Administrative Lender and Borrower,
which consent shall not be unreasonably withheld (provided, however,
-------- -------
notwithstanding anything herein to the contrary, no consent of the Borrower is
required for any assignment during any time that an Event of Default pursuant to
Section 8.1(b) hereof has occurred and is continuing), (ii) after each such
- --------------
assignment (determined as of the date of the assignment with respect to such
assignment) the amount of NationsBank Specified Percentage of the Commitments
shall in no event be less than 51%, (iii) the applicable Lender, Administrative
Lender and applicable Assignee shall execute and deliver to the Administrative
Lender an Assignment and Acceptance Agreement (an "Assignment Agreement") in
--------------------
substantially the form of Exhibit E hereto, together with the Notes subject to
---------
such assignment, (iv) the Assignee executing the Assignment as the case may be,
shall deliver to the Administrative Lender a processing fee of $2,500; and (v)
after giving effect to any such Assignment, no Lender shall have a Commitment of
less than $10,000,000.00. Upon such execution, delivery and acceptance from and
after the effective date specified in each Assignment, which effective date
shall be at least three Business Days after the execution thereof, (A) the
Assignee thereunder shall be party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment, have
the rights and obligations of a Lender hereunder and (B) the applicable Lender
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment, relinquish such rights and be released from such
obligations under this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender and
an Assignee, and any Note or Notes subject to such assignment, the Borrower
shall, within five Business Days after its receipt of such Assignment Agreement,
at no expense to the Borrower, execute and deliver to the Administrative Lender
in exchange for the surrendered Notes new Notes to the order of such Assignee in
an amount equal to the portion of the Advances and Commitments assigned to it
pursuant to such Assignment Agreement and new Notes to the order of the
Administrative Lender in an amount equal to the portion of the Advances and
Commitments retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Notes, shall be dated the effective date of such Assignment Agreement and shall
otherwise be in substantially the form of Exhibit A or B hereto, as applicable.
--------- -
(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 11.6, disclose to
------------
the assignee or Participant
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<PAGE>
or proposed assignee or participant, any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower, provided such Person
has executed a Confidentiality Agreement.
(h) Except as specifically set forth in this Section 11.6, nothing in
------------
this Agreement or any other Loan Documents, expressed or implied, is intended to
or shall confer on any Person other than the respective parties hereto and
thereto and their successors and assignees permitted hereunder and thereunder
any benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary, no
------------
Assignee or Participant shall be entitled to receive any greater payment under
Section 2.15 or Section 9.3 than such assigning or participating Lender would
- ------------ -----------
have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.
Section 11.7 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 11.8 Severability. Any provision of this Agreement which is for
------------
any reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any parties
--------------------
to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Maximum Amount. If
any Lender or participant ever receives, collects or applies, as interest, any
such excess, such amount which would be excessive interest shall be deemed a
partial repayment of principal and treated hereunder as such; and if principal
is paid in full, any remaining excess shall be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Amount, the Borrower and the Lenders shall, to
the maximum extent permitted under Applicable Law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (b)
exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate,
allocate and spread in equal parts, the total amount of interest throughout the
entire contemplated term of the Obligations so that the interest rate is uniform
throughout the entire term of the Obligations; provided, however, that if the
Obligations are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Amount, the Lenders shall refund to the
Borrower the amount of such excess or credit the amount of such excess against
the total principal amount of the Obligations owing, and, in such event, the
Lenders shall not be subject to any penalties provided
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<PAGE>
by any laws for contracting for, charging or receiving interest in excess of the
Maximum Amount. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for
--------
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this Agreement may
--------------------
not be amended, modified or waived except by the written agreement of the
Borrower and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend the date of maturity of, extend the due date for any payment of
principal or interest on, reduce the amount of any installment of principal or
interest on, or reduce the rate of interest on, any Advance, the Reimbursement
Obligations or other amount owing under any Loan Documents, or (iii) release any
security for or guaranty of the Obligations (except pursuant to this Agreement),
or (iv) reduce the fees payable hereunder, or (v) revise this Section 11.11, or
-------------
(vi) waive the date for payment of any of the Obligations, or (vii) amend the
definition of Determining Lenders; or (b) without the consent of the
Administrative Lender, if it would alter the rights, duties or obligations of
the Administrative Lender. Neither this Agreement nor any term hereof may be
amended orally, nor may any provision hereof be waived orally but only by an
instrument in writing signed by the Administrative Lender and, in the case of an
amendment, by the Borrower.
Section 11.12 Exception to Covenants. Neither the Borrower nor any
----------------------
Subsidiary shall be deemed to be permitted to take any action or fail to take
any action which is permitted as an exception to any of the covenants contained
herein or which is within the permissible limits of any of the covenants
contained herein if such action or omission would result in the breach of any
other covenant contained herein.
Section 11.13 No Liability of Issuing Bank. The Borrower assumes all
----------------------------
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any Lender nor any of their respective officers or directors shall be
liable or responsible for: (a) the use that may be made of any Letter of Credit
or any acts or omissions of any beneficiary or transferee in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing
Bank against presentation of documents that do not comply with the terms of a
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit, except for any payment made upon the
Issuing Bank's gross negligence or willful misconduct; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except that the Borrower shall have a claim against the Issuing Bank,
------
and the Issuing Bank shall be liable to the Borrower, to the extent of any
direct, but not consequential, damages suffered by the Borrower that the
Borrower proves were caused by (i) the Issuing Bank's willful misconduct or
gross
-73-
<PAGE>
negligence in determining whether documents presented under any Letter of Credit
comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful
failure to make lawful payment under a Letter of Credit after the presentation
to it of a draft and certificates strictly complying with the terms and
conditions of the Letter of Credit. In furtherance and not in limitation of the
foregoing, the Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.
SECTION 11.14 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
-------------
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79,
REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE
PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS
AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS,
AND BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER
LIABLE FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS,
JOINTLY AND SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. THE BORROWER AND
EACH LENDER AGREE THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS,
TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 11.15 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
--------------------
ADMINISTRATIVE LENDER AND THE LENDERS 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
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT
AND MAKING ANY ADVANCES HEREUNDER.
SECTION 11.16 ENTIRE AGREEMENT. THIS WRITTEN 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
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<PAGE>
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
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<PAGE>
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
set forth above.
BORROWER: KEVCO, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------
Name: Gerald E. Kimmel
Title: Chairman and President
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: /s/ Todd Shipley
-------------------------------------
Name: Todd Shipley
Title: Senior Vice President
LENDERS: NATIONSBANK OF TEXAS, N.A.,
as a Lender
Specified Percentage:
100%
By: /s/ Todd Shipley
--------------------------------------
Name: Todd Shipley
Title: Senior Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Todd Shipley
Senior Vice President
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<PAGE>
SCHEDULE 1
----------
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
<PAGE>
SCHEDULE 2
----------
EXISTING LIENS
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
------- ---------- ------------ -------------
NONE
<PAGE>
SCHEDULE 3
----------
EXISTING LITIGATION
AND MATERIAL LIABILITIES
NONE
<PAGE>
SCHEDULE 4
----------
SUBSIDIARIES
State of Percentage
Name Incorporation of Ownership Borrower
- ------ ------------- ------------ --------
NONE
<PAGE>
SCHEDULE 5
----------
EXISTING INVESTMENTS
NONE
<PAGE>
SCHEDULE 6
----------
EXISTING INDEBTEDNESS
NONE
<PAGE>
SCHEDULE 7
----------
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
Texas
Kansas
Indiana
Arizona
California
Oregon
Idaho
Pennsylvania
Georgia
North Carolina
Alabama
Florida
Colorado
<PAGE>
EXHIBIT 10.23
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"), dated as
of September 1, 1995, is entered into among KEVCO, INC., a Texas corporation
("Borrower"), the banks listed on the signature pages hereof (collectively, the
"Lenders"), and NATIONSBANK OF TEXAS, N.A., as Administrative Lender (in said
capacity, the "Administrative Lender").
