<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _________)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KEVCO, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- -------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE> 2
KEVCO, INC.
1300 SOUTH UNIVERSITY DRIVE, SUITE 200
FORT WORTH, TEXAS 76107-5734
_______, 1999
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of Kevco,
Inc. to be held at 10:00 a.m., local time, on November 22, 1999, at the Marriott
Courtyard, 3150 Riverfront Drive, Fort Worth, Texas 76107.
The matters expected to be acted upon at the meeting are described in the
accompanying notice of annual meeting of shareholders and proxy statement. The
board believes that a favorable vote on each of these matters is in your best
interests and unanimously recommends a vote "FOR" each such matter.
Your vote is important, whether or not you plan to attend the meeting.
Accordingly, please take a moment now to complete, sign, date and return your
proxy in the enclosed envelope.
I look forward to seeing you at the meeting.
Very truly yours,
FREDERICK B. HEGI, JR.
President, Chief Executive Officer
and Chairman of the Board
<PAGE> 3
KEVCO, INC.
1300 SOUTH UNIVERSITY DRIVE, SUITE 200
FORT WORTH, TEXAS 76107-5734
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 22, 1999
The annual meeting of shareholders of Kevco, Inc. will be held at 10:00 a.m.,
local time, on November 22, 1999, at the Marriott Courtyard, 3150 Riverfront
Drive, Fort Worth, Texas 76107. The items of business are:
PROPOSAL 1: Election of directors;
PROPOSAL 2: Adoption of an amendment to the articles of incorporation
authorizing:
o an increase in the total number of authorized shares
of capital stock from 100,000,000 to 150,000,000; and
o an undesignated class of preferred stock, par
value $0.01 per share, two series of preferred
stock, and a class of noncommon stock, par value
$0.01 per share;
PROPOSAL 3: Adoption of the 1999 stock option plan; and
PROPOSAL 4: Transaction of such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on October 29, 1999 are
entitled to notice of and to vote at the meeting and any adjournment thereof. A
list of shareholders entitled to vote at the meeting will be available for
inspection by any shareholder, for any purpose relevant to the meeting, during
the meeting and during normal business hours for 10 days prior to the meeting at
our principal office. The terms "we," "our" and "company," when used throughout
this notice and the accompanying proxy statement, refer to Kevco, Inc.
The board believes that a favorable vote on each of these matters is in your
best interests and unanimously recommends a vote "FOR" each matter. Your vote
is very important regardless of the number of shares you own.
WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU DECIDE TO ATTEND THE MEETING, YOU MAY, IF SO DESIRED, REVOKE THE PROXY AND
VOTE YOUR SHARES IN PERSON.
JAMES A. JOHNSON
Executive Vice President and Secretary
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION..............................................................................................1
Location................................................................................................1
Record Date; Stock Entitled to Vote.....................................................................1
Quorum; Abstentions.....................................................................................1
Voting; Required Votes..................................................................................1
Voting by Proxy; Revocation of Proxies..................................................................1
Other Business..........................................................................................2
Solicitation of Proxies.................................................................................2
No Dissenters' or Appraisal Rights......................................................................2
PROPOSAL NO. 1- ELECTION OF DIRECTORS............................................................................3
Meetings and Committees of the Board of Directors.......................................................5
Compensation of Directors...............................................................................5
Security Ownership of Certain Beneficial Owners.........................................................6
EXECUTIVE OFFICERS...............................................................................................8
Security Ownership of Management........................................................................8
Report of the Compensation Committee on Executive Compensation.........................................10
Compensation Committee Interlocks and Insider Participation............................................11
Summary Compensation Table.............................................................................11
Year-End Option Values.................................................................................12
Employment Agreements..................................................................................13
Certain Relationships and Related Transactions.........................................................13
Stock Performance Chart................................................................................13
Section 16(a) Beneficial Ownership Reporting Compliance................................................14
PROPOSAL NO. 2 - CHARTER AMENDMENT..............................................................................15
Introduction...........................................................................................15
Reasons for the Charter Amendment......................................................................15
Effect of the Charter Amendment........................................................................17
Description of the Preferred Stock.....................................................................18
Description of the Nonvoting Common Stock..............................................................21
Interests of Certain Persons in the Matter to be Acted Upon............................................22
Recommendation of Board of Directors...................................................................22
PROPOSAL NO. 3 - 1999 STOCK OPTION PLAN.........................................................................23
Summary of the Plan....................................................................................23
Certain Federal Income Tax Consequences................................................................25
Recommendation of the Board of Directors...............................................................27
SHAREHOLDER PROPOSALS...........................................................................................28
INDEPENDENT PUBLIC ACCOUNTANTS..................................................................................28
ADDITIONAL INFORMATION..........................................................................................28
ANNUAL REPORT...................................................................................................28
EXHIBIT A -- CHARTER AMENDMENT
EXHIBIT B -- 1999 STOCK OPTION PLAN
</TABLE>
i
<PAGE> 5
KEVCO, INC.
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 22, 1999
---------------------
GENERAL INFORMATION
LOCATION
We will hold the 1999 annual meeting of shareholders at 10:00 a.m., local time,
on November 22, 1999, at the Marriott Courtyard, 3150 Riverfront Drive, Fort
Worth, Texas 76107. This proxy statement and the accompanying form of proxy are
being mailed beginning on or about November 2, 1999, to shareholders entitled
to vote. The Kevco 1998 Annual Report, which includes financial statements, is
being mailed with this proxy statement. Kindly notify James A. Johnson, our
Executive Vice President and Secretary, at the same address if you did not
receive a report, and a copy will be sent to you.
RECORD DATE; STOCK ENTITLED TO VOTE
The record date for determining the shareholders entitled to notice of and to
vote at the meeting is the close of business on October 29, 1999. On the record
date, there were approximately ____________ shares of our common stock, par
value $0.01 per share, issued and outstanding. Common stock is currently our
only class of outstanding voting securities.
QUORUM; ABSTENTIONS
The presence, in person or by proxy, at the meeting of holders of at least a
majority of the issued and outstanding shares of common stock is necessary to
constitute a quorum for the transaction of business. Each share represented at
the meeting in person or by proxy will be counted toward a quorum. Abstentions
and broker "non-votes" will be counted as present for the purposes of
determining whether a quorum is present but will not be counted as votes cast
in favor of the proposals. A broker "non-vote" occurs when a nominee holding
common shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.
VOTING; REQUIRED VOTES
A holder of common stock on the record date will be entitled to cast one vote
for each share of common stock registered in his or her name on each matter
that is properly presented to the shareholders for a vote at the meeting. In
order to be elected a director, a nominee must receive a plurality of the votes
of the holders of common stock entitled to vote at the meeting. "Plurality"
means that the nominees who receive the largest number of votes cast are
elected as directors. The affirmative vote of the holders of at least a
majority of the shares entitled to vote at the meeting is required to approve
and adopt the amendment and the plan.
VOTING BY PROXY; REVOCATION OF PROXIES
Shares of common stock that are entitled to vote and are represented by a proxy
properly signed and received at or prior to the meeting, unless subsequently
properly revoked, will be voted in accordance with the instructions indicated
on such proxy. If a proxy is signed and returned without indicating any voting
instructions, the shares of common stock represented by such proxy will be
voted "FOR" each nominee and "FOR" the amendment and the plan.
Any proxy given pursuant to this solicitation may be revoked by the person
giving such proxy at any time before the shares represented by such proxy are
voted at the meeting by:
1
<PAGE> 6
o attending, and voting in person at, the meeting,
o giving notice of revocation of the proxy at the meeting, or
o delivering to our secretary a written notice of revocation or a duly
executed proxy relating to the same shares bearing a date later than
the proxy previously executed.
All written notices of revocation and other communications concerning
revocation of proxies should be addressed as follows: Kevco, Inc., 1300 South
University Drive, Suite 200, Fort Worth, Texas 76107-5734, Attention: James A.
Johnson, Executive Vice President and Secretary, and must be received before
the taking of votes at the meeting.
OTHER BUSINESS
The board is not currently aware of any other business to be acted upon at the
meeting. If, however, other matters are properly brought before the meeting,
the persons appointed as proxies may vote or act thereon in accordance with
their best judgment, unless authority to do so is withheld in the proxy.
SOLICITATION OF PROXIES
We will bear all proxy solicitation costs. In addition to solicitation by mail,
we may solicit proxies by telephone, facsimile transmission, personally or
otherwise through our officers and directors and a small number of our regular
employees, none of whom will be specially compensated. We may also make
arrangements with brokerage houses, banks, and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares of common stock held of record by such persons, and we may
reimburse them for their related out-of-pocket expenses.
NO DISSENTERS' OR APPRAISAL RIGHTS
You will not be entitled to any right of appraisal or similar rights of
dissenters with respect to any of the proposals.
2
<PAGE> 7
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The board is divided into three classes and consists of six directors with each
class consisting of two directors, with the term of one class expiring each
year and with the directors of each class, upon election, holding a three-year
term. Each director serves until the annual meeting of shareholders in the year
in which his term expires or until his successor is elected and qualified.
On July 14, 1999, we entered into a securities purchase agreement with Wingate
Partners II, L.P. (Wingate). Under the terms of this agreement, both Wingate
and Jerry E. Kimmel, our former CEO, are each entitled to designate two members
to our board. The agreement also requires Wingate to use its commercially
reasonable efforts to ensure the appointment and election of at least two
independent directors to our board for a period of five years from closing.
Following the closing of the transaction on July 26, 1999, the following
designees were appointed or, in the case of Mr. Kimmel's designees, retained as
directors:
Wingate's designees: Frederick B. Hegi, Jr.
James A. Johnson
Mr. Kimmel's designees: Jerry E. Kimmel
Richard Nevins
Independent directors: William L. Estes
Peter B. McKee
Messrs. Estes and McKee, are in the class whose term of office expires in 1999.
The board has nominated Messrs. Estes and McKee for reelection as directors at
the meeting, to serve for a three-year term expiring at our annual meeting of
shareholders in 2002 or until their successors are elected and qualified.
Each nominee has indicated his willingness to serve on the board if elected;
however, in case either nominee shall become unavailable for election to the
board for any reason, you can vote your proxy for a substitute nominee or
nominees. Proxies cannot be voted for more than two nominees. The following
sets forth information, as of the date of this proxy statement, as to the
nominees and each director whose term of office will continue after the
meeting, including their ages, present principal occupations, other business
experience during the last five years, membership on committees of the board
and directorships in other publicly-held companies.
<TABLE>
<CAPTION>
YEAR TERM
AS DIRECTOR
NAME AGE POSITION EXPIRES
---- --- -------- -----------
<S> <C> <C> <C>
Nominees for a three-year term
ending in 2002:
William L. Estes 52 Director 1999
Peter B. McKee 61 Director 1999
Continuing Directors:
Frederick B. Hegi, Jr. 55 President, Chief Executive Officer 2000
and Chairman of the Board
Jerry E. Kimmel 62 Vice Chairman of the Board 2000
James A. Johnson 45 Executive Vice President, Secretary 2001
and Director
Richard Nevins 52 Director 2001
</TABLE>
3
<PAGE> 8
Frederick B. Hegi, Jr. has served as Chairman of the Board since July 26, 1999.
Mr. Hegi also currently serves as Chairman of the executive committee. He is a
general partner of various Wingate entities, including the indirect general
partner of Wingate Partners II, L.P. Mr. Hegi also is the Chairman of United
Stationers, Inc., a wholesale distributor of paper products and office supplies;
Chairman of Loomis, Fargo & Co., an armored car service company; Chairman of
Tahoka First Bancorp, Inc., a bank holding company; Chairman of Cedar Creek
Bancshares, Inc., a bank holding company; a director of Pro Parts Xpress, Inc.,
a wholesale distributor of automotive parts; a director of Lone Star
Technologies, Inc., a manufacturer of tubular products; and a director of Texas
Capital Bancshares, Inc., a bank holding company. Mr. Hegi received his B.B.A.
from Southern Methodist University, his M.B.A. from Harvard Business School and
his Ph.D. from the University of Texas.
James A. Johnson has served as a director since July 26, 1999. Mr. Johnson also
currently serves on both the compensation committee and the executive committee.
He is a general partner of various Wingate entities, including the indirect
general partner of Wingate Partners II, L.P. Mr. Johnson joined Wingate
Partners, L.P. in 1990. Mr. Johnson currently serves as a director or Pro Parts
Xpress and of United Stationers. Mr. Johnson received his B.S. in industrial
engineering from Stanford University and his M.B.A. from the Stanford Graduate
School of Business.
Jerry E. Kimmel is our founder and has spent his entire career in this industry.
Mr. Kimmel has served as Vice Chairman of the Board since July 1999 and has
served as a director since 1993. Mr. Kimmel also currently serves on the
executive committee. From 1978 to July 1999, Mr. Kimmel served as President of
Kevco. Mr. Kimmel also served as Chairman of the Board and Chief Executive
Officer of the company from 1993 until July 1999. 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.
William L. Estes has served as a director of the company since September 21,
1999. Mr. Estes is currently a member of the audit committee and Chairman of the
compensation committee. Mr. Estes is also currently President and Chief
Executive Officer of Consolidated Container Holdings (CCC), a $700 million
manufacturer and marketer of rigid plastic containers to the dairy, beverage,
food, household chemical, automotive and industrial chemical sectors. Prior to
joining CCC, Mr. Estes served as President and Chief Executive Officer of Suiza
Packaging, a predecessor company to CCC. From November 1996 to February 1998,
Mr. Estes served as President and Chief Operating Officer of McKesson
Corporation's McKesson-Carrollton operations. From January 1994 to November
1996, Mr. Estes served in various capacities with FoxMeyer Corporation, a
pharmaceutical distributor, most recently as President and Chief Operating
Officer. FoxMeyer filed for protection under Chapter 11 of the U.S. Bankruptcy
Code on August 27, 1996. Earlier Mr. Estes spent eight years with Pepsico,
primarily in key operating positions within its Frito Lay subsidiary. Mr. Estes
received his B.A. in mechanical engineering from the University of Illinois and
his M.B.A. from the Wharton School of Business.
Peter B. McKee has served as a director of the company since September 21, 1999.
Mr. McKee is currently a member of the compensation committee and Chairman of
the audit committee. From May 1996 to June 1999, Mr. McKee served as the Senior
Vice President and Chief Financial Officer of Allegiance Corporation, a $4.5
billion health care products supplier. From January 1994 to May 1996, Mr. McKee
served as the Senior Vice President and Chief Financial Officer of FoxMeyer
Corporation and was previously Chief Financial Officer of Swift Independent, a
$4 billion meat processing and distribution company. FoxMeyer filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on August 27, 1996.
Mr. McKee currently serves as a director of CurranCare, a healthcare consulting
company. Mr. McKee received his B.S. in business administration from
Northwestern University. Mr. McKee also attended the New York University
Graduate School of Business.
Richard Nevins has served as a director of the company since November 1996. Mr.
Nevins also currently serves on both the audit committee and the compensation
committee. Since July 1998, Mr. Nevins has served as Managing Director of
Jefferies & Company, Inc., an investment banking firm. From 1992 to July 1998,
Mr. Nevins served as President of Richard Nevins & Associates, a financial
advisory firm. Mr. Nevins served as a director of Fruehauf Trailer Corporation
from 1995 until October 1996. On October 7, 1996, Fruehauf filed for relief
under Chapter 11. During 1996, Mr. Nevins served as acting Chief Operating
Officer and Chief Restructuring Officer for Sun World International, a
California agricultural firm. 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). Mr. Nevins received his B.A. in
Economics from the University of California, Riverside and his M.B.A. from
Stanford Graduate School of Business.
4
<PAGE> 9
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
Audit Compensation Executive
Name Board Committee Committee Committee
---- ----- --------- ------------ ---------
<S> <C> <C> <C> <C>
Frederick B. Hegi, Jr. X* X*
James A. Johnson X X X
Jerry E. Kimmel X X
William L. Estes X X X*
Peter B. McKee X X* X
Richard Nevins X X X
</TABLE>
- -----------------------
*Chairman
Our business is managed under the direction of the board. The board meets on a
regularly scheduled basis to review significant developments affecting us and
to act on matters requiring its approval. It also holds special meetings when
an important matter requires action by the board between scheduled meetings.
During 1998, the board met eight times and acted by unanimous written consent
seven times. During 1998, each member of the board participated in all board
and applicable meetings held during the period for which he was a director.
The board has three standing committees: the audit committee, the compensation
committee and the executive committee. The functions of these committees, their
current members, and the number of meetings held during fiscal 1998 are
described below.
Audit Committee. The audit committee was established to review the professional
services and independence of our independent auditors and our accounts,
procedures and internal controls. The audit committee recommends to the board
the appointment of the firm selected to be our independent public accountants
and monitors the performance of such firm; reviews and approves the scope of
the annual audit; reviews and evaluates with the independent public accountants
our annual audit and annual consolidated financial statements; reviews with
management the status of internal accounting controls; evaluates problem areas
having a potential financial impact on us that may be brought to its attention
by management, the independent public accountants or the board; and evaluates
all our public financial reporting documents. The audit committee met three
times in 1998.
Compensation Committee. The function of the compensation committee is to set
the annual salaries, bonuses, option awards, and the overall compensation
program for our officers and key employees. The compensation committee met once
and acted by unanimous written consent once in 1998.
Executive Committee. The executive committee meets as necessary when the board
is not in session to exercise general control and supervision in all matters
pertaining to the interests of the company, subject at all times to the
direction of the board. The executive committee also serves as the nominating
committee for the purpose of identifying, evaluating and recommending potential
candidates for election to the board. The executive committee was formed on
October 1, 1999 and has not yet convened a meeting.
COMPENSATION OF DIRECTORS
During fiscal 1998, directors who were employees of the company did not receive
additional compensation for serving as directors. Each director who was not an
employee of the company received a fee of $1,000 for attendance at each board
meeting and $500 for attendance at each board committee meeting (unless held on
the same day as a board meeting). All directors were reimbursed for
out-of-pocket expenses incurred in attending meetings of the board or committees
thereof, and for other out-of-pocket expenses incurred in their capacity as
directors. In addition to these amounts, beginning fiscal 1999 each director
(excluding Messrs. Hegi and Johnson and Kimmel, who is compensated under the
terms of his consulting agreement described below under the caption "Employment
Agreements") will receive $20,000 annually for service on the board, prorated
for length of service.
On July 26, 1999, we entered into a four-year consulting agreement with Jerry
E. Kimmel providing for the payment of $210,000 annually for general consulting
services. As of the same date we entered into monitoring and
5
<PAGE> 10
oversight and financial advisory agreements with Wingate Management Limited,
L.L.C. (Wingate LLC), an affiliate of Wingate. Under the monitoring and
oversight agreement, we are required to pay Wingate LLC $41,667.00 per month for
the first 24 months and thereafter an annual fee of $200,000 plus 2.4% of our
pre-tax income for the provision of certain management services to the company.
The financial advisory agreement requires us to pay Wingate LLC a cash fee
ranging from 1% to 1.5% of the value of any "extraordinary transaction" we enter
into. As defined by the financial advisory agreement, "extraordinary
transactions" include any proposals for a tender offer, acquisition, sale,
merger, exchange offer, recapitalization, restructuring or other similar
transaction involving the company. Messrs. Hegi and Johnson are principals of
Wingate LLC.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock by each person known by us to be the beneficial
owner of more than five percent of the common stock as of the date of this
proxy statement, calculated in accordance with rule 13d-3 under the Securities
Exchange Act of 1933, as amended. Unless otherwise indicated, all persons
listed in the table below have sole voting and investment power in respect of
all shares shown as beneficially owned by them. However, as indicated by the
notes following the table, certain shares are deemed to be beneficially owned
by more than one person or entity as a result of the attribution of ownership
among affiliated persons and entities. This table does not include shares of
common stock that may be purchased pursuant to options not exercisable within
60 days of the date of this proxy statement.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- ----------------------- ----------------
<S> <C> <C>
The Kevco Partners Investment Trust (KPI Trust) 5,790,909(1) 45.8%
c/o First Union Trust Company, N.A.
One Rodney Square, Suite 102
920 King Street
Wilmington, Delaware 19801
Attention: Edward L. Truitt, Jr.
Frederick B. Hegi, Jr. 5,790,909(2) 45.8%
750 North St. Paul Street, Suite 1200
Dallas, Texas 75201
Jerry E. Kimmel 3,744,760(3) 39.2%
1300 South University Drive, Suite 200
Fort Worth, Texas 76107
Brinson Partners, Inc. 557,000(4) 5.8%
209 South LaSalle
Chicago, Illinois 60604-1295
Wellington Management Company, L.L.P. 473,000(5) 5.0%
75 State Street
Boston, Massachusetts 02109
</TABLE>
- ---------------------
(1) Consists of 2,700,000 shares of common stock and 3,090,909 shares
of common stock issuable upon exchange of the Tranche A note.
Further discussion regarding the Tranche A note can be found
below under the caption "Proposal No. 2 - Charter Amendment -
Reasons for the Charter Amendment." Based on a statement on
Schedule 13D filed with the Securities and Exchange Commission
(SEC) on August 4, 1999, the KPI Trust has shared voting power and
investment power in respect of all shares of common stock listed.
(2) Consists of 2,700,000 shares of common stock owned beneficially
and of record by the KPI Trust and 3,090,909 shares of common
stock issuable upon exchange of the Tranche A note. The KPI Trust
is the beneficial and
6
<PAGE> 11
record owner of the Tranche A note. Based on a statement on
Schedule 13D filed with the SEC on August 4, 1999, Mr. Hegi has
shared voting power and investment power in respect of all shares
of common stock listed. Mr. Hegi is the sole manager of the KPI
Trust. Accordingly, Mr. Hegi may be deemed to own beneficially
all of the shares of common stock owned beneficially and of
record by the KPI Trust. Mr. Hegi has stated in certain filings
with the SEC that he disclaims beneficial ownership of the shares
listed.
(3) Excludes 626,386 shares of outstanding common stock and 15,299
shares of common stock issuable upon exercise of options
beneficially owned by Mr. Kimmel's adult children and his
brother. Mr. Kimmel disclaims beneficial ownership of such
shares.
(4) Based on a Schedule 13G filed with the SEC on February 16, 1999,
Brinson Partners, Inc. (BPI), the wholly-owned, indirect
subsidiary of UBS AG, has shared power to dispose or direct the
disposition of and to vote or direct the vote of 557,000 shares
of common stock. BPI is an Investment Advisor registered under
Section 203 of the Investment Advisers Act of 1940. UBS AG is
classified as a bank as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934. UBS AG reported indirect
beneficial ownership of the same holdings by reason of its
ownership of BPI and UBS (USA), Inc., the parent holding company
of BPI. UBS AG's address is Bahnhofstrasse 45, 8021 Zurich,
Switzerland.
(5) Based on a statement on Schedule 13G filed with the SEC on
February 10, 1999, Wellington Management Company, L.L.P. (WMC)
has shared power to dispose or direct the disposition of 473,000
shares of common stock and shared power to vote or to direct the
vote of 263,000 shares. As part of such Schedule 13G, WMC
disclosed that its relevant subsidiary under Rule
13d-1(b)(1)(ii)(G) is Wellington Trust Company, N.A., a
wholly-owned subsidiary of WMC and a bank as defined in Section
3(a)(6) of the Securities Exchange Act of 1934, which has the same
business address as WMC.
7
<PAGE> 12
EXECUTIVE OFFICERS
Our executive officers serve at the discretion of the board and are chosen
annually by the board. Set forth below are the names, ages and positions of our
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frederick B. Hegi, Jr. 55 President, Chief Executive Officer
and Chairman of the Board
James A. Johnson 45 Executive Vice President, Secretary
and Director
Clyde A. Reed, Jr. 64 Executive Vice President
Dan Russell Hardin 41 President - Distribution Group
C. Lee Denham 51 President - Sunbelt Wood Components
Group
Robert W. Tennyson 52 President - Manufactured Products
Group
</TABLE>
Information concerning the business experience of Messrs. Hegi and Johnson is
provided under "Proposal No. 1 - Election of Directors" above.
Clyde A. Reed, Jr. has served as Executive Vice President of the company since
1986. From 1991 to July 1999, Mr. Reed served as the Chief Operating Officer of
the company. Mr. Reed also served as a director of the company from 1996 until
his resignation in January 1999.
Dan Russell Hardin has served as the President of the company's Distribution
Group since July 1999. From 1998 to July 1999, Mr. Hardin served as Executive
Vice President of the company. Mr. Hardin also served as the company's Vice
President of Sales from 1995 to 1998. Prior to joining the company, Mr. Hardin
served as the National Sales Manager of Service Supply Systems, a distribution
company which we acquired in 1995. Mr. Hardin received his B.B.A. in business
from the University of Georgia.
C. Lee Denham currently serves as President of the Sunbelt Wood Components Group
of the company. Mr. Denham founded Sunbelt Wood Components, Inc., a fabricated
structural products company which we acquired in 1996. Mr. Denham received his
B.B.A. in marketing from the University of Georgia.
Robert W. Tennyson has served as the President of the Manufactured Products
Group of the company since July 1999. From January 1998 to July 1999, Mr.
Tennyson served as the Executive Vice President - Manufacturing of the company.
Prior to joining the company, Mr. Tennyson served as President of Plastic
Solutions, a custom injection molding company which he founded in 1991. We
acquired Plastic Solutions through our merger with Shelter Components
Corporation in 1997. Mr. Tennyson received his B.S. in accounting and economics
from Indiana University.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of the date of this proxy statement by: (1)
each director; (2) our chief executive officer and the other four most highly
compensated executive officers who were officers as of the date of this proxy
statement; and (3) all directors and executive officers as a group. Unless
otherwise indicated, all persons listed in the table below have sole voting and
investment power in respect of all shares shown as beneficially owned by them.
The
8
<PAGE> 13
inclusion of any shares for any shareholder in the table below is not an
admission that such shareholder is, for any purpose, the beneficial owner of
such shares. This table does not include shares of common stock that may be
purchased pursuant to options not exercisable within 60 days of the date of
this proxy statement. An asterisk denotes beneficial ownership of less than one
percent of the shares of common stock deemed outstanding.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------ ----------------------- ----------------
<S> <C> <C>
Frederick B. Hegi, Jr. 5,790,909(1) 45.8%
Jerry E. Kimmel 3,744,760(2) 29.6%
James A. Johnson 0 *
Richard Nevins 7,405(3) *
William L. Estes 0 *
Peter B. McKee 0 *
Clyde A. Reed, Jr. 30,015(4) *
Dan Russell Hardin 14,400(5) *
C. Lee Denham 9,400(5) *
Robert Tennyson 100 *
All directors and executive officers as a 9,596,989(6) 76.0%
group (10 persons)
</TABLE>
---------------------
(1) See Note 1 under "--Security Ownership of Certain Beneficial
Owners."
(2) See Note 3 under "--Security Ownership of Certain Beneficial
Owners."
(3) Includes 2,500 shares of common stock subject to presently
exercisable options.
(4) Includes 18,847 shares of common stock subject to presently
exercisable options.
(5) Includes 9,400 shares of common stock subject to presently
exercisable options.
(6) Includes 3,090,909 shares of common stock issuable upon exchange
of the Tranche A note and 40,146 shares of common stock subject
to presently exercisable options.
9
<PAGE> 14
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The compensation committee of the board is responsible for reviewing our
compensation arrangements with our senior executive officers. The current
members of the compensation committee are Messrs. Johnson, McKee, Estes and
Nevins. The principal elements of our 1998 executive compensation program
consisted of base salaries, the opportunity for annual cash bonuses based on our
financial performance, equity-based compensation in the form of stock options
and other customary fringe benefits.
PHILOSOPHY
The compensation committee believes that all of our executive officers should be
compensated on a competitive basis with other distribution and manufacturing
companies of comparable size in sales and earnings. The compensation committee's
primary objectives with respect to executive compensation are to establish a
total compensation program that provides base salaries in a competitive range,
bonus opportunities that reward above-average performance with above-average
pay, and equity-based incentives designed to enhance our profitable growth and
the value of our common stock and to align management and shareholder interests.
BASE SALARIES
For 1998, our executive officers received base salaries in accordance with
recommendations of the compensation committee.
STOCK OPTION PROGRAMS
We intend to attract, retain and motivate our executive officers and other
employees through the grant of stock options under our 1995 stock option plan,
our 1996 stock option plan and, if and when approved, our 1999 stock option
plan. During 1998, the compensation committee awarded no options pursuant to any
plan.
CEO COMPENSATION
Jerry E. Kimmel, our CEO during fiscal 1998, was compensated under the terms of
his former employment agreement, which provided for an annual base salary of
$250,000 and bonuses as described under the heading "Employment Agreements"
below. For 1998, Mr. Kimmel received a bonus of $238,299. Although we have not
entered into an employment agreement with Mr. Hegi, our current Chairman,
President and CEO, Mr. Hegi may receive indirect financial benefits under the
monitoring and oversight and financial advisory agreements discussed above
under the caption "Compensation of Directors."
TAX CONSIDERATIONS
In formulating its compensation policies, the compensation committee considers
the relevant provisions, including section 162(m) of the Internal Revenue Code
of 1986, as amended (Code), that limit the deductibility of certain executive
compensation and the consequences to us if the compensation paid to our
executive officers is not deductible.
COMPENSATION COMMITTEE
Peter B. McKee, Chairman
James A. Johnson
William L. Estes
Richard Nevins
10
<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Richard S. Tucker, our former Secretary and a former
director of the company, served as both Secretary of the company and as a
member of the compensation committee. Mr. Tucker resigned as a director of the
company on July 26, 1999 and as an officer of the company on August 17, 1999.
None of our executive officers served either as a director or on the
compensation committee of any other entity whose executive officers served
either as a member of our board or of our compensation committee.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation paid
during each of the last three fiscal years to our then CEO and other most highly
compensated executive officers, based on salary and bonus earned during 1998,
whose total compensation exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------ ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Jerry E. Kimmel,.................... 1998 $250,000 $238,299 -- $34,821 (1)
Vice Chairman of the Board 1997 250,000 244,961 -- 13,593 (2)
1996 366,271 249,600 -- 17,163 (3)
Clyde A. Reed, Jr.,................. 1998 224,477 59,842 -- 14,470 (4)
Executive Vice President 1997 204,540 81,438 -- 12,655 (5)
1996 188,088 96,667 11,750 29,756 (6)
Ellis L. McKinley, Jr.,............. 1998 177,824 25,026 -- --
Former Vice President, Chief 1997 162,975 27,146 -- 1,047 (7)
Financial Officer and Treasurer 1996 145,980 29,167 14,400 1,057 (7)
C. Lee Denham,...................... 1998 145,220 125,572 -- 590 (8)
President, Sunbelt Wood 1997 114,095 98,178 -- 1,594 (9)
Components Group 1996 95,580 222,221 9,400 1,434 (10)
</TABLE>
- ---------------------
(1) Consists of $11,501 representing personal use of a company
supplied car and $23,320 representing personal use of a company
supplied aircraft. Mr. Kimmel resigned as Chairman of the Board,
President and CEO and assumed the responsibilities of Vice
Chairman on July 26, 1999.