A. Borrower, Lenders and Administrative Lender heretofore entered into
that certain Credit Agreement, dated as of June 30, 1995 (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. Borrower, Lenders and Administrative Lender desire to amend the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Borrower, Lenders
and Administrative Lender covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
------------------------------
(a) The "and" at the end of subsection (ix) of the definition of Eligible
---------------
Accounts is hereby deleted, the "." at the end of subsection (x) of the
--------------
definition of Eligible Accounts is hereby replaced with "; and", and the
following subsection (xi) is hereby added to the definition of Eligible
---------------
Accounts, all as set forth in Section 1.1:
-----------
(xi) Such Account is payable in lawful money of the United States of
America.
(b) The definition of "Loan Documents" set forth in Section 1.1 is hereby
-----------
amended to read in its entirety as follows:
"Loan Documents" means this Agreement, the Notes, the Security
--------------
Agreement, the Deeds of Trust, the Fee Letter, any Interest Hedge
Agreements entered into with NationsBank, and any other document or
agreement executed or delivered from time to time by the Borrower, any
Subsidiary or any other Person in connection herewith or as security
for the Obligations.
(c) The second to the last sentence of Section 2.1(a) is hereby amended to
--------------
read in its entirety as follows:
Notwithstanding any provision in any Loan Document to the contrary, in
no event shall the sum of the principal amount of all outstanding
Revolving Credit Advances and Reimbursement
<PAGE>
Obligations exceed the lesser of (i) the Revolving Credit Commitment
and (ii) the Borrowing Base.
(d) The first sentence of Section 2.5(b) is hereby amended to read in its
--------------
entirety as follows:
On or before the date of any reduction of (i) the Revolving Credit
Commitment, the Borrower shall prepay applicable outstanding Revolving
Credit Advances in an amount necessary to reduce the sum of
outstanding Revolving Credit Advances and Reimbursement Obligations to
an amount less than or equal to the lesser of (x) the Revolving Credit
Commitment as so reduced or (y) the Borrowing Base, and (ii) the Term
Loan Commitment, the Borrower shall prepay applicable outstanding Term
Loan Advances to an amount less than or equal to the Term Loan
Commitment as so reduced.
(e) The following subsection (c) shall be added immediately following
--------------
subsection (b) in the first sentence of Section 2.9:
- -------------- -----------
(c) failure by the Borrower to prepay any LIBOR Advance after having
given notice of its intention to prepay in accordance with Section
-------
2.5(a) hereof.
------
(f) Section 9.1(ii) is hereby amended to read in its entirety as follows:
---------------
(ii) the LIBOR Rate for such proposed LIBOR Advance does not
adequately cover the cost to such Lender of making and maintaining
such proposed LIBOR Advance for such Interest Period.
(g) The following Section 11.17 is hereby added to the Credit Agreement:
-------------
Section 11.17 Interest Hedge Agreements. Notwithstanding anything to
-------------------------
the contrary herein contained, the parties hereto acknowledge and
agree that in the event that the Commitments have been terminated and
all of the Obligations, other than those arising under Interest Hedge
Agreements with NationsBank, have been paid in full, then (a) with
respect to Articles 5, 6, and 7 and Section 8.1 hereof, the provisions
---------- - - -----------
of any such Interest Hedge Agreement shall control over this
Agreement, (b) a default under any such Interest Hedge Agreement shall
be an Event of Default hereunder, and (c) the Administrative Lender,
for the benefit of NationsBank as a Lender, shall continue to hold a
first priority security interest in the Collateral as security for the
Obligations under any such Interest Hedge Agreements.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
--------------------------------------------------------
execution and delivery hereof, Borrower represents and warrants that, as
-2-
<PAGE>
of the date hereof and after giving effect to the amendments 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 if made on and as of such
date;
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;
(c) Borrower has full power and authority to execute and deliver this First
Amendment, and this First Amendment and the Credit Agreement, as amended hereby,
constitute the legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable debtor relief laws and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law) and except
as rights to indemnity may be limited by federal or state securities laws; and
(d) no authorization, approval consent, or other action by, notice to, or
filing with, any governmental authority or other Person, is required for the
execution, delivery or performance by Borrower of this First Amendment.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
---------------------------
as of September 1, 1995, subject to the following:
(a) Administrative Lender shall have received counterparts of this First
Amendment executed by each Lender; and
(b) Administrative Lender shall have received counterparts of this First
Amendment executed by Borrower.
4. REFERENCE TO THE CREDIT AGREEMENT.
---------------------------------
(a) Upon the effectiveness of this First Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as affected and amended by this
First Amendment.
(b) The Credit Agreement, as amended by this First Amendment, and all other
Loan Documents shall remain in full force and effect and are hereby ratified and
confirmed.
5. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all costs
-------------------------
and expenses of Administrative Lender in connection with the preparation,
reproduction, execution and delivery of the First Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of counsel for Administrative Lender with
respect thereto and with respect to advising Administrative Lender
-3-
<PAGE>
as to its rights and responsibilities under the Credit Agreement, as amended by
this First Amendment).
6. EXECUTION IN COUNTERPARTS. This First Amendment 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 taken together shall constitute but one and the same
instrument.
7. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be governed
-----------------------------
by and construed in accordance with the laws of the State of Texas and shall be
binding upon Borrower and each Lender and their respective successors and
assigns.
8. HEADINGS. Section headings in this First Amendment are included
--------
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
----------------
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
KEVCO, INC.
By: /s/ Jerry E. Kimmel
-----------------------------------------
Title: Chairman and President
-----------------------------------
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender and as a Lender
By: /s/ Todd Shipley
-----------------------------------------
Title: Senior Vice President
-----------------------------------
THE DAIWA BANK, LIMITED
By: /s/ James W. Jang
-----------------------------------------
Title: Vice President and Manager
-----------------------------------
By: /s/ Kim A. Uhleman
-----------------------------------------
Title: Vice President
-----------------------------------
35222.01
100-473
-5-
<PAGE>
EXHIBIT 10.24
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"), dated
as of November 29, 1995, is entered into among KEVCO, INC., a Texas corporation
("Borrower"), the banks listed on the signature pages hereof (collectively, the
"Lenders"), and NATIONSBANK OF TEXAS, N.A., as Administrative Lender (in said
capacity, the "Administrative Lender").
A. Borrower, Lenders and 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 (as
the same may be further amended or modified, 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. Borrower, Lenders and Administrative Lender desire to amend the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Borrower, Lenders
and Administrative Lender covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
------------------------------
(a) The definition of "Leverage Ratio" set forth in Section 1.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:
"Leverage Ratio" means, for any date of determination (which shall be
--------------
as of the last day of any fiscal quarter), the ratio of (a) Total Debt as
of the date of determination to (b) EBITDA (calculated as of (i)
September 30, 1995, annualized using EBITDA for the immediately preceding
fiscal quarter, (ii) December 31, 1995, annualized using EBITDA for the
immediately preceding two fiscal quarters, (iii) March 31, 1996, annualized
using EBITDA for the immediately preceding three fiscal quarters, and
(iv) each date of determination thereafter, using EBITDA for the
immediately preceding four fiscal quarters).