(2) Consists of $12,546 representing personal use of a company
supplied car and $1,047 representing our contribution to such
individual's 401(k) plan account.
(3) Consists of $12,546 representing personal use of a company
supplied car, $3,560 representing our payments for medical
insurance premiums and $1,057 representing our contribution to
such individual's 401(k) plan account.
(4) Consists of $2,470 representing personal use of a company
supplied car and $12,000 representing expense recognized by the
company in 1998 relating to future payments to be made under a
deferred compensation
11
<PAGE> 16
agreement. Mr. Reed resigned as a director of the company on
January 25, 1999 and Chief Operating Officer of the company on
July 26, 1999.
(5) Consists of $3,851 representing personal use of a company
supplied car, $7,757 representing expense recognized by us in
1997 relating to future payments to be made under a deferred
compensation agreement and $1,047 representing our contribution
to such individual's 401(k) plan account.
(6) Consists of $4,518 representing personal use of a company
supplied car, $24,181 representing expense recognized by us in
1996 relating to future payments to be made under a deferred
compensation agreement and $1,057 representing our contribution
to such individual's 401(k) plan account.
(7) Represents our contribution to Mr. McKinley's 401(k) plan
account. Mr. McKinley resigned as a director and executive
officer of the company on May 31, 1999.
(8) Represents personal use of a company supplied car.
(9) Consists of $547 representing personal use of a company supplied
car and $1,047 representing our contribution to such
individual's 401(k) plan account.
(10) Consists of $377 representing personal use of a company supplied
car and $1,057 representing our contribution to such
individual's 401(k) plan account.
YEAR-END OPTION VALUES
The following table presents the information regarding the value of stock
options outstanding at December 31, 1998 held by each of our then executive
officers. No stock options were exercised by these executive officers in 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY-END OPTIONS/SARS AT FY-END
(#) ($) (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jerry E. Kimmel -- -- -- --
Clyde A. Reed, Jr. 18,847 (2) -- $11,426 --
C. Lee Denham 9,400 (3) -- -- --
Ellis L. McKinley, Jr. 17,450 (4) 4,000 (5) $11,351 --
</TABLE>
- ---------------------
(1) The closing price for our common stock as reported through The
Nasdaq Stock Market on December 31, 1998, was $7.25. Value is
calculated on the basis of the difference between the option
exercise price and $7.25 multiplied by the number of shares of
common stock underlying the option.
(2) Consists of options to acquire 7,097 shares of common stock at
$5.64 per share and options to acquire 11,750 shares of common
stock at $11.17 per share.
(3) Consists of options to acquire 9,400 shares of common stock at
$11.17 per share.
(4) Consists of options to acquire 7,050 shares of common stock at
$5.64 per share, options to acquire 9,400 shares of common stock
at $11.17 per share and options to acquire 1,000 shares of common
stock at $13.50 per share.
(5) Consists of options to acquire shares of common stock at $13.50
per share, vesting at 500 shares per year.
12
<PAGE> 17
EMPLOYMENT AGREEMENTS
Effective October 1, 1996, Jerry E. Kimmel entered into a five year employment
agreement with us which provided for an annual base salary of $250,000. In
addition to base salary, Mr. Kimmel, through his employment agreement, was
eligible for an annual bonus equal to 2.4% of our income before income taxes for
the year provided that income before income taxes was at least $5.0 million.
Under the agreement, Mr. Kimmel performed services on our behalf in Fort Worth,
Texas as he reasonably determined was necessary to carry out his duties under
the agreement. Mr. Kimmel, his spouse and dependents participated at our expense
in health programs offered to our employees generally. Upon the termination of
this agreement effective July 26, 1999, we entered into a four-year consulting
agreement with Mr. Kimmel providing for the payment of $210,000 annually for
general consulting services from time to time if and when required by the
company. This agreement also requires us to include Mr. Kimmel and his immediate
family in all group health and dental benefits offered to our employees
generally.
Effective May 24, 1977, we entered into a retirement agreement with Mr. Reed
that generally provides that we will pay Mr. Reed or his beneficiaries $55,000
per year for 10 years if Mr. Reed is employed with us at age 65 or upon death or
disability. Such agreement also provides for a smaller lump sum payment that we
will make upon Mr. Reed's termination of employment prior to age 65. Such lesser
amount equals approximately $14,000 for each year following the effective date
of the agreement, up to such termination. Effective January 25, 1999, Mr. Reed
resigned as a director of the company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We lease three of our warehouse locations from an affiliated partnership (K&E
Land & Leasing, a Texas general partnership) of which Mr. Kimmel is a managing
partner. We also lease computer equipment from K&E Land & Leasing. These leases
(1) expire in November 2003, April 2005, October 2007 and October 2003,
respectively, (2) provide for total future (i.e. post September 1999) base rent
payments of approximately $534,000, $508,000, $1.9 million and $0.9 million,
respectively, and (3) require payments to be made in equal monthly amounts. As
of September 30, 1999, Mr. Kimmel's indirect interest in such leases was 38.0%
and Gregory G. Kimmel's (Mr. Kimmel's son and former director of the company)
aggregate beneficial interest in such leases was 4.0%. Mr. Kimmel's immediate
family members (including Gregory G. Kimmel's beneficial interest) owned
indirect interests in such leases of 12.0%. Aggregate expenditures by the
company under such leases for the nine months ended September 30, 1999 were
approximately $504,000, of which approximately $191,000 was indirectly
attributable to Jerry Kimmel's interests in such partnership (excluding
immediate family members' interests) and of which approximately $20,000 was
indirectly attributable to Gregory G. Kimmel's beneficial interest. We
anticipate that our aggregate expenditures under such leases for the remainder
of their terms will be approximately $3.8 million, of which approximately $1.4
million will be indirectly payable (less partnership expenses) to Jerry Kimmel
(excluding immediate family members' interests) and of which approximately
$152,000 will be indirectly payable (less partnership expenses) to Gregory G.
Kimmel. We believe that the amounts we have paid under such leases have not been
less favorable to us than had the leases been negotiated on an arms-length
basis. Two of the leased warehouses were financed through economic development
and industrial revenue bonds; one series of which was issued by Newton, Kansas
in the original principal amount of $575,000, and with respect to which we are
the sub-lessee of the premises and a co-guarantor, and one series of which was
issued by Elkhart, Indiana in the original principal amount of $400,000, and
with respect to which we are the lessee of the premises and have agreed to
perform the obligation of the lessor contained in the mortgage.
Gregory G. Kimmel and James Kimmel, Jerry Kimmel's brother, earned, in the
aggregate, approximately $192,000 in compensation in 1998 and $134,000 for the
nine-month period ended September 30, 1999.
Mr. Tennyson receives annual payments related to a business that he sold to
Shelter Components Corporation in 1997. Under the agreement Mr. Tennyson
received interest and principal payments of $831,000 for the nine months ended
September 30, 1999 and principal and interest payments of $542,000 for the year
ended December 31, 1998. Under the agreement the remaining principal obligation
of $969,000 will be paid out in the year 2000 and 2001.
We engaged Mr. Nevins to provide financial advisory services from August 1998
through January 1999. In consideration of these services, we compensated Mr.
Nevins $5,000 for each month during this period and granted him 3,905 shares of
our common stock.
STOCK PERFORMANCE CHART
The following chart compares the percentage change in the cumulative total
shareholder return on our common stock from November 1, 1996, the date of our
initial public offering, through December 31, 1998, with the cumulative total
return on the S&P Small Cap 600 and the Nasdaq Stock Market. The comparison
assumes $100 was invested immediately prior to such period in common stock and
in each of the foregoing indices and assumes
13
<PAGE> 18
reinvestment of dividends. Dates on the following chart represent the last day
of the indicated fiscal year. We paid no dividends during such period, except
that immediately prior to the consummation of our initial public offering, we
declared and made distributions to our shareholders of record on such
declaration date.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
11/1/96 12/31/96 12/31/97 12/31/98
------- -------- -------- --------
<S> <C> <C> <C> <C>
Kevco, Inc. $100 $117 $138 $ 60
S&P SmallCap 600 $100 $105 $132 $130
The Nasdaq Stock Market $100 $106 $130 $183
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
officers, directors, and persons who own more than 10% of a registered class of
our equity securities, to file ownership reports with the SEC. Such persons are
required by SEC regulation to furnish us with copies of these reports.
Based solely on our review of the copies of such reports received by us with
respect to fiscal 1998, or written representations from these reporting
persons, we believe that our officers, directors and persons who own more than
10% of a registered class of our equity securities have complied with all
applicable filing requirements.
14
<PAGE> 19
PROPOSAL NO. 2 - CHARTER AMENDMENT
INTRODUCTION
The board has unanimously approved, and submits to you for your approval, the
charter amendment which, if approved by the shareholders, will authorize the
increase in the total number of authorized shares of our capital stock from
100,000,000 to 150,000,000, including:
o 30,000,000 shares of preferred stock, par value $0.01 per share,
without designation, of which 3,500,000 shares will be designated as
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par
value $0.01 per share, and 9,500,000 shares will be designated as
Series B 10 3/8% Convertible Pay-in-Kind Nonvoting Preferred Stock,
par value $0.01 per share; and
o 20,000,000 shares of a class of nonvoting common stock, par value
$0.01 per share.
The full text of the charter amendment is set forth in Exhibit A to this proxy
statement and is incorporated herein by reference. The following summary should
be read in conjunction with, and is qualified in its entirety by reference to,
Exhibit A.
The voting preferred stock will have a liquidation preference of $5.50 per
share, will be initially convertible into an equal number of shares of common
stock and will be entitled to vote together as a single class with the common
stock on an as-converted basis. The nonvoting preferred stock will have a
liquidation preference of $5.50 per share, will be initially convertible into
an equal number of shares of nonvoting common stock and will have limited
voting rights in connection with certain extraordinary corporate events
affecting holders of nonvoting preferred stock. The nonvoting common stock will
have dividend and distribution rights and rights on dissolution of the company
that are substantially identical to those of the common stock and will have
limited voting rights in connection with certain extraordinary corporate events
affecting holders of nonvoting common stock. In addition to the voting
preferred stock and the nonvoting preferred stock, the board could establish
from time to time other series of preferred stock with such designations,
rights and preferences as the board may determine from time to time in its sole
discretion. Detailed descriptions of the preferred stock and the nonvoting
common stock are provided below. The currently issued and outstanding common
stock will remain issued and outstanding and will be affected by the charter
amendment as described below under "--Effect of the Charter Amendment."
Jerry E. Kimmel, the Vice Chairman of the Board has indicated that he intends to
vote all 3,744,760 of the shares of common stock owned of record by him,
representing approximately 39.2% of the issued and outstanding shares of common
stock, for the approval and adoption of the charter amendment, and Frederick B.
Hegi, Jr., our President, Chairman of the Board and Chief Executive Officer and
the sole manager of the KPI Trust, has indicated that he intends to vote all
2,700,000 of the shares of common stock owned of record by the KPI Trust,
representing approximately 28.2% of the issued and outstanding shares, for the
approval and adoption of the charter amendment. Accordingly, the charter
amendment will be approved without regard to the votes of the other
shareholders.
REASONS FOR THE CHARTER AMENDMENT
On July 14, 1999, we entered into a securities purchase agreement with Wingate
whereby we agreed to issue and sell to Wingate, and Wingate agreed to purchase
from us:
o 2,700,000 newly-issued shares of common stock for a purchase price of
$5.00 per share;
o three warrants to purchase 675,000 shares, 772,727 shares, and
295,455 shares, respectively, of nonvoting common stock;
o a Tranche A Senior Subordinated Exchangeable Note in the principal
amount of $17 million; and
15
<PAGE> 20
o a Tranche B Senior Subordinated Exchangeable Note in the principal
amount of $6.5 million.
The aggregate purchase price for the shares, the warrants, and the notes was
$37 million.
The warrants are exercisable for 675,000 shares, 772,727 shares, and 295,455
shares of nonvoting common stock, respectively, subject to customary adjustment
to protect against dilution. Each warrant has a term of five years and has an
initial exercise price of $5.50 per share (subject to adjustment as provided
therein).
The Tranche A note is exchangeable at any time at the holder's option for (1)
3,090,909 shares of voting preferred stock, or (2) directly into 3,090,909
shares of common stock, in each case at an initial exchange ratio of $5.50 per
share, subject to customary adjustment to protect against dilution. The Tranche
B note is exchangeable at any time at the holder's option for (1) 1,181,818
shares of nonvoting preferred stock, or (2) directly into 1,181,818 shares of
nonvoting common stock, in each case at an initial exchange ratio of $5.50 per
share, subject to customary adjustment to protect against dilution. When
issued, the voting preferred stock will be convertible on a share-for-share
basis into common stock and the nonvoting preferred stock will be convertible
on a share-for-share basis into nonvoting common stock.
Interest on the notes may be paid in cash or, at our option, continue to accrue
unpaid, in which case a noteholder may elect to have all accrued interest paid
in the equivalent value of shares of nonvoting preferred stock. Dividends on
the nonvoting preferred stock and the voting preferred stock may, at our
option, be paid in cash or in additional shares of nonvoting preferred stock.
We can redeem the notes and any preferred stock issued in exchange for notes
beginning on July 26, 2002 (i.e., the third anniversary of the closing of the
transactions contemplated by the securities purchase agreement).
As permitted by section 13.8 of the securities purchase agreement, Wingate
entered into an assignment agreement dated as of July 25, 1999, whereby Wingate
assigned its right to purchase a portion of the shares, the warrants, and the
notes to Wingate Affiliates II, L.P. and certain other entities and persons
(assignees).
On June 28, 1999, in contemplation of the execution and delivery of the purchase
agreement and the assignment agreement, Wingate and the assignees, each as a
grantor and unitholder, entered into the business trust agreement of the KPI
Trust with First Union Trust company, National Association, a national banking
association, as trustee, and Mr. Hegi, as manager. Under the trust agreement,
the grantors agreed to convey, immediately following the closing contemplated by
the securities purchase agreement, the shares, the warrants, and the notes to
the KPI Trust in exchange for ownership interests in the KPI Trust.
On July 26, 1999, (1) the closing of the transactions contemplated by the
securities purchase agreement were consummated, and (2) immediately thereafter,
the grantors entered into an assignment agreement with the KPI Trust, pursuant
to which the grantors assigned to the KPI Trust, and the KPI Trust acquired from
the grantors, all of the grantors' rights, title, and interest in and to the
securities. The securities purchase agreement requires us, promptly following
the closing, to amend our charter to provide for the creation of the nonvoting
common stock, the voting preferred stock and the nonvoting preferred stock. The
securities purchase agreement also originally required this proxy statement to
be filed with the SEC by September 24, 1999. This date was subsequently extended
to October 31, 1999 pursuant to a waiver executed by Wingate on October 1, 1999.
Our failure to hold the annual meeting within 120 days of the filing of this
proxy statement or to secure the approval of the charter amendment at the annual
meeting would result in the company's being required to pay Wingate liquidated
damages of $1.0 million pursuant to the terms of the securities purchase
agreement.
The board believes that approval of the charter amendment is in our best
interests in order to fulfill our obligations under the securities purchase
agreement. Additionally, authorization of the preferred stock and the nonvoting
common stock will provide us with increased flexibility to issue equity in the
future to meet various needs. Nonvoting common stock could be issued, without
diluting the voting power of our existing shareholders, including the KPI Trust
and Mr. Kimmel.
Other than the issuances under the securities purchase agreement described
above, we do not currently have any plans or commitments that would require the
issuance of any preferred stock or nonvoting common stock. Adoption of the
16
<PAGE> 21
charter amendment, however, will provide us with the flexibility to do so upon
such conditions and for such consideration as the board may determine. Except
as otherwise required by law or by the applicable rules of The Nasdaq National
Market System or any other trading system or exchange on which our shares may
be listed, holders of common stock will have no right to participate in any
future decision to issue any shares of preferred stock or nonvoting common
stock.
We received proceeds of approximately $37 million from the sale and issuance to
Wingate and the assignees of the shares, the warrants and the notes under the
securities purchase agreement. We have used such proceeds to pay transaction
related expenses of $5.4 million. The remaining proceeds balance of $31.6
million was used to reduce outstanding indebtedness to our senior lenders under
our revolving credit facility.
EFFECT OF THE CHARTER AMENDMENT
The KPI Trust currently owns 2,700,000 shares, or approximately 28.2%, of the
outstanding common stock. Assuming the exchange of the Tranche A note into
common stock, the KPI Trust would own an aggregate of 5,790,909 shares, or
approximately 45.8%, of the outstanding common stock. After giving effect to
the proposed charter amendment, and assuming the exercise of the warrants into
nonvoting common stock and the exchange of the Tranche A note and Tranche B
note into common stock and nonvoting common stock, respectively, the KPI Trust
would own 5,790,909 shares, or approximately 45.8%, of the outstanding common
stock and 2,925,000 shares of nonvoting common stock, representing in the
aggregate approximately 55.9% of our total common equity (excluding shares
potentially issuable as a result of interest accruing under the notes or as
dividends on the voting preferred stock and the nonvoting preferred stock).
Mr. Kimmel is the record holder of 3,744,760 shares of common stock, which
represented approximately 54.6% of the outstanding common stock before the
closing of the securities purchase agreement, and which now represents
approximately 39.2% of the outstanding common stock. After giving effect to the
proposed charter amendment, and assuming the exercise of the warrants and the
conversion of the Tranche A note and Tranche B note into common stock and
nonvoting common stock, respectively, Mr. Kimmel would own approximately 29.6%
of common stock and 24.0% of our total common equity (excluding shares
potentially issuable as a result of interest accruing under the notes or as
dividends on the voting preferred stock and the nonvoting preferred stock).
While the board has determined that the charter amendment is in our and your
best interests, the board recognizes that the charter amendment and any
subsequent issuance of preferred stock or nonvoting common stock authorized
thereby may have certain disadvantages, including, but not limited to, the
matters discussed below.
The charter amendment provides for the immediate authorization of nonvoting
common stock, the voting preferred stock and the nonvoting preferred stock.
When and if issued, the voting preferred stock and the nonvoting preferred
stock would have dividend and liquidation preferences that are senior to those
of the common stock. The issuance of voting preferred stock would dilute the
voting power of the common stock. The issuance of voting preferred stock,
nonvoting preferred stock and nonvoting common stock could make it less likely
that a takeover or other change of control of the company would take place.
Holders of common stock do not have preemptive rights to subscribe for the
purchase of additional securities that we may issue.
The charter amendment will also authorize the board to provide for the
issuance, from time to time, of preferred stock in one or more series (in
addition to the voting preferred stock and the nonvoting preferred stock) and
to fix the terms of each series. Each series of preferred stock issued in the
future is likely to rank senior to the common stock in respect of dividends and
liquidation rights. In establishing the terms of a series of preferred stock,
the board will be authorized to determine, among other things, such voting
rights, the number of shares in the series, the dividend rate, if any, and
relative preferences, the redemption provisions, if any, the establishment of
retirement or sinking funds, the conversion rights and any other special rights
and protective provisions as the board deems advisable. Such terms could
include provisions prohibiting our payment of common stock dividends or
redemption or other purchases of common stock. In addition, the issuance of a
series of preferred stock could affect the holders of common stock in the
following ways:
17
<PAGE> 22
o if voting rights are granted to any newly-issued series of preferred
stock, the voting power of the common stock will be diluted;
o the issuance of preferred stock may result in a dilution of earnings
per share of the common stock;
o dividends payable on any series of preferred stock will reduce the
amount of funds available for payment of dividends on the common
stock;
o future amendments to the charter may require approval by the separate
vote of the holders of preferred stock before we can take action; and
o issuance of preferred stock may make more difficult or discourage an
attempt to obtain control of the company by means of a merger, tender
offer, proxy contest or otherwise.
Under our current capital structure, the KPI Trust and Mr. Kimmel together
control the majority of our voting power and have the ability to prevent any
attempt to acquire us through a merger, consolidation, sale of assets or tender
offer. The charter amendment will permit us in the future to make further
issuances of shares of equity without diluting the voting power of our existing
shareholders. Therefore, the charter amendment, in combination with future
issuances of nonvoting common stock and certain preferred stock, will make it
less likely that a merger proposal, an unfriendly tender offer, a proxy
contest, or the removal of incumbent directors or management would take place.
Consequently, the charter amendment and such future issuances, if they take
place, might have the effect of reducing the possibility that our shareholders
would have an opportunity to sell their shares at a premium over then
prevailing market prices.
Certain tax and regulatory issues may affect our ability to utilize newly
issued nonvoting common stock as opposed to common stock in any future
transaction. These considerations will include the fact that certain tax-free
reorganizations can only be accomplished when the sole consideration is voting
stock of the issuer; and the fact that certain state securities laws limit the
exemptions available for the issuance of nonvoting stock where such stock is
not listed on a national securities exchange.
If the charter amendment is approved by the shareholders, the board intends to
file the charter amendment promptly with the Secretary of State of Texas. The
charter amendment will become effective upon the issuance of a restated
certificate of incorporation by the Secretary of State of Texas.
DESCRIPTION OF THE PREFERRED STOCK
Under the charter amendment, the board may approve the designation, from time
to time, from the authorized and unissued shares of preferred stock of one or
more series of preferred stock and to fix the terms of each series. In
establishing the terms of a series of preferred stock, the board will be
authorized to determine, among other things, voting rights, the number of
shares of such series, the dividend rate, if any, and preferences, the
redemption provisions, if any, the establishment of retirement or sinking
funds, the conversion rights and any other special rights and protective
provisions as the board deems advisable. Additionally, the charter amendment
authorizes the designation of two series of preferred stock, (1) the voting
preferred stock and (2) the nonvoting preferred stock, the terms of which are
described below.
VOTING PREFERRED STOCK
The charter amendment designates 3,500,000 shares of Series A 10 3/8%
Convertible Pay-in-Kind Voting Preferred Stock, which will have the voting and
other rights described below. The rights, powers and limitations of the voting
preferred stock are set forth in full in Article Four of the charter amendment.
The summary set forth below should be read in conjunction with, and is
qualified in its entirety by reference to, the charter amendment which is
attached as Exhibit A to this proxy statement.
Rank. With respect to dividends and distributions upon our liquidation,
winding-up and dissolution, the voting preferred stock will rank on a parity
with the nonvoting preferred stock and will rank senior to the nonvoting
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common stock, all classes of common stock (including the voting common stock)
and each other class of capital stock that does not expressly provide that it
ranks senior to or on a parity with the voting preferred stock.
Voting. The holders of voting preferred stock would be entitled to vote as a
single class with the holders of common stock on all matters requiring
shareholder approval. Each share of voting preferred stock would have a number
of votes equal to the number of shares of common stock into which the voting
preferred stock was convertible at the time the vote was taken. Notwithstanding
the foregoing, we (1) could not amend the charter so as to adversely affect the
designations, preferences, limitations and rights of the voting preferred stock,
or to authorize additional shares of voting preferred stock, without the consent
of the holders of a majority of the voting preferred stock and (2) could not
authorize a class or series of stock with rights equal or senior to the voting
preferred stock and the nonvoting preferred stock without the consent of the
holders of a majority of the voting preferred stock and the nonvoting preferred
stock voting together as a class. Additionally, upon a Voting Rights Triggering
Event (as defined in the charter amendment), the holders of the voting preferred
stock and nonvoting preferred stock, voting as a single class, could elect two
directors to the board. Generally, a Voting Rights Triggering Event would occur
in the event (1) we failed to convert the outstanding shares of voting preferred
stock and nonvoting preferred stock into common stock and nonvoting common
stock, respectively, under the conversion provisions of the charter amendment;
(2) we failed to redeem shares of voting preferred stock and nonvoting preferred
stock in the event of a change of control (as defined in the charter amendment);
or (3) we violated certain covenants set forth in Article Four of the charter
amendment; however, no Voting Rights Triggering Event could occur unless
Wingate, the assignees and their affiliates owned at least 50% of the
outstanding voting preferred stock and nonvoting preferred stock at the time.
Conversion. The shares of voting preferred stock would be convertible at any
time (without the payment of any additional consideration), in whole or in part,
at the option of the holder into shares of common stock. Upon such conversion, a
holder of voting preferred stock would receive one share of common stock for
each $5.50 of liquidation preference of voting preferred stock converted
(subject to certain anti-dilution adjustments), unless as a result a change of
control would have been deemed to occur under our Indenture, dated December 1,
1997, governing our 10 3/8% Senior Subordinated Notes, due December 1, 2007. The
shares of voting preferred stock are also convertible at any time (without the
payment of any additional consideration), in whole or in part, at the option of
the holder into shares of nonvoting preferred stock. Upon such conversion, a
holder of voting preferred stock will receive one share of nonvoting preferred
stock for each $5.50 of liquidation preference of voting preferred stock
converted (subject to certain anti-dilution adjustments).
Dividends. Holders of voting preferred stock would be entitled to receive,
when, as and if declared by a special committee of the board consisting solely
of independent directors and one of Mr. Kimmel's designees, cash dividends on
each share of voting preferred stock at the rate of 10 3/8% per annum
multiplied by the then-effective liquidation preference per share. All
dividends would be cumulative and paid pro rata to holders. At our option, as
determined by the special committee, any dividend could be declared and paid
wholly or partially in kind in lieu of cash by issuing whole shares of
nonvoting preferred stock with an aggregate liquidation preference in an amount
equal to the aggregate cash dividend cumulated and unpaid to such date, with
cash paid in lieu of issuing fractional shares. The amount of dividends payable
but not paid in full on a dividend payment date would be added to the
liquidation preference of the voting preferred stock.
Liquidation Preference. The voting preferred stock would have an initial
liquidation preference of $5.50 per share. Upon the voluntary or involuntary
liquidation, dissolution or winding up of our affairs, the holders of voting
preferred stock would be entitled to be paid out of our assets available for
distribution to our shareholders an amount in cash equal to the then-existing
liquidation preference for each share outstanding, plus an amount in cash equal
to accumulated and unpaid dividends thereon. Holders of voting preferred stock
would be entitled to such payment before payment was made to any holders of
junior stock, including the common stock.
Redemption. At any time after July 26, 2002, we could, at our option, redeem
shares of voting preferred stock at a redemption price per share in cash equal
to 100% of the then-effective liquidation preference per share, plus accrued and
unpaid cash dividends thereon. In the event of a change of control, we would be
required to offer to redeem all of the outstanding share of voting preferred
stock at a redemption price per share in cash equal to 100% of the
then-effective liquidation preference per share, plus accrued and unpaid cash
dividends thereon.
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NONVOTING PREFERRED STOCK
The charter amendment authorizes 9,500,000 shares of Series B 10 3/8%
Convertible Pay-in-Kind Nonvoting Preferred Stock, which would have limited
voting rights, along with the other rights described below. The rights, powers
and limitations of the nonvoting preferred stock are set forth in full in
Article Four of the charter amendment. The summary set forth below should be
read in conjunction with, and is qualified in its entirety by reference to, the
charter amendment which is attached as Exhibit A to this proxy statement.
Rank. With respect to dividends and distributions upon our liquidation,
winding-up and dissolution, the nonvoting preferred stock would rank on a parity
with the voting preferred stock and senior to the nonvoting common stock, all
classes of common stock (including the voting common stock) and each other class
of capital stock that does not expressly provide that it ranks senior to or on a
parity with the voting preferred stock.
Voting. Holders of nonvoting preferred stock would have no voting rights,
except as follows:
o without the consent of the holders of a majority of the voting
preferred stock and the nonvoting preferred stock, voting together as
a class, we could not authorize the issuance of a class of stock with
rights equal or senior to the voting preferred stock and the nonvoting
preferred stock;
o without the consent of the holders of a majority of the nonvoting
preferred stock, we could not amend the charter to adversely affect
the designations, preferences, limitations and rights of the nonvoting
preferred stock, or to authorize additional shares of nonvoting
preferred stock; and
o upon a Voting Rights Triggering Event, the holders of voting preferred
stock and nonvoting preferred stock, voting as a single class, could
elect two directors to the board.
Conversion. The shares of nonvoting preferred stock would be convertible at any
time, in whole or in part (without the payment of any additional
consideration), at the option of the holder into shares of nonvoting common
stock. Upon such conversion, a holder of nonvoting preferred stock would
receive one share of nonvoting common stock for each $5.50 of liquidation
preference of nonvoting preferred stock converted (subject to certain
anti-dilution adjustments).
Dividends. Holders of nonvoting preferred stock would be entitled to receive,
when, as and if declared by the special committee, cash dividends on each share
of nonvoting preferred stock at the rate of 10 3/8% per annum multiplied by the
then-effective liquidation preference per share. All dividends would be
cumulative and paid pro rata to holders. At our option, as determined by the
special committee, any dividend could be declared and paid wholly or partially
in kind in lieu of cash by issuing whole shares of nonvoting preferred stock
with an aggregate liquidation preference in an amount equal to the aggregate
cash dividend cumulated and unpaid to such date, with cash paid in lieu of
issuing fractional shares. The amount of dividends payable but not paid in full
on a dividend payment date would be added to the liquidation preference of the
nonvoting preferred stock.
Liquidation Preference. The nonvoting preferred stock would have an initial
liquidation preference of $5.50 per share. Upon the voluntary or involuntary
liquidation, dissolution or winding up of our affairs, the holders of nonvoting
preferred stock would be entitled to be paid out of our assets available for
distribution to our shareholders an amount in cash equal to the then-effective
liquidation preference for each share outstanding, plus an amount in cash equal
to accumulated and unpaid dividends thereon. Holders of nonvoting preferred
stock would be entitled to such payment before payment is made to any holders of
junior stock, including the common stock.
Redemption. At any time after July 26, 2002, we could redeem shares of nonvoting
preferred stock at a redemption price per share in cash equal to 100% of the
then-effective liquidation preference per share, plus accrued and unpaid cash
dividends thereon. In the event of a change of control, we would be required to
offer to redeem all of the outstanding shares of nonvoting preferred stock at a
redemption price per share in cash equal to 100% of the then-effective
liquidation preference per share, plus accrued and unpaid cash dividends.
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DESCRIPTION OF THE NONVOTING COMMON STOCK
The charter amendment authorizes 20,000,000 shares of nonvoting common stock,
which would have no voting rights except in the limited circumstances described
below. The rights, powers and limitations of the nonvoting common stock are set
forth in full in Article Four of the charter amendment. The summary set forth
below should be read in conjunction with, and is qualified in its entirety by
reference to, the charter amendment which is attached as Exhibit A to this
proxy statement.
Voting. Holders of nonvoting common stock would have no voting rights, provided
that without the consent of the holders of 51% of the nonvoting common stock at
any time outstanding, the company could not (1) amend, alter, modify or repeal
any provision of the charter or the bylaws of the company in any manner which
would adversely affect the rights, preferences, or powers of the nonvoting
common stock or (2) voluntarily effect an exchange or reclassification of
shares of nonvoting common stock into shares of another class of our capital
stock.
Dividends and Distributions Upon Liquidation. Each share of common stock and
nonvoting common stock would rank equally with respect to dividends and other
distributions of cash, property or securities, including distributions in
connection with our liquidation, winding up or dissolution, but would be junior
to shares of preferred stock. All dividends or distributions payable on the
common stock and nonvoting common stock in shares of common stock and nonvoting
common stock would be declared on both classes of shares at the same rate and
would be payable in shares of the class of stock held by the shareholder to whom
the dividend or distribution is payable.
Stock Splits; Reclassification; Mergers and Consolidations. In no event could
either the common stock or nonvoting common stock be split, subdivided, or
combined unless the other was proportionately split, subdivided or combined. No
reclassification or any other adjustment or modification of the rights or
preferences could be effected with respect to either class of stock unless both
the common stock and nonvoting common stock were reclassified or the rights or
preferences were adjusted or modified in exactly the same manner and at the
same time. In the case of our merger or consolidation with or into any other
entity, a sale or transfer of all or substantially all of our assets, or the
reclassification of the common stock into any other form of our capital stock,
each holder of nonvoting common stock and common stock would be entitled to
receive the same per share consideration.
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INTERESTS OF CERTAIN PERSONS IN THE MATTER TO BE ACTED UPON
Some of our officers and directors have interests concerning the charter
amendment separate from their interests as officers and directors of the
company.
o Frederick B. Hegi, Jr., President, Chief Executive Officer and Chairman of
the Board, is also the sole manager of the KPI Trust. The KPI Trust is the
holder of the three warrants which are exercisable for 675,000 shares,
772,727 shares and 295,455 shares, respectively, of nonvoting common
stock. In addition, the KPI Trust is the holder of (1) the Tranche A note,
which is exchangeable for shares of voting preferred stock or common
stock, and (2) the Tranche B note, which is exchangeable for shares of
nonvoting preferred stock or nonvoting common stock.
o Each of Mr. Hegi and James A. Johnson, a director and our Executive Vice
President, is (1) a principal of Wingate Management Limited, L.L.C., which
serves as the general partner of Wingate Management Company II, L.P., which
in turn serves as the general partner of Wingate Partners II, L.P., and (2)
a general partner of Wingate Affiliates II, L.P. Each of Wingate and
Wingate Affiliates II, L.P. have ownership interests in the KPI Trust.
Consequently, each of Mr. Hegi and Mr. Johnson has an indirect beneficial
interest in the KPI Trust.
The charter amendment was approved by the board prior to Mr. Hegi and Mr.
Johnson becoming directors.
RECOMMENDATION OF BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE CHARTER
AMENDMENT.
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PROPOSAL NO. 3 - 1999 STOCK OPTION PLAN
SUMMARY OF THE PLAN
Background and Purpose. The 1999 stock option plan is intended to motivate
certain employees, non-employee directors, affiliated persons and independent
contractors to put forth maximum efforts toward our growth, profitability and
success by providing incentives to such persons through the ownership and
performance of common stock. In addition, the 1999 stock option plan is intended
to provide incentives that will attract and retain highly qualified individuals
as employees and non-employee directors and to assist in aligning the interests
of such employees and non-employee directors with those of the shareholders. The
full text of the 1999 stock option plan is set forth in Exhibit B to this proxy
statement and is incorporated herein by reference. The summary set forth below
should be read in conjunction with, and is qualified in its entirety by
reference to, the 1999 stock option plan which is attached as Exhibit B to this
proxy statement.
Eligibility. All employees, non-employee directors, certain affiliated persons
who have been designated as such by the compensation committee (as defined
below), and certain independent contractors rendering services to us will be
eligible to participate in the 1999 stock option plan and to receive options
under the 1999 stock option plan. Participants will consist of such employees,
non-employee directors, affiliated persons and independent contractors as the
compensation committee in its sole discretion designates to receive options
under the 1999 stock option plan. The adoption of the 1999 stock option plan
will not be deemed to give any person a right to be granted options.
Administration. The 1999 stock option plan will be administered by the
compensation committee of the board or any other committee appointed by the
board provided that the board may act as the committee if it chooses to do so.
The compensation committee will have the responsibility, in its sole discretion,
to control, operate, manage and administer the 1999 stock option plan in
accordance with its terms.
Types of Options under the 1999 Stock Option Plan. The 1999 stock option plan
authorizes incentive stock options, non-qualified stock options and
performance-based stock options.
Shares Available and Maximum Individual Grants. The aggregate number of shares
of common stock available for grants of options under the 1999 stock option plan
during its term will be 1,500,000 shares. The maximum aggregate number of shares
of common stock underlying all options that may be granted to any single
participant during the life of the 1999 stock option plan is 350,000 shares.
Shares of common stock available for issuance under the 1999 stock option plan
may be either authorized but unissued shares, shares of issued stock held in the
treasury, or both, and are subject to any adjustments in accordance with the
1999 stock option plan. Any shares of common stock underlying options that
terminate by expiration, forfeiture, cancellation or otherwise without the
issuance of such shares will again be available for grants of options under the
1999 stock option plan.
Adjustment to Shares. If there is any change in the common stock, such as due
to a merger, consolidation, combination, liquidation, recapitalization, stock
dividend, stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares or other like change in our capital structure, the 1999
stock option plan provides for appropriate adjustments to be made to
outstanding options.
Stock Options. The compensation committee will, in its sole discretion,
determine the employees, the non-employee directors, the affiliated persons and
the independent contractors who will receive stock options and the number of
shares of common stock underlying each stock option. The compensation committee
may grant "incentive stock options" (as such options are described under section
422 of the Code); provided, that such options shall be granted only to
employees, or it may grant stock options that are not incentive stock options
("non-qualified stock options") to all participants. Each stock option will be
subject to such terms and conditions consistent with the 1999 stock option plan
as the compensation committee may impose from time to time. In addition,
incentive stock options are subject to certain restrictions imposed by the Code.
Stock Option Exercise Price. The compensation committee will determine the
exercise price of each stock option, which exercise price will not be lower than
the fair market value of the common stock on the date of grant; provided, that
the exercise price of any non-qualified stock option may be lower than the fair
market value of the
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common stock on the date of grant if the compensation committee, in its sole
discretion and due to special circumstances, determines otherwise on the date of
grant. Stock options granted under the 1999 stock option plan cannot be
exercised after the tenth anniversary of the date of grant; provided, that
non-qualified stock options may be exercised after the tenth anniversary of the
date of grant if the compensation committee, in its sole discretion, provides
otherwise. The market value of our common stock as of September 27, 1999 was
$4.875 per share.
Vesting of Stock Options. The compensation committee will determine when and to
what extent each stock option vests. Stock options granted under the 1999 stock
option plan may also be subject to such other terms and conditions as determined
by the compensation committee, including, without limitation, accelerating the
vesting based on individual performance or if certain performance goals are
achieved.
Payment of Stock Option Exercise Price. The stock option exercise price may be
paid in cash or, in the sole discretion of the compensation committee, by the
delivery of shares of common stock then owned by the participant, or the
withholding of shares of common stock for which a stock option is exercisable.
The compensation committee, in its sole discretion, may provide an arrangement
through registered broker-dealers whereby temporary financing may be made
available to a participant. The compensation committee may prescribe any other
method of payment of the exercise price that it determines to be consistent with
applicable law and the purposes of the 1999 stock option plan.
Performance-Based Options. The compensation committee, in its sole discretion,
may designate and design options granted under the 1999 stock option plan as
"performance-based options" if it determines that compensation attributable to
such options might not otherwise be tax deductible due to the deduction
limitation imposed by section 162(m) of the Code. Accordingly, an award granted
under the 1999 stock option plan may be granted in such a manner that the
compensation attributable to such award is intended by the compensation
committee to qualify as "performance-based compensation" (as such term is used
in section 162(m) of the Code) and thus be exempt from the deduction limitation
imposed by such section. The compensation committee may use the following
performance measures (either individually or in any combination) to set
performance goals with respect to options intended to qualify as
performance-based options: net sales; pre-tax income before allocation of
corporate overhead and bonus; budget; cash flow; earnings per share; net income;
division, group or corporate financial goals; return on shareholders' equity;
return on assets; attainment of strategic and operational initiatives;
appreciation in and/or maintenance of the price of the common stock or any other
of our publicly-traded securities; market share; gross profits; earnings before
interest and taxes; earnings before interest, taxes, depreciation and
amortization; economic value-added models; comparisons with various stock market
indices; increase in number of customers; and/or reductions in costs. In
addition, the material terms of performance goals as described above will be
disclosed to and reapproved by the shareholders no later than the first
shareholder meeting that occurs in the fifth year following the year in which
the shareholders previously approved such performance goals.
Change in Control. If there is a change in control, the compensation committee
may accelerate the vesting date and/or payout of such options.
Termination of Employment. If a participant's employment is terminated due to
death or disability, all non-vested portions of options held by the participant
will immediately be forfeited and all vested portions of stock options and
stock appreciation rights held by the participant will remain exercisable until
the earlier of 180 days after the date of death or termination of employment or
the date the stock option or stock appreciation right would otherwise expire.
If a participant's employment is terminated for cause or by the participant
voluntarily, all options held by a participant, whether vested or non-vested,
will immediately be forfeited by such participant. If a participant's
employment is terminated for any reason other than for cause or such
participant's death, disability or voluntary resignation, all non-vested
portions of options held by the participant will immediately be forfeited and
all vested portions of stock options and stock appreciation rights held by the
participant will remain exercisable until the earlier of the end of the 30-day
period following the date of the termination of employment or the date the
stock option or stock appreciation right would otherwise expire.
Purchase Option. If a participant's employment or relationship with us
terminates for any reason at any time or a change of control occurs, under the
1999 stock option plan, we may purchase from the participant any shares of
common stock and/or options held by the participant. Written notice of any
purchase will be given within one year of the date of the termination of a
participant's employment or the date of a change of control. The purchase price
for shares will be the fair market value per share as of the date of the notice
times the number of shares purchased
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and the purchase price for any option will be the fair market value per share
times the number of vested shares subject to such option, less the applicable
per share option exercise price. We will pay the purchase price in cash.
Termination and Amendment of the 1999 Stock Option Plan. The board may amend,
modify, suspend or terminate the 1999 stock option plan at any time provided
that such action does not materially impair the value of any option previously
granted, without the participant's consent. No amendment of the 1999 stock
option plan will, without the approval of the shareholders:
o increase the total number of shares which may be issued under the
1999 stock option plan;
o decrease the minimum option exercise price in the case of an
incentive option; or
o modify the requirements as to eligibility for options under the 1999
stock option plan.
In addition, the 1999 stock option plan may be amended without the approval of
the shareholders if such amendment is required under the rules and regulations
of the stock exchange or national market system on which our common stock is
listed or will disqualify any incentive stock option granted under the 1999
stock option plan.
Miscellaneous. A participant may be required to reimburse us for any taxes
required by any governmental regulatory authority to be withheld or otherwise
deducted and paid by us with respect to any award, and we have the right to
withhold the amount of such taxes from any other sums due or to become due from
us to the participant upon such terms and conditions as the compensation
committee shall prescribe, which may include withholding shares of common stock
underlying any award. Options granted under the 1999 stock option plan are not
transferable otherwise than by will or the laws of descent and distribution, and
stock options and stock appreciation rights are exercisable, during the
participant's lifetime, only by the participant.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The discussion below is based on federal income tax law and authorities as of
the date of this proxy statement, which are subject to change at any time
(possibly with retroactive effect). The law is technical and complex and the
discussion represents only a general summary of some of the applicable
provisions of federal income tax law. Consequently, a participant is urged to
consult his or her tax advisor before taking any specific action with respect
to the options granted under the 1999 stock option plan.
Incentive Stock Options. The incentive stock options (ISOs) granted under the
1999 stock option plan are intended qualify as "incentive stock options" under
section 422(b) of the Code.
An employee who receives an ISO will not recognize taxable income upon the
grant of such ISO. Similarly, such employee generally should not recognize
taxable income upon the exercise of such option provided that the employee is
employed by us from the option's grant date until three months prior to such
exercise. This three-month period is (1) extended to one year if the employee
is terminated by reason of disability or (2) waived if the employee dies.
However, depending upon his or her particular tax circumstances, an employee
may have a federal "alternative minimum tax" liability on such exercise. If a
participant exercises an ISO after the three-month period (or one-year period
if disabled), the ISO will be treated as a non-qualified stock option (NSO) and
will be subject to the rules governing NSOs as set forth below.
When an employee disposes of stock held pursuant to the exercise of an ISO, he
or she generally will recognize capital gain or loss equal to the difference,
if any, between the amount received for the common stock and the exercise
price, provided the "applicable holding period" requirements are met. The
applicable holding period rule requires that an employee not dispose of his or
her stock for at least two years from the option grant date and he or she must
hold the stock for at least one year after the stock was transferred. The
applicable holding period requirements are waived in the event of an employee's
death. Any gain recognized on common stock held longer than 12 months should be
entitled to the long-term capital gains rate of 20%. However, if an employee
disposes of the common stock before the applicable holding period, thereby
making a "disqualifying disposition," the employee generally will recognize
ordinary income equal to the excess of the fair market value of the shares at
the time the ISO was exercised over the exercise price and the balance, if any,
of the gain will be capital gain (provided the employee held such common stock
as a capital asset at such time). The long-term capital gains rate will apply
for stock held longer than 12 months. If the disqualifying disposition is a
sale or exchange and the sales proceeds are less than the fair market value
over the adjusted basis of the common stock, the employee's ordinary income
would be limited to the gain realized on the sale.
An employee who exercises an ISO by delivering common stock previously acquired
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pursuant to the exercise of another ISO is treated as making a "disqualifying
disposition" of such common stock if the common stock is delivered before the
expiration of the applicable holding period. Upon the exercise of an ISO with
previously acquired shares as to which no disqualifying disposition occurs, it
appears that the employee would not recognize gain or loss with respect to such
previously acquired shares.
We generally are not entitled to a federal income tax deduction upon the grant
or exercise of an ISO or the disposition, after the applicable holding period,
of the common stock acquired upon exercise of an ISO. In the event of a
disqualifying disposition, we generally will be entitled to a deduction in an
amount equal to the ordinary income realized by the employee, provided that
such amount constitutes an ordinary and necessary business expense and the
limitations of sections 280G and 162(m) of the Code (discussed below) do not
apply.
Non-Qualified Stock Options. Non-qualified stock options (NSOs) granted under
the 1999 stock option plan are options that do not qualify as ISOs. A
participant who receives a NSO will not recognize any taxable income upon the
grant of such NSO. However, the participant generally will realize ordinary
income upon exercise of a NSO equal to the amount by which the fair market
value of the common stock at the time of exercise exceeds the option exercise
price.
For any participant who is an officer, director or a beneficial owner of more
than 10% of any class of equity securities, Section 16(b) of the Exchange Act
may cause, under certain circumstances, the timing of income recognition upon
the NSO's exercise to be deferred (generally for up to six months). However,
such a participant may elect under section 83(b) of the Code to recognize
income when the shares are transferred. A section 83(b) election must be in
writing and must be filed with the Internal Revenue Service within 30 days
after the date of transfer of such shares.
For employees, the ordinary income recognized with respect to the receipt of
shares or cash upon exercise of a NSO will be subject to both wage withholding
and other employment taxes. In addition to the customary methods of satisfying
the withholding tax liabilities that arise upon the exercise of a NSO, we may
satisfy the liability in whole or in part by withholding shares of common stock
from those that otherwise would be issuable to the participant or by the
participant tendering other shares owned, valued at their fair market value as
of the date that the tax withholding obligation arises. For eligible
non-employees, we will report the amount of income on a Form 1099 in the year
the non-employee realizes the income.
A federal income tax deduction generally will be allowed to us in an amount
equal to the ordinary income recognized by the participant with respect to a
NSO, provided that such amount constitutes an ordinary and necessary business
expense and the limitations of sections 280G and 162(m) of the Code (discussed
below) do not apply.
If a participant exercises a NSO by delivering shares of common stock to us,
other than
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<PAGE> 31
shares previously acquired pursuant to the exercise of an ISO which
is treated as a "disqualifying disposition" as described above, the participant
will not recognize gain or loss with respect to the exchange of such shares,
even if the shares' then fair market value is different from the participant's
tax basis. The participant, however, will be taxed as described above with
respect to the exercise of the NSO as if the participant had paid the exercise
price in cash, and we likewise generally will be entitled to an equivalent tax
deduction.
Dividends and Dividend Equivalents. To the extent options under the 1999 stock
option plan earn dividends or dividend equivalents, whether paid currently or
credited to an account established under the 1999 stock option plan, a
participant generally will recognize ordinary income with respect to such
dividend or dividend equivalents at the time paid in cash or shares of common
stock.
Change of Control. In general, if the total amount of payments to a participant
that are contingent upon a "change in ownership or control" (as defined in
section 280G(b)(2)(A)(i) of the Code), including payments under the 1999 stock
option plan that vest upon a "change in ownership or control," equals or
exceeds three times the participant's "base amount" (generally, such
participant's average annual compensation for the five calendar years preceding
the change in ownership or control), then, subject to certain exceptions, the
payments may be treated as "parachute payments" under the Code, in which case
the portion of the parachute payment that exceeds the base amount allocated to
such payment would be non-deductible to us and the participant would be subject
to a 20% excise tax on such portion.
Certain Limitations on Deductibility of Executive Compensation. With certain
exceptions, section 162(m) of the Code denies a deduction to publicly-held
corporations for compensation paid to certain executive officers in excess of
$1 million per executive per taxable year (including any deduction with respect
to the exercise of a NSO or the disqualifying disposition of stock purchased
pursuant to an ISO). One such exception applies to certain performance-based
compensation, provided that such compensation has been approved by stockholders
in a separate vote and certain other requirements are met. In general, we
intend for stock options and performance-based options granted under the 1999
stock option plan to qualify for the performance-based compensation exception
to section 162(m) of the Code.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PLAN.
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<PAGE> 32
SHAREHOLDER PROPOSALS
We must receive shareholder proposals to be included in the proxy statement
relating to the 2000 annual meeting of shareholders within a reasonable time
before we begin to print and mail proxy materials. All such proposals should be
mailed to our principal executive offices, 1300 South University Drive, Suite
200, Fort Worth, Texas 76107-5734, Attention: Secretary. Shareholders who
intend to nominate candidates for election as a director or to bring business
before the meeting must also comply with the applicable procedures set forth in
our bylaws. We will furnish copies of such bylaw provisions upon written
request to our Secretary at the above address. In the case of other shareholder
proposals not included in our proxy materials, we may generally exercise
discretionary voting authority, conferred by proxies, at our 2000 annual
meeting with respect to any such proposal that is not timely submitted.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP served as our independent auditors for the fiscal
year ended December 31, 1998. Effective August 3, 1999, we dismissed
PricewaterhouseCoopers LLP and engaged Ernst & Young LLP as our independent
auditors.
o There have been no adverse opinions, disclaimers of opinion, or
qualifications or modifications as to uncertainty, audit scope, or
accounting principles regarding the reports of PricewaterhouseCoopers
LLP on our financial statements for each of the fiscal years ended
December 31, 1998 and 1997.
o The audit committee approved the change of accountants and that
action was ratified by the board.
o During the fiscal years ended December 31, 1998 and 1997 and the
subsequent interim period to August 3, 1999, there were no
disagreements with PricewaterhouseCoopers LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to
the satisfaction of PricewaterhouseCoopers LLP, would have caused
PricewaterhouseCoopers LLP to make reference to the subject matter of
the disagreements in connection with its report.
The board expects representatives of both firms to be present at the meeting,
to be available to respond to appropriate questions of shareholders and to have
an opportunity to make a statement if they desire.
ADDITIONAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998, AS AMENDED, AND THE COMPANY'S QUARTERLY REPORTS ON FORM
10-Q FOR THE FISCAL QUARTERS ENDED MARCH 31, 1999 AND JUNE 30, 1999, ARE
AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST. Requests should
be directed to Kevco, Inc., 1300 South University Drive, Suite 200, Fort Worth,
Texas 76107-5734, Attention: James A. Johnson, Executive Vice President and
Secretary.
ANNUAL REPORT
The Kevco, Inc. 1998 Annual Report, which includes financial statements, is
being mailed with this proxy statement.
JAMES A. JOHNSON
Executive Vice President and Secretary
__________ 1999
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<PAGE> 33
PROXY CARD
PLEASE SIGN, DATE AND RETURN YOUR
PROXY CARD AS SOON AS POSSIBLE
ANNUAL MEETING OF SHAREHOLDERS
KEVCO, INC.
NOVEMBER 22, 1999
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PLEASE MARK YOUR VOTES
[X] AS IN THIS EXAMPLE
NOMINEE FOR WITHHELD
1. PROPOSAL NO. 1 - William L. Estes [ ] [ ]
ELECTION OF DIRECTORS Peter B. McKee [ ] [ ]
FOR AGAINST ABSTAIN
2. PROPOSAL NO. 2 - [ ] [ ] [ ]
CHARTER AMENDMENT
FOR AGAINST ABSTAIN
3. PROPOSAL NO. 3 - [ ] [ ] [ ]
1999 STOCK OPTION PLAN
I PLAN TO ATTEND MEETING [ ]
</TABLE>
The undersigned acknowledges receipt of (a) Notice of Annual Meeting of
Shareholders, (b) the accompanying proxy statement and (c) the company's 1998
Annual Report to Shareholders.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS MADE ABOVE. YOU ARE URGED TO COMPLETE, SIGN,
DATE AND RETURN THIS PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU DECIDE TO ATTEND THE MEETING, YOU MAY,
IF SO DESIRED, REVOKE THIS PROXY AND VOTE YOUR SHARES IN PERSON.
<TABLE>
<S> <C> <C>
SIGNATURE DATE , 1999
---------------------- -------------
SIGNATURE DATE , 1999 (Signature if held jointly)
---------------------- -------------
</TABLE>
PROXY INSTRUCTIONS:
1. Please sign exactly as your name or names appear on your stock certificate
(as indicated hereon).
2. If the shares are issued in the name of two or more persons, all of them
must sign the proxy.
3. A proxy executed by a corporation must be signed in its name by an
authorized officer. Executors, administrators, trustees and partners
should indicate their capacity when signing.
<PAGE> 34
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
ARTICLE ONE
Kevco, Inc., pursuant to the provisions of Article 4.07 of the Texas
Business Corporation Act (the "TBCA"), hereby adopts restated articles of
incorporation which accurately copy the articles of incorporation and all
amendments thereto that are in effect to date and as further amended by such
restated articles of incorporation as hereinafter set forth and which contain no
other change in any provision thereof.
ARTICLE TWO
The articles of incorporation of the corporation are amended by the
restated articles of incorporation as follows:
(i) by amending and restating Article Four
(Capitalization);
(ii) by amending and restating Article Nine (Business
Combinations);
(iii) by amending and restating Article Fourteen
(Registered Agent); and
(iv) by amending and restating Article Fifteen
(Directors).
ARTICLE THREE
Each amendment made by the restated articles of incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
and such restated articles of incorporation and each such amendment made by the
restated articles of incorporation was duly adopted by the shareholders of the
corporation at a meeting duly called and held on the ______ day of _______,
1999.
ARTICLE FOUR
On the date of such meeting, the number of shares outstanding was
_________; the number of shares entitled to vote on the restated articles of
incorporation as so amended was ______; the number of shares voted for such
restated articles as so amended was __________; and the number of shares voted
against such restated articles as so amended was _________.
ARTICLE FIVE
The articles of incorporation and all amendments and supplements
thereto are hereby superceded by the following restated articles of
incorporation which accurately copy the entire text thereof and as amended as
above set forth:
<PAGE> 35
Second Amended and Restated
Articles of Incorporation of Kevco, Inc.
ARTICLE ONE
The name of the corporation is Kevco, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the corporation is organized is to buy, sell and
deal in personal property, real property and services as well as to engage in
any and all other lawful business and activities authorized or permitted under
Texas law.
ARTICLE FOUR
The total number of shares of all classes of capital stock that the
corporation shall have authority to issue is 150,000,000 shares, consisting of
(a) 30,000,000 shares of a class designated as preferred stock, par value $0.01
per share (the "Preferred Stock"), including (i) 3,500,000 shares of a series of
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value $0.01
per share (the "Series A Voting Preferred Stock"), and (ii) 9,500,000 shares of
a series of Series B 10 3/8% Convertible Pay-in-Kind Nonvoting Preferred Stock,
par value $0.01 per share (the "Series B Nonvoting Preferred Stock" and
collectively with the Series A Voting Preferred Stock, the "Convertible
Preferred Stock"), (b) 100,000,000 shares of a class designated as common stock,
par value $0.01 per share (the "Voting Common Stock"), and (c) 20,000,000 shares
of a class designated as nonvoting common stock, par value $0.01 per share (the
"Nonvoting Common Stock" and together with the Voting Common Stock, or either
class thereof, the "Aggregate Common Stock").
Capitalized terms not otherwise defined elsewhere in this Article Four
have the meanings ascribed to them in Section III of this Article Four.
I. Designation of Classes of Capital Stock. The designations and the powers,
preferences, rights, qualifications, limitations, and restrictions of the
Preferred Stock, the Voting Common Stock and Nonvoting Common Stock are as
follows:
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<PAGE> 36
A. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time in one
or more series, the shares of each series to have such designations, powers,
preferences and rights and such qualifications, limitations and restrictions
thereof as are stated and expressed herein and in the resolution or resolutions
providing for the issue of such series adopted by the Board of Directors as
hereafter prescribed.
2. Authority is hereby expressly granted to and vested in the
Board of Directors to authorize the issuance of the Preferred Stock from time to
time in one or more series, and with respect to each series of the Preferred
Stock, to fix and state by the resolution or resolutions from time to time
adopted providing for the issuance thereof the following:
a. whether or not the series is to have voting
rights, full, special or limited, or is to be without voting rights, and whether
or not such series is to be entitled to vote as a separate class either alone or
together with the holders of one or more other series of stock;
b. the number of shares to constitute the series and
the designations thereof;
c. the preferences and relative, participating,
optional or other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any series, including the
preferences, if any, and the amounts thereof that the holders of any series
thereof shall be entitled to receive upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the corporation;
d. whether or not the shares of any series shall be
redeemable at the option of the corporation or the holders thereof or upon the
happening of any specified event, and, if redeemable, the redemption price or
prices (which may be payable in the form of cash, notes, securities or other
property) and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
e. whether or not the shares of a series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and, if such retirement or
sinking fund or funds are to be established, the annual amount thereof and the
terms and provisions relative to the operation thereof;
f. the dividend rate, whether dividends are payable
in cash, securities of the corporation or other property, the conditions upon
which and the times when such dividends are payable, the preference to or the
relation to the payment of dividends payable on any other class or classes or
series of stock, whether or not such dividends shall be cumulative or
noncumulative and, if cumulative, the date or dates from which such dividends
shall accumulate;
g. whether or not the shares of any series, at the
option of the corporation or the holder thereof or upon the happening of any
specified event, shall be convertible into or exchangeable for the shares of any
other class or classes or of any other series of the same or any other class or
classes of stock, securities, including debt securities, or other
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<PAGE> 37
property of the corporation and the conversion price or prices or ratio or
ratios or the rate or rates at which such exchange may be made, with such
adjustments, if any, as shall be stated and expressed or provided for in such
resolution or resolutions; and
h. such other special rights and protective
provisions with respect to any series as may to the Board of Directors seem
advisable.
3. The shares of each series of the Preferred Stock may vary
from the shares of any other series thereof in any or all of the foregoing
respects. The Board of Directors may increase the number of shares of the
Preferred Stock designated for any existing series by a resolution adding to
such class or series authorized and unissued shares of the Preferred Stock not
designated for any other series. The Board of Directors may decrease the number
of shares of the Preferred Stock designated for any existing series by a
resolution subtracting from such series authorized and unissued shares of the
Preferred Stock designated for such existing series, and the shares so
subtracted shall become authorized, unissued and undesignated shares of the
Preferred Stock.
B. Provisions Relating to Common Stock.
1. Notwithstanding any other provision of these Articles of
Incorporation to the contrary, in no event shall any Holder of the Series A
Voting Preferred Stock have the right to receive, or to elect to receive, Voting
Common Stock if, as a result thereof, a "change of control" would have been
deemed to occur under the Indenture, and, in lieu thereof, such Holder shall
have the right to receive, or the right to elect to receive, an equivalent
number of shares of Nonvoting Common Stock.
2. Except as otherwise provided in this Article Four, all
shares of Voting Common Stock and Nonvoting Common Stock shall be identical and
shall entitle the holder thereof to the same rights and privileges.
3. Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series thereof, the holders
of outstanding shares of Voting Common Stock and Nonvoting Common Stock shall be
entitled to receive dividends on the shares of Voting Common Stock and Nonvoting
Common Stock when, as, and if declared by the Board of Directors, out of funds
legally available for such purpose. Subject to the prior rights and preferences,
if any, applicable to shares of the Preferred Stock or any series thereof, all
holders of shares of Voting Common Stock and Nonvoting Common Stock shall share
ratably, in accordance with the numbers of shares held by each such holder, in
all dividends or distributions on such shares whether payable in cash, in
property, or in securities of the corporation. No such dividend or distribution
shall be declared, set aside for payment, or paid unless and until a ratable
dividend or distribution is simultaneously declared and paid on all shares of
Voting Common Stock and Nonvoting Common Stock outstanding, and any such
dividend or distribution shall be declared and paid in identical property,
except as set forth in the following sentence. All dividends or distributions
declared on shares of Voting Common Stock and Nonvoting Common Stock that are
payable in shares of Voting Common Stock or Nonvoting Common Stock shall be
declared on both classes of shares at the same rate; provided, however, that any
such dividend or distribution shall be payable in shares of the class of Voting
Common Stock or Nonvoting Common Stock held by the shareholder to whom the
dividend or distribution is payable. The
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<PAGE> 38
corporation shall not, nor shall it permit any of its Subsidiaries to, redeem or
repurchase or otherwise acquire shares of Voting Common Stock unless and until
it simultaneously redeems, repurchases, or otherwise acquires shares of
Nonvoting Common Stock on a pro rata basis, in accordance with the numbers of
shares held by each holder thereof.
4. The corporation shall not in any manner subdivide (by stock
split, stock dividend, or otherwise), or combine (by reverse stock split or
otherwise) the outstanding shares of Voting Common Stock or Nonvoting Common
Stock unless the outstanding shares of the other class shall be proportionately
subdivided or combined. No reclassification or any other adjustment or
modification of the rights or preferences shall be effected (including without
limitation pursuant to a merger, consolidation, share exchange, or liquidation
involving the corporation) with respect to either the Voting Common Stock or the
Nonvoting Common Stock unless both the Voting Common Stock and Nonvoting Common
Stock are reclassified or the rights or preferences are adjusted or modified in
exactly the same manner and at the same time. In this regard, and without
limiting the generality of the foregoing, in the case of any consolidation or
merger of the corporation with or into any other entity (other than a merger or
consolidation which does not result in any reclassification, conversion,
exchange, or cancellation of the Voting Common Stock or the Nonvoting Common
Stock), or in case of any sale or transfer of all or substantially all the
assets of the corporation, share exchange or the reclassification of the Voting
Common Stock or the Nonvoting Common Stock into any other form of capital stock
of the corporation, whether in whole or in part, the holder of each share of the
other class, whether Voting Common Stock or Nonvoting Common Stock, as the case
may be, shall, after such consolidation, merger, sale, share exchange, or
transfer or reclassification, have the right to convert into the kind and amount
of shares of stock and other securities and property which such holder would
have been entitled to receive upon such consolidation, merger, sale, share
exchange or transfer or reclassification if such holder had held such Voting
Common Stock (or Nonvoting Common Stock, as the case may be) immediately prior
to such consolidation, merger, sale, share exchange, or transfer or
reclassification. Notwithstanding the prior sentence, to the extent that receipt
of such stock and other securities and property may cause a "change of control"
(as defined in the Indenture), holders of the Nonvoting Common Stock will
receive stock and/or other securities and property as nearly equivalent to that
received by the holders of Voting Common Stock as possible that will not result
in a change of control.
5. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the corporation, after distribution
in full of the preferential amounts, if any, to be distributed to the holders of
shares of the Preferred Stock or any series thereof, the holders of shares of
Voting Common Stock and Nonvoting Common Stock shall be entitled to share
ratably, in accordance with the number of shares held by each such holder, in
all of the assets of the corporation available for distribution to the holders
of shares of Voting Common Stock.
6. Subject to the voting rights, if any, applicable to shares
of the Preferred Stock or any series thereof, except as otherwise provided
herein or by law, the entire voting power of the corporation shall be vested in
the holders of shares of Voting Common Stock and each holder of shares of Voting
Common Stock shall be entitled to one vote for each share of Voting Common Stock
held of record by such holder; provided, however, that without the consent of
the holders of record of at least 51% of Nonvoting Common Stock at the time
5
<PAGE> 39
outstanding, given in writing or by the vote at any regular or special meeting
of shareholders of the corporation, the corporation shall not:
a. amend, alter, modify, or repeal any provision of
these Articles of Incorporation or the bylaws of the corporation in any manner
which adversely affects the relative rights, preferences, qualifications,
powers, limitations or restrictions of the Nonvoting Common Stock, or amend,
alter, modify, or repeal paragraph I.B.5; or
b. voluntarily effect an exchange or reclassification
of shares of Nonvoting Common Stock into shares of another class of capital
stock of the corporation.
II. Provisions Relating to Convertible Preferred Stock. The designations and the
powers, preferences, rights, qualifications, limitations, and restrictions of
the Convertible Preferred Stock are as follows:
A. Designation. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the corporation (i) the Series A Voting
Preferred Stock, with an initial liquidation preference of $5.50 per share, and
(ii) the Series B Nonvoting Preferred Stock, with an initial liquidation
preference of $5.50 per share, in each case having the designations,
preferences, limitations, and relative rights, including voting rights, as
follows in this Section II.
B. Rank. The Convertible Preferred Stock shall, with respect to
dividends and distributions upon the liquidation, winding-up, and dissolution of
the corporation, rank senior to all classes of Voting Common Stock and Nonvoting
Common Stock, and each other class of Capital Stock or class or series of
Preferred Stock hereafter created which does not expressly provide that it ranks
senior to, or on a parity with, the Convertible Preferred Stock as to dividends
and distributions upon the liquidation, winding-up, and dissolution of the
corporation ("Junior Stock"). The Convertible Preferred Stock shall, with
respect to dividends and distributions upon the liquidation, winding-up, and
dissolution of the corporation, rank on a parity with any class of Capital Stock
or series of Preferred Stock hereafter created which expressly provides that it
ranks on a parity with the Convertible Preferred Stock as to dividends and
distributions upon the liquidation, winding-up, and dissolution of the
corporation ("Parity Stock"); provided, however, that any such Parity Stock that
was not approved by the Holders in accordance with paragraph II.F.2.a shall be
deemed to be Junior Stock and not Parity Stock. The Convertible Preferred Stock
shall, with respect to dividends and distributions upon the liquidation,
winding-up, and dissolution of the corporation, rank junior to each class of
Capital Stock or series of Preferred Stock hereafter created which has been
approved by the Holders in accordance with paragraph II.F.2.b and which
expressly provides that it ranks senior to the Convertible Preferred Stock as to
dividends or distributions upon the liquidation, winding-up, and dissolution of
the corporation ("Senior Stock").
C. Dividends.
1. Beginning on the applicable Issue Date, the Holders of the
outstanding shares of Convertible Preferred Stock being issued on such Issue
Date shall be entitled to receive, when, as, and if declared by the Special
Committee, out of funds legally available therefor, cash dividends on each share
of Convertible Preferred Stock, at the rate (the "Dividend Rate") of 10 3/8% per
annum multiplied by the then-effective liquidation preference per share of the
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<PAGE> 40
Convertible Preferred Stock. Additional dividends, at the Dividend Rate, shall
accrue in respect of, and compound on, any dividends which are in arrears. All
dividends shall be cumulative, whether or not earned or declared, from the Issue
Date and shall compound to the extent not paid on the next succeeding Dividend
Payment Date, and shall be payable quarterly in arrears on each Dividend Payment
Date, commencing on the first Dividend Payment Date after the applicable Issue
Date. At the option of the corporation as determined by the Special Committee,
any dividend payable on any Dividend Payment Date may be declared and paid
wholly or partially "in kind" in lieu of cash, by issuing whole shares of Series
B Nonvoting Preferred Stock on such Dividend Payment Date with an aggregate
liquidation preference in an amount equal to the aggregate cash dividend
cumulated and unpaid to such date (or any portion thereof) with cash paid in
lieu of issuing fractional shares. The amount of any dividends payable on any
Dividend Payment Date not declared or paid in full in cash or by the issuance of
shares of Series B Nonvoting Preferred Stock shall be added to the liquidation
preference of the Convertible Preferred Stock on such date. Each dividend shall
be payable to Holders of record as they appear on the stock books of the
corporation on the Dividend Record Date immediately preceding the related
Dividend Payment Date.
2. All dividends paid with respect to shares of the
Convertible Preferred Stock pursuant to paragraph II.C.1 shall be paid pro rata
to the Holders entitled thereto. The corporation shall not pay any dividend on
the Convertible Preferred Stock "in kind" pursuant to the provisions of
paragraph II.C.1 unless it declares a pro rata dividend in kind on all then
outstanding shares of Convertible Preferred Stock.
3. Dividends in arrears for any past Dividend Period
(including any dividends compounding thereon) and dividends in connection with
any conversion pursuant to paragraph II.E may be declared and paid at any time,
without reference to any regular Dividend Payment Date, pro rata to Holders of
record on such date, not more than forty-five (45) days prior to the payment
thereof, as may be fixed by the Special Committee.
4. No dividends in cash or other property (other than
dividends paid in the same class or series of stock) shall be declared by the
Board of Directors or paid or set apart for payment by the corporation on any
Parity Stock for any period, nor shall the corporation or any Subsidiary thereof
effect any redemption or repurchase of Parity Stock, or distribution thereon
unless full compounded, cumulative dividends, plus amounts equal to any amounts
added to the liquidation preference pursuant to paragraph II.C.1, have been or
contemporaneously are declared and paid in full in cash or "in kind" by issuing
shares of Series B Nonvoting Preferred Stock as determined by the Special
Committee as provided in paragraph II.C.1 on the Convertible Preferred Stock.
Notwithstanding the prior sentence, the corporation shall nevertheless have the
right to pay cash dividends, provided that all cash dividends declared upon
shares of the Convertible Preferred Stock and any other Parity Stock shall be
declared pro rata so that the amount of dividends declared and paid per share on
the Convertible Preferred Stock and such Parity Stock shall in all cases bear to
each other the same ratio that accrued dividends per share on the Convertible
Preferred Stock and such Parity Stock bear to each other.
5. Holders of shares of the Convertible Preferred Stock shall
be entitled to receive the dividends provided for in paragraph II.C.1 in
preference to and in priority over any dividends upon any of the Junior Stock,
or redemption or repurchase of any Junior Stock by the
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<PAGE> 41
corporation or any Subsidiary, and following payment of any unpaid dividends on
any Senior Stock.
6. Dividends payable on the Convertible Preferred Stock shall
be computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in the period for which payable.
D. Liquidation Preference.
1. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the corporation, the Holders of
shares of Convertible Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the corporation available for distribution to its
shareholders an amount in cash equal to the then-existing liquidation preference
for each share outstanding, plus, without duplication, an amount in cash equal
to accumulated and unpaid dividends thereon (including any compounded dividends)
to the date fixed for liquidation, dissolution, or winding up (including an
amount equal to a prorated dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution, or winding up)
before any payment shall be made or any assets distributed to the holders of any
of Junior Stock including, without limitation, the corporation's Aggregate
Common Stock. Except as provided in the preceding sentence, Holders of
Convertible Preferred Stock shall not be entitled to any distribution in the
event of any liquidation, dissolution, or winding up of the affairs of the
corporation. If the assets of the corporation are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of the
Convertible Preferred Stock and all Parity Stock, then the holders of all such
shares shall share equally and ratably in such distribution of assets in
proportion to the full liquidation preference, including, without duplication,
all accrued and unpaid dividends, to which each is entitled.
2. For the purposes of this paragraph II.D, neither the sale,
conveyance, exchange, or transfer (for cash, shares of stock, securities, or
other consideration) of all or substantially all of the property or assets of
the corporation nor the consolidation or merger of the corporation with or into
one or more entities shall be deemed to be a liquidation, dissolution, or
winding up of the affairs of the corporation.
E. Conversion.
1. Optional Conversion.
a. The shares of Series A Voting Preferred Stock
shall be convertible without the payment of any additional consideration, in
whole or in part, at any time and from time to time at the option of the Holder,
into shares of fully paid and non-assessable Voting Common Stock. On any such
conversion, Holders of Series A Voting Preferred Stock shall receive (subject to
adjustment as provided in paragraph II.E.3) one (1) share of Voting Common Stock
for each $5.50 (as adjusted, the "Series A Conversion Price") of liquidation
preference (including amounts added to the liquidation preference in accordance
with paragraph II.D.1) of Series A Voting Preferred Stock converted; provided,
however, that in no event shall any Holder of Series A Voting Preferred Stock
have the right to receive, or to elect to receive, Voting Common Stock if, as a
result thereof, a "change of control" would have been
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<PAGE> 42
deemed to occur under the Indenture, and, in lieu thereof, such Holder shall
have the right to receive an equivalent number of shares of Nonvoting Common
Stock.
b. The shares of Series A Voting Preferred Stock
shall be convertible without the payment of any additional consideration, in
whole or in part, at any time and from time to time at the option of the Holder,
into shares of fully paid and non-assessable Series B Nonvoting Preferred Stock.
On any such conversion Holders of Series A Voting Preferred Stock shall receive
that number of shares of Series B Nonvoting Preferred Stock equal to the Series
A Voting Preferred Stock liquidation preference at such time divided by the
then-effective Series A Conversion Price.
c. The shares of Series B Nonvoting Preferred Stock
shall be convertible without the payment of any additional consideration, in
whole or in part, at any time and from time to time at the option of the Holder,
into shares of fully paid and non-assessable Nonvoting Common Stock. On any such
conversion, Holders of Series B Nonvoting Preferred Stock shall receive (subject
to adjustment as provided in paragraph II.E.3) one (1) share of Nonvoting Common
Stock for each $5.50 (as adjusted, the "Series B Conversion Price" and, together
with the Series A Conversion Price, the "Conversion Price") of liquidation
preference (including amounts added to the liquidation preference in accordance
with paragraph II.D.1) of Series B Nonvoting Preferred Stock converted.
2. Conversion Procedures.
a. The corporation will not issue any fractional
shares of Voting Common Stock or Nonvoting Common Stock upon a conversion
pursuant to this paragraph II.E, but the Holder shall be entitled to be paid out
of the assets of the corporation available for distribution to its shareholders
an amount in cash equal to the Market Price of any fractional shares of Voting
Common Stock or Nonvoting Common Stock, as the case may be, otherwise issuable
upon conversion, plus, without duplication, an amount in cash equal to
accumulated and unpaid dividends thereon (including any compounded dividends) to
the date of the conversion.
b. At the time of a conversion pursuant to this
paragraph II.E, the Holder of Convertible Preferred Stock shall deliver to the
office of the corporation or any transfer agent for the corporation the
certificate or certificates representing the shares of Convertible Preferred
Stock to be converted, duly endorsed in blank or accompanied by duly executed
proper instruments of transfer and written notice to the corporation stating
that such Holder elects to convert such share or shares and stating the name and
addresses in which each certificate for shares of Voting Common Stock or
Nonvoting Common Stock, as the case may be, issued upon such conversion is to be
issued; provided, however, that if the Holder has received a redemption notice
under paragraph II.H.1, such Holder must notify the corporation within 10
Business Days after its receipt of the redemption notice in order for such
Holder to convert in whole or part its shares of Convertible Preferred Stock
into shares of Aggregate Common Stock prior to the redemption date. Conversion
shall be deemed to have been effected at the close of business on the date when
such delivery is made to the corporation or the transfer agent of the shares to
be converted, and the Holder of shares of Convertible Preferred Stock subject to
such conversion shall be deemed to be the Holder of record of the number of
shares of Voting Common Stock or Nonvoting Common Stock, as the case may be,
issuable upon such conversion at such time.
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3. Antidilution Provisions. The Conversion Price from time to
time in effect and the number of shares of Voting Common Stock or Nonvoting
Common Stock, as the case may be, issuable upon conversion of Convertible
Preferred Stock shall be subject to adjustments from time to time after the
Issue Date of such Convertible Preferred Stock as hereinafter set forth in this
paragraph II.E.3.
a. Common Stock Splits. Upon any subdivision by the
corporation on or after the Issue Date of all of its outstanding shares of
Aggregate Common Stock into a greater number of shares or upon any issuance by
the corporation on or after such date of a greater number of shares of Aggregate
Common Stock in a pro rata exchange for all of its outstanding shares of
Aggregate Common Stock, then in each case from and after the record date for
such subdivision or exchange the number of shares of Voting Common Stock or
Nonvoting Common Stock, as the case may be, issuable upon the conversion of
shares of Convertible Preferred Stock shall be increased in proportion to such
increase in the number of outstanding shares of Aggregate Common Stock and the
Conversion Price shall be correspondingly decreased. Upon any pro rata reduction
by the corporation on or after the Issue Date of its outstanding shares of
Aggregate Common Stock as a whole or upon any issuance by the corporation after
such date of a lesser number of shares of Aggregate Common Stock in a pro rata
exchange for all of its outstanding shares of Aggregate Common Stock, then in
each case from and after the record date for such reduction or exchange the
number of shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, issuable upon the conversion of shares of Convertible Preferred Stock
shall be decreased in proportion to such reduction in the number of outstanding
shares of Aggregate Common Stock and the Conversion Price shall be
correspondingly increased.
b. Common Stock Dividends. Upon any declaration and
payment by the corporation on or after the Issue Date of a dividend upon
Aggregate Common Stock payable in shares of either class of Aggregate Common
Stock, then in each case from and after the record date for the payment of such
stock dividend, the number of shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, issuable upon the conversion of shares of Convertible
Preferred Stock shall be increased in proportion to the increase in the number
of outstanding shares of Aggregate Common Stock through such stock dividend and
the Conversion Price shall be correspondingly decreased.
c. Other Issues. Upon any issuance by the corporation
of shares of Aggregate Common Stock on or after the Issue Date (other than
issuances of stock requiring adjustments hereunder pursuant to the immediately
preceding paragraphs II.E.3.a and II.E.3.b for a consideration lower than the
Market Price per share of stock in effect immediately prior to such issuance,
the Conversion Price then in effect shall be reduced to equal the following
amount:
[(D x E) + F]
G x -------------
C x E
where C equals the number of shares of Aggregate Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Aggregate Common Stock outstanding immediately prior to the issue of such
additional Aggregate Common Stock, E equals the Market Price per share of
Aggregate Common Stock in effect immediately prior to the issue
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<PAGE> 44
of such additional Aggregate Common Stock, F equals the aggregate consideration
(before deducting underwriting discounts, commissions, and other expenses)
received or to be received by the corporation in connection with the issuance of
such additional Aggregate Common Stock, and G equals the Conversion Price which
would have been in effect immediately prior to such issuance had all previous
adjustments (if any) under this paragraph II.E.3.c been made. Upon any such
reduction in the Conversion Price, the number of shares of Voting Common Stock
or Nonvoting Common Stock, as the case may be, issuable upon the conversion of
shares of Convertible Preferred Stock shall be correspondingly increased. The
provisions of this paragraph II.E.3.c shall not be applicable to any issuance of
Aggregate Common Stock upon actual exercise or actual conversion of any option,
warrant, right, or other security convertible into or exercisable for Aggregate
Common Stock if the Conversion Price was fully and properly adjusted pursuant to
the immediately following paragraph II.E.3.d at the time such option, warrant,
right, or other security was issued.
d. Common Stock Options; Subscription Rights;
Convertible Securities. Upon any issuance by the corporation on or after the
Issue Date of options, warrants, or rights to subscribe for shares of Aggregate
Common Stock or of any securities convertible into or exchangeable for shares of
Aggregate Common Stock or of any similar securities for a consideration per
share other than the Market Price in effect immediately prior to the issuance of
such options, warrants, rights, or securities, the Conversion Price shall be
reduced (and the number of shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, issuable upon the conversion of shares of Convertible
Preferred Stock shall be appropriately increased), by making computations in
accordance with paragraph II.E.3.c.; provided, however, that:
(i) The maximum number of shares of
Aggregate Common Stock deliverable under any such option, warrant, or right
shall be considered to have been delivered at the time such option, warrant, or
right was issued, for a consideration equal to the minimum purchase price per
share of Aggregate Common Stock provided for in such option, warrant, or right,
plus the consideration, if any, received by the corporation for such option,
warrant, or right (before deducting underwriting discounts, commissions, and
other expenses);
(ii) The aggregate maximum number of shares
of Aggregate Common Stock deliverable upon conversion of or exchange for any
such securities shall be considered to have been delivered at the time of
issuance of such securities, for a consideration equal to the consideration
received by the corporation for such securities (before deducting underwriting
discounts, commissions, and other expenses) plus the minimum consideration
(other than such securities) to be received by the corporation upon the exchange
or conversion of such securities;
(iii) If the purchase or conversion price
provided for in any rights, options, or warrants referred to above, the
additional consideration, if any, payable upon the conversion or exchange of
convertible securities referred to above, or the rate at which any options,
warrants, rights, or convertible securities referred to above are convertible
into or exchangeable for shares of Aggregate Common Stock shall change (other
than under or by reason of provisions designed to protect against dilution), the
Conversion Price (and the number of shares of Voting Common Stock or Nonvoting
Common Stock, as the case may be, issuable upon the conversion of shares of
Convertible Preferred Stock) in effect at the time of such event shall
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<PAGE> 45
be readjusted to the Conversion Price (and the number of shares of Voting Common
Stock or Nonvoting Common Stock, as the case may be, issuable upon the
conversion of shares of Convertible Preferred Stock) which would have been in
effect at such time had such rights, options, warrants, or convertible
securities still outstanding provided for such new purchase or conversion price,
additional consideration, or conversion rate, as the case may be, at the time
initially granted, issued, or sold. If the purchase or conversion price provided
for in any such right, option, or warrant referred to above, the additional
consideration, if any, payable upon the conversion or exchange of convertible
securities referred to above, or the rate at which any convertible securities
referred to above are convertible into or exchangeable for shares of Aggregate
Common Stock shall be changed at any time by reason of provisions designed to
protect against dilution, then when shares of Aggregate Common Stock are
delivered upon the exercise of any such right, option, or warrant or upon
conversion or exchange of any such convertible security, the Conversion Price
(and the number of shares of Voting Common Stock or Nonvoting Common Stock, as
the case may be, issuable upon the conversion of shares of Convertible Preferred
Stock) then in effect hereunder shall be readjusted to such amount as would have
been obtained had such right, option, warrant, or convertible security never
been issued as to such shares of Aggregate Common Stock and had the adjustments
required hereunder been made at the time of the issuance of the shares of
Aggregate Common Stock delivered as aforesaid; and
(iv) On the expiration of any such options,
warrants, or rights, or at the termination of any such rights to convert or
exchange, the Conversion Price (and the number of shares of Voting Common Stock
or Nonvoting Common Stock, as the case may be, issuable upon the conversion of
shares of Convertible Preferred Stock) then in effect shall be readjusted to the
Conversion Price (and the number of shares of Voting Common Stock or Nonvoting
Common Stock, as the case may be, issuable upon the conversion of shares of
Convertible Preferred Stock) which would have been in effect had the adjustments
(and readjustments) made upon the issuance of such expired or terminated
options, warrants, rights, or securities (or upon the occurrence of any event
with respect thereto specified in the immediately preceding paragraph
II.E.3.d(iii)) been made without reference to the number of shares of Aggregate
Common Stock subject to such terminated or expired options, warrants, rights, or
securities. Notwithstanding the prior sentence, the Holder shall not be required
to surrender or adjust any shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, theretofore received by the Holder upon conversion of
shares of Convertible Preferred Stock.
e. Special Dividends; Purchase Rights.
(i) If at any time on or after the Issue
Date the corporation shall distribute to all holders of shares of Aggregate
Common Stock of any class evidences of its indebtedness or assets (excluding any
regular periodic cash dividend) or a distribution in partial liquidation, each
payable otherwise than in shares of Aggregate Common Stock or in securities to
which the provisions of the immediately following paragraph II.E.3.e(ii) are
applicable, the corporation shall pay to the Holder of Convertible Preferred
Stock, upon the conversion thereof at any time on or after the payment of such
dividend or distribution, the securities and other property (including cash)
which such Holder would have received (together with all subsequent dividends
and distributions thereon) if such Holder had converted such Convertible
Preferred Stock on the record date fixed in connection with such dividend or
distribution, and the corporation shall take whatever steps are necessary or
appropriate to keep in reserve at all times any securities and other properties
which are required to fulfill such obligations of the
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<PAGE> 46
corporation. Notwithstanding the foregoing, the rights of the Holder under this
paragraph II.E.3.e(i) upon the corporation's declaration of a dividend or
distribution in partial liquidation payable only in securities convertible into
shares of Aggregate Common Stock may be exercised only in lieu of any adjustment
(in this paragraph II.E.3.e(i)) called a "subparagraph (d) adjustment") because
of such dividend or distribution called for under paragraph II.E.3.d, and upon
exercise hereof such Holder must elect either such subparagraph (d) adjustment
or the rights and benefits provided for in this paragraph II.E.3.e(i)). For the
purposes of determining the Conversion Price from time to time in effect and the
number of shares from time to time subject hereto prior to the conversion of
shares of Convertible Preferred Stock, it shall be assumed that the Holder
hereof will so elect subparagraph (d) adjustments, but upon any election of the
rights and benefits provided for in this paragraph II.E.3.e(i) made at the time
of exercise hereof the Conversion Price then in effect (and the number of
outstanding shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, purchasable upon such conversion) shall be redetermined to equal the
amounts which would have been in effect had such subparagraph (d) adjustments
never been made. Notwithstanding the other provisions of this paragraph
II.E.3.e(i), in no event shall any Holder have the right to receive, or to elect
to receive, Voting Common Stock pursuant to this subsection if, as a result
thereof, a "change of control" could be deemed to occur under the Indenture,
and, in lieu thereof, the Holder shall have the right to receive, or the right
to elect to receive, an equivalent number of shares of Nonvoting Common Stock.
(ii) If at any time on or after the Issue
Date the corporation shall grant, issue, or sell any options or rights to
purchase stock, warrants, securities, or other property pro rata to the holders
of Aggregate Common Stock of all classes ("Purchase Rights"), then each Holder
shall be entitled (but not obligated) to acquire, in lieu of any subparagraph
(d) adjustment and upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if it had held
the number of shares of Voting Common Stock or Nonvoting Common Stock, as the
case may be, issuable upon conversion of the Convertible Preferred Stock
immediately prior to the time or times at which the corporation granted, issued,
or sold such Purchase Rights.
f. Additional Adjustments.
(i) If at any time or from time to time
conditions arise by reason of action taken by the corporation which are not
adequately covered by the provisions of this paragraph II.E.3, and which might
materially and adversely affect the exercise rights of the Holders of
Convertible Preferred Stock, upon the request of at least a majority in interest
of the Holders (determined as a single series), the corporation shall appoint at
its sole discretion a firm of independent certified public accountants of
recognized national standing (which may be the regular auditors of the
corporation), which shall give their opinion upon the adjustment, if any, of the
number of shares issuable upon the conversion of the Convertible Preferred
Stock, on a basis consistent with the standards established in the other
provisions of this paragraph II.E.3 of and assuming all other adjustments
required pursuant to this paragraph II.E.3 have been made, necessary in order to
preserve without diminution the rights of the Holders of the Convertible
Preferred Stock. Upon receipt of such opinion, the Board of Directors shall
forthwith make the adjustments described therein.
(ii) Notwithstanding any other provision
hereof, any antidilution adjustments made pursuant to the terms hereof or of the
Warrants and the
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Subordinated Notes shall be deemed to be made simultaneously, the intention
being to avoid any iterative calculations.
g. Effect of Reorganization and Asset Sales. If any
capital reorganization of the corporation, reclassification of the Aggregate
Common Stock of the corporation, statutory exchange, consolidation, or merger of
the corporation with another Person, or sale of all or substantially all of the
corporation's assets to another Person shall be effected in such a way that
holders of Aggregate Common Stock shall be entitled to receive stock,
securities, or assets (including cash) of the corporation or another Person with
respect to or in exchange for Aggregate Common Stock (each such transaction
being hereinafter referred to as a "Transaction"), then, as a condition of the
consummation of each Transaction, lawful and adequate provisions shall then be
made so that each Holder, upon the conversion of the Convertible Preferred Stock
at any time after the consummation of such Transaction, shall be entitled to
receive, and such Convertible Preferred Stock shall thereafter represent the
right to receive, in lieu of Voting Common Stock or Nonvoting Common Stock, as
the case may be, issuable upon conversion thereof but otherwise upon and subject
to all terms and conditions hereof, the cash, securities, or other property to
which such Holder would have been entitled upon the consummation of such
Transaction if such Holder had converted such Convertible Preferred Stock
immediately prior thereto (subject to adjustments from and after the
consummation date of such Transaction as nearly equivalent as possible to the
adjustments provided for in this paragraph II.E.3). The corporation shall not
effect any Transaction unless prior to the consummation thereof each Person
(other than the corporation) which may be required to deliver any securities or
other property upon the conversion of the Convertible Preferred Stock as
provided herein shall assume, by written instrument delivered to each registered
Holder of the Convertible Preferred Stock in form and substance reasonably
satisfactory to at least a majority in interest of the Holders, the obligation
to continue to honor the terms of the Convertible Preferred Stock and to deliver
to such Holders such securities or other property to which, in accordance with
the foregoing provisions, such Holders may be entitled, and such Person shall
have similarly delivered to each registered Holder an opinion of counsel for
such Person, in substance and from such counsel as is acceptable to the Holders,
stating that the Convertible Preferred Stock shall thereafter continue in full
force and effect and shall be enforceable against such Person in accordance with
the terms hereof and thereof.
h. Notice of Adjustment or Substitution. On the
happening of an event requiring an adjustment of the Conversion Price and upon
each change in the number of shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, issuable upon the conversion of the Convertible
Preferred Stock, and in the event of any change in the rights of the Holder of
Convertible Preferred Stock by reason of other events herein set forth, the
corporation shall as soon as practicable give written notice (the "Notice of
Adjustment") to the registered Holder(s) of Convertible Preferred Stock: (i)
describing the event; (ii) stating the adjusted Conversion Price and the number
of shares of Voting Common Stock or Nonvoting Common Stock, as the case may be,
issuable based upon the difference between the Conversion Price before and after
such adjustment; and (iii) stating how such adjustment of Conversion Price or
number of shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, was calculated and the facts on which the calculation is based.
i. Accountant's Opinion. Upon each adjustment of the
Conversion Price and upon each change in the number of shares of Voting Common
Stock or Nonvoting
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Common Stock, as the case may be, issuable upon the conversion of the
Convertible Preferred Stock, and in the event of any change in the rights of the
Holder of Convertible Preferred Stock by reason of other events herein set
forth, then and in each such case, upon the reasonable written request of at
least 50% in interest of the registered Holders of Convertible Preferred Stock,
determined as a single series, given to the corporation within thirty (30) days
after the corporation has given the Notice of Adjustment, the corporation will
promptly obtain an opinion of independent certified public accountants selected
by the corporation and reasonably satisfactory to such Holder(s), stating the
adjusted Conversion Price and the new number of shares of Voting Common Stock or
Nonvoting Common Stock, as the case may be, so issuable, or specifying the other
shares of stock, securities, or assets and the amount thereof receivable as a
result of such adjustment or change in rights, and setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based. The corporation will promptly mail a copy of such accountant's opinion to
each registered Holder of Convertible Preferred Stock. The costs of the
accountant's opinion shall be borne (i) by the corporation, if the accountant's
opinion reflects any change to the adjusted Conversion Price or the number of
shares of Voting Common Stock or Nonvoting Common Stock, as the case may be, so
issuable set forth in the Notice of Adjustment, or (ii) by the Holders, if the
accountant's opinion reflects no change to the adjusted Conversion Price or the
number of shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, so issuable set forth in the Notice of Adjustment. Any dispute or
controversy in respect of the accountant's opinion shall be submitted to final
and binding arbitration in Dallas, Texas pursuant to the commercial arbitration
rules of the American Arbitration Association. All costs and expenses (including
reasonable attorneys' fees) incurred by the corporation and the Holders in
connection with any such arbitration proceeding shall be paid by the
non-prevailing party (as determined by the arbitrator(s)).
j. Adjustment of Less Than $0.01. The corporation
shall not be required to give any Notice of Adjustment of the Conversion Price
in accordance with paragraph II.E.3.h if the amount of such adjustment shall be
less than $0.01, but in such case any such adjustment shall be carried forward
and notice thereof shall be given at the time of and together with the next
subsequent adjustment, which, together with any adjustment so carried forward,
shall amount to not less than $0.01 per share; provided, however, that notice of
each such adjustment of the Conversion Price shall be given not later than three
years from the date such adjustment would have been required to be made except
for the provisions of this paragraph II.E.3.j.
k. Treasury Shares. The number of shares of Aggregate
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the corporation or any of its Subsidiaries, but
the disposition of any such shares shall be considered an issue or sale of
Aggregate Common Stock for the purposes of this paragraph II.E.
l. Adjustment Exceptions. Anything in this paragraph
II.E to the contrary notwithstanding, no adjustment of the Conversion Price or
the number of shares of Voting Common Stock or Nonvoting Common Stock, as the
case may be, issuable upon the conversion of the Convertible Preferred Stock
shall be made upon (i) the issuance of any shares of Aggregate Common Stock upon
the exercise of any of the Warrants, exchange of the Subordinated Notes,
conversion of any Convertible Preferred Stock, or the issuance of rights to
acquire shares of Aggregate Common Stock under any of the foregoing, (ii) the
issuance of any shares of Aggregate Common Stock or other securities pursuant to
any Plans or (iii) the issuance
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of shares of Aggregate Common Stock or rights to acquire Aggregate Common Stock
in connection with any redemption pursuant to Article 3 of either of the
Subordinated Notes or in connection with any redemption of Convertible Preferred
Stock.