(b) The following Section 7.1(f) is hereby added to the Credit Agreement
and the existing Section 7.1(f) is hereby re-lettered as Section 7.1(g):
(f) Indebtedness incurred in connection with the Borrower's purchase
of a corporate jet not to exceed $2,500,000 in aggregate amount; and
(c) Section 7.9 of the Credit Agreement is hereby amended to read in its
entirety as follows:
<PAGE>
Section 7.9 Fixed Charge Coverage Ratio. The Borrower shall not
---------------------------
permit the Fixed Charge Coverage Ratio to be less than 1.50 to 1 at the end
of any fiscal quarter (calculated as of (a) September 30, 1995, using Fixed
Charges and Pretax Cash Flow for the immediately preceding fiscal quarter,
(b) December 31, 1995, using Fixed Charges and Pretax Cash Flow for the
immediately preceding two fiscal quarters, (c) March 31, 1996, using Fixed
Charges and Pretax Cash Flow for the immediately preceding three fiscal
quarters, and (d) each date of determination thereafter, using Fixed
Charges and Pretax Cash Flow for the immediately preceding four fiscal
quarters.
(d) Section 7.13 of the Credit Agreement is hereby amended to read in its
entirety as follows:
Section 7.13 Capital Expenditures and Acquisitions. The Borrower
-------------------------------------
shall not permit the sum of (i) Capital Expenditures to be paid or incurred
by it and its Subsidiaries (excluding the Borrower's purchase of a
corporate jet not to exceed $2,500,000 in aggregate amount) and (ii) cash
consideration paid for Acquisitions to exceed, in aggregate amount,
$2,000,000 during any fiscal year.
2. WAIVER.
------
(a) Lenders hereby waive the Event of Default resulting from Borrower's
failure to comply with Section 7.4(b) of the Credit Agreement by not prepaying
Term Loan Advances with the Net Cash Proceeds in excess of $250,000 received
from Borrower's sale of a King Air aircraft.
(b) Lenders hereby waive the requirement set forth in Section 3.1(l) of
the Credit Agreement that Borrower deliver to the Administrative Lender a Deed
of Trust on each piece of real property then owned by Borrower or any of its
Subsidiaries. In no manner does this waiver relinquish, modify or impair any
rights the Administrative Lender and the Lenders may have pursuant to
Section 5.13 to request delivery of any such Deeds of Trust in the future.
3. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
--------------------------------------------------------
execution and delivery hereof, Borrower represents and warrants that, as of the
date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1 and the waiver contemplated by the foregoing Section 2:
(a) the representations and warranties contained in the Credit Agreement
are true and correct on and as of the date hereof as if made on and as of such
date;
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;
(c) Borrower has full power and authority to execute and deliver this
Second Amendment, and this Second Amendment and the Credit Agreement, as amended
hereby,
- 2 -
<PAGE>
constitute the legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable debtor relief laws and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law) and except
as rights to indemnity may be limited by federal or state securities laws; and
(d) no authorization, approval consent, or other action by, notice to, or
filing with, any governmental authority or other Person (including the Board of
Directors of Borrower) is required for the execution, delivery or performance by
Borrower of this Second Amendment.
4. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be effective
---------------------------
as of November 29, 1995, subject to the following:
(a) Administrative Lender shall have received counterparts of this Second
Amendment executed by each Lender; and
(b) Administrative Lender shall have received counterparts of this Second
Amendment executed by Borrower.
5. REFERENCE TO THE CREDIT AGREEMENT.
---------------------------------
(a) Upon the effectiveness of this Second Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as affected and amended by this
Second Amendment.
(b) The Credit Agreement, as amended by this Second Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all costs
-------------------------
and expenses of Administrative Lender in connection with the preparation,
reproduction, execution and delivery of the Second Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of counsel for Administrative Lender with
respect thereto and with respect to advising Administrative Lender as to its
rights and responsibilities under the Credit Agreement, as amended by this
Second Amendment).
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be
-----------------------------
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon Borrower and each Lender and their respective successors
and assigns.
- 3 -
<PAGE>
9. HEADINGS. Section headings in this Second Amendment are included
--------
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
----------------
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date first above written.
KEVCO, INC.
By:
-------------------------------------
Title:
----------------------------------
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender and as a Lender
By:
-------------------------------------
Title:
----------------------------------
THE DAIWA BANK, LIMITED
By: /s/ James W. Jang
------------------------------------
Title: V.P. & Manager
---------------------------------
By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------------
Title: V.P.
---------------------------------
- 5 -
<PAGE>
EXHIBIT 10.25
REVOLVING CREDIT NOTE
---------------------
Dallas, Texas $14,285,714.28 September 1, 1995
KEVCO, INC. a Texas corporation (the "Borrower"), for value received,
promises to pay to the order of NATIONSBANK OF TEXAS, N.A. ("Lender"), at the
principal office of NationsBank of Texas, N.A., in lawful money of the United
States of America, the principal sum of FOURTEEN MILLION TWO HUNDRED EIGHTY-FIVE
THOUSAND SEVEN HUNDRED FOURTEEN AND 28/100 DOLLARS ($14,285,714.28), or such
lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Revolving
Credit Advances under this Revolving Credit Note (the "Note") from time to time
outstanding shall be due and payable as set forth in the Credit Agreement.
This Note (a) is issued pursuant to and evidences Revolving Credit Advances
under a Credit Agreement, dated as of June 30, 1995, among the Borrower,
NationsBank of Texas, N.A., as Administrative Lender, and the lenders parties
thereto (as amended, restated, supplemented, renewed, extended or otherwise
modified from time to time, "Credit Agreement"), to which reference is made for
a statement of the rights and obligations of the Lender and the duties and
obligations of the Borrower in relation thereto; but neither this reference to
the Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal sum
of and interest on this Note when due, and (b) modifies and replaces that
certain Revolving Credit Note dated as of June 30, 1995, in the original
principal amount of $20,000,000 (the "Prior Note"), but does not extinguish the
debt evidenced by the Prior Note. This Promissory Note is not intended as, and
shall not be construed as, a novation of the debt evidenced by the Prior Note.
Except as provided in the Credit Agreement, the Borrower and all endorsers,
sureties and guarantors of this Note hereby severally waive demand, presentment
for payment, protest, notice of protest, notice of acceleration, notice of
intention to accelerate the maturity of this Note, and all other notices of any
kind, diligence in collecting, the bringing of any suit against any party and
any notice of or defense on account of any extensions, renewals, partial
payments or changes in any manner of or in this Note or in any of its terms,
provisions and covenants, or any releases or substitutions of any security, or
any delay, indulgence or other act of any trustee or any holder hereof, whether
before or after maturity.
THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT
PURSUANT TO ARTICLE 5069-15.10(b,), TITLE 79, REVISED CIVIL STATUTES OF TEXAS,
1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79,
REVISED CIVIL
<PAGE>
STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS NOTE
AND THE OTHER LOAN DOCUMENTS. THE BORROWER AGREES THAT THE STATE AND FEDERAL
COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER
THE PROCEEDINGS IN CONNECTION WITH THIS NOTE AND THE OTHER LOAN DOCUMENTS.
THIS NOTE, 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.
KEVCO, INC.
By /s/Jerry E. Kimmel
-------------------------
Jerry E. Kimmel
Chairman and President
- 2 -
<PAGE>
EXHIBIT 10.26
TERM LOAN NOTE
--------------
Dallas, Texas $10,714,285.72 September 1, 1995
KEVCO, INC., a Texas corporation (the "Borrower"), for value received,
promises to pay to the order of NATIONSBANK OF TEXAS, N.A. ("Lender"), at the
principal office of NationsBank of Texas, N.A., in lawful money of the United
States of America, the principal sum of TEN MILLION SEVEN HUNDRED FOURTEEN
THOUSAND TWO HUNDRED EIGHTY-FIVE AND 72/100 DOLLARS ($10,714,285.72), or such
lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Term Loan
Advances under this Term Loan Note from time to time outstanding shall be due
and payable as set forth in the Credit Agreement.