F. Voting Rights.
1. General.
a. The Holders of shares of Series A Voting Preferred
Stock shall be entitled to vote with the holders of Voting Common Stock as a
single class on all matters requiring shareholder approval. Each share of the
Series A Voting Preferred Stock shall have a number of votes equal to the number
of shares of Common Stock into which such share of Series A Voting Preferred
Stock is convertible pursuant to paragraph II.E.1 hereof at the time the vote is
taken.
b. The Holders of Series B Nonvoting Preferred Stock,
except as required under Texas law or as set forth in paragraphs II.F.2, II.F.3
and II.F.4, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the shareholders of the corporation.
2. Restrictions.
a. In addition to the voting right of Series A Voting
Preferred Stock set forth in paragraph II.F.1.a, so long as any shares of the
Convertible Preferred Stock are outstanding, the corporation shall not authorize
any class of Parity Stock without the affirmative vote or consent of Holders of
at least a majority of the then outstanding shares of Convertible Preferred
Stock, voting or consenting, as the case may be, as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting.
b. In addition to the voting right of Series A Voting
Preferred Stock set forth in paragraph II.F.1.a, so long as any shares of the
Convertible Preferred Stock are outstanding, the corporation shall not authorize
any class of Senior Stock, without the affirmative vote or consent of Holders of
at least a majority of the outstanding shares of Convertible Preferred Stock,
voting or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting.
c. In addition to the voting right of Series A Voting
Preferred Stock set forth in paragraph II.F.1.a, so long as any shares of
Convertible Preferred Stock are outstanding, the corporation shall not amend
these Articles of Incorporation so as to affect adversely the specified
designations, preferences, limitations and relative rights, including voting
rights, of the shares of Convertible Preferred Stock or to authorize the
issuance of any additional shares of Convertible Preferred Stock (other than
upon exchange of the Subordinated Notes or as dividends thereon) without the
affirmative vote or consent of Holders of at least a majority of the issued and
outstanding shares of Convertible Preferred Stock, voting or consenting, as the
case may be, as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting; provided, however that the
foregoing, with respect to provisions of these Articles of Incorporation that
affect adversely only the Series A Voting Preferred Stock or
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the Series B Nonvoting Preferred Stock, as the case may be, shall only require
the vote or consent of such series so affected.
d. Except as set forth in paragraphs II.F.2.a,
II.F.2.b and II.F.2.c, (i) the creation, authorization, or issuance of any
shares of any Junior Stock, Parity Stock, or Senior Stock, including the
designation thereof within the existing series of Convertible Preferred Stock or
(ii) the increase or decrease in the amount of authorized Capital Stock of any
class, including Preferred Stock, shall not require the consent of Holders of
Convertible Preferred Stock.
3. Triggering Events.
a. If, so long as the Initial Investors or their
Affiliates own at least 50% of the aggregate number of shares of Convertible
Preferred Stock outstanding, (i) the corporation fails to convert all of the
then outstanding shares of Convertible Preferred Stock under the conversion
provisions of paragraph II.E.1 (after notice has been given), (ii) the
corporation fails to purchase shares of Convertible Preferred Stock pursuant to
paragraph II.H.2, or (iii) the corporation violates the covenants set forth in
paragraph II.I in any material manner (each, a "Voting Rights Triggering
Event"), then the number of directors constituting the Board of Directors shall
be adjusted by the number, if any, necessary to permit the Holders of
Convertible Preferred Stock, voting as a single class, to elect two directors of
the Board of Directors. Holders of a majority of the issued and outstanding
Convertible Preferred Stock, voting as one class, shall for the periods set
forth in paragraph II.F.3.b have the exclusive right to elect two directors of
the Board of Directors at a meeting therefor called upon occurrence of such
Voting Rights Triggering Event and at every subsequent meeting at which the
terms of office of the directors so elected expire. The number of directors
elected by the Holders of Convertible Preferred Stock shall be reduced by the
number of directors, if any, elected to the Board of Directors by the Holders or
their Affiliates under the terms of the Subordinated Notes.
b. The right of Holders of Convertible Preferred
Stock to elect members of the Board of Directors as set forth in paragraph
II.F.3.a shall continue until such time as the failure, breach, or default
giving rise to such Voting Rights Triggering Event is remedied or is waived by
Holders of at least a majority of the shares of Convertible Preferred Stock then
outstanding and entitled to vote thereon, at which time (i) the special right of
Holders of Convertible Preferred Stock to vote for the election of directors and
(ii) the term of office of the directors elected by Holders of Convertible
Preferred Stock shall terminate. At any time after voting power to elect
directors shall have become vested and be continuing in Holders of Convertible
Preferred Stock pursuant to paragraph II.F.3.a, or if vacancies shall exist in
the offices of directors elected by Holders of Convertible Preferred Stock, a
proper officer of the corporation may, and upon the written request of the
Holders of record of at least twenty-five percent (25%) of the shares of
Convertible Preferred Stock then outstanding addressed to the secretary of the
corporation shall, call a special meeting of the Holders of Convertible
Preferred Stock for the purpose of electing the directors which such Holders are
entitled to elect. If such meeting shall not be called by a proper officer of
the corporation within twenty (20) Business Days after personal service of said
written request upon the secretary of the corporation, or within twenty (20)
Business Days after mailing the same within the United States by certified mail,
addressed to the secretary of the corporation at its principal executive
offices, then (A) the Holders of record of at least twenty-five percent (25%) of
the outstanding shares of Convertible
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Preferred Stock may designate in writing one of their number to call such
meeting at the expense of the corporation, and such meeting may be called by the
Person so designated upon the notice required for the annual meetings of
shareholders of the corporation and shall be held at the place designated in
such notice, or (B) the Holders of record of at least a majority of the
outstanding shares of Convertible Preferred Stock may elect such members to the
Board of Directors without a meeting, without prior notice, and without a vote,
if such Holders sign a consent or consents in writing electing such members to
the Board of Directors. Any Holder of Convertible Preferred Stock so designated
shall have, and the corporation shall provide, access to lists of shareholders
to be called pursuant to the provisions hereof.
c. At any meeting held for the purpose of electing
directors at which the Holders of Convertible Preferred Stock shall have the
right to elect directors as aforesaid, the presence in person or by proxy of the
Holders of at least a majority of the outstanding shares of Convertible
Preferred Stock shall be required to constitute a quorum of such Convertible
Preferred Stock.
4. Number of Votes. In any case in which the Holders of
Convertible Preferred Stock shall be entitled to vote pursuant to this paragraph
II.F (except as provided in paragraph II.F.1.a) or pursuant to Texas law, each
Holder of Convertible Preferred Stock entitled to vote with respect to such
matter shall be entitled to one vote for each share of Convertible Preferred
Stock held. The right of Holders of Convertible Preferred Stock to elect
directors pursuant to this paragraph II.F shall be in addition to, and not in
substitution for or diminution of, the rights of the Holder and its assigns or
Affiliates to appoint members of the Board of Directors under the terms of the
Purchase Agreement.
G. Reissuance of Convertible Preferred Stock. Shares of Convertible
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed, shall (upon compliance with any applicable
provisions of the laws of Texas) have the status of authorized and unissued
shares of Preferred Stock undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock; provided, however, that any
issuance of such shares as Convertible Preferred Stock must be in compliance
with the terms hereof.
H. Redemption.
1. Redemption at the Option of the Corporation. At any time
after July 26, 2002, to the extent the corporation shall have funds legally
available for such payment, the corporation may, at its option as determined by
the Special Committee and upon at least 10 Business Days prior written notice to
Holders, redeem shares of Convertible Preferred Stock in whole or in part, at a
redemption price per share in cash equal to 100% of the then liquidation
preference of such shares, plus (without duplication) accrued and unpaid cash
dividends thereon to the date fixed for redemption, without interest.
2. Redemption in the Event of a Change of Control. In the
event of a Change of Control, the corporation shall, to the extent it shall have
funds legally available for such payment, offer to redeem for cash all of the
shares of Convertible Preferred Stock then outstanding, and shall redeem the
shares of Convertible Preferred Stock of any Holder of such shares that shall
consent to such redemption upon a date no later than 30 Business Days following
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the Change of Control, at a redemption price per share equal to 100% of the then
liquidation preference of such shares, in cash, plus (without duplication)
accrued and unpaid cash dividends thereon to the date fixed for redemption,
without interest.
3. Failure to Redeem. If the corporation is unable or shall
fail to discharge its obligation to redeem all outstanding shares of Convertible
Preferred Stock pursuant to paragraph II.H.2 (a "Mandatory Redemption
Obligation"), such Mandatory Redemption Obligation shall be discharged as soon
as the corporation is able to discharge such Mandatory Redemption Obligation. If
and so long as any Mandatory Redemption Obligation with respect to the
Convertible Preferred Stock shall not be fully discharged, neither the
corporation nor any Subsidiary thereof shall (a) directly or indirectly, redeem,
purchase, or otherwise acquire any Parity Stock or discharge any mandatory or
optional redemption, sinking fund, or other similar obligation in respect of any
Parity Stock (except in connection with a redemption, sinking fund, or other
similar obligation to be satisfied pro rata with the Convertible Preferred
Stock) or (b) declare or make any dividend or distribution on any Junior Stock,
or, directly or indirectly, discharge any mandatory or optional redemption,
sinking fund, or other similar obligation in respect of the Junior Stock.
4. Procedure for Redemption.
a. In the event that fewer than all the outstanding
shares of Convertible Preferred Stock are to be redeemed pursuant to paragraph
II.H.1, the number of shares to be redeemed shall be determined by the Board of
Directors and the shares so redeemed shall be selected pro rata (with any
fractional shares being rounded to the nearest whole share) according to the
number of whole shares held by each holder of Convertible Preferred Stock.
b. In the event the corporation shall redeem shares
of Convertible Preferred Stock pursuant to paragraph II.H.1, notice of such
redemption (the "Redemption Notice") shall be given by express delivery service
sent not more than 75 Business Days nor less than 40 Business Days prior to the
redemption date, to each Holder of record of the shares of Convertible Preferred
Stock to be redeemed at such Holder's address as the same appears on the stock
register of the corporation; provided, however, that neither the failure to give
the Redemption Notice nor any defect therein shall affect the validity of the
giving of notice for the redemption of any share of Convertible Preferred Stock
to be redeemed except as to the Holder to whom the corporation has failed to
give the Redemption Notice or except as to the Holder whose Redemption Notice
was defective. Each Redemption Notice shall state: (i) the redemption date; (ii)
the number of shares of Convertible Preferred Stock to be redeemed and, if fewer
than all the shares of Convertible Preferred Stock held by such Holder are to be
redeemed, the number of such shares to be redeemed from such Holder; (iii)
customary provisions regarding the surrender of certificates; (iv) the
redemption price; (v) the place or places where certificates for such shares are
to be surrendered for payment of the redemption price; and (vi) that dividends
on the shares to be redeemed will cease to accrue on such redemption date.
c. In the case of any redemption pursuant to
paragraph II.H.1, and if the Redemption Notice has been properly provided in
accordance with paragraph II.H.4.b, from and after the applicable redemption
date (unless the corporation shall default in providing money necessary for
payment of the redemption price for the shares of Convertible Preferred Stock
called for redemption), dividends on the shares of Convertible Preferred Stock
so called for
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redemption shall cease to accrue and all rights of the Holders thereof as
shareholders of the corporation (except the right to receive the redemption
price from the corporation) shall cease. Upon surrender in accordance with any
such redemption notice of the certificates for any shares of Convertible
Preferred Stock so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such shares
of Convertible Preferred Stock shall be redeemed by the corporation at the
redemption price specified herein and in the Redemption Notice. If fewer than
all the shares of Convertible Preferred Stock represented by any such
certificate are redeemed, the corporation shall issue a new certificate
representing the unredeemed shares of Convertible Preferred Stock without cost
to the Holder thereof.
d. In the case of a redemption pursuant to paragraph
II.H.2, notice of such redemption shall be given by express delivery service
sent not more than ten Business Days following the occurrence of the Change of
Control, to each Holder of record of the shares of Convertible Preferred Stock
to be redeemed at such Holder's address as the same appears on the stock
register of the corporation; provided, however, that neither the failure to give
such notice nor any defect therein shall affect the validity of the giving of
notice for the redemption of any share of Convertible Preferred Stock to be
redeemed, except as to the Holder to whom the corporation has failed to give
said notice or except as to the Holder whose notice was defective. Each such
redemption notice shall state: (i) that a Change of Control has occurred; (ii)
the redemption date; (iii) the redemption price; (iv) customary provisions
regarding the surrender of certificates; (v) that such Holder may elect to cause
the corporation to redeem all or any of the shares of Convertible Preferred
Stock held by such Holder; (vi) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (vii) that
dividends on the shares the Holder elects to cause the corporation to redeem
will cease to accrue on such redemption date. Upon receipt of such redemption
notice, the Holder of Convertible Preferred Stock shall, within 10 Business Days
of receipt thereof, return such redemption notice to the corporation indicating
the number of shares of Convertible Preferred Stock such Holder shall elect to
cause the corporation to redeem, if any.
e. In the case of a redemption pursuant to paragraph
II.H.2, and if notice thereof has been properly provided in accordance with
paragraph II.H.4.d, from and after the redemption date (unless the corporation
shall default in providing necessary money for the payment of the redemption
price for the shares of Convertible Preferred Stock called for redemption),
dividends on such shares of Convertible Preferred Stock as the Holder elects to
cause the corporation to redeem shall cease to accrue, and all rights of the
electing Holders thereof as shareholders of the corporation as to such Shares
(except the right to receive the redemption price from the corporation) shall
cease. Upon surrender in accordance with such redemption notice of the
certificates for any shares of Convertible Preferred Stock so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors shall so require
and the notice shall so state), such shares of Convertible Preferred Stock shall
be redeemed by the corporation at the redemption price specified herein and in
such redemption notice.
f. Notwithstanding any other provision of these
Articles of Incorporation to the contrary, in the event the corporation (i)
delivers a Redemption Notice under paragraph II.H.1 and the Holder timely elects
to convert shares of Convertible Preferred Stock pursuant to paragraph II.E,
then, for purposes of a redemption under paragraph II.H.1, the "redemption date"
shall mean the latter of (A) the redemption date set forth in the Redemption
Notice and (B) the date upon which any applicable waiting period under the
Hart-Scott-Rodino
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Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall have
expired or early termination thereof shall have been granted without limitation,
restriction, or condition, and (ii) delivers a redemption notice under paragraph
II.H.2 and the Holder timely elects to convert shares of Convertible Preferred
Stock pursuant to paragraph II.E, then, for purposes of a redemption under
paragraph (2) of this paragraph II.H, the "redemption date" shall mean the
latter of (A) the date 40 Business Days after a Change of Control and (B) the
date upon which any applicable waiting period under the HSR Act shall have
expired or early termination thereof shall have been granted without limitation,
restriction, or condition.
I. Covenants.
1. Limitation on Sale of Assets and Subsidiary Stock.
a. For so long as any shares of Convertible Preferred
Stock are issued and outstanding, the corporation will not, and will not permit
any of its Subsidiaries to, engage in an Asset Sale, unless (i) the corporation
or such Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value (which, if it exceeds
$1,000,000, shall be determined by (i) the Board of Directors and set forth in a
Board Resolution delivered to the Holders or (ii) to the extent any such Asset
Sale involves a sale to a Holder, the Special Committee and set forth in a
resolution delivered to the Holders) of the assets (including, if appropriate,
Equity Interests) disposed of or issued, as appropriate, and (ii) at least 75%
of the consideration therefor received by the corporation or such Subsidiary is
in the form of cash or Cash Equivalents; provided, however, that the 75%
limitation referred to above shall not apply to any Asset Sale in which the cash
portion of the consideration received therefor, determined in accordance with
the following sentence, is equal to or greater than what the after-tax net
proceeds would have been had such transaction complied with the aforementioned
75% limitation.
b. For purposes of this covenant (and not for
purposes of any other provision of these Articles of Incorporation), the term
"cash" shall be deemed to include (i) any notes or other obligations received by
the corporation or such Subsidiary as consideration as part of such Asset Sale
that are immediately converted by the corporation or such Subsidiary into actual
cash or Cash Equivalents (to the extent of the actual cash or Cash Equivalents
so received) and (ii) any liabilities of the corporation or such Subsidiary (as
shown on the most recent balance sheet of the corporation or such Subsidiary)
that are payable in cash and that (A) are assumed by the transferee of the
assets which are the subject of such Asset Sale as consideration therefor in a
transaction the result of which is that the corporation and all of its
Subsidiaries are released from all liability for such assumed liability, (B) are
not owed to the corporation or any Subsidiary of the corporation and (C)
constitute short-term liabilities (as determined in accordance with GAAP).
c. Within 360 days after the receipt of any Net
Proceeds from an Asset Sale, the corporation may apply, directly or indirectly,
such Net Proceeds (i) to repay permanently Senior Indebtedness of the
corporation or of its Subsidiaries or (ii) to the making of a capital
expenditure or the acquisition of other long-term assets, in each case, in a
Related Business. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10,000,000, the corporation may make an offer to
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all holders of the Notes to the extent required by Section 4.08(b) of the
Indenture. Pending the final application of any such Net Proceeds, the
corporation or its Subsidiaries, as the case may be, may temporarily reduce
Indebtedness under the Senior Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by this Section II. If the
aggregate principal amount of Notes tendered by the holders thereof is less than
the amount of Excess Proceeds, the Company may use any remaining Excess Proceeds
for general corporate purposes. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
d. For so long as any shares of Convertible Preferred
Stock are issued and outstanding, the corporation will not, and will not permit
any of its Subsidiaries to, transfer, convey, sell, or otherwise dispose of any
Capital Stock of any of its Subsidiaries to any Person (other than the
corporation or another Subsidiary of the corporation), unless (i) such transfer,
conveyance, sale, or other disposition is of all of the Capital Stock of such
Subsidiary owned by the corporation and its Subsidiaries or is otherwise
permitted under paragraph II.I.6 and (ii) such transaction is conducted in
accordance with paragraphs II.I.1.a and II.I.1.b.
2. Limitation on Restricted Payments.
a. For so long as any shares of Convertible Preferred
Stock are issued and outstanding, the corporation will not, and will not permit
any of its Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend or make any other payment or distribution on account of the
corporation's or any of its Subsidiary's Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation) other
than dividends or distributions (A) paid or payable in Equity Interests (other
than Disqualified Stock) of the corporation or (B) paid or payable to the
corporation or any Subsidiary of the corporation; (ii) purchase, redeem, or
otherwise acquire or retire for value any Equity Interests of the corporation or
any direct or indirect parent of the corporation or other Affiliate of the
corporation or any Subsidiary of the corporation (other than any such Equity
Interests owned by the corporation or any Subsidiary of the corporation); (iii)
make any principal payment on, or purchase, redeem, defease, or otherwise
acquire or retire for value prior to the scheduled maturity, scheduled
repayment, or scheduled sinking fund payment, any Subordinated Indebtedness
(except, if no Voting Rights Triggering Event is continuing or would result
therefrom, any such payment, purchase, redemption, defeasance, or other
acquisition or retirement for value made (A) out of Excess Proceeds available
for general corporate purposes if such payment or other action is required by
the indenture or other agreement or instrument pursuant to which such
Subordinated Indebtedness was issued, (B) upon the occurrence of a Change of
Control if (1) such payment or other action is required by the indenture or
other agreement or instrument pursuant to which such Subordinated Indebtedness
was issued and (2) the corporation has purchased all of the Subordinated Notes
properly tendered pursuant to the terms thereof or (3) upon the redemption of
the Convertible Preferred Stock in accordance with the terms of these Articles
of Incorporation); or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(i) no Voting Rights Triggering Event shall
have occurred and be continuing or would occur as a consequence thereof;
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(ii) cumulative dividends on the Convertible
Preferred Stock have been paid in full;
(iii) the corporation would, at the time of
such Restricted Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable Reference
Period, have been permitted to Incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio test set forth in paragraph II.I.3.a; and
(iv) such Restricted Payment, together with
the aggregate amount of all other Restricted Payments declared or made by the
corporation and its Subsidiaries after the Issue Date shall not exceed, at the
date of determination, the sum of (a) 50% of aggregate Consolidated Net Income
of the corporation from the beginning of the first fiscal quarter commencing
after the Issue Date to the end of the corporation's most recently ended fiscal
quarter for which financial statements are available at the time of such
Restricted Payment (or, if such aggregate Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate
net cash proceeds received by the corporation from the issue or sale after the
Issue Date of Equity Interests of the corporation or of Disqualified Stock or
debt securities of the corporation that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or convertible
debt securities) sold to a Subsidiary of the corporation and other than
Disqualified Stock or debt securities that have been converted into Disqualified
Stock), plus (c) the aggregate net cash proceeds received by the corporation as
capital contributions to the corporation (other than from a Subsidiary of the
corporation) after the Issue Date (other than capital contributions from
Wingate, its partners, or their respective Affiliates).
b. The foregoing provisions will not prohibit the
following Restricted Payments:
(i) the payment of any dividend or other
distribution within 60 days after the date of declaration thereof, if, at said
date of declaration, such payment would have complied with the provisions of
this Section II;
(ii) the redemption, repurchase, retirement,
or other acquisition of any Equity Interests of the corporation (other than
Disqualified Stock) in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the corporation) of
other Equity Interests of the corporation (other than Disqualified Stock or one
or more sales of Equity Interests to Wingate, its partners, or their respective
Affiliates); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, or other acquisition
shall be excluded from clause (iii) of paragraph II.I.2.a (both for purposes of
determining the aggregate amount of Restricted Payments made and for purposes of
determining the aggregate amount of Restricted Payments permitted);
(iii) the payment, purchase, redemption,
defeasance, or other acquisition or retirement for value of Subordinated
Indebtedness with the net cash proceeds from a substantially concurrent
Incurrence of Permitted Refinancing Indebtedness or the substantially concurrent
sale (in each case other than to a Subsidiary of the corporation) of Equity
Interests of the corporation (other than Disqualified Stock or one or more sales
of Equity Interests to
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Wingate, its partners, or their respective Affiliates); provided that the amount
of any such net cash proceeds that are utilized for any such payment, purchase,
redemption, defeasance, or other acquisition or retirement shall be excluded
from clause (iii) of paragraph II.I.2.a (both for purposes of determining the
aggregate amount of Restricted Payments made and for purposes of determining the
aggregate amount of Restricted Payments permitted);
(iv) so long as no Voting Rights Triggering
Event is continuing, the repurchase of Equity Interests of the corporation from
former employees of the corporation or any Subsidiary thereof (or the estates,
heirs, or legatees of such former employees) for consideration which does not
exceed $500,000 in the aggregate in any fiscal year;
(v) any Restricted Investment made with the
net cash proceeds from a substantially concurrent sale (other than to a
Subsidiary of the corporation) of Equity Interests of the corporation (other
than Disqualified Stock or one or more sales of Equity Interests to Wingate, its
partners, or their respective Affiliates); and
(vi) so long as no Voting Rights Triggering
Event is continuing, any Restricted Investment which, together with all other
Restricted Investments outstanding made pursuant to this paragraph II.I.2.b does
not exceed $5,000,000.
Except to the extent specifically noted above, Restricted
Payments made pursuant to this paragraph II.I.2.b shall be included in
calculating the amount of Restricted Payments made after the Issue Date.
c. The amount of all Restricted Payments not made in cash
shall be the Fair Market Value (which, if it exceeds $1,000,000, shall be
determined in good faith by the Board of Directors and set forth in a Board
Resolution delivered to the Holders) on the date of the Restricted Payment of
the asset(s) proposed to be transferred by the corporation or any Subsidiary
thereof, as the case may be, pursuant to the Restricted Payment. Not later than
the date of making any Restricted Payment, the corporation shall deliver to the
Holders an Officer's Certificate stating that such Restricted Payments were
permitted and setting forth the basis upon which the calculations required by
this paragraph II.I.2 were computed, which calculations may be based upon the
corporation's latest available financial statements.
3. Limitation on Incurrence of Indebtedness.
a. For so long as any shares of Convertible Preferred
Stock are issued and outstanding, the corporation will not, and will not permit
any of its Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except for Permitted Indebtedness; provided,
however, that the corporation and its Subsidiaries may Incur Indebtedness
(including Acquired Indebtedness) if, at the time of Incurrence of such
Indebtedness, after giving pro forma effect to such Incurrence as of such date
and to the use of proceeds therefrom (including the application or the use of
the net proceeds therefrom to repay Indebtedness or make any Restricted Payment)
(i) no Voting Rights Triggering Event shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
Incurrence of Indebtedness and (ii) on the date of such Incurrence (the
"Incurrence Date"), the Consolidated Coverage Ratio of the corporation for the
Reference Period immediately preceding the Incurrence Date, after giving effect
on a pro forma basis to such Incurrence of
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Indebtedness and, to the extent set forth in the definition of Consolidated
Coverage Ratio, the use of proceeds thereof, would exceed 1.75 to 1 (the "Debt
Incurrence Ratio").
b. "Permitted Indebtedness" means any and all of the
following:
(i) Indebtedness of the corporation Incurred
pursuant to the Senior Credit Facility in the aggregate principal amount at any
time outstanding not to exceed the sum of the aggregate commitments pursuant to
the Senior Credit Facility as in effect on the date hereof;
(ii) Existing Indebtedness, including the
Subordinated Notes;
(iii) intercompany Indebtedness between or
among the corporation and any of its Subsidiaries; provided that (a) if the
corporation is an obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
Convertible Preferred Stock and (b) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a Person
other than the corporation or a Subsidiary of the corporation, or any sale or
other transfer of any such Indebtedness to a Person that is not either the
corporation or a Subsidiary of the corporation, shall be deemed to constitute a
new Incurrence of such Indebtedness by the corporation or such Subsidiary, as
the case may be;
(iv) Permitted Refinancing Indebtedness
Incurred in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease, or refund, (a) Indebtedness (other than
Permitted Indebtedness) that was Incurred in compliance with these Articles of
Incorporation, (b) Indebtedness referred to in paragraph II.I.3.b(i) or
II.I.3.b(ii) or (c) Existing Indebtedness, other than Existing Indebtedness, if
any, related to the Indebtedness refinanced by the Senior Credit Facility;
(v) Indebtedness of a Subsidiary of the
corporation constituting a Guarantee of Indebtedness of the corporation or a
Subsidiary thereof, which Indebtedness was Incurred pursuant to this paragraph
II.I.3.b or the Debt Incurrence Ratio test set forth in paragraph II.I.3.a;
(vi) the Incurrence by the corporation or
any of its Subsidiaries of Hedging Obligations of the following types: (a)
Interest Rate Hedges with respect to any Indebtedness of such Person that is
permitted by the terms of these Articles of Incorporation to be outstanding, the
notional principal amount of which does not exceed the principal amount of the
Indebtedness to which such Interest Rate Hedge relates and (b) Currency Hedges
that do not increase the outstanding loss potential or liabilities other than as
a result of fluctuations in foreign currency exchange rates; and
(vii) other Indebtedness of the corporation
and its Subsidiaries from time to time outstanding in an aggregate principal
amount not to exceed $20,000,000.
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c. Indebtedness of any Person which is outstanding at
the time such Person becomes a Subsidiary of the corporation or is merged with
or into or consolidated with the corporation or a Subsidiary of the corporation
shall be deemed to have been Incurred at the time such Person becomes such a
Subsidiary of the corporation or is merged with or into or consolidated with the
corporation or a Subsidiary thereof, as applicable.
4. Limitation on Liens. For so long as any shares of
Convertible Preferred Stock are issued and outstanding, the corporation will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, affirm, assume, or suffer to exist any Liens of any kind, other
than Liens securing Senior Indebtedness, the Subordinated Indebtedness, and
Permitted Liens, against or upon any assets or property now owned or hereafter
acquired or any income or profits therefrom or assign or convey any right to
receive income therefrom.
5. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. For so long as any shares of Convertible Preferred Stock
are issued and outstanding, the corporation will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, assume, or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any such Subsidiary to (a) (i) pay dividends or make any other
distributions to the corporation or any of its Subsidiaries on its Capital Stock
or with respect to any other interest or participation in, or measured by, its
profits or (ii) pay any Indebtedness owed to the corporation or any of its
Subsidiaries, (b) make loans or advances to the corporation or any of its
Subsidiaries or (c) transfer any of its properties to the corporation or any of
its Subsidiaries, except for such encumbrances or restrictions existing under or
by reason of (i) Existing Indebtedness, (ii) the Senior Credit Facility, (iii)
applicable law, (iv) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the corporation or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
Incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties of
any Person, other than the Person, or the property of the Person, so acquired,
provided that in the case of Indebtedness, such Indebtedness was permitted by
the terms of these Articles of Incorporation to be Incurred, (v) customary
non-assignment provisions in leases, licenses, sales agreements, or other
contracts (but excluding contracts related to the extension of credit) entered
into in the ordinary course of business and consistent with past practices, (vi)
restrictions imposed pursuant to a binding agreement for the sale or disposition
of all or substantially all of the Equity Interests or assets of any Subsidiary
of the corporation, provided such restrictions apply solely to the Equity
Interests or assets being sold, (vii) restrictions imposed by Permitted Liens on
the transfer of the assets that are subject to such Liens, (viii) Permitted
Refinancing Indebtedness Incurred to refinance Existing Indebtedness or
Indebtedness of the type described in clause (iv) above, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, as a whole, than those contained in the
agreements governing the Indebtedness being refinanced, (ix) the terms of
Purchase Money Indebtedness, but only to the extent such Purchase Money
Indebtedness encumbers or restricts the property acquired with such Purchase
Money Indebtedness and (x) the Subordinated Notes.
6. Limitation on Issuance, Sale and Ownership of Capital Stock
of Subsidiaries. For so long as any shares of Convertible Preferred Stock are
issued and outstanding, the corporation will not, and will not permit any of its
Subsidiaries to, (a) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Subsidiary of the
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corporation, other than to the corporation or another Subsidiary of the
corporation, (b) permit any Subsidiary of the corporation to issue any Equity
Interests (including, without limitation, pursuant to any merger, consolidation,
recapitalization or similar transaction) other than to the corporation or
another Subsidiary of the corporation or (c) permit any Person other than the
corporation or its Subsidiaries to own any Equity Interests of any Subsidiary of
the corporation, except that (i) the corporation or its Subsidiaries may
consummate a sale to a Person of all of the Equity Interests of a Subsidiary of
the corporation, if such sale is made by the corporation or another Subsidiary
of the corporation subject to, and in compliance with, paragraph II.I.1 and (ii)
the corporation may issue and permit the subsequent ownership by directors of,
directors' qualifying shares.
7. Limitation on Mergers, Consolidations, or Sales of Assets.
For so long as any shares of Convertible Preferred Stock are issued and
outstanding, the corporation will not merge or consolidate (whether or not the
corporation is the surviving corporation), or sell, assign, transfer, lease,
convey, or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless: (a) the
corporation is the surviving corporation or the Person formed by or surviving
any such merger or consolidation (if other than the corporation) or to which
such sale, assignment, transfer, lease, conveyance, or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, or the District of Columbia; (b) the
Convertible Preferred Stock shall be converted or exchanged for and shall become
shares of such successor, transferee, or resulting Person having in respect of
such successor, transferee, or resulting Person the same powers, preferences,
and relative participating, optional, or other special rights and
qualifications, limitations, or restrictions thereon, that the Convertible
Preferred Stock had immediately prior to that transaction; and (c) the
corporation, any of its Subsidiaries, or any Person formed by or surviving any
such merger or consolidation, or to which such sale, assignment, transfer,
lease, conveyance, or other disposition shall have been made will, at the time
of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable Reference Period, be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio test set forth in paragraph II.I.3.a.
J. Business Day. If any payment or conversion shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment or
conversion shall be made on the immediately succeeding Business Day.
K. The Special Committee. Notwithstanding any other provision of this
Article Four to the contrary, all determinations with respect to the payment of
dividends on the Convertible Preferred Stock requiring action by the
corporation's Board of Directors shall be taken by the Special Committee.
L. No Obligation to Repurchase. Notwithstanding any other provision of
this Article Four to the contrary, in no event shall the corporation be required
to repurchase any shares of Convertible Preferred Stock on or prior to the date
that is 91 days after the date on which the Notes mature.
III. Definitions. As used in this Article Four, including this Section III, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
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"Acquired Indebtedness" means, in respect of the corporation
or any of its Subsidiaries, (i) Indebtedness of any other Person existing at the
time such other Person is merged with or into or becomes a Subsidiary of the
corporation or any of its Subsidiaries, including, without limitation,
Indebtedness Incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of the corporation or any
of its Subsidiaries and (ii) Indebtedness secured by a Lien encumbering any
asset acquired by the corporation or any of its Subsidiaries.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Sale" means (i) the direct or indirect sale, lease,
license, conveyance, transfer, or other disposition of any assets or rights
(including, without limitation, by way of a sale and leaseback or similar
arrangement, by merger or consolidation) by the corporation or any of its
Subsidiaries (a "disposition"), in one transaction or a series of transactions;
provided, however, that the disposition of all or substantially all of the
assets of the corporation and its Subsidiaries taken as a whole will be governed
by the provisions of paragraph II.I.7 and not by the provisions of paragraph
II.I.1 and (ii) the issuance or disposition by the corporation or any of its
Subsidiaries of Equity Interests of the corporation's Subsidiaries.
Notwithstanding the foregoing paragraph, none of
the following will be deemed an Asset Sale: (i) a disposition of assets by the
corporation to a Subsidiary of the corporation or by a Subsidiary of the
corporation to the corporation or to another Subsidiary of the corporation; (ii)
an issuance of Equity Interests by a Subsidiary of the corporation to the
corporation or to another Subsidiary of the corporation; (iii) a Restricted
Payment that is permitted by paragraph II.I.2; (iv) dispositions of $250,000 or
less; (v) dispositions of assets or rights in the ordinary course of business
consistent with past practices; (vi) the grant in the ordinary course of
business of any non-exclusive license of intellectual property rights; (vii) any
liquidation of any Cash Equivalents; (viii) any disposition of defaulted
receivables for collection; and (ix) the grant of any Lien securing Indebtedness
(or any foreclosure thereon) to the extent that such Lien is granted in
compliance with paragraph II.I.4.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Average Life" means, as of the date of determination, in
respect of any security or instrument, the quotient obtained by dividing (i) the
sum of the products (A) of the number of years from the date of determination to
the date or dates of each successive scheduled principal (or redemption) payment
of such security or instrument and (B) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
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"Bankruptcy Law" means Title II, U.S. Code or any similar
federal or state law for the relief of debtors.
"Beneficial Owner" or "beneficial owner" (including, with
correlative meanings, the terms "Beneficial Ownership" and "Beneficially Owns")
for purposes of the definition of Change of Control has the meaning attributed
to it in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the date
of these Articles of Incorporation), whether or not applicable, except that a
"person" (as such term is used in Sections 13(d)(3) of the Exchange Act) shall
be deemed to have "Beneficial Ownership" of all shares that any such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means the board of directors of the
corporation.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the corporation to have been duly
adopted by the Board of Directors and to be in full force and effect on the date
of such certification and delivered to each Holder of Convertible Preferred
Stock.
"Business Day" means any day except a Saturday, a Sunday, or
any day on which banking institutions in Fort Worth, Texas are required or
authorized by law or other governmental action to be closed.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights, or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) Government Securities having
maturities of not more than 12 months from the date of acquisition, (ii)
certificates of deposit and eurodollar time deposits with maturities of 12
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 member bank of the U.S. Federal Reserve System having capital and
surplus in excess of $500,000,000, (iii) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any financial institution meeting the
qualifications specified in clause (ii) above and (iv) commercial paper having
the rating of at least P-1 from Moody's Investors Services, Inc. ("Moody's"), or
any successor to its rating business, or at least A-1 from Standard & Poor's
Ratings Services ("S&P"), or any successor to its rating business, and in each
case maturing within 180 days after the date of acquisition.
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"Change of Control" means the occurrence or existence of any
of the following events or circumstances after the date hereof: (i) a "person"
or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act) (other than the Initial Investors or their Affiliates) becomes the
Beneficial Owner of 50% or more of the Voting Common Stock or Jerry E. Kimmel,
his family members, heirs, estate or Affiliates, individually or collectively
become the Beneficial Owners of more than 46% of the Voting Common Stock (an
"Acquiring Person"); or (ii) a sale or transfer of all or substantially all of
the assets of the corporation and its Subsidiaries, taken as a whole, to any
person or group (other than any person or group consisting solely of any or all
of the Initial Investors or their respective Affiliates) has been consummated;
or (iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election was approved by a vote of a majority of the
directors then still in office, who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors of the
corporation then in office, other than as a result of a reduction of the number
of directors comprising the Board of Directors, pursuant to the provisions of
these Articles of Incorporation or under the terms of the Senior Credit
Facility. Notwithstanding the foregoing, for purposes of clause (i) above, a
Change of Control shall not be deemed to have occurred if any person or group
becomes an Acquiring Person through one or more transactions which includes the
acquisition, directly or indirectly, of any of the Voting Common Stock
Beneficially Owned by the Initial Investors or their Affiliates, unless such
action is part of a transaction, including a tender or exchange offer, merger,
consolidation, or other business combination, in which such person or group
acquires or offers to acquire, on substantially the same terms and conditions as
those applicable to the Initial Investors and their Affiliates, substantially
the same proportion of shares of the outstanding Voting Common Stock of the
corporation held by the remaining shareholders; provided, however, that a Change
of Control may occur notwithstanding the fact that (A) holders of Voting Common
Stock may elect more than one form of consideration in such transaction or (B)
such holders may receive cash in lieu of the purchase of fractional shares.
"Composite Tape" means in respect of any security, the
reporting by the National Association of Securities Dealers, Inc. (or any
successor reporting mechanism) of all trades of such security occurring on all
exchanges on which such security is traded.
"Consolidated Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(i) the aggregate amount of Consolidated EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses discounted or disposed of) for the Reference Period to
(ii) the aggregate Consolidated Fixed Charges of such Person (exclusive of
amounts attributable to operations and businesses discontinued or disposed of,
but only to the extent that the obligations giving rise to such Consolidated
Fixed Charges would no longer be obligations contributing to such Person's
Consolidated Fixed Charges subsequent to the Transaction Date) during the
Reference Period; provided, however, that for purposes of such calculation, (A)
acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (B) transactions giving
rise to the need to calculate the Consolidated Coverage Ratio shall be assumed
to have occurred on the first day of the Reference Period, (C) the Incurrence of
any Indebtedness or issuance of any Disqualified Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the Transaction
Date
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(and the application of the proceeds therefrom to the extent used to refinance
or retire other Indebtedness) shall be assumed to have occurred on the first day
of such Reference Period and (D) the Consolidated Fixed Charges of such Person
attributable to interest on any Indebtedness or dividends on any Disqualified
Stock bearing a floating interest (or dividend) rate shall be computed on a pro
forma basis as if the average rate in effect from the beginning of the Reference
Period to the Transaction Date had been the applicable rate for the entire
period, unless such Person or any of its Subsidiaries is a party to a Hedging
Obligation (which by its terms will remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used. For purposes of this definition whenever pro
forma effect is to be given to a transaction, the pro forma calculations of
Consolidated EBITDA and Consolidated Fixed Charges shall be made in accordance
with Article 11 of Regulation S-X of the Commission and subject to agreed-upon
procedures to be performed by the corporation's independent accountants to
determine whether the pro forma calculations are made in accordance with Article
11 of Regulations S-X.
"Consolidated EBITDA" means, in respect of the corporation,
for any period, the Consolidated Net Income of the corporation for such period
adjusted to add thereto (to the extent deducted in determining Consolidated Net
Income), without duplication, the sum of (i) consolidated income tax expense,
(ii) consolidated depreciation and amortization expense, and other non-cash
charges required to be reflected as expenses for such period on the books and
records of the corporation and (iii) Consolidated Fixed Charges, less the amount
of all cash payments made by the corporation or any of its Subsidiaries during
such period to the extent such payments relate to non-cash charges that were
added back in determining Consolidated EBITDA for such period or any prior
period.
"Consolidated Fixed Charges" means, in respect of the
corporation for any period, the sum of (i) the consolidated interest expense of
the corporation and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and original
issue discount, non cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capitalized Lease Obligations, imputed interest in respect of Attributable
Debt, interest payments in respect of Indebtedness of another Person that is
Guaranteed by the corporation or one or more of its Subsidiaries or secured by a
Lien on assets of the corporation or one or more of its Subsidiaries,
commissions, discounts, and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest expense of the
corporation and its Subsidiaries that was capitalized during such period, in
each case, on a consolidated basis and in accordance with GAAP and (iii) the
product of (A) the aggregate amount of dividends paid (to the extent not accrued
in a prior period) or accrued on Disqualified Stock of the corporation and its
Subsidiaries or preferred stock of the corporation's Subsidiaries, to the extent
such Disqualified Stock or preferred stock is owned by Persons other than the
corporation and its Subsidiaries and (B) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state, local, and foreign statutory tax rate of the corporation, expressed as a
decimal.
"Consolidated Net Income" means, in respect of the corporation
for any period, the aggregate of the Net Income of the corporation and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) the Net
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Income (but not loss) of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the
corporation or any of its Subsidiaries as to which Consolidated Net Income is
being calculated, (ii) the Net Income of any Subsidiary of the corporation shall
be excluded to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary of such Net Income would not be
permitted at the date of determination or, directly or indirectly, pursuant to
the terms of its charter and bylaws (or similar organizational and governing
documents) and all agreements, instruments, judgments, decrees, orders,
statutes, rules, or governmental regulations applicable to such Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) income or loss attributable to discounted operations
shall be excluded and (vi) any gain (but not loss) realized upon the sale or
other disposition of any property, plant, or equipment of the corporation or its
Subsidiaries (including pursuant to any sale and leaseback transaction) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain (but not loss) realized upon the sale or other disposition of any Capital
Stock of any Person shall be excluded.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the Maturity Date (as defined in the
Subordinated Notes).
"Dividend Payment Date" means the last day of June, September,
December, and March of each year (unless such day is not a Business Day, in
which case the Dividend Payment Date shall be the next succeeding Business Day).
"Dividend Period" means a quarterly period of three months.
"Dividend Record Date" means the 15th day of June, September,
December and March of each year.
"Dollars" and "$" mean lawful money or currency of the United
States of America.
"Equity Interests" means Capital Stock and all warrants,
options, or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Indebtedness" means the Notes and all other
Indebtedness of the corporation and its Subsidiaries in existence on the Issue
Date, including the Subordinated Notes.
"Fair Market Value" means, in respect of any asset or
property, the sale value that would be obtained in an arm's-length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy;
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provided, however, that if such value exceeds $1,000,000, such determination
shall be made in good faith by the Board of Directors.
"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession in the United States as in effect on the Issue
Date.
"Government Securities" means direct obligations of, or
obligations fully guaranteed by, or participations in pools consisting solely of
obligations of or obligations guaranteed by, the United States of America for
the payment of which guarantee or obligations the full faith and credit of the
United States of America is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness (and "Guaranteed" shall have a meaning correlative to the
foregoing).
"Hedging Obligations" means, in respect of any Person, the
obligations of such Person under (i) interest or currency exchange rate swap
agreements, interest or currency exchange rate cap agreements, and interest or
currency exchange rate collar agreements and (ii) other agreements or
arrangements, in any case, designed to protect such Person against fluctuations
in interest or currency exchange rates (as appropriate, "Interest Rate Hedges"
and "Currency Hedges").
"Holder" means a record holder of shares of Convertible
Preferred Stock as reflected in the stock books of the corporation.
"Incur" means, in respect of any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange, or
otherwise), assume, Guarantee, or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable," and "Incurring"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Indebtedness, becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means, in respect of any Person, (i) any
liability of such Person, whether or not contingent (A) for borrowed money, or
under any reimbursement obligation relating to a letter of credit, bankers'
acceptance, or note purchase facility; (B) evidenced by a bond, note, debenture,
or similar instrument (including a purchase money obligation); (C) for the
payment of money relating to a Capitalized Lease Obligation; (D) for or pursuant
to Disqualified Stock; (E) for or pursuant to preferred stock of any Subsidiary
of such Person (other than preferred stock held by such Person or any of its
Subsidiaries or in the case of the corporation, any of its Subsidiaries); (F)
representing the balance deferred and unpaid of the purchase price of any
property or services (except any such balance that constitutes a trade payable
or accrued
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liability in the ordinary course of business that is not overdue by
more than 90 days or is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted); or (G) under or in respect of
Hedging Obligations; (ii) any liability of others described in the preceding
clause (i) that such Person has Guaranteed, that is recourse to such Person or
that is otherwise its legal liability, or the payment of which is secured by (or
for which the holder of such liability has an existing right to be secured by)
any Lien upon property owned by such Person, even though such Person has not
assumed or become liable for the payment of such liability; and (iii) any
amendment, supplement, modification, deferral, renewal, extension, or refunding
of any liability of the types referred to in clauses (i) and (ii) above. The
amount of any non-interest bearing or other discount Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP, but such
Indebtedness shall be deemed to have been Incurred only on the date of the
original issuance thereof.
"Indenture" means the Indenture, dated December 1, 1997,
governing the Notes as amended or supplemented from time to time.
"Independent Director" means any director of the corporation
not affiliated with Wingate or its assigns or Jerry E. Kimmel and who does not
have any other relationship (including any relationship, contractual or
otherwise, with Wingate, its assigns or Jerry E. Kimmel) that would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director.
"Initial Investors" means any person or group comprised solely
of any or all of the "Purchasers" under the Purchase Agreement, including any
such Purchasers acquiring rights by way of assignment pursuant to Section 13.8
thereof.
"Investments" means, in respect of any Person, all investments
by such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations (but
excluding endorsements of negotiable instruments for collection in the ordinary
course of business)), advances or capital contributions (excluding commissions,
travel, and similar advances to directors, officers, and employees made in the
ordinary course of business), purchases or other acquisitions (for
consideration) of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Issue Date" means the date of original issuance of the
applicable shares of Convertible Preferred Stock.
"Kimmel Designees" means Jerry E. Kimmel, if he is a director
of the corporation, and any other director of the corporation elected or
appointed at the designation of Jerry E. Kimmel.
"Lien" means, in respect of any asset, any mortgage, lien,
pledge, charge, security interest, or encumbrance of any kind in respect of such
asset, whether or not filed, recorded, or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement or any
lease in the nature thereof).
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"Market Price" means, with respect to any Aggregate Common
Stock, on a per share basis and as of any date, an amount equal to the average,
for each of the ten (10) consecutive Trading Days immediately prior to such
date, of the closing prices for a share of Voting Common Stock on such Trading
Day as reported on the Composite Tape (as reported in The Wall Street Journal
or, if not reported thereby, any other authoritative source). If no price can be
determined under the foregoing, then the "Market Price" shall be deemed to be
the fair market value thereof, as determined by the Special Committee in good
faith as of a date which is within fifteen (15) days preceding the date as of
which the determination is to be made.
"Net Income" means, in respect of any Person, the net income
(loss) of such Person, determined in accordance with GAAP.
"Net Proceeds" means, in respect of any Asset Sale, the
aggregate amount of cash proceeds (including any cash received by way of
deferred payment pursuant to a note receivable issued in connection with such
Asset Sale, other than the portion of such deferred payment constituting
interest, and including any amounts received as disbursements or withdrawals
from any escrow or similar account established in connection with any such Asset
Sale, but, in either case, only as and when so received) received by the
corporation or any of its Subsidiaries in respect of such Asset Sale, net of:
(i) the cash expenses of such Asset Sale (including, without limitation, the
payment of principal of, and premium, if any, and interest on, Indebtedness
required to be paid as a result of such Asset Sale and legal, accounting,
management and advisory, and investment banking fees and sales commissions);
(ii) taxes paid or payable as a result thereof; (iii) any portion of cash
proceeds that the corporation determines in good faith should be reserved for
post-closing adjustments, it being understood and agreed that on the day that
all such post-closing adjustments have been determined, the amount (if any) by
which the reserved amount in respect of such Asset Sale exceeds the actual
post-closing adjustments payable by the corporation or any of its Subsidiaries
shall constitute Net Proceeds on such date; (iv) any relocation expenses and
pension, severance, and shutdown costs incurred as a result thereof; and (v) any
cash amounts actually set aside by the corporation or any of its Subsidiaries as
a reserve in accordance with GAAP against any retained liabilities associated
with the asset disposed of in such transaction, including, without limitation,
pension and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Notes" means the corporation's 10 3/8% Senior Subordinated
Notes, due December 1, 2007.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, in respect of the corporation, the Chief
Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary, any Assistant Secretary, or any Vice President of the corporation.
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"Officer's Certificate" means a certificate signed on behalf
of the corporation by two Officers of such Person, one of whom must be the
principal executive officer, the principal financial officer, or the principal
accounting officer of the corporation.
"Permitted Investments" means (i) any Investment in the
corporation or in a Subsidiary of the corporation, (ii) any Investment in Cash
Equivalents, (iii) any Investment by the corporation or any of its Subsidiaries
in a Person engaged in a Related Business if, as a result of such Investment,
(A) such Person becomes a Subsidiary of the corporation or (B) such Person is
merged, consolidated, or amalgamated with or into, or transfers or conveys all
or substantially all of its assets to, or is liquidated into, the corporation or
a Subsidiary of the corporation, (iv) Investments the payment for which consists
exclusively of Equity Interests (excluding Disqualified Stock) of the
corporation, (v) Investments in shares of money market mutual or similar funds
having assets in excess of $500,000,000, and (vi) Investments in negotiable
instruments held for collection in the ordinary course of business and lease,
utility, and similar deposits.
"Permitted Liens" means (i) Liens securing Permitted
Indebtedness Incurred pursuant to clause (i) of the definition of such term,
(ii) Liens in favor of the corporation and/or its Subsidiaries, (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the corporation or any of its Subsidiaries, provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the corporation or any of its Subsidiaries,
(iv) Liens securing any Acquired Indebtedness and which exist at the time of
acquisition thereof by the corporation or any of its Subsidiaries, provided that
such Liens were in existence prior to the contemplation of such acquisition, (v)
Liens existing on the Issue Date or arising since such date in compliance with
Section II, (vi) Liens arising by reason of (A) any judgment, decree, or order
of any court not constituting an Voting Rights Triggering Event; (B) taxes not
yet delinquent or which are being contested in good faith by appropriate
proceedings which suspend the collection thereof, promptly instituted and
diligently conducted, and for which adequate reserves have been established to
the extent required by GAAP; (C) security for payment of workers' compensation
or other insurance; (D) good faith deposits in connection with tenders, leases,
and contracts (other than contracts for the payment of money), bids, licenses,
performance or similar bonds and other obligations of a like nature, in the
ordinary course of business; (E) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers, restrictions on the
use of property or minor irregularities of title (and in respect of leasehold
interests, mortgages, obligations, Liens, and other encumbrances incurred,
created, assumed, or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent of the
lessees), none of which materially impairs the use of any parcel of property
material to the operation of the business of the corporation or any of its
Subsidiaries or the value of such property for the purpose of such business; (F)
deposits to secure public or statutory obligations or in lieu of surety or
appeal bonds; (G) surveys, exceptions, title defects, encumbrances, easements,
reservations of, or rights or others for, rights of way, sewers, electric lines,
telegraph or telephone lines and other similar purposes or zoning or other
restrictions as to the use of real property not interfering with the ordinary
conduct of the business of the corporation or any of its Subsidiaries; or (H)
operation of law or statute and incurred in the ordinary course of business,
including without limitation, those in favor of mechanics, materialmen,
suppliers, laborers or employees, and, if securing sums of money, for sums which
are not yet delinquent or are being contested in good faith by appropriate
proceedings which
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suspend the collection thereof, promptly instituted and diligently conducted,
and for which adequate reserves have been established to the extent required by
GAAP, (vii) Liens resulting from the deposit of funds in trust for the purpose
of decreasing or defeasing Indebtedness of the corporation and its Subsidiaries
so long as such deposit of funds and such decreasing or defeasing of
Indebtedness are permitted under paragraph II.I.2, and (viii) any extension,
renewal, or replacement (or successive extensions, renewals, or replacements),
in whole or in part, of any Lien referred to in the foregoing clauses (iii),
(iv), and (v) above; provided, however, that the principal amount of the
Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness secured thereby immediately prior to the time of such extension,
renewal, or replacement, and that such extension, renewal, or replacement Lien
shall be limited to all or a part of the property that secured the Lien so
extended, renewed, or replaced (plus improvements on such property).
"Permitted Refinancing Indebtedness" means any Indebtedness of
the corporation or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used by such Person to extend, refinance, renew, replace,
defease, or refund other Indebtedness of such Person ("Old Indebtedness");
provided, however, that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Old Indebtedness plus
any premium or penalty payable thereon and any reasonable expenses incurred in
connection therewith; (ii) such Permitted Refinancing Indebtedness has a final
maturity date equal to or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Old Indebtedness; (iii) such Permitted Refinancing
Indebtedness is on terms that are no more restrictive, as a whole, than those
governing such Old Indebtedness; and (iv) such Permitted Refinancing
Indebtedness is Incurred only by the corporation or any of its Subsidiaries that
is the obligor on the Old Indebtedness.
"Person" means any individual, corporation, limited liability
corporation, partnership, joint venture, association, joint-stock corporation,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plans" means any plan existing on the date hereof or adopted
by the corporation after the date hereof providing for the issuance of Aggregate
Common Stock of any class or series or other options or rights to purchase
stock, warrants, or other securities.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of July 14, 1999 between Wingate and Kevco, Inc.
"Purchase Money Indebtedness" means, in respect of the
corporation or any of its Subsidiaries, any Indebtedness of the corporation or
any of its Subsidiaries to any seller or other Person incurred to finance the
acquisition (including in the case of a Capitalized Lease Obligation, the lease)
of any real or personal tangible property acquired after the Issue Date which,
in the reasonable good faith judgment of the Board of Directors or the board of
directors (or similar governing body) of any of its Subsidiaries, as applicable,
is directly related to a Related Business and which is Incurred within 180 days
of such acquisition and is secured only by the assets so financed.
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"Reference Period" in respect of any Person means the four
full fiscal quarters for which financial statements are available at the time of
determination (or such lesser period during which such Person has been in
existence) ended immediately preceding any date upon which any such
determination is to be made pursuant to the terms of Section II.
"Related Business" means the business conducted by the
corporation and its Subsidiaries as of the Issue Date and any and all businesses
that in the good faith judgment of the Board of Directors are materially related
businesses.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Senior Credit Facility" means the Credit Agreement, as
amended, entered into on December 1, 1997 among the corporation, the guarantors
named therein, and NationsBank of Texas, N.A., as agent and lender, and the
other lenders party thereto.
"Senior Indebtedness" means, in respect of any Person, (i) all
Indebtedness of such Person outstanding under the Senior Credit Facility and all
Hedging Obligations in respect thereof, (ii) any other Indebtedness of such
Person permitted to be issued under Section II, provided that Senior
Indebtedness shall not include any Indebtedness which by the terms of the
instrument creating or evidencing the same is on parity with or is subordinated
or junior in right of payment in any respect to any other Indebtedness of such
Person or its Subsidiaries or Affiliates and (iii) all Obligations in respect of
the foregoing.
Notwithstanding anything to the contrary in
the foregoing paragraph, Senior Indebtedness will not include (i) any liability
for federal, state, local, foreign, or other taxes, (ii) any Indebtedness of any
such Person to any of its Subsidiaries or other Affiliates, (iii) any accounts
payable or trade liabilities arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (iv)
any Indebtedness that is incurred in violation of Section II, (v) Indebtedness
of the Person to any shareholder of the Person, (vi) Indebtedness to, or
guaranteed by the Person or any of its Subsidiaries for the benefit of, any
director, officer, or employee of the Person or any Subsidiary of the Person
(including, without limitation, amounts owed for compensation), (vii) Capital
Stock of such Person and Indebtedness represented by Disqualified Stock, (viii)
Indebtedness which, when Incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to such
Person, (ix) any Indebtedness or obligation which is subordinated in right of
payment to any other Indebtedness or obligation of such Person and (x) any
Indebtedness under the Notes or any refinancings thereof.
"Special Committee" means a committee of the Board of
Directors composed solely of the Independent Directors and the Kimmel Designees
then in office; provided, however, that such committee shall be constituted such
that a majority of its members shall always be Independent Directors.
"Subordinated Indebtedness" means Indebtedness of the
corporation (or of its Subsidiaries) that is subordinated in right of payment to
the Convertible Preferred Stock.
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"Subordinated Notes" means the corporation's Tranche A and
Tranche B Senior Subordinated Exchangeable Notes in the initial principal
amounts of $17,000,000 and $6,500,000, respectively.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of such Person (or a
combination thereof) and (ii) any partnership (A) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (B) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof). Unless indicated
to the contrary, "Subsidiary" refers to a direct or indirect Subsidiary of the
corporation.
"Trading Day" means any day on which the NASDAQ Stock Market
is open for trading, or if the shares of Voting Common Stock are not quoted on
the NASDAQ Stock Market, any day on which the principal national securities
exchange or national quotation system on which the shares of Voting Common Stock
are listed, admitted to trading or quoted is open for trading.