This Term Loan Note (a) is issued pursuant to and evidences Term Loan
Advances under a Credit Agreement, dated as of June 30, 1995, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, and the lenders
parties thereto (as amended, restated, supplemented, renewed, extended or
otherwise modified from time to time, "Credit Agreement"), to which reference is
made for a statement of the rights and obligations of the Lender and the duties
and obligations of the Borrower in relation thereto; but neither this reference
to the Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal sum
of and interest on this Term Loan Note when due, and (b) modifies and replaces
that certain Term Loan Note dated as of June 30, 1995, in the original principal
amount of $15,000,000 (the "Prior Note"), but does not extinguish the debt
evidenced by the Prior Note. This Promissory Note is not intended as, and shall
not be construed as, a novation of the debt evidenced by the Prior Note.
Except as provided in the Credit Agreement, the Borrower and all
endorsers, sureties and guarantors of this Term Loan Note hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
acceleration, notice of intention to accelerate the maturity of this Term Loan
Note, and all other notices of any kind, diligence in collecting, the bringing
of any suit against any party and any notice of or defense on account of any
extensions, renewals, partial payments or changes in any manner of or in this
Term Loan Note or in any of its terms, provisions and covenants, or any releases
or substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
THIS TERM LOAN NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED,
HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79, REVISED CIVIL
STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF
CHAPTER 15, TITLE 79, REVISED CIVIL
<PAGE>
STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS TERM
LOAN NOTE AND THE OTHER LOAN DOCUMENTS. THE BORROWER AGREES THAT THE STATE AND
FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE EXCLUSIVE
JURISDICTION OVER THE PROCEEDINGS IN CONNECTION WITH THIS TERM LOAN NOTE AND THE
OTHER LOAN DOCUMENTS.
THIS TERM LOAN NOTE, 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.
KEVCO, INC.
By: /s/ Jerry E. Kimmel
--------------------------------------
Jerry E. Kimmel
Chairman and President
-2-
<PAGE>
EXHIBIT 10.27
REVOLVING CREDIT NOTE
---------------------
Dallas, Texas $5,714,285.72 February 2, 1996
KEVCO, INC., a Texas corporation (the "Borrower"), for value received,
promises to pay to the order of THE SUMITOMO BANK, LTD., CHICAGO BRANCH
("Lender"), at the principal office of NationsBank of Texas. N.A. , in lawful
money of the United States of America, the principal sum of FIVE MILLION SEVEN
HUNDRED FOURTEEN THOUSAND TWO HUNDRED EIGHTY-FIVE DOLLARS AND 72/100 DOLLARS
($5,714,285.72), or such lesser sum as shall be due and payable from time to
time hereunder, as hereinafter provided. All terms used but not defined herein
shall have the meanings set forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Revolving
Credit Advances under this Revolving Credit Note (the "Note") from time to time
outstanding shall be due and payable as set forth in the Credit Agreement.
This Note (a) is issued pursuant to and evidences Revolving Credit Advances
under a Credit Agreement, dated as of June 30, 1995, among the Borrower,
NationsBank of Texas, N.A., as Administrative Lender, and the lenders parties
thereto (as amended, restated, supplemented, renewed, extended or otherwise
modified from time to time, "Credit Agreement"), to which reference is made for
a statement of the rights and obligations of the Lender and the duties and
obligations of the Borrower in relation thereto; but neither this reference to
the Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal sum
of and interest on this Note when due, and (b) modifies and replaces that
certain Revolving Credit Note dated as of September 1, 1995, in the original
principal amount of $5,714,285.72 (the "Prior Note"), but does not extinguish
the debt evidenced by the Prior Note. This Promissory Note is not intended as,
and shall not be construed as, a novation of the debt evidenced by the Prior
Note.
Except as provided in the Credit Agreement, the Borrower and all endorsers,
sureties and guarantors of this Note hereby severally waive demand, presentment
for payment, protest, notice of protest, notice of acceleration, notice of
intention to accelerate the maturity of this Note, and all other notices of any
kind, diligence in collecting, the bringing of any suit against any party and
any notice of or defense on account of any extensions, renewals, partial
payments or changes in any manner of or in this Note or in any of its terms,
provisions and covenants, or any releases or substitutions of any security, or
any delay, indulgence or other act of any trustee or any holder hereof, whether
before or after maturity.
THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT
PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79, REVISED CIVIL STATUTES OF TEXAS,
1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79,
REVISED CIVIL
<PAGE>
STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS NOTE
AND THE OTHER LOAN DOCUMENTS. THE BORROWER AGREES THAT THE STATE AND FEDERAL
COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER
THE PROCEEDINGS IN CONNECTION WITH THIS NOTE AND THE OTHER LOAN DOCUMENTS.
THIS NOTE, 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,
KEVCO, INC.
By
---------------------------
Jerry E. Kimmel
Chairman and President
<PAGE>
EXHIBIT 10.28
TERM LOAN NOTE
--------------
Dallas, Texas $4,285,714.28 February 2, 1996
KEVCO, INC., a Texas corporation (the "Borrower"), for value received,
promises to pay to the order of THE SUMITOMO BANK, LTD., CHICAGO BRANCH
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of FOUR MILLION TWO
HUNDRED EIGHTY-FIVE THOUSAND SEVEN HUNDRED FOURTEEN AND 28/100 DOLLARS
($4,285,714.28), or such lesser sum as shall be due and payable from time to
time hereunder, as hereinafter provided. All terms used but not defined herein
shall have the meanings set forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Term Loan
Advances under this Term Loan Note from time to time outstanding shall be due
and payable as set forth in the Credit Agreement.
This Term Loan Note (a) is issued pursuant to and evidences Term Loan
Advances under a Credit Agreement, dated as of June 30, 1995, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, and the lenders
parties thereto (as amended, restated, supplemented, renewed, extended or
otherwise modified from time to time, "Credit Agreement"), to which reference
is made for a statement of the rights and obligations of the Lender and the
duties and obligations of the Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal sum of and interest on this Term Loan Note when due and (b) modifies
and replaces that certain Term Loan Note dated as of September 1, 1995, in the
original principal amount of $4,285,714.28 (the "Prior Note"), but does not
extinguish the debt evidenced by the Prior Note. This Promissory Note is not
intended to, and shall not be construed as, a novation of the debt evidenced by
the Prior Note.
Except as provided in the Credit Agreement, the Borrower and all endorsers,
sureties and guarantors of this Term Loan Note hereby severally waive demand,
presentment for payment, protest, notice of protest, notice of acceleration,
notice of intention to accelerate the maturity of this Term Loan Note, and all
other notices of any kind, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Term Loan Note
or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
THIS TERM LOAN NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED,
HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79, REVISED CIVIL
STATUTES OF TEXAS, 1925, AS AMENDED, IT
<PAGE>
IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF
TEXAS 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS TERM LOAN NOTE AND
THE OTHER LOAN DOCUMENTS. THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS
OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE
PROCEEDINGS IN CONNECTION WITH THIS TERM LOAN NOTE AND THE OTHER LOAN DOCUMENTS.
THIS TERM LOAN NOTE, 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.
KEVCO, INC.
By:
-----------------------------------------
Jerry E. Kimmel
Chairman and President
<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 _____________
Month/Day 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.
[_] 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.
[X] 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 other-wise 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
Month/Day
year) for a Year of Vesting Service.