"Warrants" means the following: (i) the warrant issued by the
corporation dated July 26, 1999 to The Kevco Partners Investment Trust providing
for the purchase of 675,000 shares of Nonvoting Common Stock; (ii) the warrant
issued by the corporation dated July 26, 1999 to The Kevco Partners Investment
Trust providing for the purchase of 772,727 shares of Nonvoting Common Stock;
(iii) the warrant issued by the corporation dated July 26, 1999 to The Kevco
Partners Investment Trust providing for the purchase of 295,455 shares of
Nonvoting Common Stock; and (iv) all reissuances, transfers and substitutions of
the foregoing.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wingate" means Wingate Partners II, L.P., a Delaware limited
partnership.
ARTICLE FIVE
No shareholder of the corporation shall have any preemptive or
preferential right whatsoever to acquire additional, unissued, or treasury
shares of the corporation, or securities of the corporation convertible into or
carrying a right to subscribed to or acquire shares of any class of stock of the
corporation.
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ARTICLE SIX
Directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present. Cumulative voting in the election of
directors of the corporation is expressly denied.
ARTICLE SEVEN
With respect to any matter, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the TBCA, the act of the shareholders
shall be the affirmative vote of at least a majority of the shares entitled to
vote on, and voted for or against, that matter at a meeting of shareholders at
which a quorum is present.
With respect to any matter for which the affirmative vote of the
holders of a specified portion of the shares entitled to vote is required by the
TBCA, the act of the shareholders on that matter shall be the affirmative vote
of the holders of at least a majority of the shares entitled to vote on that
matter, rather than the affirmative vote otherwise required by the TBCA.
ARTICLE EIGHT
I. Limitation of Liability. In addition to any other limitation of liability for
directors provided for at law (including the TBCA), the Articles of
Incorporation or the Bylaws, no director of this corporation shall be personally
liable to the corporation or any of its shareholders for monetary damages for an
act or omission in the director's capacity as a director, except that this
Subsection A does not eliminate or limit the liability of a director to the
extent the director is found liable for: (i) a breach of the director's duty of
loyalty to the corporation or its shareholders; (ii) an act or omission not in
good faith that constitutes a breach of duty of the director to the corporation
or an act or omission that involves intentional misconduct or a knowing
violation of the law; (iii) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (iv) an act or omission for which
the liability of a director is expressly provided by an applicable statute.
Neither the amendment nor repeal of this Section I, nor the adoption of any
provisions of the Articles of Incorporation of this corporation inconsistent
with this Section I, shall eliminate or reduce the effect of this Section I in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Section I, would accrue or arise, prior to such amendment, repeal or
adoption of any inconsistent provision. If, after approval of this Section I,
the TBCA, the Texas Miscellaneous Corporation Laws Act (the "TMCLA") or any
other laws of the State of Texas are enacted or amended to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of this corporation shall be eliminated or limited
to the fullest extent permitted by such laws as so enacted or amended from time
to time.
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II. Indemnification.
A. The corporation shall indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director to the fullest extent and manner permissible
under the TBCA or applicable rules, regulations or laws.
B. A person shall be indemnified under paragraph II.A against
judgments, penalties (including excise and similar taxes), fines, settlements,
and reasonable expenses actually incurred by the person in connection with the
proceeding; but if the person is found liable to the corporation or is found
liable on the basis that personal benefit was improperly received by the person,
the indemnification (i) shall be limited to reasonable expenses actually
incurred by the person in connection with the proceeding and (ii) shall not be
made in respect of any proceeding in which the person shall have been fund
liable for willful or intentional misconduct in the performance of his duty to
the corporation.
C. The mandatory indemnification provision set forth in paragraph II.A
shall be deemed to constitute authorization of indemnification in the manner
required by the TBCA even though this provision may not have been adopted or
authorized in the same manner as the determination that indemnification is
permissible.
D. The corporation shall indemnify a director against reasonable
expenses incurred by him in connection with a proceeding in which he is a named
defendant or respondent because he is or was a director if he has been wholly
successful, on the merits or otherwise, in the defense of the proceeding.
E. Reasonable expenses incurred by a director who was, is, or is
threatened to be made a named defendant or respondent in a proceeding shall be
paid or reimbursed by the corporation in advance of the final disposition of the
proceeding (and without any prior determination or authorization being first
required) after (i) the corporation receives a written affirmation by the
director of his good faith belief that he has met the standard of conduct
necessary for indemnification under this Article Eight and the TBCA and (ii) a
written undertaking by or on behalf of the director to repay the amount paid or
reimbursed if it is ultimately determined that he has not met that standard or
if it is ultimately determined that indemnification of the director against
expenses incurred by him in connection with that proceeding is prohibited by the
TBCA. This mandatory payment or reimbursement provision shall be deemed to
constitute authorization of that payment or reimbursement.
F. The written undertaking required by paragraph II.E must be an
unlimited general obligation of the director that need not be secured. It may be
accepted without reference to financial ability to make repayment.
G. Notwithstanding any other provision of this Article Eight, the
corporation shall pay or reimburse expenses incurred by a director in connection
with is appearance as a witness or other participation in a proceeding at a time
when he is not a named defendant or respondent in the proceeding.
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H. An officer of the corporation shall be indemnified as, and to the
same extent, provided by the TBCA and this Article Eight for a director and is
entitled to indemnification to the same extent as a director. The corporation
shall indemnify and advance expenses to an officer, and may indemnify and
advance expenses to an employee or agent, of the corporation to the same extent
that it is authorized to indemnify and advance expenses to directors under this
Article Eight.
I. The corporation may indemnify and advance expenses to persons who
are not or were not officers, employees or agent of the corporation, but who are
or were serving at the request of the corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, a partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise to the same
extent that it is authorized to indemnify and advance expenses to directors
under this Article Eight.
J. The corporation shall indemnify and advance expenses to an officer,
and may indemnify and advance expenses to an employee, agent or person
indemnified in paragraph II.I and who is not a director, to such further extent,
consistent with law, as may be provided by the Articles of Incorporation of this
corporation, the bylaws, general or specific action of the Board of Directors of
this corporation, or contract or is permitted or required by common law.
III. Insurance or Other Arrangement. The corporation may purchase and maintain
insurance or another arrangement on behalf of any person who is or was a
director, officer, employee or agent of this corporation or who is or was
serving at the request of this corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against any
liability asserted against him and incurred by him in such a capacity or arising
out of his status as such a person, whether or not the corporation would have
the power to indemnify him against that liability under this Article Eight. If
the insurance or other arrangement is with a person or entity that is not
regularly engaged in the business of providing insurance coverage, the insurance
or arrangement may provide for payment of a liability with respect to which the
corporation would not have the power to indemnify the person only if including
coverage for the additional liability has been approved by the shareholders of
the corporation.
IV. Miscellaneous.
A. Any indemnification of or advance of expenses to a director in
accordance with this Article Eight shall be reported in writing to the
shareholders of this corporation with or before the notice or waiver of notice
of the next shareholders' meeting or with or before the next submission to
shareholders of a consent to action without a meeting pursuant to the TBCA and,
in any case, within the twelve month period immediately following the date of
the indemnification or advance.
B. For purposes of this Article Eight, the corporation is deemed to
have requested a director to serve an employee benefit plan whenever the
performance by him of his duties to the corporation also imposes duties on or
otherwise involve services by him to the plan or participants or beneficiaries
of the plan. Excise taxes assessed on a director with respect to an employee
benefit plan pursuant to applicable law are deemed fines. Action taken or
omitted by
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him with respect to a employee benefit plan in the performance of his duties for
a purpose reasonably believed by him to be in the best interest of the
participants and beneficiaries of the plan is deemed to before a purpose which
is not opposed to the best interest of the corporation.
V. Definitions.
As used in this Article Eight the following terms shall have
the following meanings:
The terms "corporation," "director," "expenses," and
"proceeding," shall have the meanings given such terms in Art. 2.02-1 of the
TBCA.
The term "TBCA" means the Texas Business Corporation Act as
now in effect or as hereafter amended.
VI. Enforceability.
A. This Article Eight shall be given its broadest effect and
application permissible under the TBCA and other applicable law and only to such
extent. If it is finally determined by a court of competent jurisdiction that
this Article Eight is invalid, illegal or unenforceable in any respect or
respects, it shall nevertheless be enforceable to the extent and given its
broadest effect and application found by such court to be consistent with the
TBCA and other applicable law.
VII. Non-Exclusive Rights.
A. The rights of indemnification and reimbursement provided herein
shall not be exclusive of any other rights to which such person may be entitled
by law, agreement, general or specific action of the Board of Directors,
shareholders' vote or otherwise.
ARTICLE NINE
VIII. Business Combinations.
A. The corporation shall not, directly or indirectly, enter into or
engage in a business combination with an affiliated shareholder, or any
affiliate or associate of such affiliated shareholder, during the three year
period immediately following such affiliated shareholder's share acquisition
date unless:
1. The business combination or the purchase or acquisition of
shares of the corporation made by such affiliated shareholder on the affiliated
shareholder's share acquisition date is approved by the Board of Directors of
the corporation before the affiliated shareholder's share acquisition date; or
2. The business combination is approved, by the affirmative
vote of the holders of at least two-thirds of the issued and outstanding voting
shares of the corporation not beneficially owned by such affiliated shareholder
or an affiliate or associate of such affiliated
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shareholder, at a meeting of shareholders and not by written consent, duly
called for that purpose not less than six months after the affiliated
shareholder's share acquisition date.
B. Paragraph I.A of this Article Nine shall not apply to:
1. A business combination of the corporation with an
affiliated shareholder that became an affiliated shareholder inadvertently, if
the affiliated shareholder:
a. as soon as practicable divests itself of a
sufficient number of the voting shares of the corporation so that it no longer
is the beneficial owner, directly or indirectly, of twenty percent or more of
the issued and outstanding voting shares of the corporation; and
b. would not at anytime within the three year period
preceding the announcement date of the business combination, have been an
affiliated shareholder but for the inadvertent acquisition:
2. A business combination with affiliated shareholder or an
affiliate or associate of an affiliated shareholder who became an affiliated
shareholder through the transfer of shares of the corporation by will or
intestate succession and continuously was such an affiliated shareholder until
the announcement date of the business combination; or
3. A business combination of the corporation with a domestic
wholly-owned subsidiary if the domestic subsidiary is not an affiliate or
associate of the affiliated shareholder other than by reason of the affiliated
shareholder's beneficial ownership of voting shares in the corporation.
II. Other Actions. This Article Nine shall not affect, directly or indirectly,
the validity of any other action by the Board of Directors of the corporation,
nor does it preclude the Board of Directors from taking other action in
accordance with law, nor does the Board of Directors incur a liability for
elections made or not made under this Article Nine.
III. Best Interests. In discharging the duties of director under the TCBA or
otherwise, a director, in considering the best interests of the corporation, may
consider the long-term as well as the short-term interests of the corporation
and its shareholders, including the possibility that those interests may be best
served by the continued independence of the corporation.
IV. Validity. If any provision or clause of this Article Nine or application
thereof to any person or circumstance is held invalid, such invalidity shall not
affect other provisions or applications of this Article Nine that can be given
effect without the invalid provision or application and without being
inconsistent with the intent of this Article Nine, and to this end, the
provisions of this Article Nine are declared to be severable.
V. Definitions.
In this Article Nine:
"Affiliate" means a person who directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with, a specified person.
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"Affiliated Shareholder" means a person, other than the
corporation or a wholly-owned subsidiary of the corporation, that is the
beneficial owner of twenty percent or more of the issued and outstanding voting
shares of the corporation, or that, within the preceding three year period, was
the beneficial owner of twenty percent or more of the then issued and
outstanding voting shares of the corporation. For purposes of determining
whether a person is an affiliated shareholder, the number of voting shares of
the corporation considered outstanding includes shares considered beneficially
owned by a Beneficial Owner, but does not include other unissued voting shares
of the corporation that may be issuable pursuant to an agreement, arrangement or
understanding, or upon exercise or conversion of rights, warrants, or options,
or otherwise.
"Associate," when used to indicate a relationship with any
person, means:
1. a corporation or organization (other than the corporation
or a majority owned subsidiary of the corporation) of which such person is an
officer, director or partner or is, directly or indirectly, the beneficial owner
of ten percent or more of any class of equity securities;
2. any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar capacity; or
3. any relative or spouse of such person, or any relative of
such spouse, who has the same home as such person or who is a director or
officer of such person or any subsidiary of such person.
"Beneficial Owner" means a person who, with respect to shares
or similar securities:
1. individually, or with or through an affiliate or associate,
beneficially owns the shares or similar securities, directly or indirectly;
2. individually, or with or through an affiliate or associate,
has the right to:
a. acquire the shares or similar securities, whether
the right may be exercised immediately or only after the passage of time,
pursuant to an agreement, arrangement, or understanding, whether or not in
writing, or upon the exercise of conversion rights, exchange rights, warrants,
or options, or otherwise, except that a person is not considered the beneficial
owner of shares or similar securities (i) tendered pursuant to a tender or
exchange offer made by the person or an affiliate or associate until the
tendered shares or similar securities are accepted for purchase or exchange or
(ii) that may be subject to an agreement, arrangement, or understanding that
expressly conditions the acquisition or purchase on the approval of the
acquisition or purchase pursuant to Section I of this Article as long as such
person has no direct or indirect rights of ownership or voting with respect to
such shares until such time that such approval is obtained, at which time such
person shall be considered the beneficial owner of such shares; or
b. vote the shares or similar securities pursuant to
an agreement, arrangement, or understanding, whether or not in writing, except
that a person is not considered the beneficial owner of shares or similar
securities for purposes of this subparagraph if the agreement, arrangement, or
understanding to vote the shares: (i) arises solely from an
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immediately revocable proxy that authorizes the person named in the proxy to
vote at a meeting of shareholders that has been called when the proxy is
delivered or at any adjournment of the meeting, and (ii) is not then reportable
on a Schedule 13D under the Securities Exchange Act of 1934 or a comparable or
successor report; or
c. has an agreement, arrangement, or understanding,
whether or not in writing, to acquire, hold, or dispose (except pursuant to an
agreement, arrangement, or understanding permitted by paragraph 2.a under the
definition of "Beneficial Owner" or to vote (except under an immediately
revocable proxy under paragraph 2.b under the definition of "Beneficial Owner"
of this Section V) the shares or similar securities with another person who
beneficially owns, or whose affiliate or associate beneficially owns, directly
or indirectly, the shares or similar securities.
"Business combination" means:
6. any merger, share exchange, or conversion of the
corporation or a subsidiary with:
a. an affiliated shareholder;
b. a foreign or domestic corporation or other entity
that is, or after the merger, share exchange, or conversion would be, an
affiliate or associate of the affiliated shareholder; or
c. another domestic or foreign corporation or other
entity, if the merger, share exchange, or conversion is caused by an affiliated
shareholder, or an affiliate or associate of an affiliated shareholder, and as a
result of the merger, share exchange or conversion this Article does not apply
to the surviving corporation or other entity;
d. a sale, lease, exchange, mortgage, pledge,
transfer, or other disposition, in one transaction or a series of transactions,
including an allocation of assets pursuant to a merger, to or with the
affiliated shareholder, or an affiliate or associate of the affiliated
shareholder, of assets of the corporation or any subsidiary that:
e. have an aggregate market value equal to 10 percent
or more of the aggregate market value of all the assets, determined on a
consolidated basis, of the corporation;
f. have an aggregate market value equal to 10 percent
or more of the aggregate market value of all the outstanding common stock of the
corporation; or
g. represent 10 percent or more of the earning power
or net income, determined on a consolidated basis, or the corporation;
h. the issuance or transfer by the corporation or a
subsidiary to an affiliated shareholder or an affiliate or associate of the
affiliated shareholder, in one transaction or a series of transactions, of
shares of the corporation or a subsidiary, except by the exercise of
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warrants or rights to purchase shares of the corporation offered, or a share
dividend paid, pro rata to all shareholders of the corporation after the
affiliated shareholder's share acquisition date;
i. the adoption of a plan or proposal for the
liquidation or dissolution of a corporation proposed by, or pursuant to any
agreement, arrangement, or understanding whether or not in writing, with an
affiliated shareholder or an affiliate or associate of the affiliated
shareholder.
j. a reclassification of securities, including a
reverse share split or a share split-up, share dividend, or other distribution
of shares, a recapitalization of the corporation, a merger of the corporation
with a subsidiary or pursuant to which the assets and liabilities of the
corporation are allocated among two or more surviving or new domestic or foreign
corporation or other entities, or any other transaction, whether or not with,
into, or otherwise involving the affiliated shareholder, proposed by, or
pursuant to an agreement, arrangement, or understanding, whether or not in
writing, with an affiliated shareholder or an affiliate or associate of the
affiliated shareholder that has the effect, directly or indirectly, of
increasing the proportionate ownership percentage of the outstanding shares of a
class or series of voting shares or securities convertible into voting shares of
the corporation that is beneficially owned by the affiliated shareholder or an
affiliate or associate of the affiliated shareholder, except as a result of
immaterial changes due to fractional share adjustments; or
k. the direct or indirect receipt by an affiliated
shareholder or an affiliate or associate of the affiliated shareholder of the
benefit of a loan, advance, guarantee, pledge, or other financial assistance or
a tax credit or other tax advantage provided by or through the corporation,
except proportionately as a shareholder of the corporation.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of equity securities, by contract, or
otherwise. A person's beneficial ownership of 10 percent or more of a person's
outstanding voting shares or similar interests creates a presumption that the
person has control of such other person.
"Person" means an individual, trust, domestic or foreign
corporation or other entity, or a government, or a political subdivision,
agency, or instrumentality of a government. If two or more persons act as a
partnership, limited partnership, syndicate, or other group under an agreement,
arrangement, or other understanding, whether or not in writing, to acquire,
hold, vote, or dispose of shares of a corporation, all members of the
partnership, limited partnership, syndicate, or other group are considered to be
a person.
"Share acquisition date" means the date that a person first
becomes an affiliated shareholder of the corporation.
"Subsidiary" means a domestic or foreign corporation or other
entity of which a majority of the outstanding voting shares are owned, directly
or indirectly, by the corporation.
"Voting share" means a share of capital stock of a corporation
entitled to vote generally in the election of directors.
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<PAGE> 81
ARTICLE TEN
Special meetings of the shareholders of the corporation may be called
by the holders of at least 25% of the issued and outstanding shares of the
corporation entitled to vote at the proposed special meeting of shareholders of
the corporation.
ARTICLE ELEVEN
Any action required by the TCBA to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holder or holders of shares having
not less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on the
action were present and voted.
ARTICLE TWELVE
The Board of Directors of the corporation shall have the sole power to
alter, amend or repeal the bylaws of the corporation or adopt new bylaws.
ARTICLE THIRTEEN
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of at least ONE THOUSAND
AND NO/100 DOLLARS ($1,000.00) consisting of money paid, labor done or property
actually received.
ARTICLE FOURTEEN
The address of its initial registered office is: 1300 So. University
Drive, Suite 200, Fort Worth, Texas 76107 and the registered agent at such
address is Gerald E. Kimmel.
ARTICLE FIFTEEN
The number of directors of the corporation shall be fixed form time to
time by the bylaws of the corporation, and such number may from time to time be
increased or decreased in such manner as may be prescribed in the bylaws. The
names and addresses of the persons currently serving as directors are as
follows, and such persons shall serve as directors until the annual meeting of
the shareholders of the corporation or until their successors are duly elected
and qualified.
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<PAGE> 82
<TABLE>
<S> <C>
Frederick B. Hegi, Jr. Gerald E. Kimmel
750 North St. Paul 1300 S. University
Suite 1200 Suite 200
Dallas, Texas 75201 Fort Worth, Texas 76107
James A. Johnson Richard Nevins
750 North St. Paul 650 California Street
Suite 1200 29th Floor
Dallas, Texas 75201 San Francisco, California 94108
William L. Estes Peter B. McKee
370 Oak Trail 1430 Waukegan Road
Double Oak, Texas 75067 McGaw Park, Illinois 69985
</TABLE>
49
<PAGE> 83
Dated ___ day of________, 1999 KEVCO, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Its Authorized Officer
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<PAGE> 84
EXHIBIT B
KEVCO, INC.
1999 STOCK OPTION PLAN
1. Purpose.
Kevco, Inc., a Texas corporation (herein, together with its successors,
referred to as the "Company"), by means of this 1999 Stock Option Plan (the
"Plan"), desires to afford certain key employees employed by, and certain
persons performing services for, the Company and any direct or indirect
subsidiary or parent corporation thereof now existing or hereafter formed or
acquired (such corporations sometimes referred to herein as "Related Entities")
who are responsible for the continued growth of the Company an opportunity to
acquire a proprietary interest in the Company, and thus to create in such
persons an increased interest in and a greater concern for the welfare of the
Company and any Related Entities. Certain definitions used herein are defined in
Section 19 of this Plan.
The stock options described in Sections 6 and 7 (the "Options"), and
the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options, are a matter of separate inducement and are not in
lieu of any salary or other compensation for services. As used in the Plan, the
terms "parent corporation" and "subsidiary corporation" shall have the meanings
contained in Sections 424(e) and 424(f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Administration.
The Plan shall be administered by the Option Committee, or any
successor thereto, of the Board of Directors of the Company (the "Board of
Directors"), or by any other committee appointed by the Board of Directors to
administer the Plan (the "Committee"); provided, however, that the entire Board
of Directors may act as the Committee if it chooses to do so; and provided,
further, that (i) for purposes of determining any Performance-Based Options (as
hereinafter defined) applicable to Key Employees (as hereinafter defined) who
constitute "covered employees" within the meaning of Section 162(m) of the Code,
"Committee" shall mean the members of the Option Committee of the Board of
Directors who qualify as "outside directors" within the meaning of Section
162(m) of the Code, and such Performance-Based Options shall be subject to
ratification by unanimous approval of the members of the Board of Directors, and
(ii) if, when and for so long as the Company is subject to the reporting
requirements
<PAGE> 85
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Committee shall be composed solely of two or more "Non-Employee Directors" as
defined in Rule 16b-3, as amended ("Rule 16b-3"), promulgated thereunder;
provided, however, that, alternatively, for purposes of granting Options other
than Performance-Based Options hereunder, the Board of Directors may authorize
such grants and may take any other action permitted pursuant to Section 162(m)
of the Code, Rule 16b-3 and applicable law and regulations.
The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that majority of the Board of Directors determines
otherwise, shall be no less than two individuals. The Chairman of the Board of
Directors of the Company shall be a member of the Committee at all times. A
majority of the Committee shall constitute a quorum (or if the Committee
consists of only two members, then both members shall constitute a quorum), and
subject to the provisions of Section 5, the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Committee, shall be the acts of the Committee. Whenever
the Company shall have a class of equity securities registered pursuant to
Section 12 of the Exchange Act, the Committee shall administer the Plan so as
(i) to comply at all times with the Exchange Act, and (ii) to ensure that
compensation attributable to Options granted under the Plan to Key Employees who
constitute "covered employees" within the meaning of Section 162(m) of the Code
shall (A) meet the deduction limitation imposed by Section 162(m) of the Code,
or (B) qualify as "performance-based compensation" as such term is used in
Section 162(m) of the Code and the regulations promulgated thereunder and thus
be exempt from the deduction limitation imposed by Section 162(m) of the Code.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to time,
subject to Texas law and the Company's charter and bylaws, to remove members
from or add members to the Committee. Removal from the Committee may be with or
without cause. Any individual serving as a member of the Committee shall have
the right to resign from membership on the Committee by written notice to the
Board of Directors. The Board of Directors, and not the remaining members of the
Committee, shall have the power and authority to fill vacancies on the
Committee, however caused. The Board of Directors shall promptly fill any
vacancy that causes the number of members of the Committee to be less than two
or, if the Company has a class of equity securities registered pursuant to
Section 12 of the Exchange Act, any other number that Rule 16b-3 or other
applicable rules under Section 16(b) of the Exchange Act, Section 162(m) of the
Code, or any successor or analogous rules or laws may require from time to time.
3. Shares Available and Maximum Individual Grants.
Subject to the adjustments provided in Section 11, the maximum
aggregate number of shares of Common Stock, par value $0.01 per share, of the
Company ("Common Stock") in respect of which Options may be granted for all
purposes under the Plan shall be 1,500,000 shares. If, for any reason, any
shares as to which Options have
2
<PAGE> 86
been granted cease to be subject to purchase thereunder, including the
expiration of any such Option, the termination of any such Option prior to
exercise, or the forfeiture of any such Option, such shares shall thereafter be
available for grants under the Plan. Options granted under the Plan may be
fulfilled in accordance with the terms of the Plan with (i) authorized and
unissued shares of the Common Stock, or (ii) issued shares of such Common Stock
held in the Company's treasury.
The maximum aggregate number of shares of Common Stock underlying all
Options that may be granted to any single Key Employee, including any Options
that may have been granted to such Key Employee as an Eligible Non-Employee (as
hereinafter defined), during the Term (as hereinafter defined) of the Plan shall
be 350,000 shares, subject to the adjustments provided in Section 11. For
purposes of the preceding sentence, such Options that are cancelled or repriced
shall continue to be counted in determining such maximum aggregate number of
shares of Common Stock that may be granted to any single Key Employee, including
any Options that may have been granted to such Key Employee as an Eligible
Non-Employee, during the Term of the Plan.
4. Eligibility and Bases of Participation.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and in
accordance with Section 6, to Key Employees. As used herein, the term "Key
Employee" shall mean any employee of the Company or any Related Entity,
including officers and directors of the Company or any Related Entity who are
also employees of the Company or any Related Entity, who are regularly employed
on a salaried basis and who are so employed on the date of such grant, whom the
Committee identifies as having a direct and significant effect on the
performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in
accordance with Section 7, to any Eligible Non-Employee. As used herein, the
term "Eligible Non-Employee" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity (collectively, a "Person"),
that the Committee designates as eligible for a grant of Options pursuant to the
Plan because such Person performs bona fide consulting, advisory, or other
services for the Company or any Related Entity (other than services in
connection with the offer or sale of securities in a capital-raising
transaction) and the Board of Directors or the Committee determines that the
Person has a direct and significant effect on the performance of the Company or
any Related Entity.
The adoption of the Plan shall not be deemed to give any Person a right
to be granted any Options.
3
<PAGE> 87
5. Authority of Committee.
Subject to and consistent with the express provisions of the Plan, the
Code and, if applicable, Rule 16b-3 and Section 162(m) of the Code, the
Committee shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be
granted, the number of Options, the purchase price or exercise
price of each Option, the period(s) during which such Options
shall be exercisable (whether in whole or in part, including
whether such Options shall become immediately exercisable upon
the consummation of a Change of Control), the restrictions to
be applicable to Options and all other terms and provisions
thereof (which need not be identical);
b. require, as a condition to the granting of any Option, that
the Person receiving such Option agree not to sell or
otherwise dispose of such Option, any Common Stock acquired
pursuant to such Option, or any other "derivative security"
(as defined by Rule 16a-1(c) under the Exchange Act) of the
Company for a period of six months following the later of (i)
the date of the grant of such Option or (ii) the date when the
exercise price of such Option is fixed if such exercise price
is not fixed at the date of grant of such Option, or for such
other period as the Committee may determine;
c. provide an arrangement through registered broker-dealers
whereby temporary financing may be made available to an
optionee by the broker-dealer, under the rules and regulations
of the Board of Governors of the Federal Reserve, for the
purpose of assisting the optionee in the exercise of an
Option, such authority to include the payment by the Company
of the commissions of the broker-dealer;
d. provide the establishment of procedures for an optionee to
exercise an Option or a portion thereof by delivering that
number of shares of Common Stock already owned by such
optionee and held at least six months and having an aggregate
Fair Market Value which shall equal the desired Option
exercise price; provided, however, that in the case of an
Incentive Option, no shares shall be used to pay the exercise
price under this paragraph unless (A) such shares were not
acquired through the exercise of an Incentive Option, or (B)
if so acquired, (x) such shares have been held for more than
two years since the grant of such Incentive Option and for
more than one year since the exercise of such Incentive Option
(the "Holding Period"), or (y) if such shares do not meet the
Holding Period, the optionee elects in writing to use such
shares to pay the exercise price under this paragraph;
4
<PAGE> 88
e. provide (in accordance with Section 14 or otherwise) the
establishment of a procedure whereby a number of shares of
Common Stock or other securities may be withheld from the
total number of shares of Common Stock or other securities to
be issued upon exercise of an Option to meet the obligation of
withholding for income, social security and other taxes
incurred by an optionee upon such exercise or required to be
withheld by the Company or a Related Entity in connection with
such exercise unless, as determined by the Committee in the
exercise of its discretion, such procedure is not permitted by
applicable law or would result in a charge to earnings that
otherwise would not have occurred;
f. reduce the number of unvested Options granted to any employee
in the event that such employee is demoted;
g. prescribe, amend, modify and rescind rules and regulations
relating to the Plan; and
h. make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan,
interpret any Plan or Option provision, perform all other
acts, exercise all other powers, and establish any other
procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the
conduct of the Committee's business.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may employ
one or more Persons to render advice with respect to any responsibility the
Committee or such Person may have under the Plan; provided, however, that any
such delegation shall be in writing; and provided, however, that, any
determination of Performance-Based Options applicable to Key Employees who
constitute "covered employees" within the meaning of Section 162(m) of the Code
may not be delegated to a member of the Board of Directors who, if elected to
serve on the Committee, would not qualify as an "outside director" within the
meaning of Section 162(m) of the Code. The Committee may employ attorneys,
consultants, accountants, or other Persons and the Committee, the Company, and
its officers and directors shall be entitled to rely upon the advice, opinions,
or valuations of any such Persons. Any act of the Committee, including
interpretations of the provisions of the Plan or any Option and determinations
under the Plan or any Option, made in good faith, shall be final, conclusive and
binding on all parties. No member or agent of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan and all members and agents of the Committee shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
5
<PAGE> 89
6. Stock Option Grants to Key Employees.
Subject to the express provisions of the Plan, the Committee shall have
the authority to grant incentive stock options pursuant to Section 422 of the
Code ("Incentive Options"), to grant non-qualified stock options (options which
do not qualify under Section 422 of the Code) ("Non-Qualified Options"), and to
grant both Incentive Options and Non-Qualified Options to Key Employees. No
Incentive Option shall be granted pursuant to the Plan after the earlier of ten
years from the date of adoption of the Plan or ten years from the date of
approval of the Plan by the shareholders of the Company. Incentive Options may
be granted only to Key Employees. The terms and conditions of the Options
granted under this Section 6 shall be determined from time to time by the
Committee and shall be reflected in the option grant letter delivered to the Key
Employee in respect thereof; provided, however, that the Options granted under
this Section 6 shall be subject to all terms and provisions of the Plan (other
than Section 7), including the following:
a. Option Exercise Price. The Committee shall establish the
Option exercise price at the time any Option is granted to a
Key Employee at such amount as the Committee shall determine;
provided, however, that, in the case of an Incentive Option,
such price shall not be less than the Fair Market Value per
share of Common Stock at the date the Option is granted; and
provided, further, that in the case of an Incentive Option
granted to a person who owns, at the time such Incentive
Option is granted, shares of the Company or any Related Entity
which shares represent, in the aggregate, more than 10% of the
total combined voting power of all classes of shares of the
Company or of any Related Entity, the option exercise price
shall not be less than 110% of the Fair Market Value per share
of Common Stock at the date the Option is granted. The Option
exercise price shall be subject to adjustment in accordance
with the provisions of Section 11 of the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise by a Key Employee shall be payable at the
time of such exercise. Such price shall be payable in cash or
by any other means acceptable to the Committee, including by
the delivery to the Company of shares of Common Stock owned by
the optionee pursuant to a procedure created pursuant to
subsection 5(d) of the Plan (but, with respect to Incentive
Options, subject to the limitations described in such
subsection 5(d)). Shares delivered to the Company in payment
of the Option exercise price shall be valued at the Fair
Market Value of the Common Stock on the day preceding the date
of the exercise of the Option.
c. Exercisability of Stock Option. At the time of grant, the
Committee shall determine, subject to the provisions of
subsections 6(d), (e), (f), (g) and (i) below, when and under
what conditions stock options granted to Key Employees
hereunder shall vest and become exercisable.