(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>
[_] Option 5 with [X] Option 6 with
Completed [_] Option_(1-4) Option 3 (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 30%)
- ----------------------------------------------------------------------------------------------------------------------
6 100% 100% 100% 100% 100% 50%
- ----------------------------------------------------------------------------------------------------------------------
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 ParticipantS 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),
4(38(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 Employers
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 Defer 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 a to the extent Vested or a
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 pro visions 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
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[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)(1), 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 31,1996 (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
<PAGE>
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
<PAGE>
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>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2. ELIGIBILITY AND PARTICIPATION..................................................13
2.01 ELIGIBILITY TO PARTICIPAT.................................................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
requirement 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 an 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
<PAGE>
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 $75,900 (as adjusted for
inflation under Section 415(d) of the Code); (b)received Compensation
from the Employer in excess of $50,900 (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 190 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
easy 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. 905 or 906, 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 $75,090 (as
adjusted for inflation under Section 415(d) of the Code), (c) received
Compensation for the Plan Year in excess of $50,900 (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
<PAGE>
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, pr (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 $50,900 (as adjusted for inflation under Section 415(d) of
the Code) and was a member of the to-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(o) 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
<PAGE>
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 ifs (1)
the Leased Employee is covered by a money purchase pension plan providing
(a) a non-integrated 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 Lead 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 broker:age business. Each Prototype
Sponsor must meet the definition of a sponsoring organization set forth
in Section 3.07 of Revenue Procedure 8~9 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 (i) 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 salifying 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 097 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 permit
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 Participants 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
nonforfeitable 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 6.96 (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
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<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 roles 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
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<PAGE>
date under this Plan and all other qualified
mater 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 than 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 maintaing 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 minimum 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).
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<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 Funds 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 subaccount to reflect a Participant's nondeductible
Employee contributions; and
5. A subaccount 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.
<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 apart 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>
??? 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 stars 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 lull
amount of the distribution derived from Employer
Contributions before the earlier of: (i) 5 years after
the first dare 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 &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 stating 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 weed 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 subaccount and/or transfer
contribution sub-account.
6.05 FORM OF DISTRIBUTION TO BENEFICIARY
A. Value of Individual Account Not Larger Than $3,506 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 pre-retirement 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 "Bed 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 Pre-retirement 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 Pre-retirement 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 Pre-retirement Survivor Annuity. Any waiver
of a Qualified Joint and Survivor Annuity or a
Qualified Pre-retirement 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 bene fit 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 500% and not more than 1000% 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 Pre-retirement 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 Pre-retirement 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>
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 require
ments 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 Recrement 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
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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(C), "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 607(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 607(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
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, 1983, 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 loans. 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)(I) 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 on-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 aggregates. 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.
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<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 designed 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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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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<PAGE>
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 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 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 1-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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<PAGE>
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 alter 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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<PAGE>
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 affiliated.
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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<PAGE>
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 CAD?): 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 Contributions 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-
34
<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 alter
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 Mating 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
Employee&.
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 alter 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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<PAGE>
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 Mating 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.
38
<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, regard-less 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 ally cable 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 kings 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 Deferral& 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 tax-able 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, assuring 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)S(b)(3) are satisfied until
the year follow-rag 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, 1904, 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 accumulations calculated assuring 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 Employs 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 7.858 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 HE 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 0.0379 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 0.0765 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
35 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% 8.30%
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
65 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 1.456 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 8.370 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 10.30
PROMISSORY NOTE
$5,000,000.00 Fort Worth, Texas October 26, 1993
--
FOR VALUE RECEIVED, the undersigned, Gerald E. Kimmel ("Maker"), hereby
unconditionally promises to pay to the order of Kevco, Inc., a Texas
corporation, ("Payee"), at 2501 Parkview Drive, Suite 560, Fort Worth, Texas
76102 (or such other place or places as the holder hereof may from time to time
designate in writing), the principal sum of Five Million and no/100 Dollars
($5,000,000.00), together with interest thereon on the unpaid principal balance
from date until maturity at the rate per annum which shall from day-to-day be
equal to the lesser of (a) the Maximum Rate of (b) the Fluctuating Rate in
effect from day-to-day.
If at any time and from time to time the rate of interest calculated
pursuant to subparagraph (b) above would exceed the Maximum Rate, thereby
causing the interest payable hereon to be limited to the Maximum Rate, then a
subsequent reduction in the rate specified in subparagraph (b) above shall not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the rate specified in subparagraph (b) above had at all times
been in effect.
As used herein, the term "Base Rate" shall mean the variable rate of
interest established from time to time by First Interstate Bank of Texas, N.A.
(the "Bank") as its general reference rate of interest, each change in the
Fluctuating Rate to become effective, without notice to Maker, on the effective
date of each change in the Base Rate. Maker acknowledges that Bank may, from
time to time, extend credit to other borrowers at rates of interest varying
from, and having no relationship to, such general reference rate. As used
herein, the term "Fluctuating Rate" shall mean one-half percent (0.5%) in excess
of the Base Rate in effect from day-to-day.
As used herein, the term "Maximum Rate" shall mean, with respect to the
holder hereof, ten percent (10%) simple interest per annum.
Payments of both principal and interest hereon shall be made to Payee as
herein provided in lawful money of the United States of America, in immediately
available funds in Forth Worth, Texas. Interest shall be computed on the basis
of a year consisting of 365 days or if applicable, 366 days.
Unless maturity of this Note is accelerated as provided below, the
principal of this Note shall be due and payable in forty-eight (48) consecutive
monthly installments, the first forty-seven (47) of which to be in an amount
equal to Sixty-Two Thousand Five Hundred and no/100 ($62,500.00) each, with the
forty-eight (48th) and final installment of principal to be in an amount equal
to the unpaid balance of principal then owing. The first installment of
principal shall be due and payable on December 1, 1993, with a like installment
of principal being due and payable on the first day of each succeeding calendar
month thereafter until this Note is paid in full or until maturity of this Note
is accelerated
<PAGE>
as provided below. Interest shall be due and payable on the same dates as, and
in addition to, each installment of principal is due and payable as provided
herein. Any interest payable on this Note shall be calculated on the unpaid
principal balance to the date of each installment of principal paid, and any
payments made credited first to the discharge of the interest accrued and the
balance to the reduction of principal. Applications to principal resulting from
any prepayment shall be made to the principal of the installment called for by
this Note in the inverse order of their maturity.
This Note or any part thereof, whether principal or interest, may be
prepaid at any time and from time to time from and after the date hereof without
notice, penalty or premium.
Nothwithstanding anything herein to the contrary, no installment of
principal or interest shall be considered past due if any such installment is
paid within five calendar days after receipt by Maker of written notice from
Payee that an installment is past due. Late payment of any installment, whether
principal or interest, shall constitute default of Maker's obligations
hereunder. Upon default in the punctual payment when due of this Note, whether
principal or interest, Payee or any other holder of this Note may in such event
at its option declare the entire unpaid balance of principal and interest owing
hereon at one matured and due an payable in full and the holder of this Note may
in such event exercise any and all rights, remedies or privileges possessed by
the holder of this Note, 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
hereof reasonable attorney's fees.
No provision of this Note shall require the payment or permit the
collection of interest which would constitute usury under applicable law. If any
excess of interest in such respect is herein provided for or shall be
adjudicated to be so provided for herein, the provisions of this paragraph shall
govern and neither Maker nor any of his successors, assigns, heirs, executors,
administrators 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 his
successors, assigns, heirs, executors, administrators or legal representatives
shall be entitled to a refund of the excess amount collected hereunder.
<PAGE>
This Note is being executed and delivered, and is intended to be performed,
in the state of Texas. Except to the extent that the laws of the United States
may apply to the terms hereof, the substantive laws of the state of Texas shall
govern the validity, construction, enforcement and interpretation of this Note.
In the event of a dispute involving this Note or any other instruments executed
in connection herewith, Maker irrevocably agrees that venue for such disputes
shall lie in a court of competent jurisdiction in Tarrant County, Texas.
This Note is unsecured.
MAKER:
/s/
------------------------------
Gerald E. Kimmel
PAGE 3
<PAGE>
Exhibit 10.31
AMENDMENT NO. 4 TO LEASE DATED DECEMBER 1, 1977
BY AND BETWEEN
K&E LAM) & LEASING
AND KEVCO, INC.
This Amendment No. 4 to a Lease (the "Lease") made and entered into as of
December 1, 1977, by and between K&E LAND & LEASING ("Lessor") and KEVCO , INC.,
a Texas corporation ("Lessee") is made and entered into as of the 26th day of
October, 1993, but effective November 1, 1993 (the "Effective Date");
WITNESSETH:
WHEREAS, Lessor and Lessee desire to amend the Lease as hereinafter
provided;
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 do hereby agree as follows:
1. Paragraph 2 of the Lease entitled "Term" is hereby amended by
substituting the date November 30, 2003, for the date March 31,1998.
2. Paragraph 3 of the Lease entitled "Rental" is hereby amended in its
entirety to hereafter read as follows:
"3. Rental. Lessee absolutely and unconditionally agrees and promises
to pay to Lessor for and during the remaining term of the Lease as rental
for the Demised Premises the aggregate sum of $1,281,000, payable in equal
monthly installments of $10,675 each, subject to increase as hereinafter
provided and payable in advance and without demand on the first day of each
calendar month therein throughout the stated term of this Lease and any
renewals or extensions thereof except as otherwise provided in Paragraph 14
hereof. Payment of such rental shal1 be made in immediately available funds
at such place or places as Lessor may from time to time designate. The
monthly rental provided for herein to be paid by Lessee to Lessor shall be
without any right of offset, credit, deduction, diminution or other
reduction whatsoever. If any payment of rental provided for is not received
by Lessor when due , or in the event Lessee fails to timely pay any other
amounts it is required to pay under any other provisions of this Lease, or
if Lessee fails to timely discharge any of its obligations as set forth in
this Lease and Lessor discharges such obligations for and on behalf of
Lessee and for the benefit of Lessee (Lessor having no obligation to
discharge such obligations), such amount or amounts shall bear interest at
the rate of 10 percent per annum,
Page 1
<PAGE>
or the Maximum Rate per annum, whichever is less, from the date on which
such amount was due until paid or from the date on which such obligation
was discharged by Lessor. Neither the payment nor acceptance of such
interest shall constitute a waiver by Lessor of any default to which such
interest payment relates. All such payments and interest shall be due and
payable immediately upon demand. As used herein, the term "Maximum Rate"
means the maximum lawful, non-usurious rate of interest allowable under
applicable law, including, but without limitation, the maximum rate
permissible under Art. 5069-1.04 VATS.
"Lessor aclmowledges the payment of rental by Lessee pursuant to the
Lease through October 3l, 1993. Lessor also acknowledges receipt from
Lessee of the sum of $5415.00, representing payment in advance for the last
month's rental of the Demised Premises under this Lease.
"In addition to the monthly rental provided for herein, Lessee shall
also pay such other charges and assessments relating to the Demised
Premises as is elsewhere provided for to be paid by Lessee under other
provisions of this Lease.
"Lessor and Lessee agree that Lessor shall have the right exercisable
at any time prior to any anniversary date of this Lease, to increase the
monthly rental to be paid to Lessor by Lessee in an amount not to exceed 35
percent of the monthly rental paid by Lessee to Lessor during the
immediately preceding twelve (12) month period. Lessor shall only have the
right to increase once every twelve (12) months the monthly rental to be
paid by Lessee to Lessor. Any increase shall be effective as of the next
anniversary date of the Lease following Lessor's exercise of its right to
increase the monthly rental. Any increase shall be in relation to the then
rental being paid in Ell:hart County, Indiana, or its environs for property
similar to that of the Demised Premises. Lessor's right to increase the
monthly rental shall not be cumulative so that Lessor's failure to increase
the monthly rental in any twelve (12) month period shall not give rise to a
rental increase greater than 35 percent in any subsequent twelve (12) month
period.
3. Paragraph 10 of the Lease entitled "Termination" is hereby amended in
its entirety to hereafter read as follows:
"10. Termination. This Lease may be terminated by Lessor prior to the
expiration of its term as set forth in Paragraph 2 hereon on ten (10) days'
written notice delivered or mailed to Lessee at its address as set forth
below
Page 2
<PAGE>
"(a) Lessee fails to pay the rental charges for more than five
(5) days after receipt of written notice from Lessor that a payment is past
due; or
"(b) Lessee breaches, defaults, nonperforms, nonfulfills or
nonobserves any representations, covenants, agreements, obligations or
undertakings of Lessee made by Lessee or anyone on its behalf in or
pursuant to this Lease and as to a financial default, more than five (5)
days elapses without same being remedied or alleviated after receipt of
written notice with respect to the nature of such breach, default,
nonperformance, nonfulfillment or nonobservance, or with respect to a non-
financial default, more than thirty (30) days expires without same being
remedied or alleviated after receipt of written notice from Lessor stating
the nature of such breach, default, nonperformance, nonfulfillment or
nonobservance; provided, however, that if such breach, default,
nonperformance, nonfulfillment or nonobservance cannot be reasonably
remedied or alleviated within said thirty (30) day period, no Event of
Default shall occur or exist if Lessor commences to remedy same within said
thirty (30) day period and thereafter diligently pursues the same to
completion;
"(c) Lessee makes a general assignment for the benefit of
creditors, admits in writing its inability to pay its debts as they become
due, or is adjudicated a bankrupt or insolvent; or Lessee files a petition
or application seeking the appointment of a receiver, trustee, or
liquidator for itself or for all or any substantial part of its assets and
properties, or commences any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, debtor relief, dissolution, liquidation
or similar proceedings relating to itself under the laws of any
jurisdiction, whether now or hereafter in effect, or any such petition or
application is filed or any such proceedings are commenced by any third
party or parties again St Lessee, and Lessee by any act (whether by
petition, application, answer, consent or otherwise) indicates its approval
thereof, consent thereto or acquiescence therein; or an order is entered
appointing any such receiver, trustee or liquidator, or granting or
approving any such petition or application, and such order remains in
effect for more than thirty (30) days; or
"(d) Lessee forfeits its right to do business , or ceases to
conduct its business in the ordinary course; or
"(e) Lessee discontinues operations, abandons the Demised
Premises or permits the Demised Premises to be subjected to unreasonable
hazards or risks; or
Page 3
<PAGE>
"(f) Any final judgment is entered against Lessee for the
payment of money in an amount exceeding $50,000 which is not covered by
insurance; or any judgment, writ of attachment or execution or similar
process is issued or levied against any substantial part of Lessee's assets
and properties and is not released, vacated or fully bonded within thirty
(30) days after its issuance or levy; or
"(g) Lessee merges or consolidates with or into any other
corporation or other legal entity, sells, leases, exchanges or otherwise
disposes of all or any substantial part of its assets or properties, other
than a corporation or legal entity that is an affiliate of Lessee; or
"(h) An "Event of Default" occurs or is continuing under that
certain Loan Agreement of even date herewith entered into by and between
First Interstate Bank of Texas, N.A., and Lessee; or
"(i) An "Event of Default" occurs or is continuing under and
pursuant to any of the agreements entered into by and among Lessee, Gerald
E. Kimmel ("Kimmel") and Billy T. Everett ("Everett") relating to the sale
by Everett and the purchase by Lessee and Kimmel of all of the issued and
outstanding shares of common stock owned by Everett.