6
<PAGE> 90
No Option by its terms shall be exercisable after the
expiration of ten years from the date of grant of the Option,
unless, as to any Non-Qualified Option, otherwise expressly
provided in the option grant letter reflecting such Option;
provided, however, that no Incentive Option granted to a
person who, at the time such Option is granted, owns stock of
the Company, or any Related Entity, possessing more than 10%
of the total combined voting power of all classes of stock of
the Company, or any Related Entity, shall be exercisable after
the expiration of five years from the date such Option is
granted.
d. Death. If an optionee's employment with the Company or a
Related Entity terminates due to the death of such optionee,
the estate of such optionee, or a Person who acquired the
right to exercise such Option by bequest or inheritance or by
reason of the death of the optionee, shall have the right to
exercise the vested portion of such Option in accordance with
its terms at any time and from time to time within 180 days
after the date of death unless a longer or shorter period is
expressly provided in the option grant letter reflecting such
Option or established by the Committee pursuant to Section 9
(but in no event after the expiration date of such Option),
and thereafter such Option shall lapse and no longer be
exercisable.
e. Disability. If the employment of an optionee terminates
because of his or her Disability (as defined in Section 19),
such optionee or his or her legal representative shall have
the right to exercise the vested portion of such Option in
accordance with its terms at any time and from time to time
within 180 days after the date of such termination unless a
longer or shorter period is expressly provided in the option
grant letter reflecting such Option or established by the
Committee pursuant to Section 9 (but in no event after the
expiration date of the Option), and thereafter such Option
shall lapse and no longer be exercisable; provided, however,
that in the case of an Incentive Option, the optionee or his
or her legal representative shall in any event be required to
exercise the vested portion of such Incentive Option within
one year after termination of the optionee's employment due to
his or her Disability.
f. Termination for Good Cause; Voluntary Termination. Unless an
optionee's Option expressly provides otherwise, such optionee
shall immediately forfeit all rights under his or her Option,
except as to the shares of stock already purchased thereunder,
if the employment of such optionee with the Company or a
Related Entity is terminated by the Company or any Related
Entity for Good Cause (as defined below) or if such optionee
voluntarily terminates employment without the consent of the
Company or any Related Entity. The determination that there
exists Good Cause for termination shall be made by the
Committee (unless otherwise agreed to in writing by the
Company and the optionee) and any
7
<PAGE> 91
decision in respect thereof by the Committee shall be final
and binding on all parties in interest.
g. Other Termination of Employment. If the employment of an
optionee with the Company or a Related Entity terminates for
any reason other than those specified in subsections 6(d), (e)
or (f) above, then with the approval of the Board of
Directors, such optionee shall have the right to exercise the
vested portion of his or her Option in accordance with its
terms, within 30 days after the date of such termination,
unless a longer or shorter period is expressly provided in the
option grant letter reflecting such Option or established by
the Committee pursuant to Section 9 (but in no event after the
expiration date of the Option), and thereafter such Option
shall lapse and no longer be exercisable; provided, that (i)
no Incentive Option shall be exercisable more than three
months after such termination, and (ii) the Committee may, in
the exercise of its discretion, extend the exercise date of
any Option upon termination of employment for a period not to
exceed six months plus one day (but in no event after the
expiration date of the Option) if the Committee determines
that the stated exercise date will have an inequitable result
under Section 16(b) of the Exchange Act.
h. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of
the Option) with respect to which Incentive Options are
exercisable for the first time by an optionee during any
calendar year under all plans of the Company and any Related
Entity exceeds $100,000, such Incentive Options shall be
treated as Non-Qualified Options.
i. Continuation of Employment. Each Incentive Option shall
require the optionee to remain in the continuous employ of the
Company or any Related Entity from the date of grant of the
Incentive Option until at least three months prior to the date
of exercise of the Incentive Option.
j. Interpretation of Plan. Any termination of employment of an
optionee with the Company or any Related Entity shall in no
way change or amend the Company's at-will termination policy.
7. Stock Option Grants to Eligible Non-Employees.
Subject to the express provisions of the Plan, the Committee shall have
the authority to grant Non-Qualified Options (and not Incentive Options) to
Eligible Non-Employees; provided, however, that whenever the Company has any
class of equity securities registered pursuant to Section 12 of the Exchange
Act, no Eligible Non-Employee then serving on the Committee (or such other
committee then administering the Plan) shall be granted Options hereunder if the
grant of such Options would cause such Eligible Non-Employee to no longer be a
"Non-Employee Director" as set forth in Section 2 hereof. The terms and
conditions of the Options granted under this Section 7
8
<PAGE> 92
shall be determined from time to time by the Committee; provided, however, that
the Options granted under this Section 7 shall be subject to all terms and
provisions of the Plan (other than Section 6), including the following:
a. Option Exercise Price. The Committee shall establish the
Option exercise price at the time any Non-Qualified Option is
granted to an Eligible Non-Employee at such amount as the
Committee shall determine. The Option exercise price shall be
subject to adjustment in accordance with the provisions of
Section 11 of the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise by an Eligible Non-Employee shall be
payable at the time of such exercise. Such price shall be
payable in cash or by any other means acceptable to the
Committee, including by the delivery to the Company of shares
of Common Stock owned by the optionee for at least six months
pursuant to a procedure created pursuant to subsection 5(d) of
the Plan. Shares delivered to the Company in payment of the
Option exercise price shall be valued at the Fair Market Value
of the Common Stock on the day preceding the date of the
exercise of the Option.
c. Exercisability of Stock Option. At the time of grant, the
Committee shall determine, subject to the provisions of
subsections 6(d), (e), (f), (g) and (i) below, when and under
what conditions stock options granted to Key Employees
hereunder shall vest and become exercisable.
No Option shall be exercisable after the expiration of ten
years from the date of grant of the Option, unless otherwise
expressly provided in the option grant letter reflecting such
Option.
d. Death. If the retention by the Company or any Related Entity
of the services of any Eligible Non-Employee that is a natural
person terminates because of his or her death, the estate of
such optionee, or a Person who acquired the right to exercise
the vested portion of such Option by bequest or inheritance or
by reason of the death of the optionee, shall have the right
to exercise such Option in accordance with its terms, at any
time and from time to time within 180 days after the date of
death unless a longer or shorter period is expressly provided
in the option grant letter reflecting such Option or
established by the Committee pursuant to Section 9 (but in no
event after the expiration date of such Option), and
thereafter such Option shall lapse and no longer be
exercisable.
e. Disability. If the retention by the Company or any Related
Entity of the services of any Eligible Non-Employee that is a
natural person terminates because of his or her Disability,
such optionee or his or her legal representative shall have
the right to exercise the vested portion of such Option in
accordance with its terms at any time and from time to time
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<PAGE> 93
within 180 days after the date of the optionee's termination
unless a longer or shorter period is expressly provided in the
option grant letter reflecting such Option or established by
the Committee pursuant to Section 9 (but in no event after the
expiration of the Option), and thereafter such Option shall
lapse and no longer be exercisable.
f. Termination for Good Cause; Voluntary Termination. If the
retention by the Company or any Related Entity of the services
of any Eligible Non-Employee is terminated (i) for Good Cause,
(ii) as a result of removal of the optionee from office as a
director of the Company or of any Related Entity for cause by
action of the shareholders of the Company or such Related
Entity in accordance with the charter or the bylaws of the
Company or such Related Entity, as applicable, and the
corporate law of the jurisdiction of incorporation of the
Company or such Related Entity, or (iii) as a result of the
voluntary termination by such optionee of the optionee's
service without the consent of the Company or any Related
Entity, then such optionee shall immediately forfeit his, her
or its rights under such Option except as to the shares of
stock already purchased. The determination that there exists
Good Cause for termination shall be made by the Committee
(unless otherwise agreed to in writing by the Company and the
optionee) and any decision in respect thereof by the Committee
shall be final and binding on all parties in interest.
g. Other Termination of Relationship. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee terminates for any reason other than those
specified in subsections 7(d), (e) or (f) above, then with the
approval of the Board of Directors, such optionee shall have
the right to exercise the vested portion of his, her or its
Option in accordance with its terms within 30 days after the
date of such termination, unless a longer or shorter period is
expressly provided in the option grant letter reflecting such
Option or established by the Committee pursuant to Section 9
(but in no event after the expiration date of the Option), and
thereafter such Option shall lapse and no longer be
exercisable; provided, however, that the Committee may, in the
exercise of its discretion, extend the exercise date of any
Option upon termination of retention of an Eligible
Non-Employee's services for a period not to exceed six months
plus one day (but in no event after the expiration date of the
Option) if the Committee determines that the stated exercise
date will have an inequitable result under Section 16(b) of
the Exchange Act.
8. Performance-Based Options.
The Committee, in its sole discretion, may designate and design Options
granted under the Plan as Performance-Based Options, recognizing that due to the
deduction limitation imposed by Section 162(m) of the Code, compensation
attributable to such Options might not otherwise be tax deductible by the
Company. Accordingly, Options
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granted under the Plan may be granted in such a manner that the compensation
attributable to such Options is intended by the Committee to qualify as
"performance-based compensation" as such term is used in Section 162(m) of the
Code and the regulations promulgated thereunder and thus be exempt from the
deduction limitation imposed by Section 162(m) of the Code ("Performance-Based
Options").
Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall be deemed to
qualify as Performance-Based Options only if:
a. The Option exercise price is not less than the Fair Market
Value per share of Common Stock at the date the Option is
granted; provided, however, that in the case of an Incentive
Option, such price is subject to the limitations described in
subsection 6(a); provided, further, that the Option exercise
price shall be subject to adjustment in accordance with the
provisions of Section 11 of the Plan; or
b. With respect to a Non-Qualified Option granted at an exercise
price that is below the Fair Market Value per share of the
Common Stock on the date of grant, such Option satisfies the
following requirements:
(i) the granting or vesting of such Non-Qualified Option
is subject to the achievement of a performance goal
or goals based on one or more of the following
performance measures (either individually or in any
combination): net sales; pre-tax income before
allocation of corporate overhead and bonus; budget;
cash flow; earnings per share; net income; division,
group or corporate financial goals; return on
stockholders' equity; return on assets; attainment of
strategic and operational initiatives; appreciation
in and/or maintenance of the price of the Common
Stock or any other publicly-traded securities of the
Company; market share; gross profits; earnings before
interest and taxes; earnings before interest, taxes,
depreciation and amortization; economic value-added
models; comparisons with various stock market
indices; increase in number of customers; and/or
reductions in costs;
(ii) the Committee establishes in writing (A) the
objective performance-based goals applicable to a
given performance period, and (B) the individual
employees or class of employees to which such
performance-based goals apply no later than ninety
days after the commencement of such performance
period (but in no event after twenty-five percent of
such performance period has elapsed);
(iii) no compensation attributable to Performance-Based
Options will be paid to or otherwise received by a
Key Employee who constitutes a "covered employee"
within the meaning of Section
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162(m) of the Code until the Committee certifies in
writing that the performance goal or goals (and any
other material terms) applicable to such performance
period have been satisfied;
(iv) after the establishment of a performance goal, the
Committee shall not revise such performance goal
(unless such revision will not disqualify
compensation attributable to the Performance-Based
Options as "performance-based compensation" under
Section 162(m) of the Code) or increase the amount of
compensation payable with respect to such
Performance-Based Options upon the attainment of such
performance goal; and
(v) as required by the regulations promulgated under
Section 162(m) of the Code, the material terms of
performance goals as described in subsection 8(b)(i)
shall be disclosed to and reapproved by the Company's
shareholders no later than the first shareholder
meeting that occurs in the fifth year following the
year in which the Company's shareholders previously
approved such performance goals.
9. Change of Control.
If (i) a Change of Control shall occur, (ii) the Company shall enter
into an agreement providing for a Change of Control, or (iii) any member of the
Original Shareholder Group shall enter into an agreement providing for a Change
of Control, then the Committee may declare any or all Options outstanding under
the Plan to be exercisable in full at such time or times as the Committee shall
determine, and under such conditions as the Committee shall determine,
notwithstanding the express provisions of such Options. Each Option accelerated
by the Committee pursuant to the preceding sentence shall terminate,
notwithstanding any express provision thereof or any other provision of the
Plan, on such date (not later than the stated exercise date) as the Committee
shall determine.
10. Purchase Option.
a. Except as otherwise expressly provided in the option grant
letter reflecting any particular Option, if (i) any optionee's
employment (or, in the case of any Option granted under
Section 7, the optionee's relationship) with the Company or a
Related Entity terminates for any reason at any time or (ii) a
Change of Control occurs, the Company and/or its designee(s)
shall have the option (the "Purchase Option") to purchase, and
if the option is exercised, the optionee (or, the optionee's
assignee, or the optionee's executor or the administrator of
the optionee's estate, in the event of the optionee's death,
or the optionee's legal representative in the event of the
optionee's incapacity (hereinafter, collectively with such
optionee, the "Grantor")) shall sell to the Company and/or its
assignee(s), all or any
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portion (at the Company's option) of the shares of Common
Stock and/or Options held by the Grantor (such shares of
Common Stock and Options collectively being referred to as the
"Purchasable Shares").
b. The Company shall give notice in writing to the Grantor of the
exercise of the Purchase Option within one year after the
earlier of the date of the termination of the optionee's
employment or engagement or such Change of Control. Such
notice shall state the number of Purchasable Shares to be
purchased and the purchase price of such Purchasable Shares.
If no notice is given within the time limit specified above,
the Purchase Option shall terminate.
c. The purchase price to be paid for the Purchasable Shares
purchased pursuant to the Purchase Option shall be, in the
case of any Common Stock, the Fair Market Value per share as
of the date of the notice of exercise of the Purchase Option
times the number of shares being purchased, and in the case of
any Option, the Fair Market Value per share times the number
of vested shares (including by acceleration) subject to such
Option which are being purchased, less the applicable per
share Option exercise price. The purchase price shall be paid
in cash. For purposes hereof, if the Purchase Option shall be
exercised within six months after a Change of Control, the
Fair Market Value shall be deemed to be that price per share
of Common Stock received by members of the Original
Shareholder Group as a result of such Change of Control. The
closing of such purchase shall take place at the Company's
principal executive offices within ten days after the purchase
price has been determined. At such closing, the Grantor shall
deliver to the purchaser(s) the certificates or instruments
evidencing the Purchasable Shares being purchased, duly
endorsed (or accompanied by duly executed stock powers) and
otherwise in good form for delivery, against payment of the
purchase price by check of the purchaser(s). In the event
that, notwithstanding the foregoing, the Grantor shall have
failed to obtain the release of any pledge or other
encumbrance on any Purchasable Shares by the scheduled closing
date, at the option of the purchaser(s) the closing shall
nevertheless occur on such scheduled closing date, with the
cash purchase price being reduced to the extent of, and paid
to the holder of, all unpaid indebtedness or other obligation
for which such Purchasable Shares are then pledged or
encumbered.
d. To assure the enforceability of the Company's rights under
this Section 10, each certificate or instrument representing
Common Stock or an Option held by him or it shall bear a
conspicuous legend in substantially the following form:
"THE SHARES [REPRESENTED BY THIS CERTIFICATE]
[ISSUABLE PURSUANT TO THIS AGREEMENT] ARE
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SUBJECT TO AN OPTION TO REPURCHASE PROVIDED UNDER THE
PROVISIONS OF THE COMPANY'S 1999 STOCK OPTION PLAN
AND A STOCK OPTION AGREEMENT ENTERED INTO PURSUANT
THERETO. A COPY OF SUCH OPTION PLAN AND OPTION
AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."
The Company's rights under this Section 10 shall terminate upon the
consummation of a Qualifying Public Offering.
11. Adjustment of Shares.
Except as otherwise contemplated in Section 9, and unless otherwise
expressly provided in the option grant letter reflecting a particular Option, in
the event that, by reason of any merger, consolidation, combination,
liquidation, recapitalization, stock dividend, stock split, split-up, split-off,
spin-off, combination of shares, exchange of shares or other like change in
capital structure of the Company (collectively, an "Adjustment Event"), the
Common Stock is substituted, combined, or changed into any cash, property, or
other securities, or the shares of Common Stock are changed into a greater or
lesser number of shares of Common Stock, the number and/or kind of shares and/or
interests subject to this Plan and to any Option and the per share price or
value thereof shall be appropriately and equitably adjusted by the Committee to
give appropriate effect to such Adjustment Event. Any fractional shares or
interests resulting from such adjustment shall be eliminated. Notwithstanding
the foregoing, (i) each such adjustment with respect to an Incentive Option
shall comply with the rules of Section 424(a) of the Code to an Incentive
Option, (ii) in no event shall any adjustment be made which would render any
Incentive Option granted hereunder other than an "incentive stock option" for
purposes of Section 422 of the Code, and (iii) no adjustment shall be made under
this Section 11 as a result of the issuance of shares of Common Stock for
consideration in cash or in property.
In the event the Company is not the surviving entity of an Adjustment
Event and, following such Adjustment Event, any optionee will hold Options
issued pursuant to the Plan which have not been exercised, cancelled, or
terminated in connection therewith, the Company shall cause such Options to be
assumed (or cancelled and replacement Options issued) by the surviving entity or
a Related Entity. In the event of any perceived conflict between the provisions
of Section 9 and this Section 11, the Committee's determinations under Section 9
shall control.
12. Assignment or Transfer.
Except as otherwise expressly provided in the option grant letter
reflecting any Non-Qualified Option, no Option granted under the Plan or any
rights or interests therein shall be assignable or transferable by an optionee
except by will or the laws of descent and distribution, and during the lifetime
of an optionee, Options granted to him or her
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hereunder shall be exercisable only by the optionee or, in the event that a
legal representative has been appointed in connection with the Disability of an
optionee, such legal representative.
13. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state or foreign securities laws, to permit
exercise of any Option or to issue any Common Stock in violation of the
Securities Act or any applicable securities laws. Each optionee (or, in the
event of his or her death or, in the event a legal representative has been
appointed in connection with his or her Disability, the Person exercising the
Option) shall, as a condition to his or her right to exercise any Option,
deliver to the Company an agreement or certificate containing such
representations, warranties and covenants as the Company may deem necessary or
appropriate to ensure that the issuance of shares of Common Stock pursuant to
such exercise is not required to be registered under the Securities Act or any
applicable securities laws.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
In the event that shares are issued to U.S. residents:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS."
In the event that shares are issued to non-U.S. residents:
THE SECURITIES COVERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF OTHER JURISDICTIONS AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, "U.S. PERSONS" (AS DEFINED IN
REGULATION S
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PROMULGATED UNDER THE SECURITIES ACT), EXCEPT IN ACCORDANCE
WITH REGULATIONS UNDER THE SECURITIES ACT, PURSUANT TO
REGISTRATION OF THE SECURITIES UNDER THE SECURITIES ACT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
In the event that shares are issued to a party to the Stockholders
Agreement (as defined).
THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING
AND OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT DATED AS OF _______________, 1999, A COPY OF WHICH
MAY BE OBTAINED FROM INSLOGICHOLDING.COM CORPORATION AT ITS
PRINCIPAL EXECUTIVE OFFICES.
For all shares:
THE ISSUER IS AUTHORIZED TO ISSUE SHARES OF MORE THAN ONE
CLASS AND TO ISSUE SHARES IN MORE THAN ONE SERIES OF AT LEAST
ONE CLASS. THE ISSUER WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
No legend relating to exemptions from registration under the Securities
Act shall be required for shares of Common Stock issued pursuant to an effective
registration statement under the Securities Act and in accordance with
applicable state or foreign securities laws.
14. Withholding Taxes.
By acceptance of the Option, the optionee will be deemed to (i) agree
to reimburse the Company or any Related Entity by which the optionee is employed
for any federal, state, or local taxes required by any government to be withheld
or otherwise deducted by such corporation in respect of the optionee's exercise
of all or a portion of the Option; (ii) authorize the Company or any Related
Entity by which the optionee is employed to withhold from any cash compensation
paid to the optionee or on the optionee's behalf, an amount sufficient to
discharge any federal, state and local taxes imposed on the Company or the
Related Entity by which the optionee is employed, and which otherwise has not
been reimbursed by the optionee, in respect of the optionee's
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exercise of all or a portion of the Option; and (iii) agree that the Company
may, in its discretion, hold the stock certificate to which the optionee is
entitled upon exercise of the Option as security for the payment of the
aforementioned withholding tax liability, until cash sufficient to pay that
liability has been accumulated, and may, in its discretion, effect such
withholding by retaining shares issuable upon the exercise of the Option having
a Fair Market Value on the date of exercise which is equal to the amount to be
withheld.
15. Costs and Expenses.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
16. Funding of Plan.
The Plan shall be unfunded. The Company shall not be required to make
any segregation of assets to assure the payment of any Option under the Plan.
17. Other Incentive Plans.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
18. Effect on Employment.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of
employment of any Key Employee except to the extent specifically provided herein
or therein. Nothing contained in the Plan or any agreement related hereto or
referred to herein shall impose, or be construed as imposing, an obligation on
(i) the Company or any Related Entity to continue the employment of any Key
Employee, and (ii) any Key Employee to remain in the employ of the Company or
any Related Entity.
19. Definitions.
In addition to the terms specifically defined elsewhere in the Plan, as
used in the Plan, the following terms shall have the respective meanings
indicated:
"Adjustment Event" shall have the meaning set forth in Section 11
hereof.
"Affiliate" shall mean, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
"Board of Directors" shall have the meaning set forth in Section 2
hereof.
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"Change of Control" shall mean the first to occur of the following
events: (i) any sale, lease, exchange, or other transfer (in one
transaction or series of related transactions) of all or substantially
all of the assets of the Company to any Person or group of related
Persons as determined pursuant to Section 13(d) of the Exchange Act and
the regulations and interpretations thereunder (a "Group") other than
one or more members of the Original Shareholder Group, (ii) a majority
of the Board of Directors of the Company shall consist of Persons who
are not Continuing Directors; or (iii) the acquisition by any Person
or Group other than one or more members of the Original Shareholder
Group of the power, directly or indirectly, to vote or direct the
voting of securities having more than 50% of the ordinary voting power
for the election of directors of the Company.
"Code" shall have the meaning set forth in Section 1 hereof.
"Committee" shall have the meaning set forth in Section 2 hereof.
"Common Stock" shall have the meaning set forth in Section 3 hereof.
"Company" shall have the meaning set forth in Section 1 hereof.
"Continuing Director" shall mean, as of the date of determination, any
Person who (i) was a member of the Board of Directors of the Company on
the date of adoption of the Plan, (ii) was nominated for election or
elected to the Board of Directors of the Company with the affirmative
vote of a majority of the Continuing Directors who were members of such
Board of Directors at the time of such nomination or election, or (iii)
is a member or designee of a member of the Original Shareholder Group.
"Disability" shall mean (i) permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of the Company or any Related
Entity who are regularly employed on a salaried basis or (ii) if no
such long-term disability plan exists, an inability to perform a
participant's employment duties and responsibilities by reason of any
physical or mental condition for a period of 26 consecutive weeks or a
period of 26 weeks during any 12-month period in connection with the
same physical or mental condition or (iii) another meaning agreed to in
writing by the Committee and the optionee; provided, however, that in
the case of the optionee holding an Incentive Option "disability" shall
have the meaning specified in Section 22(e)(3) of the Code.
"Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.
"Exchange Act" shall have the meaning set forth in Section 2 hereof.
"Fair Market Value" shall, as it relates to the Common Stock, mean the
average of the high and low prices of such Common Stock as reported on
the principal
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national securities exchange on which the shares of Common Stock are
then listed or The Nasdaq Stock Market, as applicable, on the date
specified herein for such a determination; or if there were no sales on
such date, on the next preceding day on which there were sales; or, if
such Common Stock is not listed on a national securities exchange, the
last reported bid price in the over-the-counter market; or, if such
shares are not traded in the over-the-counter market, the per share
cash price for which all of the outstanding Common Stock could be sold
to a willing purchaser in an arms length transaction (without regard to
minority discount, absence of liquidity, or transfer restrictions
imposed by any applicable law or agreement) at the date of the event
giving rise to a need for a determination. Except as may be otherwise
expressly provided in the option grant letter reflecting a particular
Option, Fair Market Value shall be determined in good faith by the
Committee, whose determination shall be final and binding.
"Good Cause", with respect to any Key Employee, shall mean (unless
another definition is agreed to in writing by the Company and the
optionee) termination by action of the Board of Directors because of:
(A) the optionee's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (B) the optionee's
personal dishonesty, willful misconduct, willful violation of any law,
rule, or regulation (other than minor traffic violations or similar
offenses) or breach of fiduciary duty which involves personal profit;
(C) the optionee's willful commission of material mismanagement in the
conduct of his or her duties as assigned to him by the Board of
Directors or the optionee's supervising officer or officers of the
Company; (D) the optionee's willful failure to execute or comply with
the policies of the Company or his or her stated duties as established
by the Board of Directors or the optionee's supervising officer or
officers of the Company, or the optionee's intentional failure to
perform the optionee's stated duties; or (E) substance abuse or
addiction on the part of the optionee. "Good Cause", with respect to
any Eligible Non-Employee, shall mean (unless another definition is
agreed to in writing by the Company and the optionee) termination by
action of the Board of Directors because of: (A) the optionee's
conviction of, or plea of nolo contendere to, a felony or a crime
involving moral turpitude; (B) the optionee's personal dishonesty,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's
willful commission of material mismanagement in providing services to
the Company or any Related Entity; (D) the optionee's willful failure
to comply with the policies of the Company in providing services to the
Company or any Related Entity, or the optionee's intentional failure to
perform the services for which the optionee has been engaged; (E)
substance abuse or addiction on the part of the optionee; or (F) the
optionee's willfully making any material misrepresentation or willfully
omitting to disclose any material fact to the board of directors of the
Company or any Related Entity with respect to the business of the
Company or any Related Entity.
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"Grantor" has the meaning set forth in Section 10 hereof.
"Holding Period" shall have the meaning set forth in subsection 5(d)
hereof.
"Incentive Options" shall have the meaning set forth in Section 6
hereof.
The term "including" when used herein shall mean "including, but not
limited to".
"Key Employee" shall have the meaning set forth in Section 4 hereof.
"Non-Qualified Options" shall have the meaning set forth in Section 6
hereof.
"Original Shareholder Group" shall mean Jerry E. Kimmel and Wingate
Partners II, L.P., their respective Affiliates, and their respective
employees, officers, partners and directors (and members of their
respective families and trusts for the primary benefit of such family
members).
"Options" shall have the meaning set forth in Section 1 hereof.
"Performance-Based Options" shall have the meaning set forth in Section
8 hereof.
"Person" shall have the meaning set forth in Section 4 hereof.
"Plan" shall have the meaning set forth in Section 1 hereof.
"Purchasable Shares" shall have the meaning set forth in Section 10
hereof.
"Purchase Option" shall have the meaning set forth in Section 10
hereof.
"Qualifying Public Offering" shall mean a firm commitment underwritten
public offering of Common Stock where the proceeds to the Company
(prior to deducting any underwriters' discounts and commissions) exceed
$30 million.
"Related Entities" shall have the meaning set forth in Section 1
hereof.
"Rule 16b-3" shall have the meaning set forth in Section 2 hereof.
"Securities Act" shall have the meaning set forth in Section 13 hereof.
"Term" shall have the meaning set forth in Section 21 hereof.
20. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; provided, however, that no amendment shall be
made which shall increase the total number of shares of the Common Stock which
may be issued and sold pursuant to Options granted under the Plan or decrease
the minimum Option exercise price in the case of an Incentive Option, or modify
the provisions of the Plan relating to eligibility with respect to Incentive
Options unless such amendment is
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made by or with the approval of the shareholders. The Board of Directors shall
be authorized to amend the Plan and the Options granted thereunder, without the
consent or joinder of any optionee or other Person, in such manner as may be
deemed necessary or appropriate by the Board of Directors in order to cause the
Plan and the Options granted thereunder (i) to qualify as "incentive stock
options" within the meaning of Section 422 of the Code, (ii) to comply with Rule
16b-3 (or any successor rule) under the Exchange Act (or any successor law) and
the regulations (including any temporary regulations) promulgated thereunder or
(iii) to comply with Section 162(m) of the Code (or any successor section) and
any regulations (including any temporary regulations) promulgated thereunder.
Except as provided above, no amendment, modification, suspension or termination
of the Plan shall materially impair the value of any Options previously granted
under the Plan, without the consent of the holder thereof.
21. Effective Date.
The Plan shall be effective as of _________________, 1999, and shall be
void retroactively as to any Incentive Option if not approved by the
shareholders of the Company within twelve months thereafter. The Plan shall
terminate on the tenth anniversary of the date of adoption of the Plan or the
date of approval of the Plan by the shareholders of the Company, whichever is
earlier, unless sooner terminated by the Board of Directors (the "Term").
21