"Should any of the foregoing occur, Lessor may, with free right of entry
and without demand, and without further notice to Lessee, thereupon re-
enter and resume possession of the Demised Premises and remove Lessee and
Lessee's property and all other persons and property therefrom using such
force as may be necessary without being guilty of any manner of trespass or
forcible entry or detainer or any other violation of law. At Lessor's
option, Lessor may either terminate this Lease by notifying Lessee of its
intention to terminate this Lease or, without terminating it as provided
herein, lease the Demised Premises for the account of Lessee for the
remainder of the term hereof or for such term or terms as Lessor shall see
fit. Should Lessor elect to lease the Demised Premises for the account of
Lessee (although Lessor shall have no obligation to do so and shall never
be liable for failure to do so), Lessee shall pay Lessor on demand for
costs of renovating, repairing and altering the Demised Premises for a new
tenant or tenants and also pay Lessor each month of Lessee's unexpired term
the sum of (i) the monthly rental heretofore agreed to be paid hereunder,
and (ii) all other costs and expenses incurred by Lessor which but for an
Event of Default would have been paid for or performed by Lessee, less such
part, if any thereof, Lessor shall have been able to collect from a new
tenant or tenants, it being specifically agreed and understood that Lessor
is and shall be entitled to
Page 4
<PAGE>
future rentals under this Lease and that all attempts to relet the Demised
Premises shall be on account of and for the benefit of Lessee. Should an
Event of Default occur as aforesaid, Lessor may, on the other hand should
it so desire, without reentenng or resuming possession of the Demised
Premises and without terminating this Lease, enforce by all proper and
legal suits and other means its rights hereunder, including the collection
of rent for the unexpired term of this Lease as hereinabove provided.
Should it be necessary for Lessor to take any legal action hereunder,
Lessee shall pay Lessor all reasonable and necessary attorneys' fees and
expenses so incurred. All rights and remedies of Lessor under this Lease
shall be cumulative and none shall be exclusive of any other and especially
no remedy for the recovery of rent in arrears , accrued rents, or to
require performance of any covenants or agreement of Lessee for the
unexpired term of this Lease shall be affected by any remedy herein
provided for. It is expressly agreed and understood that Lessor shall have
a contractual lien upon all goods or personal property of any kind or
description whatsoever (and the proceeds and products thereof and
therefrom) belonging to Lessee which are placed in or become a part of, or
are used in connection with, the Demised Premises as security for rent due
and to become due for the remainder of the Lease term as well as security
for the performance of Lessee's other liabilities, duties and obligations
as set forth herein, which lien shall not be in lieu of or in any way
affect any other lien which Lessor has or may have under law, but shall be
cumulative thereto; and Lessee hereby grants Lessor a security intcrest and
lien in all such goods or personal property (and the proceeds and products
thereof and therefrom) placed in or upon, or used in connection with, the
Demised Premises for such purposes. The security interest and lien hereby
granted shall not prevent the sale by Lessee of any of its inventory in the
ordinary course of its business, free of such security interest and lien
except with respect to the proceeds and products of such sale. Upon the
request of Lessor, Lessee shall sign any financing statements or other
instruments or documents requested by Lessor in order to perfect any
security interest or other liens granted to Lessor hereunder.
Alternatively, this Lease may serve as a financing statement in order to
perfect any security interest or other liens granted to Lessor hereunder.
All rights, remedies and privileges of Lessor with respect to such goods or
other personal property (and the proceeds and products thereof), including
any rights of sale, shall be governed by the Uniform Commercial Code of
Texas. Lessee hereby norninates and appoints Lessor as its attorney-in-fact
and agent, with full power of substitution, to sign all financing
statements, security agreements and other collateral documents, as well as
to file same, in the event Lessee fails or refuses to take any such action
after being given an opportunity to do so by Lessor. In the event Lessor
elects to exercise any of its rights or remedies with respect to the goods
or other
Page 5
<PAGE>
personal property (and the proceeds and products thereof), Lessor, without
liability for loss thereof, after giving Lessee reasonable notice of the
time and place of any public sale or of the time after which any private
sale is to be made, may sell such goods or other personal property for cash
or on credit and for such price and on such other terms and conditions as
Lessor deems best, with or without having the property present at any such
sale. The proceeds of any such sale shall be applied first to the necessary
and proper expenses of removal, storing and selling such property, as well
as with respect to the repair of such property, then to the payment of all
sums due or to become due to Lessor under or pursuant to this Lease, with
the balance, if any, to be paid to Lessee."
4. The Lease is hereby amended by adding a new Paragraph 17 thereto,
entitled "Imputation of Knowledge":
"17. Imputation of Knowledge. The parties hereto acknowledge that
-----------------------
Gerald E. Kimmel ("Kimmel") is a representative of, and has a financial
interest in, Lessor and Lessee, and as a consequence thereof, the parties
hereto agree that neither party may impute to the other any knowledge that
Kimmel shall have or obtain as a representative of either Lessor or Lessee
or assert any claim as a result of such knowledge or raise as a defense
such knowledge."
5. In all other respects, the Lease as heretofore amended and as herein
amended shall remain in full force and effect and unimpaired.
IN WIENESS WHEREOF, this Amendment No. 4 to the Lease is made and entered
into as of the day and year first above written but effective the Effective
Date.
LESSOR:
K&E LAND & LEASING
BY: /s/ Jerry E. Kimmel
--------------------
Its Partner
LESSEE:
KEVCO, INC.
By: /s/ Jerry E. Kimmel
--------------------
Its Pres.
<PAGE>
EXHIBIT 10.32
ASSIGNMENT AND ACCEPTANCE
Dated February 2, 1996
Reference is made to the Credit Agreement dated as of June 30, 1995 (the
"Credit Agreement") among KEVCO, INC., a Texas corporation ("Borrower"),
NationsBank of Texas, N.A. as Administrative Lender ("Administrative Lender"),
and the lenders parties thereto. Terms defined in the Credit Agreement are used
herein with the same meaning
The Daiwa Bank, Limited ("Assignor") and The Sumitomo Bank, Ltd., Chicago
Branch ("Assignee") agree as follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, a 100% interest in and to all of Assignor's
rights and obligations under the Credit Agreement, the Notes, the other Loan
Documents and Collateral as of the Effective Date (as defined below) , with
respect to such percentage interest in Assignor's Commitments as in effect on
the Effective Date, the principal amount of Advances owing to Assignor on the
Effective Date, and the Revolving Credit Note and the Term Loan Note held by
Assignor, and Assignor's participation in any Letters of Credit and
Reimbursement Obligations outstanding on the Effective Date, subject to the
terms and conditions of this Assignment and Acceptance
2. Assignor (a) represents and warrants that (i) as of the date hereof
its Revolving Credit Commitment (without giving effect to assignments thereof
which have not yet become effective) is $5,714,285.72, (ii) as of the date
hereof its Term Loan Commitment (without giving effect to assignments thereof
which have not yet become effective) is $4,285,714.28, (iii) it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim, (iv) it has no knowledge
of the existence of any Default or Event of Default nor is it aware of any
waiver of any material provision of any Loan Document having been given and (v)
the copies of the Loan Documents provided to it are the most recent versions of
such Loan Documents; (b) makes no representation or warranty and assumes no
responsibility with respect to (i) any statements, warranties, or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency, or
value of the Credit Agreement or any other instrument or document furnished
pursuant thereto or (ii) the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (c) agrees to exchange the Promissory Notes referred to in Paragraph 1 above
for new Promissory Notes as follows. (i) a Revolving Credit Note dated February
2, 1996, in the principal amount of $5,714,285.72 payable to the order of
Assignee, (ii) a Term Loan Note dated February 2, 1996, in the principal amount
of $4,285,714.29 payable to the order of Assignee.
3. Assignee (a) confirms that it has received a copy of the Credit
Agreement and the other Loan Documents, together with copies of the financial
statements referred to in Sections 4.1(j), 6.1, 6.2 and 6.3 of the Credit
Agreement and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Acceptance; (b) agrees that it will, independently and without reliance
<PAGE>
upon the Administrative Lender, Assignor, or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement and the other Loan Documents; (c) appoints and authorizes the
Administrative Lender to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement, the other Loan Documents, and this
Assignment and Acceptance as are delegated to the Administrative Lender by the
terms thereof and hereof, together with such powers as are reasonably incidental
thereto and hereto; (d) agrees that it will perform in accordance with its terms
all of the obligations which by the terms of the Credit Agreement, the other
Loan Documents, and this Assignment and Acceptance are required to be performed
by it as a Lender; (e) specifies the addresses set forth in Schedule 1 attached
hereto as its address for the receipt of notices and as its initial LIBOR Lender
Office, respectively; and (f) attaches the forms prescribed by the IRS
certifying as to Assignee's status for purposes of determining exemption from
United States withholding taxes with respect to all payments to be made to
Assignee under the Credit Agreement, the other Loan Documents, and this
Assignment and Acceptance or such other documents as are necessary to indicate
that all such payments are subject to such taxes at a rate reduced by an
applicable tax treaty.
4. The effective date for this Assignment and Acceptance shall be February
2, 1996 (the "Effective Date").
5. Upon such acceptance by the Administrative Lender and the Borrower
of the assignment evidenced hereby (Assignor, in its capacity as Administrative
Lender, having waived the required payment of the $2,500 processing fee),
receipt by Assignee of the fee of $10,000 in immediately available funds from
Assignor, as of the Effective Date, (a) Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance have the
rights and obligations of a Lender thereunder and (b) Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance by the Administrative Lender and the Borrower of
the assignment evidenced hereby, from and after the Effective Date, whenever the
Administrative Lender shall receive a payment, or whenever the Administrative
Lender shall make an application of funds, in respect of any aggregate
outstanding principal amount of the Advances or in respect of any aggregate
amount of interest accrued on the Advances, or in respect of the commitment fee
(other than a payment or an application of funds in respect of any amount due
and owing to any Lender or the Administrative Lender under Sections 2.4(b), 2.9,
5.10, 9.3, 9.5, or 11.2 of the Credit Agreement), the Administrative Lender
shall pay over to each of the Lenders an amount equal to (i) such Lender's Pro
Rata Share (as deemed below) of such aggregate amount of principal, (ii) such
Lender's Pro Rata Share of such aggregate amount of interest, and (ii) such
Lender's Pro Rata Share of such aggregate amount of the commitment fee.
- 2 -
<PAGE>
The "Pro Rata Share" of any aggregate amount equal amount means, with respect
to such Lender, the amount equal to the product obtained by multiplying (i) such
aggregate amount and (ii) a fraction, the numerator of which is such Lender's
Commitments, or after the Advances have been made, the principal amount of the
Advances owing to such lender and the denominator of which is the sum of the
Commitments of all of the Lenders, or after the Advances have been made, the
aggregate principal amount of the Advances owing to all of the Lenders.
7. In the event that, after the Administrative Lender has paid to any
Lender its Pro Rata Share of any such payment received by the Administrative
Lender or any such application made by the Administrative Lender, such payment
or application is rescinded or must otherwise be returned or must be paid over
by the Administrative Lender for any reason, such Lender shall, upon notice by
the Administrative Lender, forthwith pay back to the Administrative Lender such
Lender's Pro Rata Share of the amount so rescinded or so returned or paid over.
8. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas and the United States of America.
Without excluding any other jurisdiction, Assignee agrees that the courts of
Texas will have jurisdiction over proceedings in connection herewith.
9. Assignee's Specified Percentage shall be 28.57142857%.
10. This Assignment and Acceptance may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
ASSIGNOR:
THE DAIWA BANK, LIMITED
By: /s/ Brian M. Smith
------------------------------
Name: BRIAN M. SMITH
-------------------------
Title: SENIOR VICE PRESIDENT &
------------------------
REGIONAL MANAGER (EAST)
By:
------------------------------
Name:
-------------------------
Title:
------------------------
- 3 -
<PAGE>
ASSIGNEE:
THE SUMITOMO BANK, LTD., CHICAGO
BRANCH
By: /s/ K. Iwasawa
------------------------------
Name: KATSUYASU IWASAWA
-------------------------
Title: Joint General Manager
------------------------
Accepted this 2nd day of February, 1996
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: /s/ Todd Shipley
Name: T. SHIPLEY
-----------------------------
Title: SVP
----------------------------
KEVCO, INC.
By: /s/ Ellis McKinley, Jr.
Name: ELLIS MCKINLEY, JR.
-----------------------------
Title: VICE PRESIDENT, CFO
----------------------------
- 4 -
<PAGE>
Schedule I
ASSIGNEE'S ADDRESS
------------------
1. Address for the Advances and Receipt of Notices
-----------------------------------------------
See Schedule A
Attention:
2. Initial LIBOR Lending Office
----------------------------
See Schedule A
- 5 -
<PAGE>
SCHEDULE A
The Sumitomo Bank, Limited
USCBD
Assignee Notice Information
Notice: The Sumitomo Bank, Limited
USCBD Dallas Office
Address: 1601 Elm Street
Suite 4250
Dallas, TX 75201
Attn: Manager
Tel: (214) 979-3205
Fax: (214) 979-0571
Payment Instructions: Wire payments to Federal Reserve Bank of Chicago.
for the account of The Sumitomo Bank, Limited.
Chicago Branch. Account No. 071001850
Lending Office: The Sumitomo Bank, Limited
USCBD
233 South Wacker Drive
Chicago, Illinois 60606-6448
Attn: Vice President & Manager-Operations
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated April 15, 1996, except for Note 1 and Note 11, as to which
the date is August 29, 1996 on our audit of the consolidated financial
statements of Kevco, Inc. and Subsidiary 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
August 29, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report 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
August 29, 1996
<PAGE>
LETTERHEAD OF RUMSEY & HUCKABY, P.C.
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 28, 1995, on our audits of the financial statements of
Service Supply Systems, Inc. and Subsidiary for the years ended December 31,
1994, 1993 and 1992. We also consent to the reference to our firm under the
caption "Experts."
/s/ Rumsey & Huckaby, P.C.
Cordele, Georgia
August 29, 1996
<PAGE>
EXHIBIT 99.1
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Kevco, Inc. (the "Registrant") in the Prospectus
constituting a part of the Registration Statement on Form S-1 of the Registrant
filed under the Securities Act of 1933, as amended.
/s/ Richard Nevins
-------------------------------------
Richard Nevins
August 30, 1996
<PAGE>
EXHIBIT 99.2
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Kevco, Inc. (the "Registrant") in the Prospectus
constituting a part of the Registration Statement on Form S-1 of the Registrant
filed under the Securities Act of 1933, as amended.
/s/ Martin C. Bowen
_____________________________________
Martin C. Bowen
August 30, 1996
<PAGE>
EXHIBIT 99.3
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Kevco, Inc. (the "Registrant") in the Prospectus
constituting a part of the Registration Statement on Form S-1 of the Registrant
filed under the Securities Act of 1933, as amended.
/s/ Clyde A. Reed, Jr.
_____________________________________
Clyde A. Reed, Jr.
August 30, 1996
